National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Sharkey Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Sharkey (LD)]

My Lords, this is an unsatisfactory Bill, not because it raises taxes—that was, and is, an obvious necessity—but because it does so in a way that exacerbates existing unresolved and urgent problems or, as in the case of social care, in effect ignores them entirely.

The provisions of this Bill will probably not help with growth, the Government’s chief objective. I say “probably not help”, but that may be a little bit generous. Many noble Lords who have spoken this evening have felt strongly that the Bill will have negative consequences for growth. Arguably, two of the most important engines of growth, or what have been and should continue to be engines of growth, are our SMEs and our higher education sector. This Bill has damaging consequences for both. I will speak a little later about our university sector, but I want here to make some points about SMEs.

My colleague in the Commons, Christine Jardine, asked the Minister at Second Reading:

“How does it help morale and positivity among small businesses, which will be vital to economic growth, if some of them see their salary bills double?”


The Minister replied by saying:

“I urge her to understand that what we are doing on national insurance is taking a tough decision to fix the public finances, while at the same time providing the stability that businesses need to invest and grow””.—[Official Report, Commons, 3/12/24; cols. 202-03.]


It is the last bit of that, frequently repeated as an explanation of or an excuse for government proposals, that is the problem.

No convincing case has been made for the proposition that the measures in the Bill will provide stability. Indeed, it is hardly surprising that many see the Bill’s measures as actually reducing stability and creating further uncertainty. In a recent survey, 44% of UK SMEs said that the NI increases would negatively affect them. As Todd Davison of Purbeck Personal Guarantee Insurance, an important operator in the SME arena, noted:

“The increase in employer National Insurance contributions … could prove to be a fatal blow to thousands of small businesses, despite the increase in the Employment Allowance”.


He went on to say:

“There will be thousands of business people who have put their home and life savings on the line by signing a personal guarantee for a business loan who will now be facing some very difficult choices”.


I note in passing that, in trying to justify the national insurance rise, the Government have pointed to the increasing availability of funds for the NHS. This is, of course, welcome, but the extra funding is being raised in the wrong way and on the wrong people—and what about carers and the care sector? Will we have to wait until 2008 and beyond for any significant progress? In the meantime, what additional support will be available to offset increased costs? What about the additional payroll cost to GP practices? The Institute of General Practice Management estimates that the NI rise will mean that the average GP surgery tax bill will rise by around £20,000 a year. How is this to be mitigated? Second Reading in the Commons did not produce an answer to any of these questions. I would be grateful if the Minister could address the issues about SMEs, the care sector and GPs when he replies.

I now turn to another critical factor in growing our economy: our higher education sector. I declare an interest as a member of council at UCL. Our university sector has a very strong international reputation, very high academic standards and world-class research output and influence. This is despite the UK spending significantly less on R&D than our rivals. We spend 1.7%, China 2.2%, the US 2.8% and Germany 3.1%. However, in the last QS worldwide ranking, the UK had four universities in the top 10 and 16 in the top 100.

The Government explicitly acknowledge the importance of the sector. The Secretary of State for Education wrote to vice-chancellors on 4 November last. She started her letter by saying:

“The institutions which you lead make a vital contribution, as education and research institutions, to our economy, to society, and to industry and innovation. They contribute to productivity growth; play a crucial civic role in their communities; and have a key role to play in enhancing the UK’s reputation across the globe. I also passionately believe in education for education’s sake: a more educated society is happier, healthier, more cohesive, and socially and culturally richer”.


She went on to say:

“I am clear that we need to put our world-leading higher education sector on a secure footing”.


She went on to speak of student numbers, international students and the financial status of the sector. This financial status is in need of very urgent attention.

The main leader in last Thursday’s Times was critical of the very large travel and expenses costs of some vice-chancellors at a time when the sector is under critical financial pressure. The leader’s chief point concerned this financial pressure. It said:

“There is no doubt that higher education is experiencing extreme financial difficulties”.


It pointed out that these extreme difficulties will be made worse by the increase in employers’ NI. The small but welcome increase in student fees will increase revenue by around £370 million. The increase in national insurance will cost universities around £450 million.

The Times went on to note that, according to the OfS, the combination of lower revenues from both home and overseas students means that nearly three-quarters of our universities will be running a deficit by the end of this academic year. Some 40% already have less than a month’s cash in the bank and 10,000 jobs are expected to be lost in this academic year. This is a genuine and pressing crisis.

If we want to maintain our large and very high-quality university sector, if we want to remain among the global leaders in the life sciences, if we want to continue to create the IP that forms the basis of new and innovative commercial ventures, and if we want our towns, cities and regions to continue to benefit from their universities, we must act. Increasing the national insurance burden is to act completely in the wrong direction.

In the absence of a coherent plan for our universities, the Government have, in an almost cavalier way, significantly worsened their already extreme financial difficulties. There is a pattern here. There is no sign of a meaningful intervention to relieve social care of the increased costs imposed by the Bill. There is no sign of a meaningful plan for social care before 2028. There is no proposal for providing significant help to SMEs. There is no proposal for helping GP surgeries to mitigate the effects of this Bill.

There are plenty of indicators and predictions about the damage that these NI changes will bring to critical parts of our economy and society, but no indication of how this damage may be mitigated or avoided and nothing positive for growth—but plenty in the negative.

There is much to regret in how and on whom the Government are imposing this significant tax, and much to regret in the effect of this tax increase on carers, on SMEs, on GP surgeries and on our universities. I strongly support the regret amendment from my noble friend Lady Kramer. If she chooses to divide the House, as I hope she will, these Benches will support her.

[Baroness Sater (Con)]

I thank the noble Lord for allowing me to make a small intervention. The noble Lord is arguing passionately against the Government’s job cuts and the damage that will be done to care providers, charities and others. Does he therefore agree with me that this Bill must be scrutinised in a Committee on the Floor of the House? Does he also agree that it is in the interests of the charitable sector for this Bill to be scrutinised as fully as possible?

[Lord Sharkey (LD)]

I think there were three questions there, so perhaps I can answer very quickly: no, no and no.