National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Jackson of Peterborough Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Jackson of Peterborough (Con)]

My Lords, this feels very much like a knee-jerk Treasury groupthink policy, because the October 2024 Budget had the biggest tax increase we have seen for many years. It is a levy or tax and, as noble Lords have previously said, you generally tax things that you do not like. In this case, it is a disproportionate tax on jobs.

I have to let your Lordships’ House into a little secret. I am young enough to have read the A-level textbooks written by the noble Lord, Lord Eatwell—I am sorry if that gives away his age. Much as I agreed with a lot of what he said, I have to disagree with him about the unique propensity of the previous Conservative Government, of whom I have occasionally been critical myself, for creating public sector debt. Between 2007 and 2010, public sector net debt as a proportion of GDP, under a Labour Government, increased from 36% of GDP to 65%—unprecedented numbers. So, much as I agree with him on some issues, such as the disproportionate concentration on low-skilled immigration to drive growth, he was wrong on that particular issue.

A truly courageous Government with a strong and confident mandate would have responded to the challenges put by the noble Lords, Lord Eatwell and Lord Macpherson—who is not in his place—on policies to drive growth. But they also would have looked at raising money for some big policy issues, such as the policy on social care, which we will now not see till 2029, or policies on the planning system, on our dysfunctional housing and mortgage market, on our universities’ funding model, on reducing immigration and our dependence on low-skilled foreign workers, and on our worklessness crisis. As my noble friend Lord Forsyth of Drumlean said, 9 million people who could work are on benefits or are not able to work.

Those are the choices that the Government could have made. They could have made them via some really courageous fiscal decisions, which they have not made—on, for instance, the triple lock or changes in fuel duty, which they have shied away from; moving to a project-based approach to overseas aid; and, of course, my favourite one: tackling public sector pensions, which this Government will never do, for obvious reasons. This proposal is what Labour Governments always do. When they come to power, they clobber the wealth creators, the innovators, the entrepreneurs and the investors, while taking care of their trade union friends. It happened in the 1970s and it is happening again today. We thought we had had a break from that with the Blair Government, but we are now back to the bad old days.

This proposal is also an egregious breach of a manifesto commitment. My noble friend Lady Noakes did not dwell on this, but the right reverend Prelate the Bishop of Southwark did. It has broken a solemn promise—a binding contract with the electorate before a general election. In May, the now Chancellor said that Labour would not increase income tax, national insurance or VAT, and would not raise either income tax or national insurance for

“the duration of the next parliament”—

namely, the Parliament we are now in.

The distinction between working people and employers is tautology and disingenuous. It most assuredly is not a measure that will give rise to economic growth in any meaningful sense. It also betrays a fundamental misunderstanding of the impact of fiscal policy. In its pre-Budget paper on 28 October 2024, the Institute of Economic Affairs stated correctly that

“the incidence of a tax doesn’t always fall on the person who pays it. When we tax businesses, it is often workers who end up bearing the burden in the form of lower wages”.

Secondly, tax affects behaviour, and the choices people make in response to a tax increase or a tax cut can have a significant impact on how much revenue is raised. I do not think that His Majesty’s Treasury has really considered the impact on, for instance, concealed employment and forced self-employment that might arise from behavioural changes that this tax gives rise to.

Even the OBR assumes that just over two-thirds of additional business costs will be passed directly to working people, giving us higher prices, lower wages, the decision to hire fewer people and, therefore, an impact on real wages. Already, the S&P Global Purchasing Managers’ Index composite employment index shows a drop in new jobs being advertised. This policy has undermined consumer, business and investor confidence. The policy will be introduced in April against a backdrop of lower growth, rising wage/price inflation, increased debt and the potential that, within the next two or three years, tax as a proportion of GDP will hit an all-time high of 38%.

These changes are, as my noble friend Lady Noakes said, also regressive, even allowing for an increase in the national living wage. They will disadvantage almost 1 million businesses, and the figure of £25.7 billion by 2030 is illusory due to the offsets and allowances the Government have been compelled to offer. This raises perhaps £16 billion by the end of the Parliament.

Research by the Centre for Policy Studies, in its report Punching Down, published just last week on 3 January, shows that the huge tax hike for businesses will disproportionately hit those employing lower-wage employees, especially in areas such as leisure, hospitality and social care. There will be a 60% tax increase for those employing people on the lowest wages in 2024, adding £1,617 per capita in NICs for those full-time equivalents on minimum wage. A full one-fifth of employment costs will now be taken up with tax liabilities from April this year. Tesco alone will be paying £1 billion extra, and across ASDA, Sainsbury’s and Morrisons there will be an extra £1.3 billion in tax liabilities. As we heard earlier, the British Retail Consortium estimates a total cumulative cost of £7 billion across the economy.

That will have an inevitable impact on income and wealth inequality, and especially on young people. We have heard the British Chambers of Commerce say just today that 55% of companies are now planning to increase prices in the coming three months, up from 39% in the third quarter. Many are very concerned about the national insurance changes. Shevaun Haviland, director-general of the BCC, said:

“Businesses confidence has slumped in a pressure cooker of rising costs and taxes”,


and

“Firms of all shapes and sizes are telling us the national insurance hike is particularly damaging”.

David Bharier, head of research at the British Chambers of Commerce, said:

“Faced with rising costs, our survey paints a difficult picture and shows businesses are having to make some very difficult decisions”.


Because of His Majesty’s Government’s incompetence, lack of planning and ill-thought-out policy, this gives rise to a number of perverse consequences. We read last week that His Majesty’s Treasury is scrabbling around to cut sweetheart deals with public sector contractors and providers who are intending to pass on the costs to the customer—in other words, the taxpayer. They are seeking variations in their contracts to cover “legislative increases”. Either way, this represents price gouging at the expense of largely private sector-employed taxpayers. Perhaps the Minister will specifically update us on these negotiations.

We still do not have a comprehensive picture of the extent of the amelioration and offset funding available, and to which bespoke public sector organisations it applies. Whether it is £4.7 billion or £5.1 billion estimated by the end of this Parliament, it still means higher public expenditure without meaningful reform, higher inflation and an indirect tax hike for private sector employers and employees. Will the Minister also update the House on this issue?

In the last minute or so of my remarks, I will focus on two important healthcare areas impacted by the changes, which other noble Lords have already mentioned and to which I think the Government have given too little thought. GP surgeries are independently owned private sector entities delivering public healthcare services. The NHS Confederation and even the BMA have raised significant concerns about the changes that will result in a forced choice between reducing staff and increasing patient numbers. Both will have an impact on the quality of service delivery in primary care. Does the Minister have an update on the response to these concerns by His Majesty’s Treasury and the Department of Health and Social Care?

In addition, the charity sector, as we have seen, faces existential challenges and threats to its funding model and operational effectiveness as a result of these tax changes. Mencap, which specialises in delivering services for people with learning difficulties, is having to find an extra £18 million a year in the light of the national living wage, increases in NICs and the contingent pay rises for those who are already paid by them.

The final issue is community pharmacies. The national living wage, NICs and business rates mean that they have to find an extra £200 million a year in mitigation as a result of this policy, despite the fact that 90% of their work is dispensing NHS medicines and delivering NHS services. What we see is essentially a crisis in the community pharmacy sector.

In conclusion, these tax changes and the increase in job taxes are inimical to the Government’s professed aim of GDP growth. They will damage businesses and investment and destroy job opportunities, especially for low-paid working people, and are unfair and regressive. The Government must not only think again but be clear on how they help to offset these increases, and who they help in doing so. For this reason, I support the spirit of the Liberal Democrat amendment and urge the Government to bring forward an amended scheme as soon as practicable to tackle the impact of this deeply flawed, damaging, job-killing Bill, which will do nothing for jobs, growth and prosperity.