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.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Baroness Noakes (Con)]

My Lords, the whole Committee has, I know, great respect for the immense knowledge and expertise in economics of both the noble Lord, Lord Eatwell, and his colleague, the noble Lord, Lord Layard. Laying out a theoretical argument about what happens to employment and demand in the economy is entirely valid, but it ignores what actually happens at the level of the individual enterprise, employer or employee.

In her amendment, the noble Baroness, Lady Smith, talks about the impact on a specific group of employees. There is nothing in what the noble Lord had to say about the overall macroeconomic impact, which will affect the attractiveness of continuing to employ veterans if the cost of employing them is going to go up. In debating the previous group, we talked about whether community pharmacies could stay in business, given the additional costs that would arise for those businesses. We have to remember that this is not a highly theoretical exercise: the imposition of these massive national insurance changes is going to have a huge impact at the micro level. That is what we are trying to explore in many of the amendments we will look at in Committee, today and next week. They are not answered by theoretical answers at a macro level.

[Lord Altrincham (Con)]

My Lords, I rise to speak to this group of amendments surrounding the exemption of veterans’ salaries from this NI jobs tax; the lead amendment was moved by the noble Baroness, Lady Smith of Newnham. This is a helpful group of amendments to remind us—just as my noble friend Lady Noakes has reminded us—that the social costs of this taxation initiative will fall on individuals. Although we talk about economics in an aggregate manner and debate it in the aggregate, there are social costs, and they are very real.

In the aggregate, the Treasury may do quite well from this rise because of wage inflation. Wage inflation is a tremendous friend to the Treasury and will more than make up for the gap that the noble Lord mentioned at the start, which is that we need to find other sources of revenue. Wage inflation is going to support the Government quite nicely through this, but that cuts both ways: obviously, it has an aggregate and fiscal benefit, but it hits hard because the cost of employment goes up a lot. There is a double effect and we are probably seeing that right now.

Putting aside the theory about whether we lose jobs in one place and offset them somewhere else, we know that we were down 50,000 jobs in December; the OBR number is an aggregate loss of 50,000 through this initiative. That is a tremendous estimate, of course—who is to say that it has any better insight than anybody else?—but it is already down by 50,000 in December. It is probably a combination of wage inflation and expected tax rises, but that is 50,000 people who are out of a job. As we look through these amendments, we might pause and reflect. Who are these vulnerable employees? Who is actually going to bear the social cost of this change?

These amendments perfectly encapsulate the problem, which is that these changes will fall on people who are, and have already been identified as, vulnerable in one form or another. Observations about tax complexity may have been well made by the noble Lord, Lord Eatwell and, by the way, it is not just tax avoidance that is a burden to the economy. Tax compliance is a burden to the economy, as all forms of taxation in this country have become very complex and are a tremendous drag on the economy as things stand. However, that is how we manage our affairs.

While we look at this issue, we might pause and think about where the costs fall on individuals—in this case, on veterans. The previous Conservative Government ensured that veterans were a priority. They guaranteed that the funding was sufficient to support veterans in securing highly paid and skilled employment in key sectors across our economy, utilising the skills that they developed in the military.

In April 2024, veteran employment was at an all-time high of 89% owing to various initiatives, including the 12-month national insurance relief for employers hiring a veteran into their first role out of military service. This tax incentive was highly beneficial for veterans and business. Following its introduction in 2022, this relief was extended in 2023 and again in the following year, 2024. Following the Government’s decision to impact business through this tax decision, will the Minister at least confirm that they intend to continue this business relief to ensure that our veterans are able to find employment after their service and that businesses are able to benefit from their unique skills and experience?

Our military deserve the utmost respect for the service they provide to our country and, as such, the veterans deserve that same level of respect. This tax will be harmful to these people, and if the Government are unwilling to exempt them, at the very least they must explain how they have arrived at the conclusion that it will not be exceptionally detrimental to the employment rate of veterans.

[Lord Livermore (Lab)]

My Lords, I am very grateful to all noble Lords who have spoken in this debate. I will address the amendments tabled by the noble Baronesses, Lady Smith of Newnham and Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exempt veteran salaries from the employer national insurance changes. These amendments would create a different employer national insurance rate and threshold set at the current levels for salaries of veterans. The Government of course recognise the huge contributions made by the UK Armed Forces and veterans in this country, and I completely understand the intention behind these amendments.

As some noble Lords have mentioned, there is already an employer national insurance relief available for the earnings of veterans, meaning that employers are not required to pay any national insurance contributions up to £50,270 for the first year of civilian employment. At the Budget, the Government decided to extend the national insurance contributions relief for employers who hire veterans to support veterans in their first year of civilian employment for a further year. Despite the challenging fiscal inheritance this Government face, this means we are maintaining this relief and it is not changing as a result of this Bill.

Further to this, we have more than doubled the employment allowance to £10,500, meaning that more than half of businesses with national insurance liabilities either gain or see no change next year. Businesses and charities will still be able to claim employer national insurance reliefs, including those for under-21s and under-25 apprentices, where eligible.

On veterans more widely, this Government have taken action to demonstrate our commitment to renew this nation’s contract with those who have served. We have awarded £3.7 million in veterans housing grants, veterans will be exempt from the local connection test for social housing in England and veteran cards are now accepted ID for elections. We are progressing veterans support programmes at pace, including a centralised referral pathway designed to support veterans who are homeless or at risk of homelessness, an NHS mental health specialist service designed to help veterans and their families in England and an NHS physical health specialist service designed to help veterans and their families in England.

Before I sit down, I shall also address the questions raised by the noble Baroness, Lady Neville-Rolfe, about dentists, which I was unable to answer during the debate on the previous group. As I said, the criteria have not changed, including the exclusion of those doing 50% of their work in the public sector. The eligibility is down to individual businesses, and the proportion of their work in the public sector may vary year to year. All charities can claim, including hospices.

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[Lord Altrincham (Con)]

My Lords, I will speak to Amendments 4, 5 and 8 in this group. It is an unusual group, as the noble Lord, Lord Forsyth, mentioned, because it covers such a diverse range of services. But they are all public services, which is why I agree with the comment from the noble Lord, Lord Davies, which I may have misheard, that this special pleading does not really fit well with the concept of hurting public services. These all have in common the semi-independent provision of public service. That is the essence of the dissonance in government policy for this area, which is that the Government are protecting direct public services but have not really thought through what to do about indirect public services, of which the charity sector is a huge provider and has been now for 20 years. It is almost as if we have fooled ourselves by saying, “Well, it’s in the charity sector now so it’s not a public service”—but large charities deliver public services, as do universities. To imagine that they are entirely private and away from the Government is obviously not in line with other areas of policy.

So, that is the essence of why, in an unusual way, these amendments have been gathered. But they have this feature in common and, as we address this, we are trying to find a way through that protects public services. In her very good comments at the start, the noble Baroness, Lady Grender, used the expression “vital partner in public services”. That is what these are: they are vital partners. In essence, sectors of the economy that provide public services—which, certainly within this debate, we should assume are appropriate and are needed—will be affected and, again without a proper impact assessment or proper analysis, the cost of those impacts will almost certainly be taken by the Government. That is the essence of this area of public service delivery, which is that the Government are ultimately on the hook for all this. They are hoping that the services can be provided away from any greater demands on the Treasury, but the truth is that, when it goes wrong, it will go straight back up to the Government.

The noble Lord, Lord Sharkey, spoke so well about universities. What is going on in the university sector cannot be anything but bad news for the Treasury. It must be hoping and praying that the whole situation can just be kicked along without a huge hit coming back to the Treasury one way or another, because the sector is in trouble at the moment. But everybody knows that, when it goes wrong, it will go back up to the Treasury. So let us be careful in putting through changes that make vulnerable public service provision more vulnerable. Surely that is the essence of this area of dissonant policy that is coming out from the Bill.

Specifically on each amendment, Amendment 4 in the name of the noble Lord, Lord Storey, seeks to exempt both early years providers and universities, and indeed it is fair to say that the Government have not fully considered the impact on the education system. I look forward to further discussion on the individual aspects of the education system later in the debate. There have been calls from across the sector, from early years providers to universities, that costs will be far too much for the sector to bear, so if the Government could appropriately explain their evidence that indicates the opposite, it would be most appreciated.

Amendment 5 in the name of the noble Baroness, Lady Grender, seeks to exempt charities, and it certainly seems as though the sentiment across the sector is that this tax will leave many charities in a position where they are forced to reduce services and limit headcount, preventing them offering the same excellent services that they currently do. This tax cannot be seen as anything another than a tax raid that will damage charities across the country.

We also support Amendment 8 in the name of the noble Baroness, Lady Kramer, as the Government have contradicted themselves in regard to local councils. When publishing their local government finance policy for 2025-26, they claimed to understand the issues that councils faced and recognised that, in recent years, the costs of providing services had increased, yet the Bill completely contradicts that and highlights the Government’s chosen direction that does not react to the current situation.

The Local Government Association has claimed that councils will face a shortfall of £637 million next year as a direct result of this poorly thought through tax change. On top of that, it has estimated that it may cost up to another £1.13 billion through indirect costs on suppliers. Neither of these numbers will be offset by the £515 million compensation the Government intend to give. Will the Government say how they reached such a number and whether they will publish the data they used?

These are early questions around these areas of public services. The impacts could be quite large and quite burdensome—ultimately and unluckily, for the Government themselves.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords. I will address the amendments and proposed new clauses proposed by the noble Baronesses, Lady Grender and Lady Kramer, and the noble Lords, Lord Storey, Lord Sharkey and Lord Randall of Uxbridge, which seek to exclude early-years settings, universities, charities, housing associations and town and parish councils from the new employer national insurance rate. I have listened very carefully to all contributions made in this debate and, of course, I understand the points raised.

The Government recognise that early-years providers have a crucial role to play in driving economic growth and breaking down barriers to opportunity. We are committed to making childcare more affordable and accessible. That is why, in our manifesto, the Government committed to delivering the expansion of government-funded childcare for working parents and to opening 3,000 new or expanded nurseries through upgrading space in primary schools to support the expansion of the sector.

Despite the very challenging circumstances the Government inherited, in the Budget in October the Chancellor announced significant increases to the funding that early-years providers are paid to deliver government-funded childcare places. This means that total funding will rise to more than £8 billion in 2025-26. It is very likely that many private nurseries will be able to claim the employment allowance, as receiving public funds does not necessarily mean that work is of a public nature, and they should check HMRC guidance.

On universities, I of course recognise the great value—

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

Moved by

[Lord Altrincham]

9: Clause 1, page 1, line 1, at end insert—
“(A1) In section 9(1A) of the Social Security Contributions and Benefits Act 1992, after paragraph (aa) insert—“(ab) if the employer is a specified employer under subsection (1B), the specified employer secondary percentage;”(A2) After section 9(1A) of that Act insert—“(1B) A “specified employer” means a person employing an individual who is aged under 21.(1C) For the purposes of this Act, the specified employer secondary percentage is—(a) 13.8% in respect of any employees under the age of 21 at the start of the tax year;(b) 15% in respect of all other employees.””Member's explanatory statement
This amendment would ensure that employers would continue to pay the current rate of National Insurance for staff under the age of 21.

[Lord Altrincham (Con)]

My Lords, Amendments 9, 10 and 11 concern young people, and I thank the noble Baroness, Lady Neville-Rolfe, for adding her name to the former.

In previous groups of amendments, we discussed economic forecasting and the estimates made by the Government and the OBR, which the noble Lord, Lord Eatwell, referenced, and some of the predictions that surround this policy. The predictions estimate that, in aggregate, 50,000 jobs may be lost. These three amendments concern hundreds of thousands of young people—actual real people; they are not in aggregate in any way. They are a particularly vulnerable part of the current employment market, because hundreds of thousands of young people are not in work, and the numbers are getting worse.

Last summer, 870,000 young people aged 18 to 24 were not in employment, education or training. To give a sense of proportion to the number of 870,000, it is more than one whole cohort. Most of us in this Room were born in much larger cohorts, but the cohort sizes for people in their 20s are around 700,000. The number of NEETs in that group—people who are currently not in employment—is more than one whole cohort’s worth, and that is the age group that should otherwise be in secondary or higher education. Unemployment, which is obviously measured differently, is already running at 12% for people in their 20s. So we are talking about an exceptionally vulnerable group of people in the population, who are currently struggling to enter the market for jobs and who need either part-time work or a first job; they are not doing too well. This policy is coming in at a time when there is a very large number of very vulnerable young people.

Amendment 9 seeks to ensure that individuals under the age of 21 will continue to pay the current national insurance rate of 13.8%. This amendment inserts a provision into the Social Security Contributions and Benefits Act 1992 defining a “specified employer” as one who employs individuals aged under 21 at the start of the tax year. This is a useful and proactive measure for two key reasons. First, it supports employers in taking on young workers without an additional financial burden. Secondly, it helps young people gain the experience they need to start their careers, thus addressing the long-term challenges they face in the job market. Before I move to Amendment 10, bear in mind that this amendment concerns people who are 21 and under. I ask noble Lords to pause for a second to reflect on that part of the population. We are asking for a little caution in approaching people who are 21 and under, who are often looking for their first job.

Amendment 10 extends the benefit to those who are under the age of 25, further strengthening this approach. Under this amendment, employers would pay a reduced rate of 13.8% for employees under 25, while the standard 15% rate would apply to employees above this age. The reduced national insurance rate lowers the overall cost of employing younger workers, making it more affordable for businesses to offer opportunities to this age group. This is especially important for small and medium-sized enterprises, which may have limited resources and may not have been able to participate in various apprenticeship schemes. By extending this financial benefit, we would help to create more opportunities for young people, while also supporting businesses that are committed to developing the next generation of workers. Again, I ask noble Lords to pause to reflect that we are talking about people who are 25 and under, and to consider the essential intergenerational unfairness of landing this tax rise on people in this age group.

The third amendment, Amendment 11, extends the beneficial approach even further by including young adults under the age of 28. Under this amendment, employers would pay a reduced national insurance rate of 13.8% for employees under the age of 28, while the standard rate of 15% would apply to all those above that age. In supporting Amendment 11, we are not just addressing youth unemployment but making a statement about the importance of providing young people with the opportunity to gain the experience that they need to build a successful career and contribute meaningfully to the economy.

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[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords who have taken part in this debate. I will address the amendments tabled by the noble Lord, Lord Altrincham, and the noble Baroness, Lady Neville-Rolfe, which seek to exempt the salaries of young people from the increase in employer national insurance.

An employer national insurance relief is already available for the earnings of those aged under 21 and for apprentices aged under 25, meaning that employers are not required to pay national insurance contributions up to £50,270 for these groups. Despite the challenging fiscal inheritance that this Government faced, we are maintaining these important reliefs for under-21s and apprentices under 25; they are not changing as a result of this Bill. Creating other thresholds and rates based on the age of staff would add additional complexity to the tax system. These amendments would introduce new pressures that would have to be met by more borrowing, lower spending or alternative revenue-raising measures.

The noble Lord, Lord Altrincham, mentioned NEETs. I completely agree with him, but the situation that this Government inherited is completely unacceptable. That is why, at the Budget, the Government announced £240 million to fund 16 pilot projects across England and Wales in order to improve the support available to the economically inactive, the unemployed and people who want to develop their careers. This will include eight youth guarantee pilots to test new ways of supporting young people into employment or training.

It is also why, in the spring, the Government will bring forward a welfare reform Green Paper. I have read with interest the proposals mentioned by the noble Lord, Lord Blackwell, from the Economic Affairs Committee of your Lordships’ House; I hope that many of them will feature in that Green Paper. For now, given the points that I have set out, I respectfully ask the noble Lord to withdraw his amendment.

[Lord Altrincham (Con)]

I beg leave to withdraw my amendment.

Amendment 9 withdrawn.

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[Baroness Kramer (LD)]

My Lords, I will be very brief, because these Benches spoke extensively on charities in an earlier grouping, where the amendment would have overturned the change that the Government are introducing. I particularly want to pick up the amendment from the noble Baroness, Lady Bennett, because, like others, I am very conscious that, of the charities that I have talked to, a fundamental part of their problem is that they cannot turn around and respond quickly enough to a measure that is being introduced so quickly. I am not up on all the rules of the Charity Commission, but I suspect that it would frown greatly on a charity spending when there is no clear funding mechanism coming in to replenish its resources. I think that there is a requirement to have several months’ contingency on the books, so there is a real problem here for many charities in having to turn around very quickly.

One of the amendments deals with increases in the employment allowance. That runs into a problem that the Government could help us with. It is my understanding that an entity that sells 50% of its services to the public sector does not qualify for employment allowance, so there will be many charities that are excluded from any benefit that is offered under that amendment. I wonder if the Minister could help us to get a better grip on that, because I think we have all struggled with understanding the application of those rules.

My last point did not occur to me until I started reading the input from various charities. A number of charities that have been able to survive and are fairly confident about their funding will now find themselves in a position where they need to battle and compete for grants. Some of the very smallest charities are concerned that they may get excluded from the grant offering because charities with a bigger reach are now turning to those particular pots. I am not sure whether the Government considered that as they put together this picture.

[Lord Altrincham (Con)]

This is an interesting set of amendments, given that, in essence, through this policy the Government are looking to take £1 billion out of the charity sector to fund public services, when the charity sector obviously provides public services—so it is a uniquely baffling government initiative. We on these Benches absolutely support the comments made by the noble Baroness, Lady Bennett, on Amendment 11A and by my noble friend Lady Sater on Amendment 32.

I speak to Amendment 52, in my name and that of my noble friend Lady Neville-Rolfe. This amendment would increase the employment allowance for charities from £10,500 to £20,000 to assist with the burden being placed upon charities. It is a probing amendment, and I would like to understand the cost that this would have for the Treasury and the plans the Government have to support the sector with the increased costs and the rise.

The remarkable comments made by the National Council for Voluntary Organisations, and its estimate that this will cost the sector £1.4 billion every year, has been referenced in this debate by my noble friend Lord Leigh and others. It would leave charities in a position where they are unable to absorb the costs and will, as a result, be forced to reduce the number of services they provide. In essence, as we talked about on day 1 in Committee, these services are public services. Charities in this country have become quasi-public service providers in the last 20 years, and it is most unlikely that, in pulling back services, those services would not have to be provided by the Government elsewhere. It is therefore most unlikely that the Government will not wear the costs of this change. It is naive to assume that charities provide some other service that is not a public service or a substitute for a public service.

The Government will be well aware of the severe issues that charities are facing, following the open letter from the NCVO to express concern that three out of four charities will have to withdraw from public service delivery or are considering doing so. This is an extraordinary way to treat a sector that would provide a public service. In fact, the Government have accepted the principle that the delivery of public services should not face this tax, following the exemption of both the Civil Service and the NHS. What justification does the Minister therefore have for the exemption of some providers of public services but not charities? Charities provide close to £17 billion in public services every single year, and the services they provide are invaluable to communities across the country, so a failure to protect them would be devastating.

I support my noble friend Lady Sater’s Amendment 32 and recognise the importance of the Government fully assessing the impact that this tax increase will have on the sector. The Government owe it to charities to fully consider the impact that this will have across the sector and, as such, I hope the Government will consider both Amendments 32 and 52 very carefully as we progress.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords who have contributed to this debate. I will address the amendments tabled by the noble Baronesses, Lady Bennett of Manor Castle and Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, which seek to maintain the rates of employer national insurance for charities at 13.8% and increase the employment allowance specifically for charities from £10,500 to £20,000. The Government of course greatly value the vital work that charities do in this country, and I have listened carefully to all the points that have been raised in this debate.

It is important to recognise that all charities benefit from the employment allowance, which the Bill more than doubles from £5,000 to £10,500. This will benefit charities of all sizes, particularly the smallest charities. The Government also provide wider support for charities via the tax—

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

Committee stage
Tuesday 4th February 2025 Grand Committee

Moved by

[Lord Altrincham]

30: Clause 2, page 1, line 16, leave out “2025-26” and insert “beginning after the tax year in which an impact assessment is published assessing the impact of the provisions in this section on the retail sector.”
Member’s explanatory statement
This amendment would prevent commencement of this section until a full impact assessment is published for retail.

[Lord Altrincham (Con)]

My Lords, I rise to move Amendment 30 on behalf of my noble friend Lady Monckton of Dallington Forest and to support Amendment 51 in the name of my noble friend Lady Neville-Rolfe.

Amendment 30 would delay the commencement of Clause 2 until an impact assessment had been published fully to assess the impact this tax will have on the retail sector, and Amendment 51 increases the employment allowance to £20,000 for that sector.

Retail is important because so many people work in it, not people on average or in aggregate in a Treasury forecast, but hundreds of thousands of individuals, some young, some in their first job, some working part time—as well as their families, their neighbourhoods and their customers—where they bring joy to themselves and to others every day. We know that this Bill will lead to job losses.

When the national insurance increase was first announced, there was an expectation, perhaps a hope, that the cost would be met by price rises or other changes rather than by job losses, but as the weeks have gone by, we know that the increase is being funded by job losses. That is why this impact assessment question is important because part of the impact is happening already. From the initial announcement to today, we already know that the policy is being funded by job losses, so the Bill is creating policy-driven unemployment. All of us in this Room share a little in the responsibility for this, but we should at least be very careful in our actions when we know that the cost will be unemployment.

As the noble Lord, Lord Eatwell, and others have said, we might hope that jobs will be created elsewhere. We must surely, on all sides of this debate, hope for job creation, but that does not change the short-term impact of job losses. Equally, we might hope for productivity improvements—say, the automation of retail—which is important anyway, as the noble Lord, Lord Wolfson, mentioned, but not, alas, if we can help it, at the cost of job losses.

To go back to what my noble friend Lord Leigh was talking about, to where the estimates at best are for those of us who are not in the Treasury, very roughly, it looks as if in retail the national insurance hike could easily lead to a 5% reduction in headcount, and if retail is of the order of 2 million or 3 million people, we could quite quickly get unemployment just from retail of 200,000. If you add a couple of hundred thousand from other areas, we are on the way to half a million job losses that could come from this policy. There was an expression earlier on about what is in scope in taxation and in the tax take. What is in scope here are individuals who will lose their jobs—unemployment is in scope. There are direct impacts on job losses.

The value of our retail sector cannot be understated. In 2024, retail sales in Great Britain were worth £500 billion, and 2.87 million people were employed in the sector: nearly 10% of all jobs in the British economy. That is therefore nearly 3 million people whose jobs will be put at risk due to this tax increase.

One of the great benefits of employment in the retail sector is that there is extraordinary element of flexibility, which allows a great number of young people to work in the sector. As has already been discussed in Committee, those who are paid the least will be affected the most. The noble Lord, Lord Wolfson, mentioned earlier that the cost impact on part-time and often very young workers is a 13% increase. This paints a bleak picture for our young people in the sector. Young people are already a more vulnerable group of people, and I am highly concerned that this tax increase will only paint a bleaker picture for young people trying to enter the job market.

The reduction of the threshold at which employers begin to pay employer’s national insurance to £5,000 will hit part-time employees the most. Given that half of all retail employees are part time, the fact that this jobs tax will bring 1.45 million part-time retail employees into the bracket is a devastating result for a sector that often employs young people.

The retail sector has responded with outcries at this tax that will be imposed upon it, with 81 major retailers writing to the Chancellor expressing concern over the impact the tax will have on the sector that typically operates with a 3% to 5% profit margin. In a survey done by the British Retail Consortium, 56% of chief financial officers said they would reduce the number of hours and overtime they offered their employees. This is why this is a jobs tax because businesses will be forced to cut costs in order to continue, and as such, it will hit workers the most.

I am concerned not only about the impact this tax raid will have on workers but about the impact consumers will face given the survey I mentioned above, where 67% of retailers responded that they would be forced to raise prices.

We in this Room are all aware of the impact that this tax increase will have and of the inevitable factor of creating unemployment. I look forward to hearing from other noble Lords on this issue, and I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support my noble friend and his amendment, which is important. If the Minister will forgive me, we hear the same reply all the time. I do not think that HMRC’s figures, the Budget assessment or the OBR figures that we were given in November or December provide adequate information to sectors facing huge job losses. They need to plan ahead, and these assessments may spur the Government if it is written down in black and white that these jobs will go.

The economist Liam Halligan pointed out in his weekly column in the Sunday Telegraph at the weekend that, according to S&P’s bellwether PMI index of business leaders, firms are cutting jobs at the fastest rate since the financial crisis. He writes that there was a 47,000 drop in payroll employees in December, the biggest monthly fall since lockdown. Those figures were tallied after Sainsbury’s announced 3,000 job losses. At the same time, he wrote that personal insolvencies in England and Wales were up by 14% in 2024, with a huge spike after the Budget. UK company liquidations surged. In 2024, 3,230 companies were shut down under the courts.

Last week, I mentioned the impact on the retail sector. I will not go through it, but it is estimated that as a result of the Budget entirely, which includes the NIC costs, £7 billion will go out of the retail sector. Those figures are staggering. I cannot accept the Government’s blithe assessment. I know that the Minister is sticking to the Treasury line with the statement that the impact assessments published so far are in line with what has been published in the past. We are dealing with a different sort of measure in this NIC Bill. I have been in the House of Lords only since November 2022, but it is the first time in my experience here that we have faced a measure where it is clear to all concerned that there will be job losses on a significant scale. Surely, that should spur the Government to want to provide some kind of impact breakdown for the different sectors, whether they are the charitable, voluntary or caring sectors or in the only area where we will see growth, the private sector. If the Chancellor is so convinced and she and the Government are keen and will produce growth, they should recognise that this will come from the private sector. It does not come from growing the public sector. I hope the Minister will support or think again, as my noble friend proposes, on retail.

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[Lord Livermore (Lab)]

I am grateful to the noble Lord for his comments and very happy to be his noble friend once again. As he knows, the Government keep all taxation under review, and I will take his submissions as representations on that matter.

[Lord Altrincham (Con)]

Perhaps we should not offer the Minister any more taxation ideas because we are trying to rein him in at the moment and, obviously, VAT is very much in scope and is coming next, so perhaps we should just hold back. But I thank him for his response and beg leave to withdraw my amendment.

Amendment 30 withdrawn.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Altrincham Excerpts

Committee stage
Thursday 6th February 2025 Grand Committee

Moved by

[Lord Altrincham]

35: Clause 2, page 1, line 16, leave out “2025-26” and insert “beginning after the tax year in which an impact assessment is published assessing the impact of the provisions in this section on schools and universities”
Member’s explanatory statement
This amendment would prevent commencement of this section until a full impact assessment is published for schools and universities.

[Lord Altrincham (Con)]

My Lords, I rise to move Amendment 35 on behalf of my noble friend Lady Barran and to support Amendment 43 in the name of my noble friend Lady Neville-Rolfe. Amendment 35 would delay the commencement of Clause 2 until an impact assessment had been published to fully assess the impact that this tax will have on schools and universities. Amendment 43 increases the employment allowance to £20,000 for universities.

The Government have quite a lot going on in education, with changes to private schools, academies, standards, teacher recruitment and mental health services. This Bill introduces a tax on education, breaking with the long tradition of avoiding taxes on education where possible, which are to the detriment of children and society. This tax increase will be implemented in the middle of a school year, which will put the most vulnerable schools at risk, regardless of how they are funded later. The policy has clearly failed to consider the impact an immediate tax rise will have. The IFS recently published a study indicating that, in the 2025-26 academic year, costs will outweigh funding. Since staffing costs tend to take up a large proportion of a school’s budget, there can be no doubt that this jobs tax will play a role in this funding crisis.

I turn to universities. As the noble Lord, Lord Sharkey, has mentioned previously, this tax increase will cost universities an estimated £372 million a year, as calculated by Universities UK. This is quite a vulnerable sector, as we know. For example, Coventry University has shared that the increase in fees will provide £1.5 million to £2 million in additional income, but the increase in national insurance that it faces will cost £3 million. The Government have given with one hand and taken with the other, as universities expected this fee increase to support their finances. Instead, it will be more than wiped out by the tax increase, when universities across the country already face financial difficulties.

Ultimately, our students will be forced to pay the price for these decisions, whether through further increased fees or a reduction in teaching staff for universities to sustain themselves. It is disheartening that the Government are not supporting our young people to pursue higher education. I am concerned that this group is already quite vulnerable in society, with youth unemployment sitting at around 14% in the final quarter of 2024, compared with the national unemployment rate of 4.4%. We talked about this and the problem of NEETs earlier in Committee. The rate of unemployment for our young people is already three times higher than the national average. To increase costs on education will leave the more highly educated people in this group who cannot find a job in more debt than before. In the 2022-23 academic year, there were 2.9 million students across our universities and nearly 400,000 staff. This Bill will have a negative consequence on all of them.

I urge the Government to think carefully about the choices they are making and the impacts this will have across society. We ask them to pause and consider the impact on schools and universities, just to be sure that it does not affect performance, given the vulnerability of young people at the moment and the Government’s objective to increase the number of teachers in the system. I beg to move.

[Baroness Lawlor (Con)]

My Lords, I support the amendments in this group: Amendment 35 from my noble friend Lady Barran, which asks for the new employer rates to begin after the tax year in which an impact assessment is published in respect of schools and universities, and Amendment 43 from my noble friend Lady Neville-Rolfe, to which my noble friend Lord Altrincham has added his support and which asks for a higher education allowance. I do so not only because the education of children is an obligation for their parents, who must ensure that children of compulsory school age are receiving an education—most do this in schools—but because, in this country, with its tradition of support for freedom of conscience as an enabling state, not a domineering one, Governments have gone hand in glove with the right of parents to decide what sort of education is best for their children. In these matters, the state has enabled parents to choose, rather than forcing them into state institutions through financial penalties or totalitarian laws.

That view has been part of the political arrangements for education when, irrespective of who is in power, the tradition has been that, where the law requires, the state enables. Barring the often political and ideological debates over education, it has done so through, among other ways, funding. Initially, it was a grant in the mid-19th century. That was followed in the 1870s by Gladstone’s Liberal Party introducing the obligation on parents of elementary education, but he refused the demands of what he called the “Prussian element” in his own party, who wanted to supersede the voluntary schools and replace them with a comprehensive, uniform state system. Thus, he allowed to survive, and indeed encouraged, what we now call voluntary schools: independent schools and Church schools which have educated children in this country for centuries. He expressly supported the right of parents to choose the best education for their children. Voluntary schools would be supported and supplemented by the new board or state schools.

That principle continued to inform education law in this country throughout the 20th century. Indeed, Britain’s history is a proud one. The education of children and young adults was often at the public’s expense, supported by those who could or would pay—be that the monarch, the guilds, the city corporations, the ratepayers or, later, in our own centuries, the taxpayer. In fact, until relatively recently, this country was an exemplar in educating its people irrespective of their parents’ means.

Under Elizabeth I, that tradition was recognised in law at the very start of the 17th century, when education was designated in law as a charity. Under the Tudors, some of the most famous schools had been just that: public schools. Winchester and then Eton were founded by the monarchs of the day to educate, as I recall, 70 poor boys so that their school education would equip them to go on to one of the universities of the day and be employed, I think, mainly as professional clerks in the Church, at the monarch’s service—a precursor to the Civil Service.

Anyway, many of those schools—Anglican, Catholic and dissenter—continue to flourish today, as Gladstone would have wanted. Not only were these schools regarded as the foundation of the education system, they were supported and encouraged in law through public funds. However, even if the funding systems changed, they were never penalised by discriminatory tax, as will happen under what this Government propose, not only in the extension of VAT but in the discriminatory penalty of the new NIC rates.

Despite stiff competition, they continue to be popular with parents, educating hundreds and thousands of children across the whole country. An impact assessment would reveal the true cost to children’s education and allow for a pause before this unthinking rush to destroy what works well and, as we have heard many times in this Room, continues to supplement what the state does and what the general taxpayer can afford.

There are 2,600 independent schools in the UK, mostly catering for the early years and primary stages of school. They educate more than 620,000 children, nearly 7% of UK school pupils and half of the parents who were at maintained schools: 25% in Edinburgh, 13% in London and 20% of all sixth-formers in the UK. They teach well. I will not go through the Ofsted reports on each of these schools but, on the whole, they do very well—better than maintained schools do on the whole, I am afraid, although some excellent maintained schools have done wonders recently; I take my hat off to them. They provide a school education to the highest potential of each individual student—just as the principles of the 1944 Act put it—which their parents judged was right for them.

I understand that one policy of this Government is an ambitious concentration on growing the public sector, with large pay increases—an aim of this Government that may go counter to the priority of economic growth for the whole economy. Perhaps the Minister would like to say, now or in writing, how many of the 28,000 new public sector appointments between July’s and October’s Budgets included new teachers and new doctors. Without good-enough teachers in our schools, maintained or independent, children at every stage of their education—early years and compulsory—will suffer.

Unless the Government listen and think again on these modest amendments, children’s education at this vital early and compulsory stage will suffer, as some independent and voluntary schools will be forced to lay off staff and will probably try to raise their fee income to make ends meet. They are the target of penal taxation, with the imposition of VAT and the new employer NIC hike. They are discriminated against because maintained schools will have these rises funded.

These amendments do not seek to run a coach and four through the measure. They are not demanding the outright abolition of the employer’s new NICs or the employment allowance, but they seek to improve the legislation. Wherever they are educated, we see the fruits of an education suited to the individual child. It is an essential stepping stone to adult life in which the recipient flourishes, and so the whole of society benefits. Education is not only a private good for a child; it is a public good for all of us and all who live in our country.

These are modest amendments designed to assess and ameliorate the impact on the independent sector—not to deny the Government their measure, but to do due diligence and mitigate the damage of an otherwise flawed measure. I hope that the Minister and the Government, in the spirit of the historic Labour Party, will be at one with the tradition of responsibility for the education of the young, in whatever institutions of the country they inherit, and will stop short of a new tax levy that will penalise those institutions and the education of our children. I hope that they will assess fairly the impact of the proposed measure on independent schools and will think again.

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[Lord Livermore (Lab)]

I am not sure that I would share that characterisation from the noble Lord of the VAT policy. We have published an impact assessment for both that policy and this policy. We have no intention of publishing further impact assessments.

[Lord Altrincham (Con)]

I thank noble Lords who have spoken on this group. I thank my noble friend Lady Lawlor for reminding us that education is a public good and for her little history lesson on the delicacy of our educational settlement, not just in the 19th century but going all the way back to Queen Elizabeth I and before; it was most helpful. I also thank the noble Lord, Lord Sharkey, who reminded us that, for this section of the Bill and more broadly, the consequence of these tax rises is policy-driven unemployment. We already know that jobs are going to come out. The noble Lord pointed out that 10,000 jobs may come out of higher education; with 10,000 here or there, the numbers could build up quite quickly.

It is in that context that we ask the Government to approach this area with great caution. The Minister has responded that they have looked very carefully and are aware of the issues, and they are, in their judgment, proceeding with great care. In the light of the Minister’s comments, I thank him and beg leave to withdraw.

Amendment 35 withdrawn.

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[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.