National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Udny-Lister Excerpts

2nd reading
Monday 6th January 2025 Lords Chamber

[Lord Udny-Lister (Con)]

My Lords, it will come as no surprise that I too express my absolute opposition to the Bill. If enacted, this legislation’s ramifications would be far-reaching. In bringing this Bill before your Lordships’ House, the Government have not given proper, or indeed any, consideration to the damning and unintended consequences that this rushed, additional cost burden will have on a number of sectors. I will turn my attention to some of these issues and hope that the Minister will reassure me before the end of the debate that he will pick them up.

This whole tax increase feels very much like something the Treasury digs out on occasion, saying, “Here’s a quick way to get £10 billion or £16 billion, because you are guaranteed to get it. Don’t worry about the consequences: you’re guaranteed to get the money in quickly”.

As someone who has spent over 30 years in local government, I am all too acutely aware of the existing pressures we are witnessing across the UK in, for example, adult social care. I know that many other noble Lords across the House also understand and have raised these pressures. Across the country, care providers commissioned by upper-tier local authorities are already grappling with severe underfunding, which, thanks to the Government, will now be exacerbated by a 6.7% rise in the national living wage.

It should be noted that the £600 million allocated to social care in the Budget was entirely insufficient to offset the additional financial burden the Government have already placed on this sector, let alone to provide the lifeline and reform that adult social care so desperately needs at this time. The proposed national insurance hike compounds the challenges already faced by a sector under monumental pressure and threatens the very viability and provision of care services across the UK. Local authorities will not be able to meet the demand of raising the value of contracts to meet this unjustified tax hike. Where will the money come from unless further exemptions are agreed?

In the debates on this legislation as it progressed through the other place and in the speeches today, I have heard nothing that provides any hope to the many care providers, charities and businesses warning that, without exceptions in place, their business may be forced to close. This will inevitably leave vulnerable adults without essential care. We in this House must determine whether we are willing to risk that being an indirect but very real consequence of allowing the Bill to pass without adequate assessments and mitigations in place.

Further still, although I take some comfort from the fact that local councils receive grants to cover the costs of NIC increases when it comes to staff directly employed by local authorities, can the Minister confirm whether this will also be done for staff employed directly by wholly council-owned local authority trading companies, often referred to as LATCos? I ask this as some 60% of councils now have at least one trading company, if not more, many of which deliver important services and employ thousands of local people. In his summing up, it would be helpful to hear from the Minister what assessments the Government have undertaken in this regard to evaluate the impact the Bill will have on these LATCos and councils more generally.

Given their very nature, I find it hard to believe that LATCos will find the private sector able to absorb the costs. With many councils now reliant on them for revenue generation, the House should consider how the Bill will inadvertently place additional pressures on our already cash-strapped councils, and thus could potentially and indirectly divert more funding away from the delivery of services.

The right reverend Prelate and others have raised the problem of special needs transport; a consequence of this rushed policy will be the negative impact and strain that will be placed on special needs school transport. I fear that many of these operators will not be able to retain commercial viability when it comes to the huge uplift in wage bills that they will face come April, which will inevitably lead to a potentially severe shortage in the availability of suitably qualified drivers and passenger assistants. What exceptions will the Government seek to put in place here?

Moving away from local government and turning to manufacturing, the Bill will have a profoundly negative impact on the sector. The Make UK/BDO Q4 Manufacturing Outlook survey highlights that business confidence among manufacturers has fallen at the sharpest rate due to rising costs. By reducing the NIC secondary threshold from £9,100 to £5,000, the Bill will bring many more manufacturing employees into the threshold. I fear that this will mean we lose yet more manufacturing jobs—not that we have that many—due to the Government compounding the already complex and challenging circumstances faced by the industry under the pressure of the significant cost burdens of retaining staff.

On SMEs, I urge the Government to hear the concerns they are voicing. SMEs are the backbone of our national economy, and many of these businesses already operate on the tightest of margins. I really fear that the Bill will be the final nail in the coffin for many SMEs, which are still recovering from the pandemic and grappling with inflation. We further know that the UK’s hospitality SMEs are under significant pressure at this time. They have weathered the storm of Covid, battled through the strain of rising energy costs and struggled on through one of the toughest Christmas periods yet, but many are now warning that the Bill will present a challenge too far and indeed be the final nail in their coffin.

If we take pubs, for example, the British Beer & Pub Association highlighted recently that one in three pubs is already operating at a loss. With the additional costs enabled by this legislation, we will see many pubs, restaurants and hospitality businesses shut their doors permanently.

I conclude here by highlighting that the Bill disproportionately affects SMEs, adult social services, children with special educational needs, and British manufacturing. This whole Bill, the family farm tax and the removal of the winter fuel allowances were all conspicuously absent from the Labour Party’s election manifesto—and, as I said right at the beginning, they also feel as if somebody’s bottom drawer in the Treasury has just been opened. To bring forward such consequential changes to taxation without a prior mandate completely erodes and undermines public trust in the Government. It also—this is the more serious point—undermines their democratic legitimacy.

Employers large and small, charities and local councils spanning the whole United Kingdom are calling on the Government to reverse this decision. I fundamentally believe that it is a retrograde step that will inevitably cause monumental and irreversible damage to our economic outlook, and I therefore put it to your Lordships’ House that in the national interest, this Bill needs to go.