National Insurance Contributions (Secondary Class 1 Contributions) Bill

Baroness Noakes Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

[Lord Londesborough (CB)]

My Lords, I shall speak to Amendments 22, 39 and 53 in my name in this group, to which the noble Baroness, Lady Kramer, and my noble friend Lady Neville-Rolfe have added their names. I shall also speak to Amendments 6 and 33, tabled by my noble friends Lady Neville-Rolfe and Lady Noakes respectively.

Rather than taking a sectoral approach, about which others spoke passionately last week, my three amendments focus on the size of businesses and organisations impacted by the measures in the Bill, specifically those categorised as small businesses, which means that they employ between 10 and 50 full-time staff. I should again declare my interests as set out in the register, as I advise and invest in a number of businesses of this size, predominantly start-ups and scale-ups. These are the companies that grow and create jobs at the fastest rate and, through their size and agility, seize the nettle of productivity. If I may mix my metaphors for a moment, these are the acorns that seek to become unicorns or, at the very least, sturdy oaks.

The Department for Business and Trade reports that there are some 220,000 businesses across the UK that employ between 10 and 50 staff—that is 4.3 million of the 28 million jobs in the private sector and they generate £780 billion in annual turnover. However, this group involves not just fast-growing early-stage start-ups but a huge swathe of family and local businesses spread across the country and, indeed, businesses that have been struggling to keep their heads above water in what have been five very difficult trading years.

While the Government have sought to protect the majority of our micro-businesses, those employing between one and nine staff, from rising NICs, they have left all other small businesses exposed to these sudden and dramatic increases. In terms of impact, the Government tell us that 250,000 employers will see their NICs decrease, 940,000 will see theirs increase, while about 800,000 employers will see no change. This has allowed the Government to claim that the majority of employers will see no increase. With respect, that is deeply misleading. The question that matters is what proportion of jobs will attract increased national insurance contributions. I ask the Minister that question. Can he confirm, if he does not have the numbers at hand, that in fact the number is close to 80%?

I turn to the financial impact of Clauses 1, 2 and 3 to small businesses. For businesses of 25 staff paying the national full-time median salary, which is put at £37,000 by the ONS, their NICs bill will rise from £90,000 to £110,000. That is an increase of more than 20%.

However, most small businesses, given their nature and stage of development, pay less than the median national average. For them, the increases get even steeper. For those employing 25 staff and paying an average salary of £25,000, as is common out in the regions, their NICs bill will rise by no less than 30%. For those employing 50 staff at that salary, they face an eye-watering 33% increase. As we know, the main culprit for those outsized increases is Clause 2: the brutal and, in my view, economically illiterate drop in the per-employee threshold from £9,100 to £5,000. Ironically, this hits the lowest-paid jobs the hardest. In short, it is a regressive tax.

Then we come to retail and hospitality, with thousands of outfits that rely on part-time shift workers. For those employing 20 part-timers, typically earning £300 per week, their NICs bill goes up by an extraordinary 70%. I will stop there with the examples but noble Lords, including the Minister, will be delighted to know that I have here all the spreadsheets to prove it; I will happily share them out later. In the interest of transparency, on the impact for 5 April, I strongly suggest that the Government have the honesty to publish these figures.

These increases are of course bad news for the working person, especially the 4 million of them who work in small businesses. They rather grate against Rachel Reeves’s statement this morning about kick-starting the economy. Let me turn to my Amendment 22, which seeks to address this in what I hope noble Lords will agree is a measured, proportionate way to help protect our small businesses. In short, the per-employee threshold would remain at £9,100 for those employing fewer than 25 staff, while those employing fewer than 50 but more than 25 staff would see their threshold reduced to £7,500. Somewhat reluctantly, I have left the £9,000 threshold for all businesses employing more than 50 staff.

By my calculations, the nominal cost to the Treasury of this key amendment would be less than £2 billion—that is, to support and sustain 4 million jobs and almost £800 billion in turnover. I humbly suggest that this amendment would more than pay for itself in economic growth and increased revenues to the Exchequer. Commencing Clause 2 without undertaking a full impact assessment on small businesses—addressed by Amendment 33 in the name of the noble Baroness, Lady Noakes, which I fully support—strikes me as reckless.

I turn now, much more briefly, to my Amendment 53, which addresses the increase in the employment allowance. Clause 3 is designed to soften the increase in NICs from Clauses 1 and 2. It offsets the costs but, having crunched the numbers, it does so only for those employing seven staff or fewer. My Amendment 53 would raise the employment allowance from £10,500 to £15,000 for all small businesses employing fewer than 25 staff. This would help around 200,000 businesses across the country. I estimate that the cost to the Treasury would be less than £1 billion. Again, I argue that such an amendment would more than pay for itself in the medium term.

I hope that the Minister will carefully consider the amendments in this group, given the severity of these increases to SMEs and the potential damage to both jobs and economic growth. I have spoken to Amendments 22, 39 and 53.

[Baroness Noakes (Con)]

My Lords, I have Amendment 33 in this group; I thank my noble friends Lady Neville-Rolfe, Lord Ahmad of Wimbledon and Lord Howard of Rising for adding their names to it. As my noble friend Lady Neville-Rolfe said, my noble friend Lord Ahmad of Wimbledon is unfortunately unable to join us for the early part of this Committee. He very much regrets that he is not able to take part because he cares a lot about the fate of small and medium-sized businesses.

My amendment would delay the commencement of the Bill, and therefore the extra national insurance contributions, until the tax year after an impact assessment focusing on the impact of the Bill on smaller businesses has been published. My amendment is similar to Amendment 59, tabled by the noble Baroness, Lady Kramer, which was debated on our first day in Committee. Amendment 59 required an ex-post impact assessment, while mine is on an ex-ante basis. Amendment 59 also used a rather broad definition of SMEs, including those with employees of up to 250; my amendment is more granular and focuses on the smaller end of the SME spectrum, which is where most SMEs are.

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[Lord Eatwell (Lab)]

My Lords, with respect to all the amendments in this group, with the exception of that of the noble Baroness, Lady Noakes, I repeat what I said last time: these amendments are designed to increase the complexity of the system and that is a very bad idea. I can assure noble Lords that, right now, tax-avoidance accountants are sharpening their pencils with glee at the possibility of more complexity being introduced into this structure. It is a very bad idea and we should not be doing it.

If we want to support small business, we should do it directly by deciding what subsidies or benefits should be given. Playing around with the tax system or, in this case, the national insurance system, is a bad idea. I will not say this again, because we have a series of other attempts to increase complexity coming in later amendments—so, please, let us not do this. It is bad for the tax system, bad for the national insurance system and a bad way to achieve the goals set out.

I now turn to the important amendment from the noble Baroness, Lady Noakes. The problem with it is that it is seriously underspecified. She does not say whether the examination of the effects of the national insurance changes should take place in the context of the pre-government Budget situation, or should take account of some measures in the Budget or of the Budget as a whole. If we take the Budget as a whole, the examination by the OBR shows that employment will increase over the relevant period. What the noble Baroness is doing is taking just one part of the actual economic package represented by the Budget and saying, “Let us look at this in isolation, even though this part funds the other part”—the expenditure decisions of the £26 billion injection of demand into the economy in the next fiscal year.

In that context, this amendment is seriously under- specified and impractical. We need to understand whether she wishes to look at just one side of the equation, how revenue is raised, or the other, how revenue is spent. Surely the correct thing to do is to put both together to see the overall impact of the policy represented by the Budget. I am afraid that the amendment is unsatisfactory, in that it is seriously underspecified.

[Baroness Noakes (Con)]

I will briefly respond to that. I am asking for an impact assessment of the Bill. The Bill does not incorporate the whole Budget; it incorporates one policy decision, which is the focus of my amendment. It is clear that I am open to drafting suggestions. I have already spent some time with the noble Lord today in another committee on drafting improvements and I am sure that, between us, we could come up with some better words.

[Lord Howard of Rising (Con)]

My Lords, I support Amendment 33 in the name of my noble friend Lady Noakes and to which I have added my name. I declare my interest as an employer.

It is incredible to me that His Majesty’s Government should be seeking to impose an increase in national insurance for employers without taking a proper look at what the effect will be. The extra costs will be difficult to cope with for all businesses, but disproportionately so for small businesses. They lack the flexibility and the ability to manoeuvre that can exist in larger corporations. This will be especially true for smaller manufacturing businesses, which are being hammered by the Government from more than one direction.

The noble Lord, Lord Livermore, was good enough to say that it is reasonable to set out the rationale for the points we want to make. In my view, this is important, as the increase in national insurance comes on top of many other things that impede business. By itself, it might be bearable, in so far as any tax is bearable, but, on top of everything else—some of which I will mention—it is a significant problem, especially for those smaller companies that this amendment is about.

Before going into the detail of my arguments, I wish to endorse the comments made by noble Lords—most recently the noble Lord, Lord Eatwell—that exemptions that complicate tax structure are a bad thing in principle. However, as my noble friend Lady Noakes pointed out on the first group of amendments, there are cases where they are justified.

One reason why the proposed increase in national insurance will be particularly difficult for smaller manufacturing businesses, and why an impact assessment is needed, is electricity and gas costs in this country, which, roughly speaking, are double those of our competitors in Europe. This is caused by the lunatic rush to net zero which, among other things, has nearly destroyed the steel industry, which is now on its last legs.

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I am not a Pollyanna; the Government have to raise money to deliver public services and they have to make decisions. We are hopefully not in the realm of reciting the £22 billion black hole. I have heard it so many times from the Minister. He is a very clever man but, nevertheless, even he reiterates the line occasionally.

[Baroness Noakes (Con)]

Occasionally? It is more than occasionally.

[Lord Jackson of Peterborough (Con)]

I am getting gently heckled by my noble friend Lady Noakes. It may be more than occasionally. On a serious point, we know that some taxes are easy to raise quickly; one is fuel duty and this is another. I implore the Minister that this will have real consequences for many years. It is having consequences now in displacement activity that is not going to the most vulnerable people.

I know that the Labour Party would not inflict that sort of upset on people; most people in the Labour Party are decent and community minded, and want to do the best for the local community. I know, having served with Labour Members of Parliament in the other place, that they care about their local community and their constituents.

I would just ask the Minister to think about this again, particularly this case of people who are trying to do their best for their fellow citizens. All these amendments are extremely compelling, so I ask him to reconsider. It will not show weakness, but will show strength, magnanimity and the ability to govern wisely. I think he should consider pushing that forward because it is the right thing to do.

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So it is important that we have a proper analysis of the employment impact of these measures that looks specifically at the impact on the private wealth-creating sector, as distinct from additional jobs in the public sector, however needed they may be. It is important that we do not simply take the assurance of the noble Lord, Lord Eatwell—that more jobs will be created overall—as a vindication of the fact that this has no impact on employment.

[Baroness Noakes (Con)]

My Lords, I want to comment briefly on whether we should have impact assessments, which has been a theme running through a number of amendments.

I know that the Minister has his set formula, which he will repeat again now. When he responded to the earlier amendments, he talked about finding precedents for not having impact assessments. I will go back and look at the details of those in Hansard, but, from memory, none of those changes produced the outcry that these sets of changes have produced. Businesses, charities and hospices are all telling us that this is a major disaster. So I believe that his precedents are not on all fours in this particular case; we ought not to be fobbed off by the fact that the Treasury has, over time, found it inconvenient to produce impact assessments. I cannot think of anything quite as damaging in the past to large sectors of the employed population and their employers, so we should not regard the Minister’s set formulation as an end to the story on impact assessments.

[Lord Leigh of Hurley (Con)]

I just ask: what are the Government afraid of? This is a sensible suggestion about assessing what the effect might be of an enormous change to every business and charity organisation in the country. If it is such a good thing—we are told that it is—verify it.

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[Baroness Kramer (LD)]

My Lords, I shall speak briefly. If I had spotted the amendment of the right reverend Prelate the Bishop of Southwark in time, I would have signed it because it makes absolute sense. There is a pressure created, when one knows that a review is coming afterwards, to think through actions now. All in this Committee recognise that this Bill deals with the weakest of the weak. As there are two Bills, this one and one in the other place, either of which could be used to manage a remedy, I should have thought the Government might have been able to see a way through this.

I wanted to mention a procedural thing, just as a comment on the statement made by the right reverend Prelate the Bishop of Southwark. I hope that he realises that if he does not withdraw his amendment at this stage, he will not be able to bring it back on Report. Some people are not clear on that element of the procedure, so I mention it simply in case it guides what he might wish to do.

[Baroness Noakes (Con)]

His amendment is Amendment 67, so he is not going to be moving it until day four.

[Baroness Kramer (LD)]

He said, “I beg to move”.

[Baroness Noakes (Con)]

He cannot move it.

[Baroness Kramer (LD)]

Problem solved; I am back in my place. Those are the only comments that I wanted to make.