National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Davies of Brixton Excerpts

Thursday 5th March 2026 Lords Chamber

[Lord Freyberg (CB)]

My Lords, I apologise for not speaking earlier in the Bill’s passage. I have only recently become aware of how its provisions bear on freelance workers in the creative industries, and I hope the House will permit me to raise those concerns across the relevant groups. I declare an interest: I have worked both as a freelance editor on short-term contracts and on payroll, and I understand from personal experience how differently this legislation lands, depending on which side of that line a worker falls.

I support the amendments in this group, in particular Amendments 1 and 17, which would exempt basic-rate taxpayers from the cap, and Amendments 14 and 27, which would index the limit to the national insurance upper earnings limit, rather than fixing it at a flat £2,000.

The creative industries are built on short contracts. A set designer or director of photography may work for three or four different employers in a single year, such as a commercial house, a broadcaster or an independent film company, each engagement lasting weeks rather than months. Many of those workers are basic-rate taxpayers. The Government have consistently justified the Bill as targeting higher earners, yet, as we have heard, these are precisely the workers it will catch. Amendments 1 and 17 would correct that directly.

Amendments 14 and 27 address a related problem. A creative worker with a good year followed by a lean year faces a rigid £2,000 cap that takes no account of natural variation in earnings. Indexing the limit to the upper earnings limit would at least ensure that it kept pace with the economy.

Amendments 12, 26 and 13 would raise the cap to £5,000—or £10,000, as we have heard—which would substantially reduce the problem for those with fluctuating incomes, and I support the principle behind them.

Finally, Amendments 4 and 20 would remove from the optional remuneration rules any pension contributions where no cash alternative was offered. For a freelancer on a standard short-term contract, where the pension arrangement is simply a term of engagement, not a personal tax planning choice, that is a straightforward matter of fairness. I urge the House to support these amendments.

[Lord Davies of Brixton (Lab)]

I want to contribute, by supporting the Government, a bit of sense to this debate. We have heard so much doom and gloom, but what is the reality? What impact are these measures going to have? I am sure my noble friend the Minister will be able to tell us.

The first point to understand is that salary sacrifice for pension contributions really makes no sense. It is a form of regulatory arbitrage. It has never made any sense and it is notable that previous Governments have taken away almost all forms of salary sacrifice on other in-work benefits, without forecasting the end of incentives for working. I have always been against it in principle—I would be happy to see it removed entirely, but possibly that might be politically suicidal—but a £2,000 limit seems an entirely reasonable approach to providing some fair incentive without the opportunity for, in truth, gross inequality. We are told that this measure hits the lower paid and not so much the higher paid, but of course the people who make most use of this are people with enormous bonuses. That is where the money is going and these measures will stop that.

Secondly, it is not an essential element in our current pension system. The key question that none of the previous speakers has addressed is: what is the right level of tax incentive for pension saving? That is a proper debate, and it cannot be answered by saying that more is always better. We have to draw up a fair judgment on where, and how far, tax incentives to encourage people to save for retirement should go. It is obvious that, if you reduce tax incentives, there will be an impact on people’s decisions. One impact that it might have is to encourage them to save more, because, if they have a target pension in mind, they will need to save more money than they did previously.

Thirdly, figures are quoted for the impact on individuals, particularly those under the higher-rate threshold. Well, I have a spreadsheet and I have calculated those figures, and, as I said at Second Reading and in Committee, the effect on basic-rate taxpayers on incomes around and above the median level is marginal. What sorts of figures do you think we are being told are going to have such a shattering effect on the pension system? For someone on median earnings, paying the median contribution rate, it is nothing. Maybe, if you earn a bit more towards the tax threshold, it will be something like £40 a year.

Now, nobody likes paying more tax. I could explain that the reason why there is this demand for more taxes is 14 years of mismanagement by the previous Government, but I will leave that to my noble friend. But it does annoy me that so much emphasis is placed on what is essentially a sideshow to the important questions of pension provision that we are going to have to address.

[Baroness Altmann (Non-Afl)]

As I think the noble Lord knows, I have enormous sympathy with everything he says, and there is a strong case for reforming and improving the incentives for low earners. However, does he not accept that, if you change for the worse the incentives on the people who earn least, for whom it is most difficult to contribute, there is bound to be an effect at the margin, however large or small the difference is? If your pension is giving you lower take-home pay because something you have is being taken away, that can have only negative consequences. Therefore, there are risks in this proposal as it stands.

[Lord Davies of Brixton (Lab)]

I thought I said in my earlier remarks that there will be a marginal effect: I accept that, although we do not actually know what that marginal effect will be. It is all hypothetical at the moment. One thing we do not know from the OBR figures is quite what the reaction will be and how people will adjust their behaviour between now and when this comes in.

I accept the noble Baroness’s point but, as I say, nobody likes paying tax and nobody wants to pay more tax. If you ask people whether they want to pay more tax they say no, but it has to fit in with the Government’s overall financial strategy.

Of course, only some people gain an advantage from salary sacrifice. Many private employers just do not offer it. The number is increasing all the time, which is part of the problem because it is increasing the cost. Nobody in the public sector benefits from salary sacrifice. We can, and will, have an interesting debate about public service pensions, but noble Lords should understand that it is unequal that people in the private sector can take advantage of salary sacrifice but people in the public sector cannot.

[Baroness Kramer (LD)]

My Lords, I thought it might be best to combine standing as a winder and talking for a few moments to the two amendments in this group that are in my name. I start by thanking the noble Baroness, Lady Neville-Rolfe, who made an incredibly powerful speech to introduce the whole series of amendments in this group. I thank her for signing my two amendments, Amendments 12 and 26. Amendment 26 is the Northern Ireland parallel to Amendment 12, so we need not treat it separately. I also thank the noble Lords, Lord Altrincham and Lord Londesborough, for signing my amendments. The noble Lord, Lord de Clifford, would also have signed them had space been permitted on the Marshalled List.

I also talked very extensively, both at Second Reading and in Committee, and I will try to discipline myself not to repeat those comments, particularly because speaker after speaker has so fully described the issues that are at stake. I find myself in complete disagreement with the noble Lord, Lord Davies of Brixton, which does not happen very often, but I think that the Government will recognise that, for a whole series of political leanings around the House, there is very common ground on this issue.

My Amendment 12, as others have described, would lift that limit on salary sacrifice contributions subject to NICs relief to £5,000 a year. I discussed in detail in Committee why I talked to various people and came to that number, but the key point I want to emphasise—others have made it, but let me make it again—is that it would strongly benefit younger people and quite low earners. We are looking primarily at the second decile of earners, who are probably on their first or second pay rise. They are still low earners and still living a life much more akin to that of a student. They are sharing accommodation and do not yet have mortgages, children or families. Many have, very responsibly, with the nudge that is given by this tax relief, been encouraged to start seriously saving for pensions, well in excess of that £2,000 benchmark that the Government propose.

As these people move on in their lives and acquire children and mortgages, their pension savings drop. Those very early savings that then have a chance to accrue over a working lifetime are very significant in the end result to the quality of pension that they receive. That is why we took an approach that we thought would, in a very simple way, enable this group of people to continue with that incredibly positive behaviour.

In this group, I will certainly support the amendments that the noble Baroness, Lady Neville-Rolfe, will choose to move. I want to make particular reference to the amendment from the noble Lord, Lord Leigh, on student loans. It is absolutely essential. The Government have recognised—at least, this is what I understood from the Minister’s responses in Committee and at Second Reading—that the Bill quite unintentionally puts serious additional costs on to graduates. I find it absolutely ridiculous that, having recognised that there is an unintentional impact and that it is problematic, the Government are not correcting it in this Bill. As far as I can understand, they are waiting for some future piece of legislation to make that change.

[Lord Davies of Brixton (Lab)]

May I just press the noble Baroness on the point she made about serious additional costs? Would she care to quantify what those serious additional costs are?

[Baroness Kramer (LD)]

Let me refer back to the example I gave in Committee. The noble Lord will be aware, on that additional contribution, that the graduates are paying the 8% additional in NICs but, on top of that, because it pulls them into scope of having to make repayments at the margin, the impact is 17%. It has a huge impact on graduates who are now just beginning to reach the level where they would have anticipated they would start to repay, and they suddenly hit this really serious spike. I think he has seen the numbers that some of the people have sent to us, and the Chartered Institute of Taxation could help him with those numbers if he wants to look at them. The Government, I think, recognise that problem but my answer is to fix it.

--- Later in debate ---

On the proposed new clause in Amendment 33, which concerns charities, the Minister might recall that I tabled three amendments to the NI Bill to exempt charities, social care homes and hospices. The Government did not accept any of those. Surely the Government want to help charities as much as possible, particularly those, such as hospices, that cannot raise revenue to compensate for any extra costs that this might incur to them. I therefore hope that the Government will consider this very carefully and show some flexibility.

[Lord Davies of Brixton (Lab)]

I have just two points. First, I am perhaps the only person in the House who believes in the National Insurance Fund. I am in favour of the National Insurance Fund in principle. It is a fund into which people pay contributions and accrue entitlement to benefits. I am therefore against a detached look at a very small part of the overall operation of national insurance; that would clearly be a mistake. You have to look at the whole thing together. I am not necessarily against that. I suspect that the Treasury will not be keen but, in principle, it is time for it.

However, my second point is that that makes sense only if we look at the tax treatment of pension schemes, which is the electric third rail of pensions politics. There has been a lot of discussion in the think tanks about the tax treatment, and proposals such as flat rate relief have been made. It is a massive subject—one that it is time to review. For the same principle, it would be wrong to look at this tiny part of the overall structure. I am therefore against the amendments, but the general principle—that the issue needs to be looked at—is a good one.

[Lord Londesborough (CB)]

My Lords, I support Amendment 31 in the name of the noble Baroness, Lady Neville-Rolfe, to which I have added my name. I also add my vocal support for Amendment 32 from the noble Baroness, Lady Kramer, which I should have added my name to but did not. Both amendments concern the impact on SMEs. I am more concerned about the “S” part of that acronym, because medium-sized businesses with payrolls of over 100 staff are a lot better equipped to deal with the provisions of the Bill. I heard the Minister saying that only 10% of this group apply for salary sacrifice, which is a glass-half-empty argument. It is precisely because of that that we should be very concerned about the 90% who are missing out entirely on salary sacrifice.

When we go back to Amendment 31 and look at the impact, the employment data this year for SMEs is utterly dire—on vacancies, payroll and employment, part-time and full-time. I will not go through all the data, but I remind your Lordships that only 10 days ago, the Federation of Small Businesses wrote a letter to the Chancellor of the Exchequer warning that one-third of its members are planning either to shut down their business this year or to reduce their headcount, and that should send a real chill down the spine. I simply do not believe that the Government understand what it is to develop and foster a thriving SME ecosphere, on which, at the bottom of the pyramid, our economic growth utterly depends. I therefore throw my support behind these two amendments.