National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Davies of Brixton Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Lord Randall of Uxbridge (Con)]

My Lords, I find myself again being somewhat like a bully standing behind the Lib Dems urging them on. But, of course, they are not bullying but providing a good service. I should also say, with regards to this Lib Dem-Conservative coalition, I was actually Deputy Chief Whip during the coalition period and I have to say that the Lib Dems, certainly in the Whips’ Office, were extremely good partners and very sensible. So I have great sympathy for the amendment.

I thank the noble Baroness, Lady Smith or Newnham, for her speech and express sympathy for the situation she finds herself in with her father. We all will have sympathy, even if we have not gone through similar things ourselves. As with the previous group, I can understand why the noble Lord, Lord Eatwell, said what he did, and I would prefer that we did not have all these exemptions. But the fact is that there are exemptions. That is what happens. I also say that, with regard to the veterans, the noble Baroness, Lady Smith of Newnham, has done us a great service in showing how many different sectors can be affected by this.

We all have a debt of gratitude to veterans. If there was an exemption, as put down in the amendment, that might be an inducement for employers to hire those people. There could be no greater service to those people, who have given everything. As the noble Baroness said, they are very skilled and have a lot to offer. One could go on down the exemption line, but I do not want to incur the ire of the noble Lord, Lord Eatwell, any further. One could apply this to people who have come out of prison, because we want to encourage rehabilitation, and so forth.

However, the point is—here I reiterate—that there must be alternative ways of raising this tax. I have not got them. I could, probably, upset most people in Committee today by saying that we should perhaps have looked at introducing national insurance contributions for those over the pension age. There may be quite a few people who would come into that category who could well afford it. There again, however, I will have to watch my back on the Metropolitan line on my way home today, in case I am taken out by a couple of sticks and so forth.

I understand the difficulties the Government face, but I reiterate that we are having a deleterious effect on some vulnerable sectors—we have not got on to charities yet, so I will hold my fire on that. However, this is something we should be taking very seriously.

With regard to the point about the large majority in the Commons, there is part of me—not the nice part or the Deputy Chief Whip part—that would be very keen to see some Labour Members vote against measures that will affect their local charities and veterans, and so on. We should do a service to the gallant men and women who have taken this up in the other place by making their lives a little easier.

[Lord Davies of Brixton (Lab)]

My Lords, this is such a contrast to previous years’ versions of this debate, when there would be myself and the noble Baroness, Lady Kramer, sat over there, and a handful on this side. It is really quite enjoyable to have a debate like this, but whether it is actually productive in any way I am not sure.

The problem we have is that veterans are like motherhood and apple pie. How can anyone oppose measures to assist veterans? Well, I can. There is a strange sense of déjà vu, because we had this debate in this Room two or three years ago when the last Government put forward proposals to exempt veterans. I cannot remember the details—you cannot remember everything we talk about here. However, we had the debate and discussion, and I expressed reservations about special measures for veterans. Do we have any information about what impact this has? I suspect it is a bit of tokenism.

[Lord Eatwell (Lab)]

My Lords, I wonder whether noble Lords who have been referring to national insurance growth as a jobs tax have actually read the OBR assessment of the impact of the Budget on employment. If they have not, I will quote it here. It states:

“The … boost to output from this Budget reduces the unemployment rate by 0.3 percentage points, equivalent to around 90,000 people, on average in 2025 and 2026. Compared to our March forecast, the unemployment rate is lower across most of the forecast, but is in line with its unchanged estimated structural rate by the forecast horizon”.


Why is it that the OBR, having considered carefully the impact of the increase in national insurance, has told us that the level of unemployment is going to fall, in its estimation?

The reason was spelled out beautifully by the noble Lord, Lord Layard, at Second Reading. Perhaps nobody listened carefully to a distinguished professor of economics setting out why the characterisation of the national insurance rise as a jobs tax is seriously misleading in economic terms.

I hope the Committee will forgive me if I repeat the argument of the noble Lord, Lord Layard. The cost to an employer of the increase in national insurance determines the choices that the employer will make with respect to the input of labour in the output that he or she can sell. The increase in national insurance will indeed tend to encourage employers to lower the labour input per unit of output: that is, it will increase productivity. The level of employment then depends on the amount of output.

The amount of output—the overall level of employment—is determined, as the OBR points out clearly in the piece I quoted, is determined by the overall fiscal balance, and this Budget injects £26 billion of extra spending into the economy. Therefore, the economies in employment made by individual employers are significantly offset by the overall level of demand in the economy, because it is that overall level that determines employment, not the individual decisions.

That is what Keynes taught us in 1936, which is why this characterisation of the national insurance charge as a jobs tax that will cause unemployment actually misses out the vital issue of what the revenues from the tax are used for. If they are used, as they are in this Budget, to increase expenditure, as my noble friend Lord Livermore pointed out in his scene-setting discussion, then employment may rise or fall depending on the fiscal balance—and the fiscal balance of this Budget, as the OBR points out, will reduce unemployment.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Davies of Brixton Excerpts

Report stage
Tuesday 25th February 2025 Lords Chamber

[Lord Eatwell (Lab)]

My Lords, Amendment 38, as written, is econometrically impossible. This cannot be done unless we have further specification of what is to be done. For example, are we to look at the effect of these changes assuming that the Budget had not changed or to look at their effect taking into account the consequential effects of the Budget which were also dependent on the national insurance changes?

Then, there were other tax changes that took place at the time which were also dependent on the national insurance changes. Are they to be taken into account or not? At the moment, the amendment does not tell us. Any serious economist faced with this would say, “Sorry, I can’t do this unless you tell me what I have to take as the underlying conditions”.

Amendment 38 is seriously defective and cannot really be taken seriously as it stands because it simply does not specify the underlying circumstances within which the particular consequences of the changes in this Bill are to be assessed. Without that framework, it is simply not possible to do in any way—or, if you like, anybody could produce any result they like by assuming different background circumstances. So, I am afraid that Amendment 38 is underspecified and, as a piece of serious econometrics, impossible, because the framework is not specified for the amount of information required to perform the studies.

On Amendment 42, I was very struck by the request of the noble Baroness, Lady Lawlor, that the Government face up to their responsibilities. It would be really helpful if the Conservative Party faced up to the damage it has done to the British economy over the past 14 years and to the disaster it has inflicted on the British people, which the Labour Party is now desperately trying to repair in very difficult circumstances indeed.

Once again, the issue of the impact of employment and productivity depends on a whole series of other factors. Are they to be taken into account or not? How is the particular effect of the national insurance change to be examined? If they were independent, then you could do that by saying that the national insurance change has no relationship to other changes taking place in the economy and therefore we can isolate it. But that is not true; the national insurance change has direct effects on the other components of the Budget and has effects which are interdependent. Without specifying the framework in which this amendment is to be considered, it is a false exercise. You could sit down, make any assumptions you like and get any result you like, to be frank.

Although it would be very interesting to perform this exercise, I am afraid that these amendments are so defective that they cannot actually give the guidance as to the exercise to be performed. Therefore, it is entirely inappropriate for amendments such as these to be in the Bill.

[Lord Davies of Brixton (Lab)]

I have to confess a smidgen of support for the amendments in this group—but not nearly enough to make me vote for them. I am going to complain about a different lack of information that has been presented to this House in relation to the Bill.

The point is that it is a contribution Bill—a contribution to the National Insurance Fund. I pursue a somewhat quixotic and lonely quest to persuade people of the importance of the National Insurance Fund, the whole point of which is that it receives contributions, has reserves and pays benefits. Somewhat oddly, simultaneous to discussions of the money coming in, in the earlier stages of Report, there was a discussion in Grand Committee of the money going out. My complaint is that there has been no discussion of the state of the National Insurance Fund. I am very much in favour of such a discussion because it is a crucial element of our welfare state.

The problem is that the information is available. I have it in my hand: the Report by the Government Actuary on: The Draft Social Security Benefits Up-rating Order 2025; and The Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments, National Insurance Funds Payments and Extension of Veteran’s Relief) Regulations 2025. Noble Lords might ask, “What’s that got to do with the Bill?” It says on page 7:

“This report also includes the expected effect on the Fund of the National Insurance Contributions (Secondary Class 1 Contributions) Bill”.


This is information germane to our current discussions, but at no stage—I am sorry to complain to my noble friend the Minister—has this been adequately, or in any sense, discussed as part of an overall consideration about the state of the National Insurance Fund. That is my complaint, and I have got it off my chest.