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.

Autumn Budget 2024

Lord Davies of Brixton Excerpts

Monday 11th November 2024 Lords Chamber

[Lord Davies of Brixton (Lab)]

I thank the noble Lord, Lord Booth-Smith, for his maiden speech; I welcome him to the House, and I am sure he will be an asset. I also thank my noble friend Lord Livermore for his comprehensive report to this House on the contents of the Budget, as is entirely appropriate.

There is much that is good in the Budget. My noble friend Lady Crawley identified and summarised the good things in it, so I hope I will be forgiven for mentioning my major point of concern, which is the promise, made by the Chancellor in introducing the Budget, to make welfare spending more affordable. That causes me considerable concern. Of course, we will not know the details until we get the “Get Britain Working” White Paper, and I wonder whether my noble friend is able to provide us with a date. Perhaps the White Paper has been delayed because the Government are trying to learn lessons from the winter fuel payment problems. There are lessons there that I hope they have drawn.

There were two specific references in the Chancellor’s speech that caused me particular concern. When we talk about a crackdown on fraud, as she did, we have to ensure that it is done in a way that does not create collateral damage for people who are fully entitled to the benefits. The problem with crackdowns is that they can affect innocent bystanders unless massive efforts are made to ensure that does not happen. I hope my noble friend will be able to assure us that everything will be done to avoid the downside of crackdowns.

I have a particular concern, and we debated this in the last Parliament, about direct access to bank accounts. The Government seem to be stressing the influence of criminal gangs. My guess is that you cannot access the bank accounts of criminal gangs. Accessing bank accounts without probable cause seems a growth of the power of the Government. Again, if that is introduced in legislation, it needs to be done with considerable care.

I am very pleased with what the Budget said about pensions, which was very little. Pensions are an area where stability is essential because people are making long-term plans, so I am glad that the number of changes in the area of pensions was limited.

The changes to the Mineworkers’ Pension Scheme were very welcome. I need to say here that I was the actuarial advisor to the National Union of Mineworkers at one stage so I am familiar with the issues here. The mineworkers fully deserve what they are now being given.

The major change affecting pensions was charging inheritance tax on unused pension. Unused pension is a new concept. If you accumulate a pension fund and it has not been used in order to provide you or your dependants with an income, from 2027 that will form part of your estate and be subject to inheritance tax. I think that is entirely reasonable. I welcome the change. The money was put in the pension fund tax free and it seems eminently reasonable that, when the money is taken out, it should be subject to tax. Pension funds are for the purpose of providing pensions; they are not for the purpose of inheritance tax planning or tax avoidance.

We have a technical consultation going on that raises particular issues. I have some concerns that the proposals in the document go beyond technical issues and raise issues of principle. Of course, anyone who has dealt with a will knows that the problems of probate are profound and, when you put pensions into that mix, it is going to create considerable difficulties. I hope these issues will come out in the consultation.

Employment: Tax Policy

Lord Davies of Brixton Excerpts

Thursday 31st October 2024 Grand Committee

[Lord Davies of Brixton (Lab)]

I thank the noble Lord, Lord Leigh of Hurley, for raising this issue. As he says, the debate is extremely timely. I have set up and run a small business—not at all on the sort of scale that he has achieved but it has given me a perspective that he perhaps suggested in his speech did not exist on this side of the discussion. Many noble Lords who take the Labour whip have been successful in business, so I think the suggestion that we on this side of the Committee do not know what is required to achieve success in business is wrong.

I will not pursue the issue of the £22 billion, which has been well trodden, but will pick up on the noble Lord’s comment that Labour created a reason to increase tax. It was not Labour that created the reason; it was 14 years of Conservative mismanagement of our economy that created the situation that has led to increases in tax.

I spoke briefly to the noble Lord, Lord Leigh, yesterday, and we agreed that it is a general issue and not just about the Budget. Looking at the issue in general, it is quite clear that if firms have to pay higher tax then there will be impacts on employment, on the pay that can be given to employees, and presumably on profits. Of course, profits does not just mean entrepreneurs; it means pension funds and other investors who hold those investments. Clearly, those effects exist—I do not think anyone would argue about that.

However, in truth, it is a lot more complicated, because the Government receive the money and then spend the money—they do not bury it in a hole in the ground. The Government increase their revenue and use it to create employment, through providing their own services, and to create the society infrastructure that is required for business to operate. Higher quality infrastructure means more successful businesses. The Government also purchase, using that money significantly to buy from the private sector—and much of the private sector depends on government revenues for its economic success. There are two sides to that equation and we cannot assume, a priori, that one side is more significant than the other. We have to look at the evidence.

I thank the Library for its relatively short briefing. It identifies that this whole area is contested, at the least. It is very difficult to identify cause and effect in this area because the whole system is moving on. It is not an isolated, scientific experiment, with a control for all the variables involved; to reach a definitive conclusion is not straightforward. For example, there is the vexed issue of incentives and disincentives. The situation as it works in practice is not quite as clear-cut as the anecdotes that are often advanced to try to argue on one side or the other. The general issue, as I say, is a lot more complicated than perhaps was suggested by the noble Lord in asking his Question.

The noble Lord quite rightly identifies that we have an interesting case study in yesterday’s Budget of what the effect of the increase in national insurance contributions will be on employment. The Office for Budget Responsibility’s report makes for interesting reading. Of the net effect of the measures in yesterday’s Budget, principally the increase in national insurance contributions, it says that:

“The unemployment rate is forecast to average 4.3% in 2024, a small increase on 2023, before remaining close to 4.0%. The employment rate (for those aged 16 and over) is expected to remain close to 60% over the forecast”.


Whatever the impact of the increase in national insurance contributions by itself, the overall effect of the Budget is to maintain employment and, ultimately, provide the basis on which our Government will move forward and achieve the sort of growth we need to repair our public services.

Fiscal Rules

Lord Davies of Brixton Excerpts

Tuesday 29th October 2024 Lords Chamber

[Lord Davies of Brixton (Lab)]

I thank my noble friend for this Statement; the real meat will come tomorrow. I also thank noble Lords opposite for reminding us of their gross irresponsibility and refusal to accept any responsibility for this situation. When you have fiscal rules that distinguish general expenditure and investment in one way or another, you need a clear definition of investment. The problem is that pinning down such a definition is difficult in practice. When we on the Economic Affairs Committee took evidence from Joseph Stiglitz, he drew attention to this, instancing the possibility that spending more money on nurses would count as investment towards the sort of growth we need in the economy.

[Lord Livermore (Lab)]

My noble friend makes an extremely interesting point. I am grateful for his support for what I have set out and will take away his point to give it further consideration.

Budget Responsibility Bill

Lord Davies of Brixton Excerpts

2nd reading & Committee negatived & 3rd reading
Monday 9th September 2024 Lords Chamber

[Lord Davies of Brixton (Lab)]

I support the Bill—after all, it is in the manifesto—but it has faced some criticism. The comments of Ben Zaranko have already been mentioned. It ill becomes a Member of the Opposition to criticise legislation as performative, since that is practically all they did over the last five years.

The legislation is not performative but declaratory—it is setting out a declaration of intent, and it is to be welcomed for that. But—and there is always a but—I see in the Bill potential weaknesses, which arise from the exceptions in new subsection (4), and this issue of what counts as “temporary”. After all, the freeze in fuel duty each year is temporary, but it is now apparently part of our constitution. But I am more concerned about the term “emergency”. Is it a term of art? Who is going to determine what counts as an emergency? It is not defined in the Bill, and it has not been used in the charter. Ultimately, there is no track record of how it is interpreted in this context or who is going to decide.

We have an interesting case study here. Of course, we had a fiscal event on 29 July. I shall steer away from talking about winter fuel payments again. My assumption is that it was not large enough to trigger the size test, but did it trigger the emergency or the temporary test? I shall be interested in hearing my noble friend’s comments on how that undoubtedly fiscal event fitted in with the requirements of this legislation.

I was going to speak at more length on that but, inevitably, I was diverted by the comments made by the noble Baroness, Lady Wheatcroft, who came up with the perennial saw that there was some sense in including liabilities for future unfunded public service pensions in the national accounts. The whole point about unfunded pensions is that they are unfunded, and it makes no sense at all to treat them as though they were funded. However, if you are going to do the sums—or I could do them for you—and say what the current value of the future liabilities of these schemes will be, logically you should also have a figure for the future revenues that are going to meet those liabilities. It is not funded, so the future payments are exactly matched by the future taxation revenue that will pay those liabilities. You have to include both figures if you are going to account for them, and they are equal and opposite by definition. Including them in the national accounts makes no sense.

European Investment Bank

Lord Davies of Brixton Excerpts

Wednesday 24th July 2024 Lords Chamber

[Lord Livermore (Lab)]

The national wealth fund will work on the same basis as the UK Infrastructure Bank in terms of allocating investment. I think that is the answer to the noble Lord’s question.

[Lord Davies of Brixton (Lab)]

In a similar vein to the question from the noble Lord, Lord Fox, I had a question in the debate on Monday about the first phase of the pensions review, looking at the investment of pension scheme monies in productive economy. I am sure my noble friend will agree that in such discussions the voice of the trade unions that represent scheme members and pensioners through their organisation should be an important part of the debate.

[Lord Livermore (Lab)]

I thank my noble friend for his question. I did not address his question in the debate, because I hoped he knew that I would agree with him, which I do. As part of the pensions review, we will consult all interested bodies.