National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Leigh of Hurley Excerpts

Thursday 5th March 2026 Lords Chamber

For the sake of brevity, there are some amendments in this large group which I have not spoken to, such as that in the names of the noble Baroness, Lady Altmann, and the noble Lord, Lord de Clifford. I thank them for their engagement with the Bill throughout its stages and for their proposals today, all of which speak to the same concerns. The Minister has left a lot to be desired after Committee. We shall be listening carefully to his reply today. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will speak to my amendment in this first group. Needless to say, I agree with everything my noble friend Lady Neville-Rolfe said from the Front Bench. This Bill is a most unfortunate Bill. It clearly has come about because the Chancellor has said to her officials, “I need £5 billion, can you find it now?”, and out of the bottom drawer has come a Bill which has been rejected by so many others. I do not think it was in the manifesto; it is just an opportunistic grab of people’s savings.

The Bill has most unfortunate side effects. As we will show in later amendments, it will not raise the £5 billion that the OBR has been led to believe it will. It will fall far short of that. Proof of that, of course, is in the fact that even the OBR recognises that that £5 billion will fall by half the following year, as people work out what is going on and take evasive action. The reason it will not raise £5 billion is that people will work out, well in advance of it coming into 2029, that there are simple ways round this Bill that already have been identified, and therefore will take pre-emptive action. We are stuck with a Bill that does not work, is not needed and, workers having been penalised by the national insurance increase, penalises savers. In particular, for some bizarre reason, it penalises students who have taken out loans. This is not a good time to be making these proposals.

The Minister, a few minutes ago, suggested that the Chancellor believes that people will be £1,000 a year better off by the time of the next election. Will they really? The Joseph Rowntree Foundation—no friends of mine—has said that when housing costs from rent and mortgage payments were factored into those figures, total disposable income would have risen by just £40 a year. No pandemic to rely on, no Brexit, no nothing—that is just what it is: £40 a year.

This is not the time to impose further hardship on people, in particular students. One benefit of a pension salary sacrifice can be to reduce earnings liable to national insurance for student loan repayment purposes, as the liability to repay student loans is, for employees, based on their earnings liable to national insurance. Frankly, there remains a lack of clarity about how the policy interacts with student loan repayment calculations, which are based on national insurance definitions of earnings. If salary sacrifice pension contributions above the cap are treated as earnings for NIC purposes, this will have knock-on effects for graduate repayment levels. It will mean higher effective repayments for some borrowers, reduced disposable income and a further distortion of incentives around pension savings. The Government have not yet provided sufficient clarity. My amendments seek to address that situation.

I am grateful to the national press, in particular the Times, for its support of this amendment. I hope later to be able to test the opinion of the House on it, unless the Government feel inclined to agree to it.

[Lord Ashcombe (Con)]

My Lords, this is a very large group with a number of issues to address. First, I support my noble friends Lady Neville-Rolfe and Lord Altrincham in Amendment 1 in this group. I remind the House that the Department for Work and Pensions has acknowledged that, as of 2025, around 14.6 million working-age people are undersaving for retirement. Many of these individuals will be basic rate taxpayers, though certainly not all, and some will not have access to salary sacrifice arrangements. This amendment would ensure that only higher taxpayers are affected by the proposed £2,000 cap on salary sacrifice schemes. As a result, no basic rate taxpayer would be drawn into what might only be described as a new trap.

In Committee, the noble Lord stated more than once that 74% of employees who pay only the basic rate of tax—currently applicable up to £50,270—and who benefit from a salary sacrifice scheme would be unaffected by the £2,000 limit before the national insurance becomes payable. However, this necessarily means that 26% would be affected, and no figure has been provided for how many people that represents. Percentages alone can be extremely misleading without the underlying numbers. Therefore, I would be grateful if the minister could inform the House how many employees fall within that 26%, so that we may properly understand the scale of those who stand to be impacted.

This brings me directly to Amendment 7, in asking the Government what the definition of a high earner is. The answer given in Committee was totally noncommittal. May I therefore ask the Minister, as my noble friend Lady Neville-Rolfe has, to be transparent and provide a clear number? Is the threshold £30,000, £50,000, or is it some other number? I do not think this is too much to ask.

As for Amendment 5 in the name of my noble friend Lord Leigh of Hurley and others, there are already many students—including my sons—caught by the student loans repayment scheme. To fleece this cohort of individuals even harder seems extraordinary if salary sacrifice payments are considered as part of their income. They will never have a sufficient pension and, no doubt, some future Government will have to pick up the pieces.

Next, I would like to address the size of the cap, which currently would be £2,000. As I have mentioned, the proposed limitation is simply too low. Moreover, it fails to take account of those employees who may, on occasion, receive an unexpected windfall which they wish to contribute to their pension through a salary sacrifice arrangement. Amendment 12 from the noble Baroness, Lady Kramer, provides for a £5,000 cap, which would give employees the opportunity not only to save more towards their retirement but also to avoid a substantial national insurance liability on such a windfall. Provided inflation remains under control, this is a far more realistic and workable figure. While I would prefer the figure to be £10,000, as in amendments in the name of the noble Baroness, Lady Altmann, I fear that that is a step too far.

The amendments in the name of the noble Lord, Lord de Clifford, and those in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham both address another issue: the quiet but persistent impact of fiscal drag. This is one of the most insidious ways in which Governments raise revenue without taking any overt action. With such a modest cap set out in the Bill, it risks being rapidly eroded by inflation, placing an unnecessary burden on basic rate taxpayers—precisely the group for whom pension saving is the most vital to support. I very much support those amendments.

Finally, Amendments 16 and 27 concern the SME and charity sectors. Last week in Committee, I mentioned many recent legislative changes that these entities have had to face, including the cost of energy, which now appears to be heading even further in the wrong direction. Between Committee stage and now, this has become very personal, as one of my children working in the retail industry was made redundant yesterday due to all these excessive costs. This Bill has not yet hit. I truly wonder if the company will survive. The Bill is, surely, another nail in the coffin for many more employees and, I suspect, a number of companies and charities themselves. They simply do not have the wherewithal to weather these storms, yet this Government insist on piling on ever more expenses, not only through greater national insurance payments but substantial additional associated administration costs. They will need to hire external resources to handle this difficult and pernicious legislation. It will not surprise noble Lords to know that I very much support these amendments.

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[Lord Livermore (Lab)]

I think it does make the system fairer. We discussed this extensively at Second Reading and in Committee. The Government intend to make the system both fiscally sustainable and fairer, and I think that is exactly what we are doing with this legislation.

As I have said, the Government do not believe this Bill is the appropriate vehicle through which to amend the basis of student loan repayments. As the Prime Minister said last week, the Government inherited from the previous Government a broken student loan system, and we will look at ways to make that fairer.

I turn, finally, to Amendments 12, 13, 14, 15—

[Lord Leigh of Hurley (Con)]

With respect, that is exactly what the noble Baroness, Lady Kramer, has asked. The Minister has said that he did not say that, but he has just read it out.

[Lord Livermore (Lab)]

I was asked whether I was today saying we would do anything to this legislation; no, we will not. Will we look at how to make the system fairer? Yes, we will. I think those two things are perfectly consistent.

[Lord Leigh of Hurley (Con)]

With respect, at either Second Reading or in Committee—I think in Committee—there was a statement that there would not be in this legislation, but other legislation, changes to the definition of earnings for students to get around the problem in this Bill.

[Lord Livermore (Lab)]

That was not a commitment I gave. What I said in Committee, and say again today, is this is not the right Bill to change the student loan repayment system. We will, however, look at ways to make the system we inherited from the previous Government fairer. That remains the position.

I turn, finally, to Amendments 12, 13, 14, 15, 26, 27, and 28, tabled by the noble Baronesses, Lady Neville-Rolfe, Lady Altmann, and Lady Kramer, and the noble Lords, Lord Altrincham, Lord Londesborough and Lord de Clifford. These amendments seek to increase the value of the cap or to uprate the cap by the percentage change in the consumer prices index or retail prices index. The purpose of the Bill is to cap an unchecked relief which predominantly benefits higher and additional rate taxpayers while protecting ordinary workers using salary sacrifice to make pension contributions. All employees using salary sacrifice will still benefit from national insurance contributions relief on £2,000 of contributions made via salary sacrifice. For a basic rate taxpayer, this is an additional £160 of relief relative to employees who do not use salary sacrifice.

The Government will keep the level of the cap under review, but we do not agree with the approach set out in these amendments, which seeks to uprate the cap in line with inflation. Automatic indexation of the cap would introduce a mechanism inconsistent with the treatment of other major pension tax reliefs, which are not routinely indexed. The Government’s view remains that the future level of the cap in the next decade and beyond is for Budgets in those decades. In light of the positions I have set out, I hope noble Lords may feel able not to press their amendments.

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[Lord Mackinlay of Richborough (Con)]

My Lords, I am pleased to support my noble friend Lord Fuller, who has similarly reciprocated his enthusiasm for one of my amendments. Quite a few things come to mind in the amendment from my noble friend. One is the normality across other parts of the tax system. It is very normal, because life does not fit into a timeline of 6 April to 5 April every year. We could have a discussion about why we on earth we have 6 April to 5 April, but life does not fit within those dates completely cleanly. It changes on an annual basis: one might have a good year, then one might have a bad year. That is reflected in pension contributions for tax purposes. One is allowed to carry forward three years’ worth of unused allowance. Currently, £60,000 of pension contribution is allowable if relevant earnings are sufficient. In year 4, one could technically pay £240,000. It seems very normal, therefore, that we should apply a similar carry-forward of unused prior-year benefits, as my noble friend Lord Fuller has explained so eloquently.

The reason I have laid my Amendment 6 and Amendment 22, which is the mirror for Northern Ireland, is the total ambiguity that we heard in Committee last week. If this legislation has some flagship numbers and ideas, £2,000 comes to light as a key one. After the Minister was unable last week to assure the Committee whether this £2,000 was per employment or per employee, to manage for themselves, I have laid a very simple “beyond doubt” amendment so that we can perhaps flush out from the Minister what is intended. It will not be sufficient today merely to say that it will be sorted through regulation, advice and guidance in the future. We need this on the face of this Bill, because it is what the Bill is all about.

There are numerous thresholds in the national insurance regulations. We have the primary threshold; we have then the secondary thresholds; we have upper earnings limits; we have special thresholds for under-21s, for apprentices up to 25, for employees in freeports and for employers and employees in investment zones, and special exemptions for veterans. The employee need not worry about the complexity of those arrangements because they are all worked out by the employer on a per-employment basis. If an employee is in multiple employments, which is not uncommon these days—the circumstances might be, for example, that one was getting paid at the lower limit—the accumulation of benefits of national insurance payments, even though they may be at 0%, would apply across each of those employments, so, technically, no national insurance might be paid in certain circumstances. Surely, then, something similar will need to apply for these regulations and the £2,000 threshold. If it does not, we will have some extreme complications, which the Minister explained and said he wanted to avoid in respect of Amendment 1 on which we have just voted in favour. In opposing that amendment, his claim was about the complexity across employments and the employer not knowing whether the employee in question would be a basic rate taxpayer or a higher rate taxpayer. Similar complexity seems to be an ambiguity within this Bill, which I am now trying to solve. It surely must be per employment.

There is also an issue of GDPR. Why should a primary, secondary or tertiary employer have the right to know what an employee is earning elsewhere? That is a matter of secrecy, of privacy, of confidentiality and certainly of GDPR. If the idea within this legislation is that this is £2,000 per employee, I struggle to understand how the confidentiality that the employee is entitled to can possibly be allowed to stand. Perhaps this will come out in the rules and guidance later.

My amendment is one of ease, of getting this into the open now so that the complexity that would apply across multiple employments does not come to pass. We may otherwise be left with the grave fear that national insurance is going to become yet another tax. Many of us have thought for a long time that it really is a little bit of another tax, but its operation is very different, which makes it not a tax. We need to get this rounded down, because otherwise we will start to wonder whether the next stage, across all those different rates that I have described within the national insurance administration rules, is then going to apply for multiple employments, so national insurance becomes cumulative, a little bit like tax. That will be the fear: that to take national insurance as a new tax is the Government’s new plan.

As a chartered accountant and chartered tax adviser who is still practising, I could go on about this for some time. In brief, however, this legislation is a sledgehammer to crack a nut that does not even exist. As was so ably mentioned by the noble Lord, Lord Altrincham, why are we considering this today, on the basis of 51 replies out of 250,000 employers? Surely leave this a year or so, get a better sample—rather more than 51—so that we can base government ideas on some facts rather than on guesswork.

[Lord Leigh of Hurley (Con)]

My Lords, I shall speak principally to my Amendment 20 in respect of optional alternative arrangements. I thank the Minister for his letter of last night setting out the position on optional remuneration arrangements. I think it is fair to say that was already in the public domain and raises questions on second reading. The letter does not provide any illumination on interpretation of what an optional remuneration arrangement is in certain scenarios; we have discussed those scenarios at previous readings. Perhaps the one to highlight is collective bargaining. It is disappointing that there are not many Labour Peers here with a union background as there were earlier this afternoon.

Imagine a collective bargaining situation where there are two options on the table. First, a 5% pay increase with employer pension contributions staying at 8%, and, secondly, a 4% pay increase—lower than 5%—but with an increased employer pension contribution of 10%. If the workers take the latter option, is this an optional remuneration arrangement? I think, by the definitions given, that it is. Are the unions ready for this? Be assured that, if the Bill goes through, we will pursue this, and unions will find, to their horror, that their members are paying national insurance, which they did not think would be the case.

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[Lord Livermore (Lab)]

It sounds to me, although I realise it is an odd phrase to use because you are negotiating with yourself, that that is established as a negotiated contract and, therefore, that is not an option that arises for you after that contract is negotiated. I think that in the example the noble Lord gives it would not be, but obviously that will be set out very clearly in guidance going forward.

The Government’s view is that the Bill already draws the appropriate and proportionate boundary. It addresses arrangements involving a choice between cash and pension provision, while leaving ordinary, non-optional employer pension contributions wholly outside scope.

[Lord Leigh of Hurley (Con)]

Will the Minister clarify my question on collective bargaining? In view of his earlier comments, will he clarify the situation where a person moves company within a group, which is quite common? Is that a new employment for this purpose?

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Moved by

[Lord Leigh of Hurley]

5: Clause 1, page 2, line 14, at end insert—
“(6DA) In cases where the contribution limit is exceeded, regulations must make provisions for such amounts not be treated as earnings by virtue of the Education (Student Loans) (Repayment) Regulations 2009 (S.I. 2009/470), Part 4, Regulation 41.”Member's explanatory statement
Income for student loan purposes is defined on an NI basis. This amendment exempts salary sacrificed pension contributions over the limit from being included in student loan repayments definitions, and so aligns with other benefits in kind.

[Lord Leigh of Hurley (Con)]

I wish to test the opinion of the House because I do not think students can wait for subsequent legislation to be brought forward to this House, and there is a risk it might not be. Students need absolute clarity that they are not going to be punished unfairly by this Bill.

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Moved by

[Lord Leigh of Hurley]

21: Clause 2, page 3, line 26, at end insert—
“(6DA) In cases where the contribution limit is exceeded, regulations must make provisions for such amounts not be treated as earnings by virtue of the Education (Student Loans) (Repayment) Regulations 2009 (S.I. 2009/470), Part 4, Regulation 41.”Member's explanatory statement
Income for student loan purposes is defined on an NI basis. This amendment exempts salary sacrificed pension contributions over the limit from being included in student loan repayments definitions, and so aligns with other benefits in kind.

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[Lord Freyberg (CB)]

My Lords, I rise to support Amendment 31. It is of particular relevance to the creative industries and would require an independent review of the Act’s impact on small and medium-sized enterprises within 12 months of its passing. It would specifically require that review to examine the impact on those with “irregular remuneration”, “seasonal working patterns”, or “multiple employments”.

That language almost exactly describes the working pattern of a freelance editor, a set designer or an editor moving between short-term contracts across a year. Many of the production companies, commercial houses and independent studios that engage those workers are themselves SMEs. Amendment 31 would ensure that Parliament receives evidence of how the Act operates in practice for both the workers and the businesses that depend on them. I therefore urge the House to support it.

[Lord Leigh of Hurley (Con)]

My Lords, I support these amendments. I declare an interest in that I am involved with a number of small and medium-sized enterprises. These amendments mirror amendments that we tabled to the then Employment Rights Bill, because we thought that the Government wanted to help and protect small and medium-sized businesses. That turned out not to be the case, which was very disappointing. Representations were made, and have been made in this instance, by the bodies that represent such small businesses that they do not welcome this.