National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Bruce of Bennachie Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Bruce of Bennachie (LD)]

My Lords, the main concerns over the Bill have been pretty well explained by most speakers so far, and I will not repeat them. I want to concentrate mostly on the impact of these measures in Scotland, but I want to make a general observation on comments that businesses made to me during the election. There was no doubt at all, many of them said, that the chaos and incompetence of the previous Government were extremely disruptive to business confidence. I have had my breath taken away by the lectures we have had from the Conservative Benches who had 14 years to prove how they could grow the economy and spectacularly failed. I do not think we need to hear any more from them for quite a long time.

Many businesses said to me that they were looking for a change of Government to provide a period of calm and stability. Regular changes in taxes, whether personal, business or consumer taxes, sadly, usually are the currency of election campaigns. Many people said to me that they wanted predictability and stability rather than constant change. Unfortunately, the first few months of this Government have not delivered stability or predictability.

The Government argue that they promised not to increase taxes on working people, so pensioners were their first target. Farmers, too, may resent being told that they are not working people. But on top of these differentials, the Government’s apparent belief that loading the lion’s share of the additional tax burden on employers’ national insurance removes the impact on working people is pretty disingenuous. The OBR predicts, as has been pointed out, that it will provoke behavioural changes that will reduce the tax take from £22 billion to £16 billion or less. More significantly, the increased costs, combined with reduced confidence, will affect staffing, wages and investment and make the achievement of growth harder.

The impact of these changes will vary across different sectors and different parts of the UK. The Government have said they will compensate public sector employers, but it is not yet clear how. In any case, it appears that for Scotland the Government may argue that the Barnett consequentials should cover this, but that is based on a simple population calculation and does not take account of the different structure of the Scottish economy with its larger public sector employment. Some 22% of employment is in the public sector in Scotland, compared with 17% for the UK. On top of this differential, the Scottish public sector is also better paid, and the Scottish Government have agreed to more generous pay settlements than the UK Government. The impact on the Scottish hospitality sector is also proportionately harsher. According to UKHospitality Scotland, pubs, restaurants and hotels in Scotland pay substantially more in business rates than the equivalent in England, in some cases 66% to 70% more.

While the Scottish Government continue to be affected by UK-wide impacts, devolution allows them to pursue a different policy strategy from the UK as a whole. This has led to a larger, better-funded and better-paid public sector, but here is the rub: unfortunately, the outcomes have not followed through. While educational performance has improved in England, it has continued to decline in Scotland. The performance of the health sector has been as bad overall as in England, but with waiting times exponentially worse and no viable strategy for changing them yet apparent.

The Scottish Government have struggled with reform of the care sector and are mired in delay and uncertainty on this. On top of all this, they have pursued a strategy of higher taxation on middle and higher incomes, which has proved counterproductive, with net revenues overall apparently falling as people avoid tax, leave Scotland or are deterred from moving there in the first place. The UK Government could say, with reasonable justification, that the Scottish Government have used devolved powers to make their bed and should lie in it. However, the unanticipated rise in employers’ national insurance adds to burdens already imposed on Scotland and risks disadvantaging the people of Scotland disproportionately—people for whom the UK Government are also responsible.

Will the UK Government engage with the Scottish Government to consider the overall impact of both Governments’ budgets and how they can together explore ways of ensuring a fair outcome? Will they indicate that the compensation for the public sector will take account of, first, not just population but the differential; and, secondly, the overall impact on the arm’s-length public agencies, which the Scottish Government have not even quantified? In those circumstances, it should be possible to get an arrangement where the two Governments agree to take measures together, which will ease the burden on businesses and the poorer communities of Scotland. The Government have set their heart on a much better relationship with the devolved Administrations; this is a good place to start.