National Insurance Contributions (Secondary Class 1 Contributions) Bill

Lord Wolfson of Aspley Guise Excerpts

Committee stage
Tuesday 4th February 2025 Grand Committee

[Baroness Noakes (Con)]

My Lords, I rise to move Amendment 18 and to speak to Amendments 21, 24 and 25 in this group. These amendments are designed to make the national insurance increases in the Bill more manageable by businesses, as they are going to be picking up the lion’s share of the costs of national insurance in the first instance. The amendments do not change the overall approach of raising the rate and lowering the secondary earnings threshold; instead, they seek to phase in the secondary threshold reduction over two years, rather than taking the “big bang” approach taken in the Bill. The reduction in the secondary threshold is the larger of the two main changes in the Bill, raising roughly one and a half times the amount raised by raising the national insurance rate of contributions.

I should declare my financial interests in a wide range of listed companies, many of which operate in the UK and are therefore affected by the Bill. These include shareholdings in Next plc—which gives me a neat segue into the fact that I was prompted to table these amendments after listening to a “Today” programme interview with my noble friend Lord Wolfson of Aspley Guise, in his capacity as chief executive of Next, who argued for delayed implementation. I was delighted when my noble friend then added his name to my amendment, along with my noble friend Lady Neville-Rolfe. I very much look forward to his contribution to the debate.

I was particularly struck when listening to the “Today” interview by my noble friend’s analysis of the financial impact of the changes on part-time jobs and those that pay at or around the minimum wage. I think he said that it will add roughly 2% to the cost of employing higher-paid workers, but for part-time and lower-paid workers the figure is 6.5%. This, of course, is before you factor in the minimum wage hike, which will be coming in at the same time and will more than double the impact on certain kinds of employees, particularly younger ones.

I spoke about the regressive effect of the Bill at Second Reading and I was frankly astonished that the Minister’s Back-Benchers were not jumping up and down about the impact of the national insurance changes on the employment prospects of key groups such as female part-timers and young people. His Back-Benchers seem to have bought the disingenuous line, which has been run by the Chancellor and, indeed, the Minister, that these extra national insurance costs will be borne by businesses. The plain truth is that employers will not simply absorb the cost increases, as the Office for Budget Responsibility made abundantly clear: employees will pay, in the form of reduced hours, reduced pay increases or job losses. We will all pay in higher prices and, if that keeps interest rates higher for longer, home owners will pay too.

Part of the problem from the business perspective is the sheer scale of the increase in employers’ national insurance contributions, hitting them in just a few months’ time, at exactly the same time as the minimum wage hike. I expect that the Minister will say that the minimum wage increase is not in this Bill, but the plain fact is that businesses are facing a double whammy. Very few businesses can shrug off an increase of well over 10% in their payroll costs. The likelihood is that businesses will take rapid action to try to curtail the financial impact, but that action may well be suboptimal when looked at over a longer timeframe.

Recruitment freezes are the quickest way to put a lid on costs and they are already a feature of today’s uncertain business environment. The recruitment sector is therefore struggling and will doubtless have to reduce its own headcount in due course. If hours are reduced for part-time staff, that will have a particularly hard impact on women and their families, who are often dependent on the additional income that such jobs bring. Pay increases, other than for those on the minimum wage, will probably be held down, and most families are already struggling with inflation and will be hard hit if wages go down in real terms. We can also expect employers to reduce headcount. This is already happening, as a glance at the business pages of the media will confirm.

The noble Lord, Lord Eatwell, who is not here today, may well run his argument that this is entirely healthy, because it will encourage businesses to invest to reduce their reliance on labour and thereby increase productivity and release workers to be redeployed elsewhere in the economy. As I have said before, that is a nice theory, but it fails at a practical level. Businesses need confidence in the country’s economic prospects before they invest, and most business confidence surveys are well into negative territory. Many investment decisions are already on hold or being cancelled. In addition, we have high employment at present, thanks to the previous Government, but job vacancies are relatively low and falling. A more realistic outcome, at least in the short term, is that there will be fewer people in employment. The OBR calculated the impact of the national insurance changes as a loss of 50,000 jobs, but it could easily be higher than that.

My amendment is about ameliorating the short-term impact of the Government’s national insurance changes on businesses, so that they have more time to plan how they will absorb the increases alongside the additional minimum wage costs. If businesses have more time to work out the best way to cope, the impact on jobs and pay could well be softened. My amendment merely delays the full impact of the national insurance changes for an extra year, by phasing in the reduction in the secondary threshold over two years rather than make businesses face the whole impact at once next April. I am quite sure that the business community would prefer an even longer phasing in and would prefer it to apply to the increased rate of contributions as well as to the reduction in the threshold. My amendments are an attempt at a reasonable compromise. I beg to move.

[Lord Wolfson of Aspley Guise (Con)]

My Lords, I declare my interests as set out in the register, particularly my role as chief executive of Next plc, a company that employs over 40,000 people, of whom 22,000 are part-time. It is a job that I have had for 22 years, which I think makes me the longest-serving chief executive in the FTSE 100. I hope that I am able to bring that experience to inform the debate, which is why I rise to speak to all the amendments in this group tabled by my noble friend Lady Noakes, to which I have added my name.

I hope that the Minister will take this amendment in the spirit in which it is intended. To that end, I recognise the Government’s need to balance their books, the importance of their doing that, and that the parlous state of public finances cannot be wholly laid at the door of the current Administration. Nor can I see, in principle, why the employer national insurance threshold should disproportionately benefit lower-paid jobs, as it does at the moment. In principle, I can see no reason for that; it is the speed at which the change is happening that concerns me.

The problems caused by that speed are particularly acute because the axe falls hardest and disproportionately on entry-level part-time work, as my noble friend Lady Noakes pointed out. The way in which the change in the threshold works is something of a poll tax on jobs. Poll taxes do not have a great history of success, but the cost of around £600 is the same whether you earn £9,000 or £900,000. So, the combined effect of this increase on a job paying £60,000 would be 2%; on a part-time job paying £12,000, it would be 6.5%.

That change needs to be taken in the context of the rise in the national living wage. My noble friend Lady Noakes is absolutely right that, together, they mean that the figure for entry-level part-time working—jobs in hospitality, retail and care homes—will go up by 13% in April this year. It is impossible to see how this can result in anything other than a reduction in opportunities to join the workforce; indeed, it will result in some people having to leave the workforce. I hope that, going forward, these types of changes and the work of the Low Pay Commission are considered in conjunction with each other. It seems to me that these two changes have come in at the same time without co-ordination.

Unfortunately, this change comes at a time when the employment market is at something of a tipping point. Again, it is no one in particular’s fault—it is the employment cycle—but every economic indicator that I can see, through both the ONS and my own work, suggests that the labour market is hardening. In every single discipline in the business that I work for, whether it is computer programming or product development for stores, the applicant to vacancy ratio is rising.

Let me give a flavour of that. Last year, when we took on temporary staff in the run-up to Christmas, the ratio of applicants to vacancies was up by 50% on the previous year. In the previous year, we had nine applicants for every shop job; last year, it was more than 13. In this environment, the speed of change will dramatically affect the national insurance threshold change’s impact on both people and inflation.

Starting with the social impact, it is inevitable that businesses will have to accelerate their plans to increase productivity. There are plenty of opportunities to increase productivity, mechanisation and artificial intelligence both being at the forefront of those opportunities; but one way or another, that increase in productivity means fewer jobs. The time we have to implement those changes will directly affect the social impact of those efforts to increase productivity. The faster the change occurs, the less time businesses and individuals will have to manage down employee numbers through the natural turnover of staff, which is the normal way we would try to implement any improvement in productivity, particularly in part-time work. Natural turnover of staff is quite high; if you can manage such changes through natural turnover, it dramatically reduces the impact on human beings.

It is a shame that the noble Lord, Lord Eatwell, is not here, because I have heard him say that labour becoming more productive—that is, going out into the workforce and finding other, more productive things to do—can be a good thing. It can, but it will take people time to find those additional jobs, and time is what these amendments ask for.

Last Wednesday, my noble friend Lady Lawlor highlighted the acute pressure that the threshold change will put on retailers. She was right. On that day, Morrisons said that, in the light of the Budget, it would have to go harder and deeper in its drive to reduce costs. It joined Sainsbury’s, which has already announced 3,000 job losses.

The second reason for phasing in this change is its effect on inflation. Again, it might be helpful if I give the perspective of the company I work for. It is in the fortunate position whereby the growth we are able to enjoy, the margins we have and the productivity gains we think we will be able to achieve, collectively mean that we will need to pass on an increase in prices of only 1% this year, as a result of the Budget changes. Had we not had those margins to absorb the changes, and had we not had those productivity gains, that figure would have been just over 4%.

In other industries, in particular the food industry, margins are much narrower than those enjoyed in fashion retail. My concern is that everything I am hearing from that industry means that we will see price rises in the order of 4%. Were the threshold change to be phased in over two years, that inflationary spike would reduce price rises to closer to the Bank of England’s 2% target. That in turn would pave the way for a faster reduction in interest rates, which is in everyone’s interest—including the country’s biggest borrower, the Government. Phasing in the change would reduce the social and inflationary costs of this increase.

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[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I am grateful to all noble Lords for their contributions to this debate. I will address the amendments tabled by the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, which would phase in the introduction of the secondary threshold cut to £6,760 in the next tax year and £5,000 from 2026-27.

I absolutely appreciate the concerns raised by noble Lords during this debate, and by businesses, about the impacts of the Bill. It was a privilege to hear the insights and expertise of the noble Lord, Lord Wolfson, and I greatly appreciate the constructive spirit of his contribution. However, as I have set out previously in this Committee, the Bill is necessary to repair the public finances, to protect working people and to invest in Britain’s future, including by providing more than £20 billion extra for the NHS over this year and next. This funding will reduce waiting times by supporting the NHS to deliver 40,000 extra elective appointments a week and will make progress towards the commitment that patients should expect to wait no longer than 18 weeks from referral to treatment. Reducing the threshold by less than that set out in the Bill would reduce the revenue generated by it and would therefore introduce new pressures, which would have to be met by more borrowing, lower spending or alternative revenue-raising measures.

Given these points, I respectfully ask the noble Baroness not to press her amendments.

[Lord Wolfson of Aspley Guise (Con)]

Before the Minister sits down, can he say how much this amendment and the resulting delay would cost the Government? That would help those of us on this side of the Committee to understand why this is not possible.

[Lord Livermore (Lab)]

The Government tend to cost the Government’s policies. It is not usual practice for the Government to cost Opposition policies.