National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Leigh of Hurley Excerpts

Committee stage
Tuesday 4th February 2025 Grand Committee

[Lord Swire (Con)]

I draw attention to my entry in the register of interests. I want to speak briefly in support of this series of amendments in the name of my noble friend Lady Noakes and others. It is very important to listen to what somebody such as my noble friend Lord Wolfson, who is involved in the retail industry, has just said.

I know, given my experience of dealing with the Treasury as a Minister, that it takes an absolutist position on most things. The Treasury does not like to cede any point at all; it regards that as some sort of weakness. I suspect that the Minister has been told that this is what the Treasury has decided and that he is not to resile from any of the arguments or rescind any of the inherent parts of the Bill. However, this proposal would not really change anything.

We on this side of the House are not arguing against these increases. However, the Chancellor of the Exchequer spoke in Davos about reinvigorating the economy and instilling confidence in it, at the same time as the Government are going to kick in the solar plexus a lot of those entering the market—people leaving university, for instance, and trying to get into the job market for the first time. They have an astonishing combination of challenges ahead of them, not least because of student loan repayments and the cost of housing.

If these changes are instigated so quickly now, where are the companies’ savings going to come from? They can come only from freezing employment and shedding jobs, from passing on the costs to the consumer and from totally stopping their R&D budgets. All these things are not, I would argue, in the long-term interests of the British economy.

By all means let these changes come, but let the market be prepared—the market being the employers, who can look at these changes and spend more time trying to accommodate them. Otherwise the Government are going to achieve what they think they are going to achieve on the one hand with an increase in income from these increases, but at the same time there must be a decrease because there will be fewer people in employment and more people needing some kind of financial support, which will have the precise inverse effect of what we are told the Government are seeking to achieve.

I hope that the Minister will realise that we are not trying to attack the principle of what the Government are trying to do. We recognise the fact that the Government need to raise revenue from somewhere, but we are asking the Government to think more holistically about the knock-on effects on those very people who they maintain they are also trying to help.

[Lord Leigh of Hurley (Con)]

My Lords, I rise to support these amendments. It occurs to me—I would be interested to know whether it is true—that this must be the first series of amendments where the three signatories have all been directors of FTSE 100 companies. That must tell us something. I think it is the first time, but I will be happy to be proven wrong.

It is a great pleasure to speak after one of my role models—she does not know it, but it is true—my noble friend Lady Noakes, as well as my noble friend Lady Neville-Rolfe and, particularly, my noble friend Lord Wolfson of Apsley Guise, who is widely regarded as one of the leading businessmen of his generation. I say that because he is from a younger generation than me, perhaps. He has an outstanding business career that has created thousands of jobs and tremendous value for shareholders. Thankfully, he still has time to contribute to your Lordships’ House and other communal activities, so when he speaks I think we should listen carefully. He is right to say that there is some truth that more expensive labour leads to greater productivity, mainly because productivity is measured as output per hour so, by definition, productivity improves, but it is not necessarily a good thing in and of itself. He mentioned the food sector. Certainly, in the hospitality sector I know of companies that are just closing down. This increase has led them to say that they are going to give it up, which cannot be what the Government want.

On 6 January, Next reported anaemic growth as the result of the tax measures. On the very same day, S&P Global’s Purchasing Managers’ Index came out and said that nearly 25% of British businesses reduced their workforce following the Budget specifically. The index indicated that the private sector has experienced its weakest growth in 14 months, with firms shedding jobs at the fastest pace in more than 15 years, other than during the pandemic. HMRC released its payroll data on 21 January. Employees in the UK declined by 47,000 to 30.3 million in December alone, the biggest drop since November 2020, which again was pandemic-related. As my noble friend Lord Wolfson mentioned, Sainsbury’s came out on 23 January with cuts to head office of 3,000 and an ambition to reduce senior management roles by 20%. Recently, on 27 January, the Confederation of British Industry reported that private sector firms expect a significant decline in activity over the next three months with a weighted balance of 22% negative. It said that this pessimism is widespread across sectors including services, distribution and manufacturing. The downturn was mainly due to the Budget.

With the assistance of someone who is much smarter than me on spreadsheets, I have tried to calculate the effect of all this. Although I am an economist by background, this is not a specialist area for me, so I would be extremely grateful if the Minister would ask the Treasury to comment on the numbers that I am going to give him. I think that they are right, but I would be more than happy to be challenged if they are not.

My premise is that the average UK earnings per full-time employee is £33,280. The number of full-time equivalents in the UK is bang on 30 million. If you increase the existing employers’ NI rate of 13.8% to 15% and reduce the existing NI threshold of £9,100 to £5,000, you get an increase in total NI take from £100 billion to £127.2 billion, giving you a total employers’ NI increase of £27.2 billion—or, to be precise, £27.154 billion—which is the sum that the Chancellor seeks. Fair enough. But, given all that we have heard today, what happens if employment reduces? You can put in any variable you like. I have taken what I regard to be a most reasonable suggestion of 3%. Let us say that, as a result of this, there is a 3% reduction in employment. Personally, I think it would be much more, but let us say 3%. At that point, the number of UK full-time equivalents becomes 29.1 million. The employers’ NI take goes to £123 billion, which is a reduction of £3.8 billion. But, at the same time, there is universal credit for those redundant full-time equivalents of £20,000 a head, which costs the Treasury £18 billion. If you add the loss of that universal credit to the reduction in NI take that I have just mentioned, you get a net loss of—guess what—bang on £27.05 billion. So, the 3% reduction in employment that I reckon will happen leads to absolutely no gain to the Treasury whatever.

I present those figures because I would like to be challenged on them and proven wrong, but I do not think that I am. Along with the signatories to the amendment, I hope that the Government will take this opportunity to reflect carefully, in the spirit of co-operation, as to whether it is wise to bring this measure in so harshly, so quickly.

[Baroness Fraser of Craigmaddie (Con)]

My Lords, I apologise to the Committee that this is my first intervention on the Bill. I am not a FTSE 100 director, nor am I the chief executive of a great company like Next. I am the chief executive of a small charity in Scotland and the reason why I have not been able to participate on this Bill is that we are going through a consultation process to reduce our employee numbers at this very moment as a direct result of the cliff edge and shock to us of the increases in national insurance.

I rise merely to say that everything that my noble friends Lady Noakes, Lord Wolfson and Lord Leigh have just said is my daily life at the moment. While businesses can potentially put up their prices, charities cannot. What also concerns me is that because this cliff edge, which is what these amendments are trying to smooth out, is happening at the same time as the rise in national minimum wage, we are facing a double whammy in trying to make our books balance.

What finally concerns me is that this will lead not only to a reduction in the number of those in employment but to a reduction of skills in these organisations. These things cannot easily be built up again, should the situation change. Give us time to implement and do the things that we need to do. I urge the Minister to listen to my colleagues and do all that he can to soften this terrible blow.

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[Lord Livermore (Lab)]

The Government tend to cost the Government’s policies. It is not usual practice for the Government to cost Opposition policies.

[Lord Leigh of Hurley (Con)]

Before the Minister sits down, will he commit to having the Treasury look at the numbers I mooted? I will happily send him the spreadsheet if it helps to verify whether they are accurate.

[Lord Livermore (Lab)]

The noble Lord set out some figures that are based on his assumptions, not the Government’s assumptions. I have no reason to dispute his maths or the computing power of Microsoft Excel, but I do not think I can commit Treasury resources to checking the figures in his own spreadsheet.

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[Baroness Sater (Con)]

I rise in support of my noble friend, who made an excellent and passionate speech about hospices and the dire need for support they will have if the NICs changes go through. They will affect, as we have heard already, redundancies and the level of staffing. The burden that will be put on hospices will be extraordinary and the figures are unbelievable if we consider how much they will have to raise if they have to find that money in the future. As I have said previously, it is imperative that we have an impact assessment whereby we can understand these individual sectors and the absolute devastation that will happen if we do not know what will happen, going forward. So I plead with and urge the Minister to reconsider and support my noble friend on this important sector. It is important that we know a little more about what will happen if these insurance rises take place.

[Lord Leigh of Hurley (Con)]

My Lords, I support my noble friend Lady Monckton of Dallington Forest in much the same way. If all goes to plan, I will speak on Thursday in respect of social care homes, particularly adult social care homes, where many of the same issues arise. I cannot imagine the response if a Conservative Government had decided to put national insurance rises on such institutions; can noble Lords begin to see the headlines that would be against us?

This House is a revising Chamber; it allows the Government the opportunity to pause, rethink and consider, and if ever there was a case to do so, this is it. Before the Government have the acute embarrassment of urging Peers to go through the Division Lobby to penalise care homes and hospices in such a way, I very much hope that they will take advantage of the gap between Committee and Report to reflect on the arguments.

[Lord Swire (Con)]

My Lords, I too support my noble friend Lady Monckton of Dallington Forest and thank her for her very moving and informed speech. It triggered a memory for me. I was approached by the Children’s Hospice South West for a fundraiser —my goodness, I think it was 15 years ago—and managed to raise a record amount by putting on an event for it. I saw for myself the astonishing job that hospices do. They provide a level of care and places that many of these people—children, in particular—could not find elsewhere, so the question for the Minister is this: if some of them are to shed staff and therefore be less able to take these very needy children and their relations, where will the Government step in? How will they take up the slack and what, ultimately, will be the cost to the Government?

I have some sympathy with the Minister. He has come here today to hold the Treasury line, of course, but we are wasting our time if, to each and every group of amendments we table, the stock reply is, “The Government need to raise the money. They don’t recognise the figures that the Opposition are presenting”, and we move on to another set of amendments. That does not suggest to me much dialogue or debate. But I congratulate the Minister on one thing: so far in our deliberations this afternoon he has not alluded once to the fictitious £22 billion black hole.

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[Lord Livermore (Lab)]

My Lords, Amendment 30, tabled by the noble Baroness, Lady Monckton of Dallington Forest, and moved by the noble Lord, Lord Altrincham, seeks to prevent commencement of the Bill until an impact assessment is published for the retail sector. Delaying commencement of the Bill would reduce the revenue generated from it and require either higher borrowing, lower public spending or alternative revenue-raising measures. The Government carefully consider the impacts of all policies, including the changes to employer national insurance.

As I have said previously, an impact assessment of the policy has been published by HMRC in its tax information and impact note. Further, the OBR’s economic and fiscal outlook sets out the expected macroeconomic impact of the changes to employer national insurance contributions. The Government and the OBR have therefore already set out the impacts of the policy change. This approach is in line with previous changes to national insurance and to taxation, and the Government do not intend to provide further impact assessments.

Amendment 51, tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, seeks to increase the employment allowance for those employed in the retail sectors. The Government are taking action as part of the Bill to protect the smallest businesses by 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 will gain overall from this package. This means that employers will be able to employ up to four full-time workers on the national living wage and pay no employer national insurance.

The Budget also set out further steps that the Government are taking to strengthen small businesses’ ability to invest and grow, including in the retail sector. This includes freezing the small business multiplier, permanently reducing business tax rates for retail, hospitality and leisure properties from 2026-27, and publishing the Corporate Tax Roadmap to provide stability and certainty within the tax system for businesses across the economy.

Increasing the employment allowance for specific sectors would add additional complexity to the tax system and, by adding further spending pressures, would require higher borrowing, lower spending or alternative revenue-raising measures. In light of the points I have made, I respectfully ask the noble Lord to withdraw his amendment and other noble Lords not to press their amendments.

[Lord Leigh of Hurley (Con)]

The Minister helpfully said in his opening remarks that not doing this would mean that the Government would have to increase borrowing, reduce spending or increase taxes. Yesterday—I think—I tried to be helpful by suggesting to him that there is a way of raising further revenue by amending the digital services tax to make it effective and looking at VAT on imported goods below £135. Since then, the American Government have announced that they are looking to put import taxes on goods below £135 imported from China, and the Times reported that the digital services tax was being looked at again.

In this context, will my noble friend, or rather the Minister—I beg his pardon; as he knows, I already regard him as a noble friend—reconsider what other options there might be to replace the areas of taxation which noble Peers on this side of the Committee have expressed concerns about?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for his comments and very happy to be his noble friend once again. As he knows, the Government keep all taxation under review, and I will take his submissions as representations on that matter.