National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Forsyth of Drumlean Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, it is a pleasure to follow the right reverend Prelate. I look forward to him tabling amendments at a later stage in the consideration of the Bill to meet the requirements that, as he has quite rightly pointed out, are essential for transport for children with special needs.

This is an unusual proceeding, is it not—that we are allowed in this House to consider a Budget measure? The reason we are able to do it is that national insurance is not a tax. I repeat: it is not a tax. It is a specific, compulsory social insurance scheme. Therefore, I was surprised to hear the Minister arguing that it was necessary to put it up to close his £22 billion black hole, which, of course, does not exist. If it did exist, it would surely be entirely inappropriate to use national insurance to meet requirements that were not specific for the purpose of national insurance.

As it is not a tax—even if this Government treat it as if it were—we are able to discuss the Bill in this House. We are able to reject it, and to amend it. The Government’s response is to put it in a cupboard, around the corner, in the Moses Room, where there will be no opportunity to amend it, in the hope that no one will notice the severe damage that is being done to our country in so many sectors, as we have heard. As the noble Baroness, Lady Kramer, pointed out, this is an opportunity to ask the Government to think again. I look forward to seeing the Liberal Democrats coming through the Lobbies with us in support of amendments to change the nature of this Bill; I think not. I think not because it is all posturing on their part; it is just empty rhetoric.

Even if we were to accept, as the OBR did not, that there was a £22 billion black hole, after all the arrangements are made to compensate very small businesses and others for the impact of this crazy scheme, the net revenue that the Government will achieve is about half of the £25 billion. Some people say it will be even less; some say it could be as little as £10 billion. Is that not a coincidence? That £10 billion is almost exactly the same figure as the cost of the inflationary pay increases given by this Government on taking office to the most militant unions in the country, including the BMA. They pretend that this is about dealing with some black hole left by the previous Government when, in fact, as the old adage—the old cliché—says, “When in a hole, stop digging”. If the Minister thought he was in a hole, why on earth did he keep digging by allowing a £10 billion inflationary increase in pay, without any requirement to improve productivity with a view to financing it?

The HMRC says—I assume that the Minister will not challenge HMRC’s figures—that 940,000 businesses will lose an average of £800 per employee, at a time when the economy is stagnant. Six months of this Government have brought growth to a complete, shuddering halt, and brought back the ghost of stagflation to our country, which we remember in the 1970s as the inheritance that we got from irresponsible government policies.

The list of organisations—private sector, public sector and charitable—in this country is endless. We have just heard from the right reverend Prelate about the problems for the Church in meeting the stipends—it might be worth reducing the contribution in reparation for alleged crimes against slavery to meet that requirement. We have heard from leading retailers that there will be major store closures. We have heard from pubs and restaurants already severely damaged by the impact of Covid, along with the rest of the country, about how they will be affected.

Faced with that—faced with the problems in the hospitality industries and others—this Government decide to reduce the schedule to people who are paid £5,000 a year in order to create a requirement to pay national insurance. They say, “We are going to compensate that because you can apply for a rebate”. That means more bureaucracy and more impediments to businesses that are struggling. In my time I have done quite a bit to support Marie Curie Cancer Care, so I know intimately how important its work is. This measure will cost that organisation £3 million. That is a lot of coffee mornings up and down the country, with volunteers raising money for charities such as Marie Curie.

There are many other examples, such as homeless charities, childcare, which has been mentioned—single parents are already struggling, yet we are told this is not going to affect working people—and universities. Then there is the nasty, vicious imposition of VAT on private schools, which will mean that many children with special needs are no longer able to get the support they need because the state sector is unable to provide it. I know the Government will say, “People who are designated will get support”, but it takes years to get an assessment and there are many kids—the right reverend Prelate mentioned children with autism—for whom a move from school is disturbing.

Then there are parish councils and GPs. I had a representation from the BMA telling me that this was iniquitous and would have an impact on GPs—absolutely so. That is the same BMA that was campaigning and striking for more money for doctors, and now it is arguing that there should be more money for GPs because the Government are saying they need the money in order to pay that obligation.

I understand that I have a different figure for the cost of adult social care. It is true that the last Government messed up on social care, and that this House was unanimous across all Benches on the need to address social care to protect the NHS. Where are the people on the Benches opposite now speaking up for social care, where I believe the costs are nothing short of £2.8 billion?

Perhaps I have been a little tough on the Chancellor, but she is right about one thing: we desperately need growth in this country. The reason we are not getting it is that the state has become too large and overmighty; it has become a cuckoo in our country’s economy. The Government said this Budget was necessary in order to stabilise the economy, but what have they done? They have not only added this tax but increased borrowing at a time when the costs of borrowing are growing as a result of the actions they have taken.

We keep hearing that Liz Truss crashed the economy because she made tax cut proposals that were not equally balanced by cuts in public expenditure and, as a result, the market for 10-year gilts went up. I have to tell the Minister that, as has been pointed out, the market for gilts is now at a higher level than it was then. So am I entitled to say he has crashed the economy because of the imposition of this tax?

Of course we all know that taxes are too high and that the previous Government allowed that to happen, but that was because we had Covid and Ukraine. The only reason why this Government are continuing to increase borrowing and so on is that they want to have a bigger state.

If we are to get Britain working again, we need to get people back to work. I actually agree with the noble Lord, Lord Macpherson, about merging income tax and national insurance because, as I hope I have demonstrated, it is a fantasy to treat it as being anything other than a tax. Indeed, the tax commission that I chaired for George Osborne in 2006 recommended that, but they were not too keen on the idea because it would make it absolutely transparent how much of people’s hard-earned money the state was taking in taxation. The noble Lord is right about that.

I also find it extraordinary that as someone—your Lordships may be surprised to hear—who is over pensionable age, I do not have to pay national insurance on my income. The Minister asked us to say what else they could have done. Well, they could have done that instead of imposing a tax on employment. It is estimated—of course, we do not have the proper figures—that more than 9 million people in this country who are of working age and capable, in theory at least, of being at work are not working. To resolve that situation by making it more expensive for people to take on others as employees seems to me an extraordinary act of madness.

The CBI, an organisation that I do not often cite, believes, following a survey of its members, that 50% of them think that the imposition of these national insurance changes will result in its members cutting the numbers of jobs, and that two-thirds of its members believe that it will curtail recruitment. Bloomberg estimates that 130,000 jobs will be lost. The noble Lord, Lord Macpherson, talked about full employment; how can we do so when we have so many people not working at all? This is a nonsense. He also talked about the importance of addressing the numbers of elderly people who now have to be supported by a shrinking working population. I have to say to him—nothing personal, you understand—that having index-linked final salary pension schemes in the public sector and increasing the burden on people in the private sector, who do not enjoy such gold-plated pensions, is simply unsustainable.

If those on the Front Bench opposite are worried about black holes, they should consider the black hole represented by that. It is a contingent liability of £1.3 trillion, which makes the £22 billion black hole look like an asteroid compared with it, or with the black hole that student loans are creating. It is estimated that the nominal debt on student loans will be more than £1 trillion in 25 years. These are the black holes that should be addressed.

The truth is that our country is running on empty. We desperately need to reinvigorate the private sector to create the wealth to meet those obligations, and we are not going to do that by hobbling and damaging the private sector with impositions of this kind. If the Government want growth, we need less bureaucracy—not a quango being created every week. We want to be encouraging investment from overseas, not penalising it and forcing people to leave by introducing non-dom taxes. I personally know a large number of people who have already left the country. There must be a huge number because I do not know that many billionaires, unfortunately.

If you tax something, it is usually because you want less of it. Taxing employment makes no sense at all. If you want to tax something and to look at other sources of revenue, deal with the unfair competition from Amazon and other online retailers with our high street retailers. Deal with gambling, as the noble Baroness said, or with welfare dependency, which is partly at the root of the problems in this country.

The Government’s great boast, they say, is “Not a penny more on payslips” as a result of this Budget. Sadly, for many there will be no more payslips and no more pay increases. I hope that the Government think again and that there will be an opportunity in Committee for us to send a message to the House of Commons to rethink this incredibly damaging proposal, which goes to the heart of the Chancellor’s pledge to get growth in our country.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Forsyth of Drumlean Excerpts

Committee stage
Tuesday 21st January 2025 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a great pleasure to follow the noble and learned Lord, Lord Hope of Craighead. The example that he just gave us illustrates, down at the level of fine detail, the broader point I want to make about charitable organisations and non-governmental, not-for-profit organisations.

In thinking about making a contribution to this debate, I looked up contributions around the phrase, “I wouldn’t start from here”, to see some quotations. I found lots of rather repetitive jokes—noble Lords can look them up for themselves—so I shall aim not to be repetitive. As I said at Second Reading, the Green Party believes we should start with a wealth tax so that the people with the broadest shoulders make contributions to society in order that we can do what we need to do: invest far more in our austerity-stricken services and infrastructure and tackle the climate emergency and nature crisis. However, we can combine two things here and focus on charities and non-governmental organisations. We are talking about hospices, for goodness’ sake, which these amendments of which I am broadly in favour, deal with.

I want to cross-reference two Early Day Motions in the other place: EDMs 374 and 380, tabled by my honourable friend Ellie Chowns. They look at what a mess the social care sector is in now, with the chronic underfunding and the workforce shortages problems. They also note how much the voluntary sector is already under strain from escalating operating costs and cuts to contract funding.

The elements of these amendments that are worth focusing on are voluntary sector charities and not-for-profit organisations. I have a proposal to put to the Minister; it comes from the charities and NGOs that I have spoken to. They are saying, “Yes, we can imagine a scenario where we could cope with this national insurance rise, but not on 6 April, which is so close, with our budgets all set out and our staffing set in the position it is now”. Would the Government consider, specifically in the case of charities, non-governmental organisations and not-for-profits—particularly those in social care; the Government can draw the lines wherever they like—postponing for a year? This would surely not involve that much money in terms of the Budget, but postponing for a year would give these organisations the chance to reorganise their budgets so that they have a chance to prepare for this situation. That is neither where I would like to end up nor where I would like to start, but it is a constructive suggestion to help these organisations, many of which are in desperate straits.

[Lord Forsyth of Drumlean (Con)]

My Lords, as we have heard, it is rather unusual for a Bill that will have such a devastating impact on our country, businesses, charities and so on to have its Committee stage in Grand Committee. Normally, we would have it on the Floor of the House. It is certainly true that past national insurance Bills have been taken in Grand Committee, but it is distressing that the Government have chosen to push this Grand Committee to consider a very controversial Bill that will affect many groups of people. It should be taken on the Floor of the House.

I hope that this is neither a precedent nor a move that drives us in the direction of the House of Commons, which moved towards the timetabling of Bills, and proper scrutiny of important Bills, on the Floor of the House. We are familiar with the consequences of that: us having endless amendments to legislation that has not been properly scrutinised. If this was about saving time, I do not think it is going to work, because the fact that we cannot have votes in this Committee will mean us spending, perhaps unnecessarily, rather a long time on Report. Of course, the whole point of Committee stage is that it enables a bit of to and fro and discussion under the rules that apply in that respect.

I find myself in an unusual position in the Grand Committee, speaking on a highly controversial Bill, devastating in its consequences. The Minister is keen on telling us about black holes and this creates an enormous black hole in the delivery of public services and for businesses up and down the land. The unusual position in which I find myself is being in complete agreement with the noble Lord, Lord Scriven. I started to make notes to find something that I thought he had got wrong, but I could not say anything until I looked at the amendment, because the flaw in his erudite and proper analysis of the damage that will be done to GPs, social care, pharmacies, hospices and others is the distinction that he makes between the public and private sectors.

Apparently, if one is doing this in the private sector, it is okay to slap on a great tax that means one has to consider dismissing staff and so on. But if it is in the public sector, that is completely unacceptable. This is particularly egregious, although I think, and the noble Lord will correct me if I am wrong, he makes an exception for the provision of care home services in the private sector. I am not sure if that is right. I shall happily give way to him if he thinks I have got it wrong. In other respects, however, it is all about giving—

[Lord Scriven (LD)]

My amendment is clear. It is not just about the public sector. It talks about anyone who is contracted, which could be in the private sector.

[Lord Forsyth of Drumlean (Con)]

Yes, but that that completely removes the private sector providing, for example, social care. A report on social care from the Economic Affairs Committee, which I chaired some time ago, was very much endorsed by the House as a whole—there was unanimous agreement across the House. It made clear what is happening in private care homes, for example. People who are paying their own fees, as opposed to them being paid by the local authority, are being charged up to 40% more to subsidise people who are in those homes as a result of the local authority. Here we have a situation where the burden is placed even more strongly on people providing care out of their own savings and resources.

It seems to me that a distinction is being made between the elements that are providing care. For example, in dentistry, every time I go to the dentist—I see him every six months, when he has me in a position of some vulnerability—he tells me that he is unable to take on NHS patients because if he does so, the amounts he is allowed to charge mean that he is making a loss. That loss occurs because of staff and other costs, which will increase as a result of these measures. That will mean that the problem of getting dental care in the NHS, which is acute at present and even more acute for people with particularly severe orthodontic conditions, will get worse. He tells me, for example, that people can wait until their teenage years before they get treatment, and then they have to show that they have had treatment for the previous few years. If they have not had that, they are no longer eligible. The result is that people do not get treatment at all. Everyone knows that NHS dentistry is in crisis. As the noble Lord, Lord Scriven, pointed out, this will make it even worse.

Then we have the issue of the hospices. The noble and learned Lord, Lord Hope, mentioned the case of Cyrenians and I would be remiss if I did not. My noble friend Lady Goldie asked me to mention the letter that she received from that organisation, and the noble and learned Lord highlighted the fact that this will mean £171,000 extra for a charity—not a big one—which is struggling. When I was Health Minister in Scotland a million years ago, I introduced pound-for-pound funding for hospices, whereby the Government would match the funding raised by the hospices. That was hugely successful but subsequently repealed by the Scottish Parliament when it came into action. Hospices are organisations that we should be supporting. We should not be thinking of new taxes on the people that they have to employ, although of course they benefit from many volunteers.

The whole Bill is deeply misguided and, as the noble Lord pointed out, will have a devastating effect, not just on private providers but on all providers and charities. I remind the noble Lord that had we had his excellent amendment on the Floor of the House, we could have divided on it and sought the opinion of the whole House, but because we are put in here, we are unable to do so. That is a great disservice. Of course, it means that the Liberals—

[Baroness Smith of Newnham (LD)]

And democrats.

[Lord Forsyth of Drumlean (Con)]

Well, I am not so sure about the “democrat”, but they are certainly called Liberal Democrats. They will be able to say, “We raised your concerns”, but they raised our concerns in a way that made it difficult to have the rules of engagement that would enable us to refine those amendments in Committee.

I hope that in considering his amendment, the noble Lord, if he takes it a stage further—I do not anticipate that the Government will accept it—may take account of the concern that it is not just about the public sector but the private sector. Bear in mind that this is just one measure on top of others—the increase in the minimum wage and the employment rights legislation—that will make it much more difficult for people to be flexible in their labour arrangements. All these things together are crushing these important public service organisations.

I support the amendment, but I hope that the noble Lord might think further on the contribution made by those private providers providing services to people who pay from their own pockets.

[Lord Scriven (LD)]

My amendment, in proposed new subsection (1B), says:

“A ‘specified employer’ means … a person providing a care home service”


under the Health and Social Care Act 2008. So that will cover a private care home, not just a public sector care home. Would the noble Lord agree?

[Lord Forsyth of Drumlean (Con)]

I would agree, but it would not provide for the costs of private patients, who are already paying over and above the odds because of the local authorities. I am not criticising the local authorities—in fairness to them, they simply do not have the money. More than three-quarters of councils’ budgets are going on social care, and the costs are going up. This is extending the cost, and therefore it will mean a greater burden on those people paying out of their own pockets.

[Lord Eatwell (Lab)]

When the noble Lord, Lord Forsyth, raised the issue of our meeting in Grand Committee—when the proposal was being discussed—and argued that votes could not be taken, I intervened and said that he was incorrect because I had won a vote in a Grand Committee many years ago. After a little research, I discovered that the noble Lord, Lord Forsyth, was right and I was wrong. The reason is that the Committee in which I won a vote was a Special Public Bill Committee. For those of your Lordships who have not encountered such a thing, a Special Public Bill Committee is exactly the same as a Grand Committee, except you have votes. It is designed to deal with Law Commission Bills. I apologise to the Committee for that error, and especially to the noble Lord, Lord Forsyth.

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

The noble Lord was kind enough to write to me and apologise, and we always very much respect the courteous way in which he handles debates in our House.

[Lord Eatwell (Lab)]

That is very kind.

I turn to the amendment. One of the major failings of the UK tax system is its complexity. That complexity is a major source of tax avoidance—that is, the use of legal loopholes, often in ways totally unintended by the policymaker—to avoid tax. The real problem is the large number of exemptions—exemptions which riddle our taxation system and make it so susceptible to tax avoidance.

Increasing exemptions to a particular tax is the wrong way to deal with the perhaps real problems described by the noble Lords, Lord Scriven and Lord Forsyth. The right way is for the Government to target direct subsidy to those services that they wish to have funded. These proposals increase the number of exemptions in the tax system. I can assure the proposers that they will be gamed and will result in tax avoidance, which is totally outwith the intention of the proposers of the amendments. Several other amendments would also add exemptions to the tax system. We should not do it. It makes our tax system worse and more complex and it increases avoidance. The approach embodied in the amendments is a very bad idea.

[Lord Forsyth of Drumlean (Con)]

Before the noble Lord sits down, does not the Bill itself extend extensions, by changing the secondary threshold for class 1 contributions?

[Lord Eatwell (Lab)]

I agree, but adding more exemptions is adding to the pile. What we desperately need is a reform of our tax system that removes exemptions and forces Governments to make policy by deciding which goods and services they are going to subsidise.

--- Later in debate ---

[Baroness Neville-Rolfe (Con)]

My Lords, I thank the noble Lord, Lord Scriven, for tabling these amendments and others who have spoken, particularly my noble friend Lord Randall, who supported the amendments highlighting the damage to smaller businesses. I very much share his view.

This has been an interesting discussion and it has brought out how unjust the proposals in the Budget for national insurance were. The amendment rightly draws attention to the problems created across the health sector, all of which we will discuss again in detail on other groups. “Stark” was the rather good word used by the noble Lord, Lord Scriven. As we heard at Second Reading, there are appalling consequences for those dealing with some of the most tragic services, including hospices and the transport of those with special educational needs. There will also be an immense strain on care homes, GPs, dentists and pharmacies—mostly small operations employing a number of part-time and low-paid staff. That will seriously impact on the health of the NHS.

What is so unfair is that the public sector is being compensated for the extra costs. That is in contrast to those carrying out public good in the private sector, which, incidentally, we know is more productive. For example, I have been amazed by the industry of family-run pharmacies, which helped so much during Covid and are asked to do more and more year by year. They are having to deal with the treble whammy of NICs, the national minimum wage rises—especially for the young—and the prospect of the Deputy Prime Minister Angela Rayner’s proposals for new employment legislation.

As I highlighted at Second Reading, many in the health sector say that they will be forced to reduce services and limit headcount. For example, we heard from the noble Lord, Lord Scriven, about the increased cost of social care faced by the independent care providers—I think he talked about £900 million; I had a figure of £940 million—which simply dwarfs the £600 million support rightly included in the Budget to help the sector. If the Government recognise that this tax is not sustainable for the public sector, why are they unable to apply that same logic to sectors that provide public services? These are not big businesses. They provide a critical service for the people and, if they are unable to do so, that will add to the pressure on the NHS. The noble and learned Lord, Lord Hope, gave a good example of the Cyrenians in Scotland and my noble friend Lord Forsyth rightly mentioned hospices, as I think everybody will do throughout this Committee.

[Lord Forsyth of Drumlean (Con)]

Before my noble friend leaves this figure of £940 million for social care, something like one in seven of the beds in the NHS are occupied by people who are well and who could be discharged. If we are going to add a burden to the social care sector, that £940 million does not take account of the cost to the NHS of those beds being occupied by people who would otherwise be able to be in their own homes, not just saving the taxpayer money but also hugely improving their quality of life. So the £940 million —or the £900 million, as mentioned by the noble Lord, Lord Scriven—is a gross underestimate of the real costs that are being imposed by this policy, is it not?

[Baroness Neville-Rolfe (Con)]

My noble friend makes an excellent point. It is a question of the dynamics. I know, having once been a Treasury Minister, that dynamics always worry it. But the fact of the matter is that, if we can get things done and get people out of hospital quicker, as my noble friend suggests, that would make a real difference.

I feel that the proposals that we are faced with for hard-working businesspeople and for social enterprises are a huge slap in the face. They are being discussed on a day when unemployment is rising and job opportunities are falling. I believe that that reflects the impact of the £23.8 billion hit on employers’ national insurance. It is a veritable jobs tax and the gloom that the Government have admitted for the first six months of their tenure has not helped. That is why my noble friend Lord Forsyth was right to regret that we were debating this not on the Floor of the House but in Grand Committee. I hope that none the less we will attempt to give the Bill proper scrutiny here, because if we do not, that would be a big failing.

In that respect, one of the things that annoys me most is the lack of a proper impact assessment. We have a very inadequate impact note, which was published on 13 November. That gives a run of the yield to the Exchequer year by year but does not break it down into the three categories: the costs of the increase to 15%, the lowering of the threshold, which is extremely regressive, and the welcome benefit from the rise in the employment allowance—and indeed anything else included in the figure of £23.8 billion, which was by far the biggest change in the Budget and which is why so many people are here today worrying about the Bill.

There is also an unexpected dynamic effect highlighted by the OBR, which means that, following the reduction in wages, profits and employment, this tax will raise over £5 billion less than the Treasury forecast, raising £18.3 billion in 2025-26 and nearly £10 billion less than the forecast in 2026-27. So there is a great deal of pain for wealth creators and effective employers, but not a lot of gain.

I cannot see how we can scrutinise the Bill without proper impact information, and I look forward to a proper discussion during the debate on Amendment 13. However, I think the Committee would also like to have authoritative, disaggregated figures on the impact on the health and care sectors under discussion today. That is why I am raising this now, and I hope the Minister will consider what he can do to assist the Committee so that we can have proper understanding and proper scrutiny. We want to do the right thing here.

It is against that sombre background that I shall speak to my Amendments 38 and 42, which have been grouped with this amendment. They seek to increase the employment allowance in the primary care sector. My purpose is to probe the Government’s openness to helping the sector a bit more through an increase. Perhaps the Minister could clarify the facts. The BMA has said that, as public authorities, they are unable to access support via the increased allowance and the noble Lord, Lord Scriven, made a similar point in relation to dentists. The Committee needs to know whether that is true.

Mine is a probing amendment and the first of several relating to Clause 3. To reply to the noble Lord, Lord Eatwell, as someone who has tried to reform taxes in the past, originally with the help of my noble friend Lord Heseltine as part of the deregulation initiative, it is very difficult to get simplification of the tax system. That is one reason why I have tabled an amendment relating to the employment allowance, because it comes at the matter in a different way.

Primary care is vital to the Government’s plans to improve the NHS. My fear is that the NICs changes, especially the lowering of the threshold and with part-time working so common in primary care, will lead to further problems in GP surgeries, increasing chronic conditions and waiting times for appointments across the NHS, and having the perverse effect that I think we will come back to as this Committee progresses.

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

If the noble Lord is going to make a Second Reading speech on an amendment, is it okay if we all do the same thing?

[Lord Livermore (Lab)]

I think the noble Lord did in his contribution; I remember him raising the minimum wage, for example. I do not think that is directly related to the amendment. We are all absolutely entitled to set out some contextual points in the points that we raise.

Let me turn directly to the amendments in the name of the noble Lord, Lord Scriven, the noble Baroness, Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exclude care providers, NHS GP practices, NHS-commissioned dentists, NHS-commissioned pharmacists, charitable providers of health and care, and those providing hospice care, from the new rate and threshold for employer national insurance. I say at the outset that I have listened very carefully to the points raised by all noble Lords during these debates and taken on board what has been said.

As I said, the difficult decisions the Government took in the Budget last year, including those in the Bill, were necessary to repair the public finances, protect working people and rebuild our public services. As a result of the measures in the Bill and wider Budget measures, the NHS will receive an extra £22.6 billion over two years to deliver 40,000 extra elective appointments a week. This investment is dependent on the Bill.

As noble Lords will know, the Government have already set out that they will provide support for departments and other public sector employers for additional employer national insurance costs. But independent contractors, including primary care providers, social care providers, charities, including hospices, and nurseries will not be supported with the costs from these changes. This follows the precedent for such national insurance measures. It is exactly the same as was the case with changes to employer national insurance rates under the previous Government’s plan for the health and social care levy.

Primary care providers—in general practice, dentistry, pharmacy and eye care—are important independent contractors, who provide nearly £20 billion-worth of NHS services. Every year, the Government consult each sector about what services it provides and what money it is entitled to in return under its contract. As in previous years, the issues we are debating today will be dealt with as part of that process.

The Government have announced a proposed £889 million uplift for general practice in 2025-26 and have set out the proposed areas of reform that will help us to deliver on our manifesto commitments. This is the largest uplift to GP funding since the beginning of the five-year framework; it means that we are reversing a recent trend, with a rising share of total NHS resources going to general practice. We have started consulting the General Practitioners Committee of the British Medical Association on the 2025-26 GP contract in England. We will consider a range of proposed policy changes. These will be announced in the usual way, following the close of the consultation later this year.

Turning to adult social care, the Government have provided a real-terms increase in core local government spending power of 3.5% in 2025-26, including £880 million of new grant funding provided to social care. This funding can be used to address the range of pressures facing the adult social care sector. Finally, we are also supporting the hospice sector, with a £100 million boost for adult and children’s hospices to ensure that they have the best physical environment for care, and £26 million of revenue to support children and young people’s hospices.

I turn to the amendments tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, seeking to increase the employment allowance for employers in the primary care sector and for dental practices. Currently, small businesses with national insurance bills of £100,000 or less receive a £5,000 employment allowance, which means that they can deduct £5,000 from the total national insurance they pay on their employees’ wages. Under the proposals in the Bill, the employment allowance will increase to £10,500 from April 2025.

The Bill also expands the employment allowance to all eligible employers by removing the £100,000 eligibility threshold. This will simplify and reform employer national insurance contributions so that all eligible employers now benefit. Increasing the employment allowance for specific sectors, including just the primary care sector and dental practices, as my noble friend Lord Eatwell said, would add additional complexity to the tax system and would be incoherent, given the wider changes to simplify the employment allowance made in the Bill.

These changes would also create additional costs. How would these additional costs be met—through more borrowing, lower public spending or additional revenue-raising measures? If so, where would these additional taxes fall? If the Government were unable to meet these additional costs, we would be unable to provide the extra £22.6 billion for the NHS.

In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

--- Later in debate ---

[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.

[Lord Forsyth of Drumlean (Con)]

That is a very ingenious argument, and I hesitate to argue with such a distinguished economist, but just think of what the noble Lord said. He said that the increase in the labour cost as a result of this tax being imposed will force employers to improve productivity, and the way you improve productivity is by sacking the worker and replacing them with a machine, or AI or some other system. It is a bit of sophistry to suggest that it is not a jobs tax because it will only mean that some people will lose their jobs and that the improved productivity may have an effect. As for basing his argument on the predictions of the OBR, I think unemployment went up today.

[Lord Eatwell (Lab)]

It did not. The level of employment went down, but unemployment is not measured by that.

[Lord Forsyth of Drumlean (Con)]

Indeed, but let us not get into that argument. What is the biggest problem facing the country? It is that more than 9 million people who are of working age and capable of working are not working. An argument that suggests that by making it more expensive to take people on, and then add to that—I am not making a Second Reading speech —employment protection, that this will not result in job losses and therefore is not a tax on employment is, even by the standards of great economists, stretching the argument too far. The consequence of this will be, as the noble Lord acknowledged, that some people will surely lose their jobs because employing them will become too expensive.

[Lord Howard of Rising (Con)]

I just say, in relation to that and to the noble Lord’s arguments, that what he completely forgets is that manufacturing companies faced with this will simply move their production abroad. That is what he forgets.

--- Later in debate ---

[Viscount Chandos (Lab)]

My Lords, I shall speak briefly on this group, particularly Amendments 4 and 5, but the arguments that I make really apply to many of these early groups because each one is a special plea. My noble friend Lord Davies of Brixton asked, “How can you speak out against an exemption in favour of veterans?”. The same could be said for small animals or whatever tugs at our heartstrings, but it comes back to the argument that my noble friend Lord Eatwell made so powerfully, which is that in an already complicated tax and national insurance system, we should avoid any further complexity if we can, and I think that the price which that may impose on different organisations is a price worth paying.

The noble Baroness, Lady Neville-Rolfe, talked about her involvement in attempts to achieve tax simplification when she was in government. It was the Conservative Government who introduced the Office of Tax Simplification and then abolished it, perhaps because it came up with the inconvenient truth that the agricultural and business relief regime should be reviewed and, implicitly, abolished.

At Second Reading, I made a declaration of interests which include being a trustee of two charities. One of them is a higher education institution, so it is covered doubly by Amendment 4 and Amendment 5. Many noble Lords who have spoken have referred to their personal experience of charities or different organisations. I have to say that I am struck by the fact that the organisations of which I am a trustee have, without any input from me, taken this philosophically as a cost that they must cope with. No increase in cost is welcome. Energy-led inflation was not. The insurance inflation that we are all suffering from, the wage inflation that we have seen and the overall increase in the cost of living are unwelcome costs for any organisation, large or small, to bear.

As I suggested at Second Reading, there is an understanding in many organisations, including commercial ones—I cited the comments of Mr James Daunt, as chief executive of Waterstones and his eponymous chain of bookshops—that the purpose of this revenue-raising from the changes to NI feeds into supporting the community from which organisations draw their employees, customers and donors. For this reason, although I do not welcome the increase in the cases of the organisations with which I am associated and of the many others that are similarly affected, I believe in the simplicity of applying the same rate to pretty much all organisations in the private and voluntary sectors. The arguments for simplicity outweigh those of the individual challenges that this measure will give organisations.

[Lord Forsyth of Drumlean (Con)]

My Lords, it is a great pleasure to follow the noble Viscount, Lord Chandos, who is very wise and diligent. For many years, we were together on the Economic Affairs Committee. I agree with him about the simplification of the tax system. Indeed, the Office of Tax Simplification was a recommendation from the tax commission that I chaired back in 2006 to George Osborne and David Cameron. It was implemented and, somehow, the Treasury managed to bog it down in a way that prevented it doing an effective job.

I agree entirely with the noble Lord, Lord Eatwell, that we need a simpler, fairer tax system. The simplest way of dealing with that would be not to have this increase at all because then there would not be the need to have these exemptions. This is a problem that has been created by the Chancellor and the Government. I must say, in speaking to these amendments, that Amendments 4, 5 and 8—

[Lord Eatwell (Lab)]

Okay, let us say that we do not have this measure at all. Is the noble Lord going to cover the expenditure by borrowing or is he not going to spend on the health service, care services and the areas set out by the Minister in his scene-setting remarks?

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

The noble Lord is very diligent in his reading. I am sure that he will have read the all-party report that has only just been published by the Economic Affairs Committee of this House, which points to where savings can be made in welfare in a way that will encourage people back to work to make a productive contribution to our economy. That is my answer to the noble Lord’s question.

I have great sympathy with the noble Earl, Lord Kinnoull. As I was about to say, I do not know who did the grouping for Amendments 4, 5 and 8 but it is hard to think of more diverse subjects than education, registered charities, housing associations, town councils and parish councils, all of which are in one grouping. I am astonished that we are expected to deal with all of them here, so I may test the patience of the Committee in trying to address all of them.

Do noble Lords remember “Education, education, education”, that great banner carried by Sir Tony Blair, then leader of the Opposition and Prime Minister? Whatever has happened to the Labour Party that it wants to put a tax on the provision of education for those aged five and younger? It is most extraordinary, and therefore this amendment is very sensible. We all know that women, in particular, find it extremely difficult to combine childcare with work; this is adding to the cost of childcare.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords. I will address the amendments and proposed new clauses proposed by the noble Baronesses, Lady Grender and Lady Kramer, and the noble Lords, Lord Storey, Lord Sharkey and Lord Randall of Uxbridge, which seek to exclude early-years settings, universities, charities, housing associations and town and parish councils from the new employer national insurance rate. I have listened very carefully to all contributions made in this debate and, of course, I understand the points raised.

The Government recognise that early-years providers have a crucial role to play in driving economic growth and breaking down barriers to opportunity. We are committed to making childcare more affordable and accessible. That is why, in our manifesto, the Government committed to delivering the expansion of government-funded childcare for working parents and to opening 3,000 new or expanded nurseries through upgrading space in primary schools to support the expansion of the sector.

Despite the very challenging circumstances the Government inherited, in the Budget in October the Chancellor announced significant increases to the funding that early-years providers are paid to deliver government-funded childcare places. This means that total funding will rise to more than £8 billion in 2025-26. It is very likely that many private nurseries will be able to claim the employment allowance, as receiving public funds does not necessarily mean that work is of a public nature, and they should check HMRC guidance.

On universities, I of course recognise the great value—

[Lord Forsyth of Drumlean (Con)]

I accept that more money has been allocated to nursery and early-years provision, but providers are also facing increased costs. Does the Minister not accept that the national insurance charge is one that has been implemented by the Government, so the Government are giving with one hand and taking away with the other? The Minister is not really addressing the point that this is an unbudgeted cost that is being imposed on top of all the other costs that they face.

[Lord Livermore (Lab)]

I totally understand the points that the noble Lord is making but, as I said at the outset, there are specific reasons for the Bill. Those decisions are difficult decisions, but they are necessary decisions.

On universities, I recognise the great value of UK higher education in creating opportunity, being an engine for growth in our economy and supporting local communities. The Budget provided £6.1 billion of support for core research and confirmed the Government’s commitment to the lifelong learning entitlement, a major reform to student finance that will expand access to high-quality, flexible education and training for adults throughout their working lives.

The Secretary of State for Education has since confirmed that maximum fees will rise in the academic year 2025-26 for the first time since 2017, from £9,250 to £9,535 for a standard full-time undergraduate course. This was a difficult decision which demonstrates that the Government are serious about the need to put our world-leading higher education sector on a secure footing.

I have previously set out the Government’s position on additional impact assessments.

I turn to charities and housing associations. The Government recognise the need to protect the smallest businesses and charities, which is why we have more than doubled the employment allowance to £10,500, meaning that more than half of all businesses, including charities, with national insurance liabilities will either gain or see no change next year.

The Government also provide wider support for charities via the tax regime. The UK’s tax regime is among the most generous in the world, with tax reliefs for charities and their donors worth just over £6 billion for the tax year to April 2024.

More broadly, the Government deliver a number of grant and support programmes, including the community organisations cost of living fund last year and the ongoing social enterprise boost fund. Across 2023-24, the National Lottery community fund made grant awards totalling more than £900 million, 84% of which were under £10,000, with the majority supporting grass-roots organisations.

Regarding housing associations, the Government have announced major steps towards delivering a once-in-a-generation increase in social housing, including supporting the housing associations that deliver this. We are consulting on long-term social rent settlements to provide housing associations with the long-term stability they need to deliver crucial services. I am afraid that I cannot comment on the specific case that the noble Baroness, Lady Grender, set out, as I do not have all the information about it, but I am of course more than happy to discuss with her at any time. On the wider points, any exemptions, carve-outs or delays would of course undermine the fundamental purpose of the Bill, which I have set out before.

Finally, Amendment 8, tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Storey, seeks to exclude town and parish councils from the employer national insurance rate change. The Government have no direct role in funding parish and town councils and therefore do not intend to provide further support for the employer national insurance changes. This is in line with the approach taken for previous national insurance policy changes, including the previous Government’s health and social care levy.

All these proposed amendments would of course come at a cost. They would necessitate either higher borrowing, lower public spending or new revenue-raising measures. That is not what this Government intend to do. For the reasons I have set out, I respectfully ask noble Lords not to press their amendments.

--- Later in debate ---

[The Deputy Chairman of Committees (Viscount Stansgate) (Lab)]

In answer to the noble Baroness, I am in the hands of the usual channels.

[Lord Forsyth of Drumlean (Con)]

Good God.

[The Deputy Chairman of Committees (Viscount Stansgate) (Lab)]

They were once described as some of the most polluted waterways in Europe.

National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Forsyth of Drumlean Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

The argument in favour of the tax is, as the noble Lord, Lord Eatwell, mentioned earlier, that an extra £26 billion of spending will be introduced into the economy and that this will increase the demand, so reducing unemployment. Defending this principle, the noble Lord pointed out that the vital issue is what the money is used for. With respect to him, money passing through the Government’s hands is not spent as wisely, as effectively and with the same discipline as in the private sector. In the private sector, if you get something badly wrong, you go bust; in the public sector, there is no such immediate discipline.

[Lord Forsyth of Drumlean (Con)]

You get a knighthood.

--- Later in debate ---

[Lord Blackwell (Con)]

My Lords, I would like to put this discussion in the context of the profitability of the small businesses that we are talking about. The noble Lords who proposed these amendments have effectively made the point that many of these small businesses will be the engine of growth—the acorns that will develop and be the big businesses of the future. In successful small businesses, profitability varies tremendously, depending on the sector and capital intensity, but it would not be unusual for a business of this scale to have a net profit margin of around 10%. However, in some sectors, such as retail, hospitality and construction, that margin may be as low as 2% or 3%. When you are talking about adding 1% to the cost of employment, where the employment may be a significant part of the turnover, you can see that the impact on the net profit margin is potentially devastating, particularly since, in many cases, the percentage increase in their national insurance bill will be larger than 1%.

Clearly, we must be particularly concerned about start-ups because they are not yet successfully established trading businesses. They may have to undergo a number of years of losses before they get to that position. They accumulate those losses and they have to pay interest on those losses and, projecting forward, the additional costs may well tip the balance on whether those profitability equations earn an adequate return on capital to make the investment worth while.

Amendment 6 proposes to exempt businesses with a turnover of below £1 million. Obviously, that is a broad category to cover. We do not know exactly how many people are employed in such businesses but, as a rough proxy, the number of people employed in businesses with less than 50 employees is 47% of the entire UK workforce. We are talking about a significant part of the workforce being impacted by these changes, potentially in a significant way.

I heed the message from the noble Lord, Lord Eatwell, that we should not be complicating the tax system, but the only reason why we are discussing these amendments is the proposal to increase national insurance. If the Minister does not want to accept a broad exemption for small businesses, it would be helpful to the Committee if the Government could suggest amendments that would exclude those businesses that we are particularly concerned about—the start-ups and those on narrow profit margins—and see if there is a way in which to ensure that the engines of growth in this sector are not destroyed or damaged.

[Lord Forsyth of Drumlean (Con)]

My Lords, I just want to follow up on that excellent point made by my noble friend. It is a long time since I ran a small business, but I can still remember the feeling of fear as to whether, as one started up, one was going to have enough to meet the payroll at the end of the month. There is pressure on client and other businesses and there are risks, and events can drive you off course. When you have produced your budget for the year and are reliant on certain things happening, out of a blue sky—actually, the Labour Government did not come out of a blue sky; that was obviously going to happen—you suddenly have to find all this extra money. The impact is harder on the smallest businesses of that kind. It is hard to quantify and saps the enthusiasm and drive among entrepreneurs when they are faced by this.

I am very supportive of the Chancellor of the Exchequer’s determination to get growth in this country and the way she is going about it. However, as has been pointed out by several noble Lords—the noble Lord, Lord Blackwell, put it most crisply—small businesses are the ones that will become big businesses; they are the ones that will create the wealth, while the large businesses will shed labour. We keep being told how AI will mean that those businesses will be laying off labour. However, the small businesses are the ones that will be using artificial intelligence, if you believe it will be such a big change. They are the ones that will develop and use AI, but they are also being hammered and will find themselves facing great difficulty.

It is also the case that small businesses find it hardest to get support from the banks, because, increasingly, the large clearing banks are not interested. As we have heard in the Financial Services Regulation Committee, they are increasingly not interested in supporting SMEs. If the Chancellor’s determination is to get growth, hobbling small, embryo businesses is not a smart idea, if you are taking at least a longer-term view of three to five years.

--- Later in debate ---

[Lord Howard of Rising (Con)]

Given what my noble friend has said, would he agree with what I said earlier: that, actually, the money does not come back into the economy and that, when it is taken out, those companies that have been hit so hard end up going abroad? It becomes so much cheaper and easier to manufacture abroad that, looking at it from a wider perspective, it is completely negative.

[Lord Forsyth of Drumlean (Con)]

I completely agree with my noble friend. Actually, it is worse than manufacturing going abroad. Just think of this: where are the sorts of areas of business, in terms of distribution or marketing, where people are employed who are not particularly well paid but on whom there will be a big impact from this national insurance cost on the employers? They are in places like call centres. Suddenly you find that you get a huge additional bill for running your call centre, which you may be required to do as a matter of government regulation or for all kinds of reasons—it may not be directly related to your product. So what will you do? You will outsource it to India or some other country. The jobs will go, because it will be much cheaper. The quality may not be the same, but it might be the difference between surviving and not. So, as the noble Lord, Lord Eatwell, pointed out, this national insurance thing has to be seen in the round. Then add all the other things that are going up: the energy costs, which are going up—

[Baroness Neville-Rolfe (Con)]

That is 10 minutes.

[Lord Forsyth of Drumlean (Con)]

It may be 10 minutes; I will sit down and then I will get up and make my speech again, if the noble Baroness likes. It is advisory.

There are energy costs that people are faced with, the impact of increasing regulatory burdens and the fact that people are just giving up. The lack of an impact statement, which seems to be becoming a habit for this Government, is a major criticism. They have already got into difficulty due to not doing this. They have had to revise the proposals they put forward for non-doms because they suddenly discovered that the impact of their policy would actually reduce revenue, so they had to change it. Had they done a proper impact statement, they would never have made that mistake—and there are other examples.

So these amendments are important, and I hope the Minister will take these arguments on board and think again.

[Lord Leigh of Hurley (Con)]

My Lords, I apologise; I was not in the country to be present during Second Reading, although I did have the chance to discuss this with the noble Lord, Lord Londesborough, while we were supporting a much smaller economy than our own.

I support all the amendments in this group. I will speak later on the impact on the charities sector, in particular on social care homes, but I will concentrate now on the effect on business, in particular small business.

Small business is, of course, notoriously difficult to determine. There are all sorts of definitions of small business all over the legislation. The definitions that have been proposed are perfectly adequate. Companies House calls businesses small if their revenue is less than £10.2 million and they have fewer than 50 employees, and adds some balance sheet footing restrictions. Micro companies, however, are those that make less than £632,000.

One of the problems with the amendments—that can, as my noble friend Lady Noakes said, be revised—is how the Government will work out which companies are eligible for this reduction. As we know from our work on the Economic Crime and Corporate Transparency Bill, Companies House does not require disclosure of revenue for these small companies, particularly if the balance sheet and employee numbers are lower. The numbers are there in HMRC but, as we have discovered, HMRC will not release them. This could of course be self-selecting.

I have to disagree with the noble Lord, Lord Eatwell— I say this as a qualified tax accountant who is always happy to sharpen his pencil—that there will be any money in this for tax accountants trying to find wiggle room. These proposals are the simplest and most effective way to reduce costs for small companies. The proposal that the noble Lord suggests—I think I quote him—of “subsidies or benefits” is much more complicated and dangerous. I accept that research and development tax credits do a good job, but subsidies and benefits for small companies in place of reducing national insurance would be a far greater administrative burden, in my opinion.

These amendments directly affect small businesses. As we have heard from a number of people, they will suffer because higher employment costs lead to lower hiring capacity and potential job costs. This will lead to lower wages, which will lower morale and lead to higher wages, with pressure on employers. It leads to less investment and growth. The inevitable lower profits, which I think my noble friend Lord Forsyth indicated, means that covenants are at risk, which is a real issue for small businesses because banks are not sympathetic to this issue.

I too declare an interest: like my noble friend Lord Forsyth, I started a business. I had one partner and one assistant, and I too had sleepless nights about how we were going to survive and pay the payroll. We have 220 employees now, but my experience makes me very concerned for the survival of small companies. It has to be said that, although the Government Front Bench in the other place have many skills, abilities and experiences, none of them has started a small business. None of them knows and understands the pressures the small business men and women face. The risk of starting a business means that they have typically put up money secured on their home and left gainful employment so to do.

I urge the Front Bench here to listen to those who have been through that and adopt the sensible suggestion to conduct a proper assessment of the implications of what has been proposed. As my noble friend Lord Forsyth said, there are clearly economic challenges, but there are other ways of sorting them. The best, in my opinion, is to think about the 9 million people who are economically inactive. Steps taken to get the economically inactive into employment will dramatically improve the economy, whereas constantly justifying everything by the infamous £22 billion black hole does not lead to a sensible discussion.

Andy Haldane said that the black hole event was

“unnecessary and probably unhelpful economically”.

The aforementioned OBR has said that

“it was unable to confirm chancellor Rachel Reeves’ claim that she inherited a £22bn ‘black hole’ in the public finances from the previous administration”.

To be fair, the Chancellor’s claim that the Treasury had not been transparent about the pressures on the public finances resonates, but the chair of the OBE himself said that he

“could not endorse the £22bn ‘black hole’ figure specifically”.

Mr Hughes told a press conference a few months after the Budget that it was simply “impossible to say”.

I refer your Lordships to an article in the Financial Times in which Mr Hughes “noted that other measures” the Chancellor

“had included in her estimate of the £22bn ‘black hole’”

included

“her own £9.4bn uplift to public sector pay”

without any productivity gains. The article went on to say that, sadly,

“the Treasury has failed to fully explain how it arrived at the £22bn number”—

I know that explanations have been given, but I do not think that they are satisfactory—

“declining to answer a Financial Times freedom of information request on the subject”.

What is the effect on the economy now? Well, less than three months after the Budget, a report from the respected insolvency practitioners Begbies says that it has seen the number of companies in critical financial distress climb by 50% to 48,000 businesses. Consumer-facing sectors in particular have highlighted the concerning picture in the UK economy. Sectors that are served by small businesses, such as hotel accommodation, show an increase in financial distress of 83%, while the leisure and cultural sector shows an increase of 76%. General retailers—they include small shops, such as sweet shops and so on—show an increase of 47%; and it is 37% for food and drug retailers. These are all very worrying states of financial health.

[Lord Forsyth of Drumlean (Con)]

I am following what my noble friend is saying carefully. He mentioned the number of people who are apparently economically inactive, as well as the great pressure that there is on low-margin hospitality businesses. What does he think is the likelihood of this measure resulting in larger numbers of people working in the black economy and the Government getting no tax receipts whatever? My noble friend will remember, from being on the Economic Affairs Select Committee’s Finance Bill Sub-Committee, the horrors that occurred with the loan charge: employers were asking people to be treated as if they were self-employed through agencies, which resulted in people getting enormous, life-changing bills. To what extent does my noble friend think that this imposition of costs will actually create all of these problems, to the disadvantage of the Treasury and many other people?

[Lord Leigh of Hurley (Con)]

I am grateful to my noble friend for that comment, because it is clearly the case. Every single one of my corporate clients has told me that they have had to reforecast and rebudget with lower profit. Every single one has said that they are going to take steps to shave that back, and that those steps will include lowering their employment bill: they will either sack people, reduce hours or not recruit. Will that drive people into the so-called black economy? I cannot honestly answer that because I do not know, but the point is that none of us knows. This is why an impact assessment is so desperately needed before dangerous steps are taken to pressurise British business into—

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I stand as a winding speaker but also as someone who attached their name to Amendment 22 from the noble Lord, Lord Londesborough, which I think gets to the heart of the problem that we have with this Bill. To me, the most pernicious measure has been the dropping of the threshold, which has meant that trapped into employers’ national insurance contributions are the lowest paid and the part-timers. There is a disadvantageous impact on small businesses in hospitality and tourism, which are the backbone of so many communities and employ so many people for whom other work is very difficult to find. That makes it a really significant amendment, and I was very glad to attach my name.

I talked on an earlier set of amendments, essentially, about small businesses but also, more broadly, about tourism, hospitality and part-timers. I will not repeat that; the Committee has listened to me once on those issues and certainly does not need to hear me twice. I just make a small comment on why I am particularly concerned about the approach to small businesses, which is that it seems to me that the Government have put in some protections for what are genuinely micro-businesses but do not use “micro” and instead keep using “small”. The noble Lord, Lord Londesborough, identified the benchmark, which is about seven employees. Then you can start to do better under the changes that the Government have made. However, every time I read about the growth agenda, it requires the upscaling of our small businesses. This, in many ways, has been the British disease.

I was looking at reports from the ScaleUp Institute, which obviously does excellent surveys so you can get a granular feel of what is happening with many of these businesses. Most of them state that the first problem in scaling up is talent, but the second problem is access to finance. For a company that will now have to take on board additional costs—about £1,000 or more per employee—this will exaggerate that problem of access to finance. Many of them will now have to find finance in order to be able to cover the working capital that is engaged in paying higher employers’ national insurance. The noble Lord, Lord Forsyth, in his excellent and interesting Second Reading speech, covered some of the issues associated with that credit.

[Lord Forsyth of Drumlean (Con)]

It was not a Second Reading speech; I was addressing the issues in the amendment.

[Baroness Kramer (LD)]

We will have to beg to differ on that.

I think that the Minister will turn around and say that a great deal is being done for small businesses that want to upscale and that we should look at the British Business Bank. We are talking about an entity that is so small that it really cannot meet this need, so there is a very big problem here to be addressed. It seems to me that the way in which the national insurance contributions increase will work will knock back the effort that has to be made to help people get through what is often known as the credit valley of death, so that they can go from being small to the thriving, upscaled businesses that we need to drive the growth that we need.

--- Later in debate ---

[Lord Livermore (Lab)]

I will simply restate my point to the noble Baroness: the approach that we are taking is absolutely in line with the approach taken to previous changes in national insurance and previous changes to taxation, and the Government do not intend to provide further impact assessments.

[Lord Forsyth of Drumlean (Con)]

I am most grateful to the Minister for giving way. I am slightly surprised, having listened to so many of his speeches since the general election, that he is holding up the practice of the previous Government as a standard by which he should be judged.

I asked specifically about the new proposals in the Budget for non-doms, which have turned out to be disastrous in terms of the number of people who have left, and which have forced the Chancellor to make changes. Does he not recognise that, had an impact statement been done, they might have discovered what the impact would have been? That is for the benefit not just of the Opposition but of the Government themselves. Accountability strengthens Governments; it does not weaken them. Can he not see that the idea of producing impact statements is absolutely central to the whole process of accountability and prevents the Government making disastrous mistakes of the kind that is proposed in this Bill?

[Lord Livermore (Lab)]

I dispute the noble Lord’s description of the non-dom policy and the impacts that it has had. A tax information and impact note was put out alongside that policy, so we actually did put out an assessment alongside it.

[Lord Forsyth of Drumlean (Con)]

I am of course very familiar with that, but it was wrong, was it not? It was not an effective impact statement; otherwise, it would not have been necessary to change the policy.

[Lord Livermore (Lab)]

We have not changed the policy; we have made the policy easier to use. The policy is absolutely as it was at the Budget, as is the amount of revenue that we are scoring from it. An impact assessment was put out alongside that. My point is that what we are doing on impact assessments, on all the taxes that the noble Lord mentioned, is absolutely in line with what all previous Governments have done on impact assessments. We are content that that is a sufficient amount of information, and we do not intend to put out any further impact assessments.

Finally, I turn to the amendments tabled by the noble Lords, Lord Londesborough and Lord Altrincham, and the noble Baroness, Lady Neville-Rolfe, which seek to increase the employment allowance for small businesses. Again, the proposals in these amendments would create additional costs, necessitating either higher borrowing, lower spending or alternative revenue-raising measures.

The Bill already seeks to protect the smallest businesses and is significantly increasing the employment allowance from £5,000 to £10,500. This means that, next year, 865,000 employers will pay no national insurance at all, and more than half of employers will see no change, or gain overall, from this package. For the reasons I have set out, I respectfully ask noble Lords not to press their amendments.