National Insurance Contributions (Employer Pensions Contributions) Bill

Torsten Bell Excerpts

Monday 23rd March 2026 Commons Chamber

[The Parliamentary Secretary to the Treasury (Torsten Bell)]

I beg to move, That this House disagrees with Lords amendment 1.

[Madam Deputy Speaker]

With this it will be convenient to discuss Lords amendments 2 to 12, and Government motions to disagree.

[Torsten Bell]

I welcome the opportunity to consider the Lords amendments to the Bill. I thank Members of both Houses for their careful scrutiny of it, and I particularly thank the Financial Secretary, Lord Livermore, for leading the Bill so expertly through the other place. Before addressing the amendments directly and explaining the Government’s decision not to support them—I know that will be shocking—I turn briefly to the need for these reforms.

As the Chancellor set out at the Budget, we are taking action to make the tax system fairer and fit for the 21st century. That requires us to keep the effectiveness and value for money of the £500 billion of tax reliefs under review, and it is especially important to do so when costs are expected to increase significantly. The cost of national insurance contributions relief on salary sacrifice into pension schemes was due to almost treble, from £2.8 billion in 2017 to £8 billion by 2031, without reform, which would be equivalent to the cost of the Royal Air Force. This is not only an expensive tax relief, but one with a very uneven impact. The majority of employers do not offer salary sacrifice at all. The vast majority of salary sacrifice contributions are made by higher and additional-rate taxpayers. Salary sacrifice is unavailable entirely to those earning at or near the national living wage, or to the UK’s 4.4 million self-employed workers, and we know that both groups are more likely to be under-saving for retirement.

On this basis, the status quo is indefensible. Change was inevitable, but we have chosen to take a pragmatic approach, with no change until 2029, and a £2,000 cap to allow pension contributions via salary sacrifice to continue.

[Jim Shannon (Strangford) (DUP)]

I thank the Minister for bringing this Bill forward. He brings a good story to the House, but sometimes these decisions give rise to questions. My constituents believe that the Bill creates a financial disincentive for middle-income earners to save for their retirement. Does he not agree that this risks creating a pensions gap, with individuals becoming more dependent on the state in later life, which will cost the taxpayer more in the long run than the tax relief costs today? My constituents feel that, and I am asking the Minister the question. How would he answer it?

[Torsten Bell]

The hon. Member always raises questions brought up by his constituents, which we know is a valuable part of the work he does in this place. The direct answer to his constituents is that all of them have a very strong tax incentive to save for their pension, without salary sacrifice. We spend £70 billion a year to provide that incentive, whether via the lump sum or the national insurance exemption for employer contributions. I hope the main thing he says to any of his constituents who come through the door is that they have a very strong incentive to save, whatever their circumstances. On the pension gap, that is why we have revived the Pensions Commission. Its work is ongoing, and I am sure he will read in detail its interim report, which will be coming out in the coming months.

[Chris Vince (Harlow) (Lab/Co-op)]

I like to think I represent my constituents as well as the hon. Member for Strangford (Jim Shannon) does his, if anyone could. My constituents are really concerned about the pension gap, because the reality for many of them is that they do not earn enough money to begin to think about saving for a pension. Those are actually the things this Government should focus on, not tax reliefs for higher earners who can afford an additional small bit of tax. Personally, as a resident of Harlow, where a number of young people are in poverty, I will not have sleepless nights over this tax change.

[Torsten Bell]

As always, I thank my hon. Friend for his remarks. He was pretending that the competition is about who is the better MP, but we know it is really about the volume of speaking in this Chamber. The two of them are running it close, but never testing the patience of this House. It is amazing that you have allowed them both in this early in the debate, Madam Deputy Speaker, because that is what the closing minutes of every debate in this House should be about. It is important to have traditions, and they both deliver admirably, but I will make some progress before we get sidetracked entirely.

I was talking about the pragmatic approach we are taking to this change. As I have said, there will be no change until 2029, and the £2,000 cap means that salary sacrifice contributions can continue. That recognises the fact that that has become an established process in several companies and for individuals, so we are giving people time to adjust. The hon. Member for Strangford (Jim Shannon) raised that, and I have responded by saying that this is pragmatic because pension tax relief continues in its entirety. It is important to remember that relief is available to all savers, not just to the minority who have salary sacrifice available to them.

With that in mind—and I am sure that the hon. Member for Wyre Forest (Mark Garnier) for the Conservatives will have decided to support the Bill in its entirety having listened to those powerful arguments—I turn first to Lords amendments 1 and 7, which would exempt basic rate taxpayers from the operation of the Bill, and Lords amendments 5 and 11, which would increase the contributions limit to £5,000. The Government’s balanced and pragmatic approach, with the £2,000 cap, means that 74% of basic taxpayers using salary sacrifice will be entirely unaffected. The small proportion of basic rate taxpayers with contributions above the cap will still be getting the national insurance contributions relief on the first £2,000 of contributions made via salary sacrifice, in addition to the full income tax relief that is available to all employee pension contributions.

Exempting basic rate taxpayers in the manner proposed would be incredibly difficult to operate. An individual’s tax band is not knowable until the end of the tax year, which means employers would be required to carry out complicated calculations at the end of the year to reconcile the figures, and they would need to know their employees’ other sources of income, which I do not think anyone would believe is a good idea.

[Sir Ashley Fox (Bridgwater) (Con)]

The Lords amendments might not be perfect, but do they not set out the principled objection to the Government taxing some basic rate taxpayers more for choosing to save for their pension and at the same time using that money to increase welfare spending?

[Torsten Bell]

No, that is not what is going on. What will happen is that everybody will still have a strong tax relief incentive to save for their pension, and by taking a sensible approach to reforming that, we will avoid seeing the cost of the tax relief rise to the same level as the cost of the RAF. I listen to Opposition Members day in, day out calling for more defence spending. There are consequences for that. One of them is that we have to do our job of looking carefully at the quality of our tax reliefs, and that is what we are doing today. Hon. Members should support us in doing that.

[Sir Ashley Fox]

Rather than raising taxes, could the Minister perhaps not send £36 billion to the Government of Mauritius to rent back an airbase that we already own?

[Torsten Bell]

That is a question the hon. Gentleman should put to his Front Benchers, who opened the negotiations with Mauritius in the first place. Opposition Members come to the House making cheap points, because they used to take seriously the job of government and they have given up entirely. I will make some progress now, having engaged with the hon. Member who obviously gave up on the job of serious government some time ago.

A world where 95% of those earning £30,000 or less and contributing via a salary sacrifice are unaffected makes the case for the £2,000 cap I have set out, but the Government agree with the sentiment raised in the Lords about keeping it under review. The Bill allows for that to take place in future.

That leads me to Lords amendments 2 and 8, which would exempt salary sacrifice pension contributions over the £2,000 cap from the calculation of student loan repayments. It is right that we focus on the outcomes for younger generations too often let down by the failures of the previous Government. I gently remind Conservative Members—there are only two of them here, but there are some Liberal Democrats who deserve some of the “credit” too—of their track record on this matter: trebling tuition fees, raising interest rates, scrapping maintenance grants and the rest. And that is before I get to not allowing anything to be built. That is what younger generations are being let down by.

On the specific proposal, it is worth noting that while salary sacrifice arrangements can reduce the student loan repayments made, they do not reduce the total amount due for repayment. Much more important is the fact that the £2,000 cap means that young graduates are broadly unaffected. In fact—these are new figures that were not available for the discussion in the Lords, but as this issue has been raised and brought to the Commons, I will provide them—the £2,000 cap means that 90% of graduates under the age of 30 repaying student loans who are saving into a pension will be unaffected, in the sense that 90% of them save less than £2,000 a year. I hope that provides some reassurance to Members who have raised that point.

Lords amendments 3, 4, 9 and 10 would make the regulation-making powers in the Bill subject to the affirmative procedure, except for those which solely increase the contributions limit. The Government agree on the importance of maintaining strong parliamentary scrutiny, particularly where changes could affect individuals’ national insurance liabilities. However, the Bill already contains a series of safeguards and the legislative approach taken follows long-standing precedence for national insurance legislation. In addition, the Delegated Powers and Regulatory Reform Committee has carefully scrutinised the powers in the Bill, including the proposed level of parliamentary scrutiny, and concluded that there is nothing in the Bill that it wishes to draw to the special attention of the House.

Lords amendments 6 and 12 seek to exempt small and medium-sized enterprises, alongside smaller charities and social enterprises, from the Bill’s provisions. Again, the Government agree on the importance of supporting small businesses—I am sure that that is a matter of cross-party support—but small businesses are much less likely to use salary sacrifice than larger businesses. Furthermore, the £2,000 cap means that 90% of employees in SMEs making pension contributions through salary sacrifice will be entirely unaffected. Indeed, the largest benefits from uncapped salary sacrifice accrue to larger businesses, not smaller ones. In practice, the changes in the Bill will help to level the playing field between small businesses and their larger competitors. Those wanting to see support for small businesses should support the measures in the Bill. The Government are engaging with employers, payroll professionals and software developers to ensure that the changes are implemented in the least burdensome way possible for employers of all sizes.

I hope that right hon. and hon. Members will understand why it would not be right to support the amendments from the other place, even though we recognise the valuable objectives that have in many cases motivated them. As I said, the Government spend over £500 billion each year on various tax reliefs within the tax system. That is more than double the entire annual NHS budget. The size of the spend means that the Government must always keep the effectiveness and the value for money of those reliefs under review. These are necessary, pragmatic and fair reforms that protect ordinary workers while ensuring that public finances are kept on a sustainable footing. I respectfully propose that this House disagrees with the amendments.

--- Later in debate ---

[Torsten Bell]

I am grateful to the shadow Minister, the hon. Member for Wyre Forest (Mark Garnier), and the Liberal Democrat spokesperson, the hon. Member for Witney (Charlie Maynard), for their contributions. I will not reiterate the arguments for the Bill as a whole, but I will try to respond directly to the points that they have made.

The hon. Member for Wyre Forest explained that the Conservatives are opposed entirely to these changes, but of course he did not explain at all which bits of the NHS services they would cut, since they obviously do not support the revenue being raised from this sensible—[Interruption.] Which bit of the benefits system would they like to change then?

[Sir Ashley Fox]

The two-child benefit cap. [Hon. Members: “Hear, hear.”]

[Torsten Bell]

Here we have it again: when the Conservatives are faced with any difficult choice, the answer is higher child poverty. It is the answer to every question they are ever faced with. They stand up day in, day out and say that what they want to see is higher child poverty—and they cheered enthusiastically for it just then.

I will move on. Not only can the hon. Member for Wyre Forest not say which bit of the NHS he would like to cut because he opposes these changes, but he cannot even explain why the Conservatives were planning to implement exactly these kinds of changes when they were in government—before their whole giving up on being serious people thing.

[Sammy Wilson (East Antrim) (DUP)]

Will the Minister accept that if these changes go through and people save less for their future, we will have pensioner poverty? That is the impact of these measures.

[Torsten Bell]

Absolute nonsense. Members of the House should be reminding everybody in this country that they have a strong incentive to save for their pension, not misleading them by implying that they will somehow lose out by saving for their pension. That is not the case, and it is really important that we are consistent in our messaging to the public about that. I will come back to the wider point about the levels of saving in society.

The hon. Member for Wyre Forest also asked questions about savings gaps, and he was right to do so. Unfortunately, however, he talked nonsense about that. He talked about the self-employed, low earners, women and those working for SMEs, all of whom do have lower pension savings rates, but all those groups who are under-saving are those least likely to use salary sacrifice. He talked about those on lower incomes, but as I said, 95% of those earning under £30,000 and contributing to a pension via salary sacrifice are completely unaffected. He claimed that the impact was largest on those on low earnings. That is nonsense, because 86% of contributions over £2,000 are from additional rate taxpayers. Those are the facts.

The hon. Member for Wyre Forest went on to invent a brilliant story of a young graduate struggling to get by who was somehow putting £5,000 into their pension every year. As I mentioned earlier, 90% of young graduates are saving £2,000 or less into their pensions. Why are they not saving more? Because their wages did not rise under the Conservative party. Why are they not saving more? Because that party did not build enough houses to help them get on to the property ladder. He asked—[Interruption.] I am glad to hear that all Conservative Members will stop opposing the building of homes in their constituencies in the years ahead.

The hon. Member asked about the implementation. As he mentioned, I have set out that it will operate on a per-job basis. He also asked about how it will operate over a pay period basis. As he knows, national insurance broadly operates on a pay period basis, but we are consulting with employers and payroll providers to ensure that we get that right. As is normal with national insurance legislation, we will set that out in the regulations.

I turn to the hon. Member for Witney (Charlie Maynard). It is not surprising that he, as a Liberal Democrat, opposes these measures but set out absolutely no ideas for how to pay for that. I look forward to him calling for more spending later this week—again with absolutely no idea how to pay for it. He raised timing. Directly to his two questions, we think it is pragmatic to give employers and individuals time to adjust—that is the basis for the pragmatic point that he raised. He also raised the scoring of that, which is a technical issue reflecting how the national accounts deal with the claiming back of tax relief for some pensions. He also mentioned the OBR. If he looks at its report, he will find that it set out that the Budget measures will have no material impact on savings levels.

To end on a point of wide cross-party consensus, both hon. Members raised the case that people do need to save more for their pensions—the right hon. Member for East Antrim (Sammy Wilson) just did so, too—and we all agree on that, and particularly those 45% of working-age adults who are currently saving nothing. As I said, that includes in particular groups such as low earners and the self-employed, for neither of whom is salary sacrifice available. The answer to that is the work of the pensions commission, which I hope will continue to operate on a cross-party basis. Its interim report will be coming forward soon, and I will commend its work to the House. For today, I am afraid that the Government will oppose the Lords amendments.

Question put, That this House disagrees with Lords amendment 1.