National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Leigh of Hurley Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

[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”.

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[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—

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

My Lords, we will resume the Committee. The noble Lord, Lord Leigh, has the floor.

[Lord Leigh of Hurley (Con)]

My Lords, I think that I had reached the conclusion of my remarks, which is that I support these amendments. I particularly support impact assessments.

Before I sit down, I just make the comment that it is somewhat strange to note that we were voting on something in the Chamber of the House relating to boxes in the Royal Albert Hall, but we are deprived of the opportunity to vote on the matter of national insurance rises for every company in the UK. That seems to me to be somewhat absurd.

[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.

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[Lord Livermore (Lab)]

I am grateful to the noble Lord for his follow-up points. As I have said, we are not able to provide him with those figures and that remains the position.

[Lord Leigh of Hurley (Con)]

I asked for an impact assessment on the National Security and Investment Bill, and none was forthcoming, but this is in respect not to tax but to social security. Therefore, there are no precedents.

[Lord Livermore (Lab)]

I disagree with the noble Lord. The previous Government’s health and social care levy is a very direct precedent.

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We have heard over the past two days the damaging effects of the increases on many sectors. I hope that we will see some more movement from His Majesty’s Government and their position in relation to charities and the voluntary sector, and that the impact statement will be published. If not, I might have to bring this issue back on Report.

[Lord Leigh of Hurley (Con)]

My Lords, I support all the amendments in this group. I spoke in respect of small businesses and, as the Minister will have detected, I was upset about the effect that the NI increases will have on small businesses. I would not say that I am upset about the effect that it will have on charities: I am angry and disappointed. The Labour Government have dramatically let down charities and they should know better. The total increased cost of employers’ NIC is estimated at £1.4 billion a year to the charity sector alone. Those are not my figures; they are from the highly respected aforementioned NCVO, with which I have worked in the past.

I have done a lot of work in the charity sector. I formed the committee to look at fundraising abuses, working with the NCVO, from which the fundraising regulator came about. I chair four charities in the United Kingdom. I work for a number of other charities, as indeed do other noble Lords in this Room.

For example, every year I run 10 miles for WaterAid. One of the noble Lords present in this Room supports me, for which I am grateful. Every year, I raise £50,000. I have raised £0.5 million for WaterAid in total. The entire benefit of my fundraising for WaterAid has been wiped out by the national insurance increase. The whole purpose of the fundraising for so many people is wasted, gone, because the money has gone to the Government for the purpose of raising revenue, which I understand is perfectly reasonable. But surely the Government could be more intelligent and sympathetic to charities in seeking to raise revenue. I know that the Minister is driven by empirical statistics.

[Baroness Sater (Con)]

Can I just follow up the point that my noble friend raised about fundraising? When we start to lose staff and people in the charity sector, and in charities as a whole—charities are people, after all—we will not have the ability to raise the funds that were assisting the Government to provide services. So it is a double whammy: charities will not only lose money through paying increased national insurance but lose money that they would fundraise to help support them.

[Lord Leigh of Hurley (Con)]

I am most grateful to my noble friend Lady Sater for underlining my point. It is exactly that. People will turn to me and ask, “Well, why should I give to you, Lord Leigh, and your fundraising efforts, because the Government are going to take away much more?”

According to the Charity Commission website, there are 5,435 charities with an income between £0.5 million and £1 million. On average, they make a surplus of just over £13,000 and employ about 12 people. So the increased cost caused by the raise in the NI for people on the minimum living wage, which is a large proportion of such people, will be £997. There are some heroic assumptions in this, but it is not unreasonable to say that the cost to these charities, on average, will be just over £12,000, which wipes out almost their entire surplus.

I accept that those charities will receive employment benefits, so let us look at some of the larger charities. There are 6,000 charities in the £1 million to £5 million range. Interestingly, they raise a total of £13 billion and spend a total of £12 billion, most of which is on salaries. On average, they employ some 35 people and the surplus is just over £19,000. The extra cost to them will be £35,000, which will not just wipe out their entire surplus but push them into deficit.

There are only 1,200 charities with income in the £5 million to £10 million range, and they employ an average of 104 people, so the extra cost to them of the NI burden is £103,000. Their average surplus is £47,900. Once again, their surplus will be completely wiped out and, thanks to the imposition of these extra costs, they will make a loss.

As my noble friend Lady Sater said, the NCVO wrote to the Chancellor, and I note that its letter was signed not just by the NCVO but by 7,360 charities. It employs over 1 million people. Charities deliver benefits to the public sector of some £17 billion a year, so this is distressing, to say the least. My noble friend raised a number of specific charities; she mentioned a local Age UK, with which I do not have any connection. Age UK states:

“This particularly impacts organisations that employ significant numbers of low paid staff … Local Age UKs are warning that these changes will significantly impact their ability to provide essential services to vulnerable older people, particularly in underserved areas”.


In turn, this will have

“a knock-on effect on older people’s health and wellbeing, increasing demands on our already hard-pressed health and social care services”.

I made the point earlier—it was a political point—that the Labour Front Bench does not have as much business experience as it might, although it has many other attributes and qualities. It has a strong and close connection and experience with the charitable sector; there is a good relationship. So why on earth would the Government not accept these amendments to help the charitable sector and save it from these disastrous costs?

[Baroness Lawlor (Con)]

Will the noble Lord comment on a different service that charities provide? For instance, my think tank has often been contacted by government departments asking to have a run of research on, say, intellectual disability and its cost. When I ask the official why they want that, they say, “It would be a very good study, but we couldn’t do it for less than—”, and they tell me the astronomical sum of money that it would cost them to do the same study.

Time and time again, we have demands for all kinds of work, which we have done and published, because we can do it, and we can get the best people to do it. People will give their expert advice and analysis for free. The Government, of whatever complexion, will then benefit. Why have this Government and other Labour Governments not done this? It is like cutting off your nose to spite your face.

Of course, I do not think for moment that the noble Lord, Lord Leong, on the Front Bench opposite, does not have business experience, but charities save taxpayers money and provide the Government with many different types of services.

[Lord Leigh of Hurley (Con)]

I thank the noble Baroness, Lady Lawlor, for that. One of the four charities that I chair is a think tank, so I totally agree with her. In this country, the Charity Commissioners are particularly effective and very good at clamping down on organisations that are not proper charities. So we can be comfortable that any organisation registered with the Charity Commissioners as a charity is bona fide and generates good work, as the noble Baroness said.

I urge the Minister to have a deep think about this and consider an additional exemption for the private sector. An exemption has already been made for the public sector, so it is doable.

[Lord Jackson of Peterborough (Con)]

My Lords, I support the amendments in the name of the noble Baroness, Lady Bennett of Manor Castle, and my noble friend Lady Sater. It is a pleasure to follow my noble friend Lord Leigh of Hurley.

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[Baroness Noakes (Con)]

My Lords, I want to comment briefly on whether we should have impact assessments, which has been a theme running through a number of amendments.

I know that the Minister has his set formula, which he will repeat again now. When he responded to the earlier amendments, he talked about finding precedents for not having impact assessments. I will go back and look at the details of those in Hansard, but, from memory, none of those changes produced the outcry that these sets of changes have produced. Businesses, charities and hospices are all telling us that this is a major disaster. So I believe that his precedents are not on all fours in this particular case; we ought not to be fobbed off by the fact that the Treasury has, over time, found it inconvenient to produce impact assessments. I cannot think of anything quite as damaging in the past to large sectors of the employed population and their employers, so we should not regard the Minister’s set formulation as an end to the story on impact assessments.

[Lord Leigh of Hurley (Con)]

I just ask: what are the Government afraid of? This is a sensible suggestion about assessing what the effect might be of an enormous change to every business and charity organisation in the country. If it is such a good thing—we are told that it is—verify it.

[Baroness Kramer (LD)]

My Lords, I shall be extremely brief. It must be galling for the Minister to sit here and be lectured by the Conservative Benches because he and I so often tried to obtain information and were consistently denied it. The noble Baroness, Lady Noakes, asked why there was not a greater outcry. Everybody just got so used to being denied information.

I am sure that the Minister will also be able to cite many economic crises when information was not provided—I have to say, the silence on the Conservative Benches in not calling out for that information was very loud, if I can put it that way. I am sure that, if the Conservatives were back in government again, we would get the same absence of transparency and limitations on information. There are perhaps two honourable exceptions—the noble Baronesses, Lady Noakes and Lady Neville-Rolfe—who stood out against their party when every other voice was one that co-operated in that silence.

That silence was part of the reason why there was so much mistrust of the Conservative Government in the end; it was part of their undermining. As the Minister and his Government start to look at reform, which they are looking at more generally—particularly in dealing with the Civil Service—looking for opportunities for transparency would be a really positive move. With information, we stand on more secure ground. Will he consider that? I have asked him that before.

It is realistic to understand that we are unlikely to get impact assessments ahead of the actions that the Government contemplate doing in the next few weeks, or just in the next couple of months, but post reviews are at least a place to begin. They shed light, and they help both the Government and Parliament to understand where things have been effective and where they have not. If the Minister feels that he cannot accept these kinds of requests for immediate impact assessments, will he consider seriously the various requests made in other groupings for post-facto analysis and review?