National Insurance: Charity Sector

Question

14:57:00

Asked by

To ask His Majesty’s Government what assessment they have made of the impact of the increase in National Insurance contributions on the charity sector.

I beg leave to ask the Question standing in my name on the Order Paper and refer your Lordships to my registered interests.

The Government highly value the charity sector and its positive contribution across society. However, as noble Lords are aware, we have had to take a number of difficult decisions on tax, welfare and spending to fix the public finances, fund public services and restore economic stability. The Government publish tax information and impact notes for tax policy changes, which give a clear explanation of the policy objectives and an assessment of the impacts. This was published on 13 November 2024.

I thank the Minister for her Answer. In an open letter to the Chancellor, co-signed by 7,361 charities, the National Council for Voluntary Organisations gave as its initial estimate of the impact of the proposed increase in the employer national insurance contribution on charities an additional annual bill of £1.4 billion. This will have a devastating impact on the sector and the services it provides. Does the Minister agree that we have to protect our valuable charity sector by exempting it from this damaging national insurance increase in the same way that the Government are protecting the public sector from the impact of these increases?

I have not seen the workings out where the sector arrived at the figure, but I am not trying to play down its concerns about the NICs increase. It is a usual approach for the Government to support the public sector with additional employer NICs costs, as was the case with the previous Government’s health and social care levy. The Government have committed to provide support for departments and other public sector employers only. I know that Ministers have met voluntary sector representatives and are aware of the sector’s concerns. There are other measures within the suite of the tax regime—including exemptions from business rates, for example—that are among the most generous of anywhere in the world.

My Lords, can the Minister explain why this Government have decided to tax charities through national insurance contributions and yet to persist at the same time with the Conservative Government’s unfair tax relief to banks, using Rishi Sunak and Jeremy Hunt’s cuts in bank surcharges—an estimated £4 billion a year in effect given away due to cuts in the bank levy since 2016? Why not return those taxes to 2016 levels, stop this tax rise on charities and tax the banks instead?

Without wanting to repeat what my noble friend Lord Livermore would have said had he been here, we inherited a £22 billion black hole. I appreciate the sector’s concern, but, regrettably, as part of the Autumn Budget, the Government had to take a number of difficult decisions on tax and welfare spending. I know the Chancellor highlighted this decision as one of the hardest she had to make in respect of the Autumn Budget.

My Lords, does the Minister agree that the impact of national insurance contributions on the charity sector can be alleviated by levying national insurance on capital gains and dividends?

That is a matter for the Chancellor, and I will pass on my noble friend’s suggestion.

My Lords, the state contracts out important family services work in prisons to charities, as they are more trusted by families and by the prisoners they are visiting. However, these contracts are so skimpily financed that increased, unbudgeted NI costs will likely mean many charities are forced to hand them back to the Government. Will additional funds be made available to bridge that shortfall so that agreed work can be delivered without risking charities’ financial integrity?

The noble Lord gives a powerful example of the valuable work that charities undertake. It is hugely difficult for this Government to find ways of filling the £22 billion black hole. The Charities Minister has met representatives and we are keen to work with and hear from individual charities where they have concerns, so if the noble Lord has specific examples that he would like to share with me, I ask him to get in touch.

My Lords, has the Minister received an apology from the Opposition for crashing the economy, driving public services to the worst state they have ever been in and for not coming forward with any solutions as to how we can address these problems? They left us to make difficult decisions that we do not want to make, but it is their mess.

My noble friend makes an important point. I have not personally received an apology. I would not necessarily expect such an apology to come to me; I would expect it to be made to the nation.

My Lords, in the middle of this political shenanigans going on, the average hospice in this country will be hit by a £200,000 funding gap based on the Government’s national insurance contribution rise. What advice would the Minister give to managers of hospices who are now looking at either laying off staff or reducing services?

The noble Lord will be well aware of the Secretary of State for Health’s commitment to hospices, including supporting the hospice sector with a £100 million boost for adult and children’s hospices to ensure they have the best physical environment for care and £26 million to support children and young people’s hospices. I am not playing down how hard it is going to be for organisations to find the additional revenue, but not all organisations will find that their NICs bill increases.

My Lords, I refer to my entry in the register as a trustee of several charities. Can the Minister say what discussions she has had with her Secretary of State about the presumed job losses there will be in the sector and the lack of delivery caused by this increase in national insurance contributions?

I think we need not to talk ourselves into a corner on this, where we assume that things are going to be as dire as they might be. In response to the question put to my noble friend Lady Taylor, who is here today, let me say that we would not have made the choice unless we had to, but there is a need to protect small businesses and charities, which is why we have more than doubled the employment allowance to £10,500 and extended it to all eligible employers. The OBR expects about 250,000 employers to gain from the changes and a considerable number to see no change at all, so more than half of all businesses, including charities, will not see the rise that the noble Lord suggests will happen.

My Lords, having worked with the National Association of Citizens Advice Bureaux some years ago, I am very conscious that most bureaux operate on an absolute shoestring. Will the Government consider exempting these small bureaux and other small charitable organisations from the national insurance rise? Many of them simply will not be able to deal with it and they will go out of business.

I hope it is reassuring to the noble Baroness that the smallest charities and organisations should not see a rise in their national insurance contributions. If she has examples of citizens advice bureaux where they think this is not the case, I ask her to let me know. I am hugely aware of and in awe of the work that the citizens advice bureaux do in supporting some of our most vulnerable citizens.

My Lords, the increase in NICs is highly regressive and the very general impact note does not make that clear. It disproportionately affects charities employing those on lower incomes or working part-time and, unfortunately, the employment allowance barely scratches the surface of the problem that has been created. Does the Minister think it is right to target the lower-paid in this way through the NICs changes?

My understanding of the NICs change is that it is about employer increases. This Government have not increased the tax paid by workers, including national insurance.