National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Altrincham (Con)]

I wish the Minister a happy new year and offer him our blessing in his role for this year as well. The Chief Secretary to the Treasury has suggested that the impact of the measure we are discussing is limited, but we have heard today that the impacts are likely to be quite widespread. Indeed, the HMRC estimate referenced by several Peers this evening, that some 900,000 businesses would lose out with an average annual increase per employee of £800, is not a limited impact.

Some of these issues may not come as a surprise to the Government. They would not surprise the OBR. At the time of the Budget, when general expectations were low—albeit not as low as today—the OBR modelled a tax take for this policy of £24 billion before its own estimate of mitigating actions. It notes in Chapter 3, on long-run impacts of Government policy, that the increase in NICs will have

“a persistent negative effect on work incentives and both labour demand and labour supply”,

which is why the £24 billion tax take falls to £18 billion in the first year and £15 billion in the second. As my noble friend Lady Neville-Rolfe set out in detail and my noble friend Lady Monckton spoke about so movingly, the Government’s jobs tax will have an impact on sectors all across the UK, including retail and hospitality businesses as well as charities, including hospices.

The policy, right at the start, was pushing at the likely limits of tax receipts. The OBR gives semi-official estimates from which government policy is partly made, so it is reasonable to ask the Minister whether he agrees with the estimates for tax yield in 2025-26 and 2026-27. Most of the OBR reduction to tax is based on a reduction in wages and a reduction of 50,000 people in employment. Should we assume that the Government accept that 50,000 job-loss number? It is already quite meaningful in an overall increase in employment between now and 2029 of 900,000, which itself is de minimis in a workforce of 33 million to 34 million—and that is based on higher economic growth numbers from a few weeks back. The eroding tax receipts and declining employment numbers expected by the OBR need a careful government response. Perhaps the Minister could confirm that there will be no need to raise tax further this year.

There is dissonance between the Prime Minister’s commitment to growth and the Chancellor’s guidance to the contrary and approach to tax. The NIC increase is part of a set of policies, including the lower threshold, the minimum wage and auto-enrolment, which put burdens on the labour market that make employers reluctant to take on staff. It is this mixture that was noticed immediately during the Chancellor’s October Statement, and which may have contributed to the apparent economic slowdown over recent weeks. The tax increase has become the break point between the Government’s guidance and their actual tax-raising approach. We might need the help of the eminent Belgian detective Hercule Poirot and his “little grey cells”, as well as the Minister, to help us understand and unravel an economic strategy that talks about growth and reducing barriers but sets tax policy with known job-reduction impacts and likely economic contraction.

Perhaps the Minister could help us understand the economic approach. Are the Government sensitive to the move of jobs in life sciences away from the UK? The tax system provides tax breaks for capital equipment that would likely support automation, as referenced earlier this evening. Are we expecting a reduction in employment, with fewer jobs for young people and more automation? That may bifurcate the employment market and increase even further the tax dependency and tax concentration we have on mobile and highly paid people.

The Minister has been very respectful to our debate but, as we enter 2025, the real debate around this topic has become much broader, with the Bank of England, the CBI and the Institute for Fiscal Studies all weighing in. The OBR is one thing, but the Bank is another—surely no better a forecaster than the Government, but aligned in its concerns with Peers today.

For now, the Government, through this tax rise in particular, have created a stagnant economy in which businesses do not grow, young people struggle to find work and professional jobs move to other countries, creating enormous fiscal risk for the future. As such, we on these Benches cannot support the Bill.

Before I conclude, I should address the amendment in the name of the noble Baroness, Lady Kramer. It does not go far enough. As the House has heard today, there is an almost endless list of businesses and charities that will be hit hard by this policy. Given the appalling impact that the increase in NIC contributions is going to have, we will be tabling a Motion to ensure that the Bill is debated on the Floor of the whole House, giving it the proper scrutiny it deserves. Only by scrutinising the Bill to the fullest possible extent can we hope to improve it, to the benefit of businesses and charities across the country. The Liberal Democrats will have taken the first step in voting for this amendment today, but if they really care about the damage the Bill will do, they might consider voting with us on Wednesday.