National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Ashcombe Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Ashcombe (Con)]

My Lords, as declared in the register of interests, I work for Marsh Ltd, a subsidiary of MMC Inc, which also owns Mercer, a global consulting firm that offers solutions for investments, retirement, health and benefits. That sounds a bit like an ad but it is important in this case.

The proposed changes to employers’ national insurance contributions represent not just a fiscal adjustment but a direct and tangible tax on the future economic growth of the United Kingdom. Why? First, we must consider the immediate impact on UK businesses, which are already navigating a minefield of challenges. Rising operational costs, muted consumer spending and the lingering effects of recent economic shocks have left many companies struggling to grow. Imposing an additional financial burden in the form of increased national insurance contributions is akin to asking a runner, already fatigued, to carry an additional weight uphill. It is not just ill-timed; it is counterproductive.

In the context of global markets, the implications are even more concerning. The rise in national insurance will make the UK less competitive on the world stage. Again, why? It is because each new recruit will now come with a higher cost to businesses. For multinational corporations deciding where to expand or establish a new branch or headquarters, or for fast-growing start-ups seeking an environment conducive to scaling up, the UK is no longer the obvious choice. Instead, it will be perceived as more expensive, less attractive and a riskier proposition for those with ambitious growth plans. This is not the signal that we should be sending to the world.

Moving on to the hard-working people of this country, the financial burden imposed on businesses does not exist in isolation. Businesses facing these costs have limited options to maintain profitability. They may choose to freeze or reduce pay rises, adjust prices for goods and services, or cut back on benefits and pension contributions. There is an assumption that businesses can just cut fat from their operations, but no, as it is often now not there to cut. In every scenario, it is the workers and consumers who will bear the brunt of this decision.

Already, the data is telling. Around one-fifth of business leaders questioned in spot polls by Mercer have indicated that they intend to reduce their budgets for salary increases as a direct result of these changes. Another 17% are in a holding pattern, unable to make definitive plans for pay adjustments. Perhaps more concerning is the finding that a fifth of businesses are shelving hiring plans altogether. These are not abstract numbers. I would add, as did my noble friend Lady Noakes, that the Office for Budget Responsibility forecasts that, by 2026-27, some 76% of the total cost of national insurance contributions will be passed on through a squeeze on workers’ pay rises and increased prices.

This punitive tax, which affects all businesses, is having a disproportionate impact on sectors that employ large numbers of lower-paid workers, such as the retail, care, non-profit and hospitality sectors, to name but a few, since the threshold drop-down affects a more significant proportion of pay. The hospitality industry—one of the cornerstones of our economy and culture—is a prime example. UKHospitality has warned that a third of businesses in the sector are already operating at or below breakeven. The additional burden of the increased national insurance contributions could push many over the edge. It is not just about numbers on a balance sheet; it is about the vibrancy of our communities, the livelihoods of countless workers, and the health of an industry that has already endured so much.

Survey data from the Confederation of British Industry, representing 170,000 businesses, paints an even grimmer picture. Nearly two-thirds of firms anticipate that the hike in national insurance will negatively impact their investment plans, and half have indicated that they may need to reduce headcount as a result. Meanwhile, confidence among members of the Institute of Directors has plummeted to near record lows, echoing the sentiment of businesses at the time of the Covid-19 pandemic. The IoD has stated:

“Far from fixing the foundations, the Budget has undermined them, damaging the private sector’s ability to invest in their businesses and their workforces”.


The long-term consequences will be important. From listening to the voices of business, I note that these changes will come with significant opportunity costs. Reduced hiring and investment will not just slow growth but create a cycle of stagnation: less hiring means fewer opportunities for workers, which in turn reduces consumer spending and diminishes economic activity. No business is immune. This is not a path to prosperity but a recipe for regression.

The knock-on effects extend beyond the private sector. A sluggish economy means reduced tax revenues for the Treasury, leaving the Government with fewer resources to invest in vital public services. The irony is glaring: a policy ostensibly designed to generate revenue for public goods—the NHS, social care and so on—could ultimately undermine their funding. At a time when these services are needed more than ever, we cannot afford such a misstep.

We cannot will economic growth into existence through further taxation and burdens on businesses. Growth requires investment, innovation and a competitive environment that attracts talent and capital. The UK must be a place where businesses feel confident to expand, hire and innovate. This requires policies that incentivise growth, not stifle it.

The proposed changes to national insurance contributions represent a tax on workers, on growth and, ultimately, on the Government themselves. This policy must be rethought to prioritise measures that enable businesses to thrive. Competitive tax incentives, streamlined regulations and targeted support for key industries are just some of the ways that can foster an environment conducive to growth.

This is about not just economic metrics or fiscal policy but the kind of country that we want to be. Do we want to be a nation that penalises ambition and stifles potential, or do we want to be a beacon of opportunity, attracting the best and brightest, and empowering our businesses and workers to succeed? The answer, I believe, is clear: growth and opportunity must be chosen, with policies that support, rather than hinder, the aspirations of our people and businesses. The Government need to ensure that the UK remains a competitive, dynamic and prosperous nation. Let us reject the false economy of punitive taxation and embrace a future built on investment, innovation and shared prosperity.