National Insurance: GDP

Question

11:28:00

Asked by

To ask His Majesty’s Government what assessment they have made of the impact of the increase in National Insurance contributions for employers on gross domestic product growth.

My Lords, the £22 billion black hole left by the—

Oh!

The £22 billion black hole left by the previous Government meant we had to make very difficult decisions to repair the public finances, rebuild public services and restore economic stability. Following the Budget, the Office for Budget Responsibility has revised up its growth forecasts for the next two years, as has the Bank of England. The OECD now expects the UK to be the fastest-growing European G7 economy. The OBR has also said that there will be significant increase in growth as a result of the Budget over the longer term.

I wish the Minister a happy Christmas, even with the reminder of the schwarzes Loch. Memories of Christmas past and the story of A Christmas Carol remind us that extracting the most amount of money from a business can have surprising consequences. In this case, can the Minister comment on whether increasing employment costs will lead to an increase in prices or a reduction in jobs, and can he specifically comment for us on the impact on the hospice sector?

I wish the noble Lord a merry Christmas and a happy New Year in return. As I said, we did have to clear up the mess that we inherited, and that did mean taking some very difficult decisions. I of course understand and respect the legitimate concerns that have been raised, and we have consistently acknowledged that there will be wider impacts as a result of the decisions that we have taken. But I do genuinely say that not to act and not to repair the public finances and restore economic stability was simply not an option. As I have said, let us be clear: following the Budget, the OBR, the Bank of England and the OECD have all revised up their growth forecasts.

My Lords, a report in 2021 by Skills for Care calculated that adult social care alone contributed some £70 billion to the economy and that: “Sustained growth in adult social care will boost local economies via the induced and indirect effects”— and this was especially in northern and Midland regions. Does the Minister understand that the ongoing lack of investment in social care, combined with new burdens—notably the increase in employers’ NICs—could put this growth into reverse? Will the Minister make to his Government the economic case for exempting the care sector from increased employer NICs?

I have the greatest respect for the noble Baroness’s consistent focus on the importance of social care. The answer to her last question is no, but the Government are providing at least £600 million of new grant funding for social care in 2025-26, as part of the broader estimated real-terms uplift to core local government spending power of approximately 3.2%.

My Lords, does the Minister agree that the drop in job vacancies in November at the steepest rate since the pandemic is not only bad news for economic growth but reflects very poorly on both the run-up to the Budget and the Budget itself—in particular, raising employers’ national insurance contributions while increasing the minimum wage at three times the rate of inflation? Is this not a recipe for job destruction rather than job creation?

Well, no. The OBR has been very clear that the number of people in employment will increase by 1.2 million over the course of this Parliament. As I said before, we had to take some very difficult decisions to clear up the mess that we inherited. I would simply ask the noble Lord and other noble Lords what their alternative is to the course of action that we took? Are they seriously saying that we should not have repaired the public finances? Are they seriously saying that we should not have restored economic stability? Quite frankly, that is the path that the Liz Truss mini-Budget took. We saw what happened then: she crashed the economy and working people are still paying the price today.

My Lords, can my noble friend the Minister confirm that, in the 12 months leading up to the general election, the previous Government, in reducing national insurance on employees by 4p, actually gave away £20 billion and that there has been no discernible improvement in economic activity as a result? Is not this entirely their fault and not ours?

My noble friend is absolutely right that the actions taken by the previous Government were consistent with the actions of a Government who had a total lack of regard to the stability of the public finances—which is exactly why we ended up with a £22 billion hole in those public finances because, although they willed the ends, they never willed the means.

My Lords—

My Lords—

I think it is the turn of the noble Baroness.

My Lords, can the Minister respond to the question from my noble friend on the Front Bench about the impact of national insurance contributions on the care sector, and specifically on hospices?

As I said to the noble Baroness, Lady Kramer, the Government are providing at least £600 million of new grant funding for social care in 2025-26.

My Lords, colleagues in all parts of the House will have received representations on a scheme drawn up to help disabled children get to school, which is being undermined and will probably have to close down as a result of this increase in national insurance payments. Was that sort of scheme considered by the Government, or was it not considered at all before this decision was taken?

I am not aware of the specific scheme that the noble Lord raises, but I will happily look into it and I shall write to him on it.

Given the ever-increasing demands for more and more public expenditure which we listen to every day of the week in this House, will the Minister consider presenting a form of debate for the House whereby we can look to try to extend the area in which tax might be raised to meet those public expenditure demands? Could he also look at the possibility that we may increase national insurance contribution returns by extending national insurance contributions beyond the state retirement age, as we now have 1.5 million people working beyond that age?

The question of which debates the House has is not a matter for me—I think that is somewhat above my pay grade—but my noble friend is absolutely correct to say that we hear consistent demands from the party opposite for more and more spending, but they never seem to be willing to tell us exactly where the funds for that will come from. Of course, that is exactly why we ended up with a £22 billion black hole in the public finances: because they never took the difficult decisions to pay for any of their promises.

My Lords, I may only have an economics degree but, none the less, that makes me an economist in the way things are currently. As such, the OBR has made it clear there is no £22 billion black hole, which is why there is the same response from this side of the House. But what is clear is that £40 billion has been taken from the private sector to the public sector. Companies have to respond to that. Their only choices are either to increase prices, which they are, to reduce wage increases, which they are, or to reduce investment in jobs and other capital items. As a result, of course, the PMI is at its lowest level since 2009 and, within 24 hours of the Budget, the gilts went up 40 basis points. Can the Minister explain that and can he also please address the issue of care homes? I am involved in a charitable care home which has received a £1.5 million extra bill. We do not know how we are going to pay that bill. I will not name the care home, but I will take this opportunity to wish the Minister a happy Hanukkah.

I am very grateful to the noble Lord for his last comment and I obviously say the same to him. I am also grateful to him for raising the £22 billion black hole again. He is possibly the only Member of this House who mentions it more often than I do and he will be absolutely aware of the outcome of the OBR’s review. It conducted a review into a meeting it had with the Treasury on 8 February, when the Government were obliged under the law to disclose all unfunded pressure against the reserve. The OBR’s review has established that, at that point, the Government concealed £9.5 billion. The OBR made 10 recommendations to stop this ever happening again, which this Government have accepted in full. But, of course, the previous Government still had five more months left in office and they continued to amass unfunded commitment after unfunded commitment that they did not disclose. By July, records show that that had reached £22 billion. The noble Lord asked a number of subsequent questions and I simply ask him: is he seriously saying that we should not have repaired the public finances? Is that his serious contention? That is absolutely what the Liz Truss mini-Budget did and we saw exactly how that ended up.