National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Londesborough Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Londesborough (CB)]

My Lords, it is an interesting optic that I am following the contributions of 15 noble Lords from the Conservative Benches and, curiously, just three from the Government Benches. I am not sure how we should interpret that but, as an objective Cross-Bencher, I could not possibly comment.

Two months ago, many of us here today took part in the debate on the October Budget, and many of us warned of the consequences for a stuttering economy. Two months on and I am afraid that those concerns are growing, from employers, business owners, entrepreneurs and investors—in fact, from those who drive 70% of our nation’s GDP. That is what I will focus on today, and in so doing I declare my interests as an investor in SMEs, as set out in the register.

Momentum is critical for sustained economic growth. We did not have much of it in the first half of last year, but what little we had appears to have evaporated. As we have heard, GDP flatlined in Q3; worse still, GDP per capita fell by 0.2%. Q4 has brought a string of disturbing indicators, raising the prospect of a second consecutive quarter of zero, or even negative, growth.

As we have heard, the British Chambers of Commerce reports that business sentiment among its members has fallen to its lowest level for two years. The number of job vacancies in November fell at the fastest rate since the start of the pandemic and the spread between UK and German 10-year bonds has now eclipsed the peak triggered by Liz Truss’s mini-Budget two years ago. The spectre of stagflation is spooking the markets, meaning that interest rates may well remain higher than expected for much of 2025.

That is the macro. I turn to the micro, in particular the impact on our SMEs. I find it extraordinary that the Government devised an NIC regime that hits the vast majority of SMEs, which employ between five and 250 staff, particularly by dropping the threshold from £9,000 to £5,000. As we have heard, particularly from the noble Baroness, Lady Kramer, it is indiscriminate, falling as it does on all sorts of undeserving organisations, including charities, hospices, care homes and GP practices. Taking together the impact of NICs and the 6.7% increase in the minimum wage, will the Minister explain how raising the cost of employment by an average of £2,390 per employee this April is consistent with boosting economic growth?

For start-ups and our all-important scale-ups, it is a punitive tax on job creation and much-needed risk taking. While I accept the argument made by my noble friend Lord Macpherson and others that tax revenues had to be increased, there were plenty of fiscal alternatives that would have caused less damage to our economy—for instance, reversing the pre-election 2% cut in employees’ NICs brought in by Jeremy Hunt, indexing fuel duty, raising VAT selectively, and, last but not least, making modest adjustments to the bands and higher rates of income tax. But the Government could not do any of that, for they had tied themselves into knots with the tax pledges in their manifesto. Once again, politics trumps economics.

I was an entrepreneur for 30 years and in the last 10 years I have backed, chaired and advised a wide range of start-ups and scale-ups. I will finish by sharing how they are reacting to the increase in NI contributions. This comes from business owners, investors and management teams working at the coalface. In summary, some say they will reduce pay increases and bonuses; some will also reduce working hours, particularly for part-time staff in hard-hit sectors such as hospitality and retail; and some will slow the rate of job creation. Those that can will pass on the increased costs of employment to consumers and their clients, as their suppliers are already doing to them. Finally, and perhaps most worryingly for productivity, investment in new projects will be reduced or delayed in many cases. This is bad news for the worker and the employer, bad news for growth and inflation, and very bad news for our future competitiveness.