Social Care and Special Education Charities: Employer National Insurance Contributions

Question

15:08:00

Asked by

To ask His Majesty’s Government what assessment they have made of the impact of changes to employer National Insurance contributions on charities working in the social care and special education sectors; and what steps they are taking to mitigate that impact.

My Lords, I beg leave to ask the Question standing in my name in the Order Paper and declare my interest as vice-president of the Shaftesbury Society and my involvement in many other similar charities.

My Lords, the Government have had to take difficult decisions to repair the public finances and rebuild the public services. Giving careful consideration to and properly assessing the impact of these decisions is a priority. A tax information impact note was published alongside the introduction of the Bill containing the changes to employer national insurance contributions, which sets out the impact of the policy on individuals, businesses and civil society organisations. As I committed to your Lordships’ House during the passage of the Bill, we will continually monitor and assess the impacts and effects of these policies.

The Government’s national insurance increase to 15%, plus lowering the threshold to £5,000, will cost charities an additional £1.4 billion annually. One in four employers are implementing redundancies as a result. This will drastically cut charitable services, which is akin to kicking in the teeth the most vulnerable in our society. Has any assessment been made of the impact on charities serving vulnerable young and old people?

I am grateful to the noble Lord for his question. Of course the Government recognise the important role that charities play in our society as a trusted and independent partner to the public sector in helping deliver vital public services. We also recognise the work done by unpaid careers and welcome this week’s Carers Week as an opportunity to pay tribute to the invaluable work that they do throughout the UK. As I said in my opening Answer, we had to take a number of very difficult but necessary decisions, including on employer national insurance, to fix the public finances and restore economic stability. In doing so, though, we recognised the need to protect the smallest businesses and all charities, which is why we have more than doubled the employment allowance to £10,500, meaning that more than half of businesses, including charities, either gain or see no change in the amount that they will pay. As I also said in my Answer, we will continually monitor and assess the impact and effect of those policies.

My Lords, does the Minister agree that the Government have already published several comprehensive spending review announcements over the past week? Does he further accept that social care funding is inextricably linked to the NHS’s recovery? Will he therefore use this opportunity to reassure the House that social care will not be cut in the comprehensive spending review?

I agree with the noble Baroness’s first statement of fact; we have already made several spending review announcements. She will know that the Government are making available so far £3.7 billion of additional funding for social care authorities in 2025-26, including an £880 million increase in the social care grant. This is part of an overall increase to local government spending power of 6.8% in cash terms. As for future years, she will have to wait for Wednesday to find out the details of the spending review.

My Lords, in addition to their role in providing many social care services, charities perform a very important function in speaking up for patients, users and carers, enabling them to find their voice and claim their rights. Would my noble friend agree that this advocacy function is extremely important and should be supported and encouraged? I draw attention to my registered interests and thank the Minister for his acknowledgement of Carers Week.

I am grateful to my noble friend for her question and I wholeheartedly agree with what she says. Civil society organisations play an absolutely vital role in speaking out and advocating on behalf of their beneficiaries. This role is a fundamental part of a thriving democracy. We have a rich history of charities campaigning for change in this country. Examples span the huge breadth of the voluntary sector, from the NSPCC on child protection to the RSPCA promoting animal welfare, international development charities tackling global poverty and inequality, environmental charities raising awareness of global warming, and many other examples. Civil society’s campaigning and advocacy roles should of course be recognised and celebrated, which is why the civil society covenant framework, launched in October 2024, aims to establish a renewed partnership between the Government and civil society organisations. It outlines four foundational principles: recognition, partnership, participation and transparency. Following extensive engagement across the sector, we aim to launch the civil society covenant later this year.

My Lords, given the worrying data from the National Care Forum that 73% of providers reckon that they will have to refuse new care packages from local authorities or the NHS, and that 22% plan to close their businesses entirely, what consideration are the Government giving to renegotiating completely the national insurance contributions, to ensure that those who provide direct care are not burdened with an expenditure that risks putting up the load and demand on the NHS itself and on local authorities, so that we get circular downward spiralling of excess expenditure?

I do not think I can give a positive answer to the main thrust of the noble Baroness’s question. As she will know, and as I said already, the Government are making available £3.7 billion of additional funding for social care authorities in 2025-26. We will set out future years’ allocations in the spending review on Wednesday. As she knows, the Government will provide support for departments and other public sector employers for the additional employer national insurance costs.

My Lords, in Committee on the national insurance Bill we put an amendment down to exempt hospices specifically from national insurance increases. The CEO of Thames Hospice, to which I declare I am a donor, said that, as a result of the proposed changes, more people will die in pain and agony than would otherwise need to be the case. What assessment have the Government made of the cost of these national insurance increases on hospices specifically, and what advice would he give to the chief executive of Thames Hospice?

As the noble Lord knows, the Government recognise the vital role hospices play in supporting people at the end of their life and their families. The Government are determined to shift more healthcare into the community and ensure that patients and their families receive high-quality, personalised care in the most appropriate setting. Hospices will have a very big role to play in that shift. The Government are supporting the hospice sector with an additional £100 million for adult and children’s hospices, to ensure that they have the best physical environment for care, and £26 million revenue to support children and young people’s hospices.

The Minister will recall from the amendment I tabled in Committee to what was then the Bill that my twin brother was an early beneficiary of SEND transport. Will the Government monitor the impact of national insurance increases on the effectiveness and continuity of provision in this area and inform the House of such findings in due course?

I am grateful to the right reverend Prelate for his question. The answer is yes; I think I committed to doing so during the during the legislative process of that Bill. As I said then, the Government do not expect the changes to national insurance to have a significant impact on home-to-school travel for children with SEND. The Government have increased funding for the core schools budget by £2.3 billion, increasing per-pupil funding in real terms in 2025-26, and £1 billion of this funding will go towards supporting the special educational needs and disabilities system. The Chancellor will set out funding for schools as part of the spending review on Wednesday.

My Lords, the fact is that these increases have devastated the charitable sector. For example, Noah’s Ark Hospice in north London said recently that the rise in national insurance represented “basically a £100,000 tax on us that we hadn’t budgeted for”. Yet the need for these services has never been greater, as the Minister has just acknowledged. Will he assure the House that the Government will not increase national insurance contributions again and that his review will look sectorally in detail at the effect on charities, hospices and social care before the next Budget?

On the first half of the noble Baroness’s question, as she knows, as part of the changes to national insurance, the Government recognised the need to protect the smallest businesses and charities, which is why we more than doubled the employment allowance to £10,500, meaning that more than half of businesses with national insurance liabilities will either gain or see no change this year. The Government provide a great deal of additional support to charities via our tax regime, which is among the most generous anywhere in the world, with tax reliefs for charities and their donors worth just over £6 billion for the tax year to April 2024.

My Lords, partners of big law and accountancy firms derive most of their income from one source but, despite that, they are not deemed to be employed by the firm. Therefore, the firms do not pay employer’s national insurance on the partners’ share of profits. The big four law firms are avoiding about £4 billion a year in employer’s national insurance contributions. Can I urge the Minister to look into this and bring forward reforms, so that we can have lots more revenue for the things that we need?

I am very grateful to my noble friend for his suggestions, which I will always take very seriously.