National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Sharkey Excerpts

Committee stage
Wednesday 29th January 2025 Grand Committee

[Lord Howard of Rising (Con)]

As my noble friend says, you get a knighthood—possibly even a barony. If you get something wrong, throw more money at it until it becomes an embarrassment that can no longer be hidden and hushed up. HS2’s original budget was £37.5 billion. Only when the estimated cost has risen to £90 billion—and counting—is the project being reined in. The idea of spending £100 million on a bat shelter defies the imagination. I mean: who could have thought of that one?

As economists are being quoted, might I quote Professor Milton Friedman? He said:

“If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand”.


What the Government should do is what anybody in this Room, faced with the same problem in their own life—too much spending and not enough income—would do: cut spending to solve the problem. Given that that is unlikely to happen, will His Majesty’s Government carefully consider what they are doing and try to reduce some of the negative consequences of this increase in national insurance for employers? A sensible first step would be to prepare a proper impact assessment for those small companies, often described as the engine of the economy.

[Lord Sharkey (LD)]

My Lords, we have a lot of sympathy for the amendments in this group. My noble friend Lady Kramer has added her name to Amendment 22.

It is absolutely right that we should be concerned about the effects of the proposed NICs rise on small businesses. These businesses are at the heart of our economy. As the noble Lord, Lord Ahmad of Wimbledon, said several Prime Ministers ago:

“There are over 5.7 million Small to Medium Enterprises in the UK. They are the engine of growth in our economy, driving innovation and greater productivity, finding solutions and creating jobs”.


In fact, our SMEs provide 16.6 million jobs—60% of the total number in the United Kingdom. Their total turnover is estimated at £2.8 trillion. They are in many ways more important than much larger businesses—certainly when it comes to providing jobs—but they are probably more vulnerable than large businesses to these NIC changes, with less ability to absorb increased costs. The SME landscape is very varied, but it seems vital for us to be able to assess the likely effects of the proposals before us on different sizes of SMEs.

That is why I note in particular Amendment 33, in the name of the noble Baroness, Lady Noakes. As she explained, this amendment proposes an impact assessment of the provisions in Clause 2 on employers with an annual turnover of less than £1 million, less than £5 million and less than £10 million before the changes in the clause can be brought about; these are probably the sizes of business that are most likely to have difficulty dealing with the additional costs imposed by this Bill. It would have been good to have had such an impact assessment before these debates, but Amendment 33 would go some way to putting that right, as the noble Lord, Lord Londesborough, remarked—pace the charge of underspecification from the noble Lord, Lord Eatwell. Perhaps the Minister could provide us with more granular estimates of the effects of Clause 2 on the smaller SMEs even if he cannot, or will not, provide us with the traditional, full and necessary impact assessment.

--- Later in debate ---

These amendments would help to bring the Bill in line with government action in favour of young people. They would help the Government to stabilise the labour market, given other economic pressures, and of course help young people to develop a prosperous future. I ask the Minister to consider these amendments carefully.

[Lord Sharkey (LD)]

My Lords, these amendments address very important issues. As noble Lords who attended the Committee last week will be aware, we on these Benches have taken an approach to the Bill aiming to exclude certain sectors from the Government’s rise to employers’ national insurance contributions—sectors that we feel will be particularly impacted by the change.

The amendments in this group follow the same structure as our earlier amendments, exempting employers of young people in various age groups from the proposed rise in employers’ national insurance contributions. We touched at least tangentially on that and on some of the concerns raised about youth employment when we debated amendments last week, tabled by my noble friend Lady Kramer, relating to part-time workers and to the hospitality and tourism sectors. For many young people, part-time work is the entry point into the world of work. A career in hospitality is often the first step on the career ladder for many young people entering the job market.

According to data commissioned by that well-known authority, the British Beer & Pub Association, pubs currently provide jobs for more under-25s than they ever did, with 350,000 people in employment in that sector. The association estimates that, to keep employing that same number of under-25 year-olds, the NICs liability for employers will increase from £82 million to £153 million.

I shall not repeat the points made in our debate last week, but I urge the Minister to address further some of the possible unintended consequences that the measures in this Bill might result in, as employers in these sectors look at ways in which to offset the additional costs that they will have to endure—perhaps instituting hiring freezes or freezing pay rates—and especially and specifically the impact that will have on young people seeking to enter employment for the first time. An impact assessment would have been very helpful, as would the application of the mechanism contained in Amendment 33 from the noble Baroness, Lady Noakes, which we discussed earlier this evening.

In the regrettable absence of an impact assessment, it would be entirely proper to postpone the NIC provisions until the Government make more age threshold granular data available to help to assess the effect of the measure on young people. I heard the Minister’s unequivocal refusal to provide any more impact assessments, and I expect that we will hear it again in Committee and on Report.

[Lord Blackwell (Con)]

My Lords, I want to add to the comments made by my noble friend Lord Altrincham in introducing these amendments. He spoke of a large number of young people who are not in economic activity, full-time education or training. Labour market statistics are notoriously difficult to interpret, as we know, but, if you take the unemployment rate he quoted—around 14%—we know that, in addition, a worryingly large number of people in this age group are also on long-term sickness benefits. All of them could be in productive work, with the right support and encouragement.

A number of Members of this Committee are also members of the House of Lords Economic Affairs Committee, which recently did a review of this area. Some of the evidence that we took made the point that, once a young person moves on to long-term benefits without ever having had meaningful employment experience, it becomes increasingly difficult for them to get work. They become stranded in a benefit life, which is not only wasteful for them but a huge cost to the taxpayer.

In stressing the importance of making it economically attractive for employers to take on young workers such as these, I wonder whether the Government should consider going further than these amendments: not just retain the existing levels of national insurance contributions for employers for this age group but reduce the national insurance contributions of young workers to give an additional incentive to help them, at this early stage in their lives, into a meaningful working career.