National Insurance Contributions (Secondary Class 1 Contributions) Bill

Committee (1st Day)

15:45:00

Clause 1: Rate of secondary Class 1 contributions

Amendment 1

Moved by

1: Clause 1, page 1, line 1, at end insert— “(A1) In section 9(1A) of the Social Security Contributions and Benefits Act 1992, after paragraph (aa) insert—“(ab) if the employer is a specified employer under subsection (1B), the specified employer secondary percentage;”(A2) After section 9(1A) of that Act insert—“(1B) A “specified employer” means—(a) a person providing a care home service or a domiciliary support service who is regulated under—(i) Part 1 of the Health and Social Care Act 2008,(ii) Part 1 of the Regulation and Inspection of Social Care (Wales) Act 2016, or(iii) Part 5 of the Public Services Reform (Scotland) Act 2010,(b) a person contracted to provide primary care under the provisions of—(i) Part 4 of the National Health Service Act 2006,(ii) Part 4 of the National Health Service (Wales) Act 2006, or(iii) sections 17J to 17O of the National Health Service (Scotland) Act 1978,(c) a person contracted to provide general dental services under the provisions of Part 2 of the National Health Service (General Dental Services) Regulations 1992,(d) a person contracted to provide pharmacy services under the provisions of—(i) Part 7 of the National Health Service Act 2006, or(ii) Part 8 of the NHS (Pharmaceutical and Local Pharmaceutical Services) Regulations 2013, or(e) a charitable provider of health and care, or(f) a person providing hospice care whether in a hospice or elsewhere.(1C) For the purposes of this Act, the specified employer secondary percentage is 13.8%.””Member's explanatory statement This amendment, together with Lord Scriven’s amendments to Clause 2, page 1, line 12 and Clause 2, page 1, line 14, provides that care providers, NHS GP practices, NHS commissioned dentists, NHS commissioned pharmacists, charitable providers of health and care, and those providing hospice care would continue to pay contributions at current rates.

My Lords, I rise to speak to Amendments 1, 16 and 19, which stand in my name and are supported by my noble friend Lady Kramer and the noble Lord, Lord Randall of Uxbridge. These amendments address the implications of the national insurance contribution increase on independent contractors, small businesses and charitable providers of health and social care. The purpose of the amendments is clear: it is to exempt essential providers from the impact of the national insurance contribution hike. Let us first consider what this increase means for a sector that forms the backbone of community healthcare: pharmacy, dentistry, optometry, hospices, GP surgeries and social care providers. These vital services, already under immense financial pressure, are struggling to meet the growing needs of our community. By imposing additional financial burdens, the Government risk undermining their ability to deliver care, with potentially devastating consequences for both providers and the people they serve. Research by my party reveals some stark issues. For GP practices, the national insurance contribution will cost an estimated £125.5 million annually, equivalent to more than 2 million lost GP appointments each year. At a time when some people already endure long waiting times, this is simply unacceptable. In social care, the Nuffield Trust estimates an annual cost increase of £900 million due to the national insurance contribution increase, yet the recent Budget allocated only £600 million per annum to this sector, leaving a £300 million funding gap. This financial black hole threatens to push some providers towards collapse, reducing access to support keeping individuals independent and out of NHS care. Hospices, which provide compassionate care to terminally ill individuals and their families, face an additional annual cost of £30 million. Some hospices will need to raise as much as an extra £200,000 each year. With many already heavily dependent on donations, such increases could force them to scale back services, lay off staff or even shut down some services entirely. Community pharmacists, already operating on razor-thin margins, will incur an average additional cost of £12,000 per pharmacy annually. These pharmacists are vital lifelines for millions, yet the national insurance increase threatens the very survival of some of them. Dentists facing rising costs could lead to higher patient charges and reduce access to NHS care. At a time when NHS dentistry care accessibility is already in crisis, the Government’s decision will exacerbate the problem, potentially creating further dental deserts across the country. It is worth noting that the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, have tabled Amendments 45 and 61, which are not in this group, proposing to increase the employer allowance for dental practices and requiring a review of the impact on certain sectors, including dentistry. However, the employment allowance, regardless of its level, is unavailable to dental practices that derive more than half their income from NHS services. Without a targeted exemption for the national insurance contribution hikes, NHS dental practices may be forced to reduce their NHS commitment to below 50% to qualify for support, with dire consequences for patient access. It is patients who will ultimately pay the price if the Government fail to act. When we weaken our health and social care providers, the consequences are felt by individuals and communities. Fewer GPs, or fewer GP services, mean more crowded A&E departments. A reduction in social care providers leaves vulnerable individuals without support to live independently. Cuts to hospice services deprive families of the comfort and dignity they need during their most difficult moments. The Government’s national insurance increase treats commissioned non-state providers of NHS and social care as though they were just ordinary businesses rather than essential public service partners. It fails to recognise their unique role in safeguarding the health and well-being of our nation. The economic rationale for this policy is flawed. By burdening health and social care providers with additional costs, the Government risk reducing services or, in extreme cases, forcing closures. This in turn will increase pressure on already overstretched NHS emergency services, leading to longer delays, worse health outcomes and higher long-term costs for the taxpayer. This national insurance contribution increase on health and social care providers is penny-wise and pound-foolish policy-making at its worst. The solution is straightforward: reverse the national insurance contribution increase for health and social care providers that are commissioned by the state. This is not just a financial necessity; it is a moral imperative. These providers are already planning staff redundancies, service reductions and potential closures. They need certainty that their funding will be adequate from April, and fully funded, and that it will cover the additional costs. It would be deeply disingenuous for Ministers to suggest that the providers can absorb these costs or deal with the uncertainty if the Minister cannot guarantee that they will be funded. They will have significant effects on the ability of these providers to provide business continuity. The Treasury may conduct abstract modelling, but the reality on the ground is stark. Front-line health and social care providers are directly affected and making plans now. These service providers are making plans today to reduce staff numbers and reduce access to services. The thousands of small businesses, independent contractors and charities need certainty that the money will be there from April and fully funded. Hollow and shallow words to the effect that this is all part of the normal contract negotiation, or part of the wash-up of next year’s funding settlement, will not stop the notices of reduced hours or redundancies going out. It will not stop the changes in opening hours or reduced access to services that are now being implemented. We need to ask: why the two-tier system? If the direct state providers of NHS care that provide services can be treated in a different way—in that, where normally they would be told it is part of a contract negotiation, they have been told with certainty that this provision will be funded—why not provide the same certainty now for non-state providers? After all, they treat the same people and patients, providing care and support in our community. The cost of exempting these providers can and should be through a fairer taxation system. My party has proposed raising the money required by reforming taxes on large, profitable corporations, particularly in the technology, financial and gambling sectors. For example, a modest increase in the digital services tax would generate significant revenue while not placing essential services at risk. The national insurance hike that the Government are proposing undermines the very providers who care for our sick and elderly and our most vulnerable. If implemented, they will jeopardise community health and social care and endanger the futures of countless essential services. The Government have the power to change course. By reversing the national insurance increase for these vital providers and adopting a fairer, more sustainable approach to raising revenue, they can protect the thousands of small businesses, independent contractors and charities that safeguard our nation’s health and well-being. I urge the Government to act now and I beg to move.

My Lords, I have added my name to the amendments tabled by the noble Lord, Lord Scriven, and the noble Baroness, Lady Kramer. Over 30 years ago, as an MP I went to see my predecessor, complaining that Governments do not understand small businesses. At that time there was a Conservative Government, who did some things to rectify that position. Ten years ago, the family business, of which I was the chairman, closed. I am grateful that I closed it when I did; we did not have to put up with Covid, Brexit or this type of thing. I am saying this because I am not sure that Governments understand small businesses. The pharmacies, dentists and GPs we are talking about here are small businesses. I have always described the Treasury as being like your parents, who do not let you have the things that you want because they say you cannot afford them, but the damage that it could do with this increase in national insurance contributions will be devastating for pharmacies, GP practices, hospices and others. In the other place, when Members of Parliament want to get beneath the skin of people on the other side, they occasionally say such things as, “What about the sick and dying?” I have heard that quite a few times. In this case, I have to say that those are the people who will suffer because of this increase. I do not have the financial wisdom to know whether the suggestion put forward by the noble Lord, Lord Scriven, about how to raise the money is viable. However, I have to say that this measure being put forward is not the correct one, because it will have such an adverse effect not just on those businesses but on the people served by them. I know that Governments never give way on these things—I have been around long enough to know that that is the last thing they would do—but I urge the Government to have another look. I do not expect them to accept the amendments today—they may come back with an improved version—but they must look at this seriously, because it is a mistake. We will come on later to charities, which is another big issue, but for the moment we are talking about what is contained in these amendments and I urge the Government to think long and hard about what they are doing.

My Lords, I would like to give one example from the social care sector which concerns this group of amendments. Cyrenians is a charity in the south-east of Scotland that supports people suffering from homelessness. It is a very active charity, with over 60 services, employing more than 200 staff and providing vital support to people who are at risk of homelessness or are suffering from it. It calculates that the effect of these changes will cost it approximately £170,000 a year, which is a very substantial amount, considering that it depends on charity to support the services it runs. As a result of this, it will have to diminish the training and development of the staff it employs, which in turn will have an adverse impact on the quality of the service that it provides to the people in need of it. This unintended consequence is an example of the severe effect on an individual charity of this kind in the third sector in Scotland that is providing vital help to people facing homelessness. I need not add that homelessness is an emergency in Scotland and is recognised as such by the Scottish Government, so anything that diminishes the support that is given to people facing homelessness is a matter of grave concern. I do not expect that the Government will accept these amendments, but I ask them to consider carefully whether it is necessary for charities of this kind to suffer that kind of consequence. It is not so much the charity that will suffer but people who are homeless or at risk of homelessness.

16:00:00

My Lords, it is a great pleasure to follow the noble and learned Lord, Lord Hope of Craighead. The example that he just gave us illustrates, down at the level of fine detail, the broader point I want to make about charitable organisations and non-governmental, not-for-profit organisations. In thinking about making a contribution to this debate, I looked up contributions around the phrase, “I wouldn’t start from here”, to see some quotations. I found lots of rather repetitive jokes—noble Lords can look them up for themselves—so I shall aim not to be repetitive. As I said at Second Reading, the Green Party believes we should start with a wealth tax so that the people with the broadest shoulders make contributions to society in order that we can do what we need to do: invest far more in our austerity-stricken services and infrastructure and tackle the climate emergency and nature crisis. However, we can combine two things here and focus on charities and non-governmental organisations. We are talking about hospices, for goodness’ sake, which these amendments of which I am broadly in favour, deal with. I want to cross-reference two Early Day Motions in the other place: EDMs 374 and 380, tabled by my honourable friend Ellie Chowns. They look at what a mess the social care sector is in now, with the chronic underfunding and the workforce shortages problems. They also note how much the voluntary sector is already under strain from escalating operating costs and cuts to contract funding. The elements of these amendments that are worth focusing on are voluntary sector charities and not-for-profit organisations. I have a proposal to put to the Minister; it comes from the charities and NGOs that I have spoken to. They are saying, “Yes, we can imagine a scenario where we could cope with this national insurance rise, but not on 6 April, which is so close, with our budgets all set out and our staffing set in the position it is now”. Would the Government consider, specifically in the case of charities, non-governmental organisations and not-for-profits—particularly those in social care; the Government can draw the lines wherever they like—postponing for a year? This would surely not involve that much money in terms of the Budget, but postponing for a year would give these organisations the chance to reorganise their budgets so that they have a chance to prepare for this situation. That is neither where I would like to end up nor where I would like to start, but it is a constructive suggestion to help these organisations, many of which are in desperate straits.

My Lords, as we have heard, it is rather unusual for a Bill that will have such a devastating impact on our country, businesses, charities and so on to have its Committee stage in Grand Committee. Normally, we would have it on the Floor of the House. It is certainly true that past national insurance Bills have been taken in Grand Committee, but it is distressing that the Government have chosen to push this Grand Committee to consider a very controversial Bill that will affect many groups of people. It should be taken on the Floor of the House. I hope that this is neither a precedent nor a move that drives us in the direction of the House of Commons, which moved towards the timetabling of Bills, and proper scrutiny of important Bills, on the Floor of the House. We are familiar with the consequences of that: us having endless amendments to legislation that has not been properly scrutinised. If this was about saving time, I do not think it is going to work, because the fact that we cannot have votes in this Committee will mean us spending, perhaps unnecessarily, rather a long time on Report. Of course, the whole point of Committee stage is that it enables a bit of to and fro and discussion under the rules that apply in that respect. I find myself in an unusual position in the Grand Committee, speaking on a highly controversial Bill, devastating in its consequences. The Minister is keen on telling us about black holes and this creates an enormous black hole in the delivery of public services and for businesses up and down the land. The unusual position in which I find myself is being in complete agreement with the noble Lord, Lord Scriven. I started to make notes to find something that I thought he had got wrong, but I could not say anything until I looked at the amendment, because the flaw in his erudite and proper analysis of the damage that will be done to GPs, social care, pharmacies, hospices and others is the distinction that he makes between the public and private sectors. Apparently, if one is doing this in the private sector, it is okay to slap on a great tax that means one has to consider dismissing staff and so on. But if it is in the public sector, that is completely unacceptable. This is particularly egregious, although I think, and the noble Lord will correct me if I am wrong, he makes an exception for the provision of care home services in the private sector. I am not sure if that is right. I shall happily give way to him if he thinks I have got it wrong. In other respects, however, it is all about giving—

My amendment is clear. It is not just about the public sector. It talks about anyone who is contracted, which could be in the private sector.

Yes, but that that completely removes the private sector providing, for example, social care. A report on social care from the Economic Affairs Committee, which I chaired some time ago, was very much endorsed by the House as a whole—there was unanimous agreement across the House. It made clear what is happening in private care homes, for example. People who are paying their own fees, as opposed to them being paid by the local authority, are being charged up to 40% more to subsidise people who are in those homes as a result of the local authority. Here we have a situation where the burden is placed even more strongly on people providing care out of their own savings and resources. It seems to me that a distinction is being made between the elements that are providing care. For example, in dentistry, every time I go to the dentist—I see him every six months, when he has me in a position of some vulnerability—he tells me that he is unable to take on NHS patients because if he does so, the amounts he is allowed to charge mean that he is making a loss. That loss occurs because of staff and other costs, which will increase as a result of these measures. That will mean that the problem of getting dental care in the NHS, which is acute at present and even more acute for people with particularly severe orthodontic conditions, will get worse. He tells me, for example, that people can wait until their teenage years before they get treatment, and then they have to show that they have had treatment for the previous few years. If they have not had that, they are no longer eligible. The result is that people do not get treatment at all. Everyone knows that NHS dentistry is in crisis. As the noble Lord, Lord Scriven, pointed out, this will make it even worse. Then we have the issue of the hospices. The noble and learned Lord, Lord Hope, mentioned the case of Cyrenians and I would be remiss if I did not. My noble friend Lady Goldie asked me to mention the letter that she received from that organisation, and the noble and learned Lord highlighted the fact that this will mean £171,000 extra for a charity—not a big one—which is struggling. When I was Health Minister in Scotland a million years ago, I introduced pound-for-pound funding for hospices, whereby the Government would match the funding raised by the hospices. That was hugely successful but subsequently repealed by the Scottish Parliament when it came into action. Hospices are organisations that we should be supporting. We should not be thinking of new taxes on the people that they have to employ, although of course they benefit from many volunteers. The whole Bill is deeply misguided and, as the noble Lord pointed out, will have a devastating effect, not just on private providers but on all providers and charities. I remind the noble Lord that had we had his excellent amendment on the Floor of the House, we could have divided on it and sought the opinion of the whole House, but because we are put in here, we are unable to do so. That is a great disservice. Of course, it means that the Liberals—

And democrats.

Well, I am not so sure about the “democrat”, but they are certainly called Liberal Democrats. They will be able to say, “We raised your concerns”, but they raised our concerns in a way that made it difficult to have the rules of engagement that would enable us to refine those amendments in Committee. I hope that in considering his amendment, the noble Lord, if he takes it a stage further—I do not anticipate that the Government will accept it—may take account of the concern that it is not just about the public sector but the private sector. Bear in mind that this is just one measure on top of others—the increase in the minimum wage and the employment rights legislation—that will make it much more difficult for people to be flexible in their labour arrangements. All these things together are crushing these important public service organisations. I support the amendment, but I hope that the noble Lord might think further on the contribution made by those private providers providing services to people who pay from their own pockets.

My amendment, in proposed new subsection (1B), says: “A ‘specified employer’ means … a person providing a care home service” under the Health and Social Care Act 2008. So that will cover a private care home, not just a public sector care home. Would the noble Lord agree?

I would agree, but it would not provide for the costs of private patients, who are already paying over and above the odds because of the local authorities. I am not criticising the local authorities—in fairness to them, they simply do not have the money. More than three-quarters of councils’ budgets are going on social care, and the costs are going up. This is extending the cost, and therefore it will mean a greater burden on those people paying out of their own pockets.

When the noble Lord, Lord Forsyth, raised the issue of our meeting in Grand Committee—when the proposal was being discussed—and argued that votes could not be taken, I intervened and said that he was incorrect because I had won a vote in a Grand Committee many years ago. After a little research, I discovered that the noble Lord, Lord Forsyth, was right and I was wrong. The reason is that the Committee in which I won a vote was a Special Public Bill Committee. For those of your Lordships who have not encountered such a thing, a Special Public Bill Committee is exactly the same as a Grand Committee, except you have votes. It is designed to deal with Law Commission Bills. I apologise to the Committee for that error, and especially to the noble Lord, Lord Forsyth.

The noble Lord was kind enough to write to me and apologise, and we always very much respect the courteous way in which he handles debates in our House.

That is very kind. I turn to the amendment. One of the major failings of the UK tax system is its complexity. That complexity is a major source of tax avoidance—that is, the use of legal loopholes, often in ways totally unintended by the policymaker—to avoid tax. The real problem is the large number of exemptions—exemptions which riddle our taxation system and make it so susceptible to tax avoidance. Increasing exemptions to a particular tax is the wrong way to deal with the perhaps real problems described by the noble Lords, Lord Scriven and Lord Forsyth. The right way is for the Government to target direct subsidy to those services that they wish to have funded. These proposals increase the number of exemptions in the tax system. I can assure the proposers that they will be gamed and will result in tax avoidance, which is totally outwith the intention of the proposers of the amendments. Several other amendments would also add exemptions to the tax system. We should not do it. It makes our tax system worse and more complex and it increases avoidance. The approach embodied in the amendments is a very bad idea.

16:15:00

Before the noble Lord sits down, does not the Bill itself extend extensions, by changing the secondary threshold for class 1 contributions?

I agree, but adding more exemptions is adding to the pile. What we desperately need is a reform of our tax system that removes exemptions and forces Governments to make policy by deciding which goods and services they are going to subsidise.

My Lords, I agree with the noble Lord, Lord Eatwell, on simplification of the tax system; indeed, I have made many speeches on that subject in the past. I also agree that as a matter of principle it is not good to layer exemptions on to any taxes, but we have to see here that the Government have chosen to use a very blunt instrument to raise taxes, so we are faced with a problem. Do we just accept this blunt instrument bludgeoning whole sectors of our community or do we try to make it a bit better? I think that, on grounds of public policy, it is reasonable to make exceptions in order to ameliorate the effect of a dangerously wide imposition of these additional taxes on employment.

My Lords, as the noble Baroness said, the easiest way to avoid exemptions would be not to raise this tax at all; then we would not have to deal with the sectors that will be hit hard by it. I very much support the amendment in the name of the noble Lord, Lord Scriven, and I hope that it will come to a vote on Report, so that we can all support it. As other noble Lords have said, I particularly want to extend that to other charities, which I think are covered by Amendment 5 in this group.

It is in a later group.

In that case, I will address that amendment when we come to it.

My Lords, I thank the noble Lord, Lord Scriven, for tabling these amendments and others who have spoken, particularly my noble friend Lord Randall, who supported the amendments highlighting the damage to smaller businesses. I very much share his view. This has been an interesting discussion and it has brought out how unjust the proposals in the Budget for national insurance were. The amendment rightly draws attention to the problems created across the health sector, all of which we will discuss again in detail on other groups. “Stark” was the rather good word used by the noble Lord, Lord Scriven. As we heard at Second Reading, there are appalling consequences for those dealing with some of the most tragic services, including hospices and the transport of those with special educational needs. There will also be an immense strain on care homes, GPs, dentists and pharmacies—mostly small operations employing a number of part-time and low-paid staff. That will seriously impact on the health of the NHS. What is so unfair is that the public sector is being compensated for the extra costs. That is in contrast to those carrying out public good in the private sector, which, incidentally, we know is more productive. For example, I have been amazed by the industry of family-run pharmacies, which helped so much during Covid and are asked to do more and more year by year. They are having to deal with the treble whammy of NICs, the national minimum wage rises—especially for the young—and the prospect of the Deputy Prime Minister Angela Rayner’s proposals for new employment legislation. As I highlighted at Second Reading, many in the health sector say that they will be forced to reduce services and limit headcount. For example, we heard from the noble Lord, Lord Scriven, about the increased cost of social care faced by the independent care providers—I think he talked about £900 million; I had a figure of £940 million—which simply dwarfs the £600 million support rightly included in the Budget to help the sector. If the Government recognise that this tax is not sustainable for the public sector, why are they unable to apply that same logic to sectors that provide public services? These are not big businesses. They provide a critical service for the people and, if they are unable to do so, that will add to the pressure on the NHS. The noble and learned Lord, Lord Hope, gave a good example of the Cyrenians in Scotland and my noble friend Lord Forsyth rightly mentioned hospices, as I think everybody will do throughout this Committee.

Before my noble friend leaves this figure of £940 million for social care, something like one in seven of the beds in the NHS are occupied by people who are well and who could be discharged. If we are going to add a burden to the social care sector, that £940 million does not take account of the cost to the NHS of those beds being occupied by people who would otherwise be able to be in their own homes, not just saving the taxpayer money but also hugely improving their quality of life. So the £940 million —or the £900 million, as mentioned by the noble Lord, Lord Scriven—is a gross underestimate of the real costs that are being imposed by this policy, is it not?

My noble friend makes an excellent point. It is a question of the dynamics. I know, having once been a Treasury Minister, that dynamics always worry it. But the fact of the matter is that, if we can get things done and get people out of hospital quicker, as my noble friend suggests, that would make a real difference. I feel that the proposals that we are faced with for hard-working businesspeople and for social enterprises are a huge slap in the face. They are being discussed on a day when unemployment is rising and job opportunities are falling. I believe that that reflects the impact of the £23.8 billion hit on employers’ national insurance. It is a veritable jobs tax and the gloom that the Government have admitted for the first six months of their tenure has not helped. That is why my noble friend Lord Forsyth was right to regret that we were debating this not on the Floor of the House but in Grand Committee. I hope that none the less we will attempt to give the Bill proper scrutiny here, because if we do not, that would be a big failing. In that respect, one of the things that annoys me most is the lack of a proper impact assessment. We have a very inadequate impact note, which was published on 13 November. That gives a run of the yield to the Exchequer year by year but does not break it down into the three categories: the costs of the increase to 15%, the lowering of the threshold, which is extremely regressive, and the welcome benefit from the rise in the employment allowance—and indeed anything else included in the figure of £23.8 billion, which was by far the biggest change in the Budget and which is why so many people are here today worrying about the Bill. There is also an unexpected dynamic effect highlighted by the OBR, which means that, following the reduction in wages, profits and employment, this tax will raise over £5 billion less than the Treasury forecast, raising £18.3 billion in 2025-26 and nearly £10 billion less than the forecast in 2026-27. So there is a great deal of pain for wealth creators and effective employers, but not a lot of gain. I cannot see how we can scrutinise the Bill without proper impact information, and I look forward to a proper discussion during the debate on Amendment 13. However, I think the Committee would also like to have authoritative, disaggregated figures on the impact on the health and care sectors under discussion today. That is why I am raising this now, and I hope the Minister will consider what he can do to assist the Committee so that we can have proper understanding and proper scrutiny. We want to do the right thing here. It is against that sombre background that I shall speak to my Amendments 38 and 42, which have been grouped with this amendment. They seek to increase the employment allowance in the primary care sector. My purpose is to probe the Government’s openness to helping the sector a bit more through an increase. Perhaps the Minister could clarify the facts. The BMA has said that, as public authorities, they are unable to access support via the increased allowance and the noble Lord, Lord Scriven, made a similar point in relation to dentists. The Committee needs to know whether that is true. Mine is a probing amendment and the first of several relating to Clause 3. To reply to the noble Lord, Lord Eatwell, as someone who has tried to reform taxes in the past, originally with the help of my noble friend Lord Heseltine as part of the deregulation initiative, it is very difficult to get simplification of the tax system. That is one reason why I have tabled an amendment relating to the employment allowance, because it comes at the matter in a different way. Primary care is vital to the Government’s plans to improve the NHS. My fear is that the NICs changes, especially the lowering of the threshold and with part-time working so common in primary care, will lead to further problems in GP surgeries, increasing chronic conditions and waiting times for appointments across the NHS, and having the perverse effect that I think we will come back to as this Committee progresses.

My Lords, it is a great pleasure to respond to the debate on this first group of amendments, and I thank all noble Lords who have contributed so far. It is also a pleasure to see so many noble Lords in the Grand Committee. I know that some noble Lords are unhappy about being here, but the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, in particular, and I know what it feels like to be in this Grand Committee on our own, so it is, at least, I have to say, nice to be popular. Before I address each of the amendments in this group, I shall very briefly set out at the outset the context in which the Budget decisions contained in the Bill were taken. I would like to do so since this context is why we are here today and underpins the debates that we will have, not just on this group of amendments, but on all further groups. As noble Lords will know, the Government inherited three distinct challenges: the need to repair the public finances; the need to rebuild public services; and the need to protect working people. The most pressing of these challenges was the need to repair the £22 billion black hole in the public finances as a result of a series of commitments made by the previous Government which they did not fund. The previous Government also made no provision for costs that they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal and £1.8 billion to compensate victims of the Post Office Horizon scandal. These pressures have to be funded, and it falls to this Government to do so. Noble Lords will also know that the country inherited acute problems in public services, with NHS waiting lists at record levels, children in Portakabins as school roofs crumbled around them and rivers filled with polluted waste. Yet since 2021, there had been no spending review and no detailed plans for departmental spending were set out for beyond this year. Working people had also lived through a cost-of-living crisis, with inflation peaking at 11.1% and remaining above target for 33 consecutive months. Combined with the previous Government’s decision to freeze income tax thresholds—

Is the Minister going to address the amendment?

Yes, I am. I said that I wanted to set out some context at the outset. I know that the noble Baroness may not like that context, but it is why we are here today, after all. That meant taking some very difficult decisions on welfare, spending and tax, including those in the Bill. I recognise that this involves asking some businesses to contribute more and that the impacts of the Bill will be felt beyond businesses. These are difficult decisions—not ones we wanted to take—and I understand and respect the very legitimate concerns that have been raised, both during today’s debate and outside this House. Crucially, however, and I may find myself making this point repeatedly during these debates, noble Lords who oppose the measures in the Bill must be clear. Do they propose instead more borrowing, lower spending or alternative tax-raising measures? That is the key question at the heart of these debates.

16:30:00

If the noble Lord is going to make a Second Reading speech on an amendment, is it okay if we all do the same thing?

I think the noble Lord did in his contribution; I remember him raising the minimum wage, for example. I do not think that is directly related to the amendment. We are all absolutely entitled to set out some contextual points in the points that we raise. Let me turn directly to the amendments in the name of the noble Lord, Lord Scriven, the noble Baroness, Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exclude care providers, NHS GP practices, NHS-commissioned dentists, NHS-commissioned pharmacists, charitable providers of health and care, and those providing hospice care, from the new rate and threshold for employer national insurance. I say at the outset that I have listened very carefully to the points raised by all noble Lords during these debates and taken on board what has been said. As I said, the difficult decisions the Government took in the Budget last year, including those in the Bill, were necessary to repair the public finances, protect working people and rebuild our public services. As a result of the measures in the Bill and wider Budget measures, the NHS will receive an extra £22.6 billion over two years to deliver 40,000 extra elective appointments a week. This investment is dependent on the Bill. As noble Lords will know, the Government have already set out that they will provide support for departments and other public sector employers for additional employer national insurance costs. But independent contractors, including primary care providers, social care providers, charities, including hospices, and nurseries will not be supported with the costs from these changes. This follows the precedent for such national insurance measures. It is exactly the same as was the case with changes to employer national insurance rates under the previous Government’s plan for the health and social care levy. Primary care providers—in general practice, dentistry, pharmacy and eye care—are important independent contractors, who provide nearly £20 billion-worth of NHS services. Every year, the Government consult each sector about what services it provides and what money it is entitled to in return under its contract. As in previous years, the issues we are debating today will be dealt with as part of that process. The Government have announced a proposed £889 million uplift for general practice in 2025-26 and have set out the proposed areas of reform that will help us to deliver on our manifesto commitments. This is the largest uplift to GP funding since the beginning of the five-year framework; it means that we are reversing a recent trend, with a rising share of total NHS resources going to general practice. We have started consulting the General Practitioners Committee of the British Medical Association on the 2025-26 GP contract in England. We will consider a range of proposed policy changes. These will be announced in the usual way, following the close of the consultation later this year. Turning to adult social care, the Government have provided a real-terms increase in core local government spending power of 3.5% in 2025-26, including £880 million of new grant funding provided to social care. This funding can be used to address the range of pressures facing the adult social care sector. Finally, we are also supporting the hospice sector, with a £100 million boost for adult and children’s hospices to ensure that they have the best physical environment for care, and £26 million of revenue to support children and young people’s hospices. I turn to the amendments tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, seeking to increase the employment allowance for employers in the primary care sector and for dental practices. Currently, small businesses with national insurance bills of £100,000 or less receive a £5,000 employment allowance, which means that they can deduct £5,000 from the total national insurance they pay on their employees’ wages. Under the proposals in the Bill, the employment allowance will increase to £10,500 from April 2025. The Bill also expands the employment allowance to all eligible employers by removing the £100,000 eligibility threshold. This will simplify and reform employer national insurance contributions so that all eligible employers now benefit. Increasing the employment allowance for specific sectors, including just the primary care sector and dental practices, as my noble friend Lord Eatwell said, would add additional complexity to the tax system and would be incoherent, given the wider changes to simplify the employment allowance made in the Bill. These changes would also create additional costs. How would these additional costs be met—through more borrowing, lower public spending or additional revenue-raising measures? If so, where would these additional taxes fall? If the Government were unable to meet these additional costs, we would be unable to provide the extra £22.6 billion for the NHS. In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

I asked a question which, in relation to dentists, echoed by the noble Lord, Lord Scriven. It was about the definition of “public authorities” and how that affects payment of the employment allowance. I raised it at Second Reading as well. It would be helpful to have a judgment on that point.

The definition is set as it was previously. We have no intention of changing that definition.

To be clear, that means these bodies will not have access to the employment allowance if they are public authorities. It would be helpful to know what the costings of that look like. I know that the Minister does not want to make any changes, but we are trying to understand what the numbers are here and in some minor areas, such as hospices. The Minister says that hospices will have extra money, but they will also have to pay a lot extra in national insurance. We are trying to understand all that to give him helpful feedback on the Bill; obviously, we are as keen as he is for it to succeed.

I would be very happy to look into the specific point made by the noble Baroness. I will feed back in my responses on a subsequent group.

My Lords, this has been a fascinating debate—no more fascinating than my thinking I was in total agreement with the noble Lord, Lord Forsyth, until he started arguing why he did not support me. I do not feel that I have to resign from my Front-Bench position, for which I thank the noble Lord. I have listened carefully. I believe that, regardless of which side of the Grand Committee noble Lords are on, everyone is agreed that the Bill will have consequences, both for health and social care providers and, through them, for the people who receive such services. I note that the Minister said that he had listened very carefully; I am sure that the sector and providers, who are listening carefully to this debate, will have noticed that he did not come up with any solutions to the problems they now face, such as the cuts to staff and services that they will have to make. I also note that, in his response, the Minister did not refer to community pharmacists’ contract negotiations, which have been on hold for this financial year since the general election. They are still dealing with a lack of contract and uplift for this year, regardless of the uplift and extra costs that will come next year. As a former NHS manager, I know that the flaw in the Minister’s response about this measure being part of contract negotiations is that everything gets bundled into contract negotiations—not just this year’s pressures but the extra services that the Government will look to provide. Therefore, this amount of money will not be covered and the Government’s decision will create both pressures on and gaps in existing services. I appreciate that the Minister gave the context, which is important, but it is the Government’s decision on how to deal with that context and the taxes that they decided to raise against these providers that are causing the problem. This is a government issue that will not go away and will put pressures on services; that is why, even though I beg leave to withdraw my amendment, believe that we will come back to this issue on Report. I look forward to the noble Lord, Lord Forsyth, supporting a vote then.

Amendment 1 withdrawn.

Amendment 2

Moved by

2: Clause 1, page 1, line 1, at end insert— “(A1) The Social Security Contributions and Benefits Act 1992 is amended as follows.(A2) In section 9(1A) after paragraph (aa) insert—“(ab) if section 9AA applies to the earnings, the veterans secondary percentage;”(A3) After section 9A insert—“9AA Veterans secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a veteran.(2) For the purposes of section 9(1A)(ab), the veterans secondary percentage is 13.8%.(3) For the purposes of this section, a “veteran” means a former member of any of His Majesty’s forces.””Member’s explanatory statement This amendment would exempt veterans’ salaries from NICs changes.

My Lords, in moving Amendment 2, I will also speak to Amendments 17 and 20 in my name and those of my noble friend Lady Kramer and the noble Lord, Lord Randall of Uxbridge. I was not able to speak at Second Reading. The Grand Committee will be delighted to know that I do not intend to give a Second Reading speech, even though there appears to be a precedent this afternoon. Nor will I talk about the quantum of £X billion, although I will briefly explain why I was not at Second Reading. I realise that it is not necessary to apologise, but I was detained up north waiting for a meeting associated with my father’s discharge from care, without which the NHS is paying for his care in a care home and has now done so for three months. Until it and social services are able to come to a resolution, the NHS is paying for his care, rather than either the local authority or, indeed, my father and his family. All the issues we heard about in the discussion on the first group of amendments are absolutely as acute as everybody said. We really need to deal with some of them, but whether they are best dealt with by increasing employers’ national insurance contributions I am not at all persuaded. As we heard in the previous group, this is a tax on jobs. In concluding the group, the noble Baroness, Lady Neville-Rolfe, said something about our wishing this legislation through or hoping to see it pass. I am not looking forward to seeing this legislation pass, because it is undoubtedly a tax on jobs, and it is not clear how it will help growth or any of the ambitions that His Majesty’s Chancellor of the Exchequer seems to think are necessary for our economy to improve. There is a serious issue at the moment. The specific issue on which my group of amendments focuses is veterans. I am aware that that sounds even more niche than health and social care or the voluntary sector, and that the noble Lord, Lord Eatwell, will be poised to jump up to say that this just adds yet more complexity. Why does a Liberal Democrat appear to be simply finding a way of adding to the complexity of the tax base? There are two reasons. One is that the Government and this country have a commitment to our veterans, as part of the Armed Forces community. We have a very clear commitment to supporting our veterans, in particular by getting them back into work. As tabled, this set of amendments is rather broad and I am aware that if we were on Report, I would not have amendments quite as broad as they are at present. The detail of the amendment is, in form and structure, identical to that of those for health and social care and all the other Liberal Democrat groups of amendments, where we are essentially saying that we should keep the threshold and the percentages as they are, rather than increase the thresholds and tax rates. The issue with veterans is that people who leave our Armed Forces are highly skilled and capable, yet not always seen as the most obvious people to employ. Larger employers may do so but it is not inevitable. A report by the Federation of Small Businesses back in 2019, A Force for Business, clearly highlighted the importance of bringing veterans back into the workforce. Its commitments to bringing veterans back into the workforce built on a report that highlighted that 12% of small businesses had employed veterans in the previous three years, and about 20% of manufacturers. It is important for veterans to be employed, but it is also important for small businesses to be able to employ them. On the back of those proposals and the report from the Federation of Small Businesses, under the previous Government, as of the tax year April 2021-22, there was an exemption for newly employed veterans: not for all Armed Forces veterans, as the current amendments talk about, but for those who were in their first job after leaving the Armed Forces, however long the period between leaving the Armed Forces and having their first civilian job might have been.

16:45:00

At present, as I understand it, there is still an exemption on NI contributions for veterans in their first job after they have left the Armed Forces. If I am indeed correct in that, can the Minister explain to the Committee how that is going to be dealt with in the current changes to the legislation? Will that simply be abolished by this general increase in national insurance contributions? In short, I should like at least to do what I have done, which is to raise the importance of supporting veterans back into employment. An attack on jobs through an increase in national insurance contributions is a general problem, but it is a particular problem for getting veterans back into employment. Specifically, is the NI contribution exemption for the first year still going to be in place under the Government’s new legislation?

I did not say I wanted the Bill to go through. I agree that that it is a jobs tax, as the noble Baroness said. What I accept is that the Government have a large majority in the other House, and what I am trying to do in this House is to have a proper discussion on the Bill with a view, perhaps, to amending it and persuading the Government that they have made some mistakes and that we can improve the Bill.

The noble Baroness is trying to encourage the Liberal Democrats to be in agreement with the Conservatives, rather as her noble friend Lord Forsyth suggested at one point that he was in favour of the amendment from my noble friend Lord Scriven. We need to be a little bit careful not to agree with each other too often. But she is absolutely right. The Government have a large majority in the other place and it is not the business of this House to go against the Salisbury/Addison convention. However, I do not remember this being a manifesto commitment.

My Lords, I find myself again being somewhat like a bully standing behind the Lib Dems urging them on. But, of course, they are not bullying but providing a good service. I should also say, with regards to this Lib Dem-Conservative coalition, I was actually Deputy Chief Whip during the coalition period and I have to say that the Lib Dems, certainly in the Whips’ Office, were extremely good partners and very sensible. So I have great sympathy for the amendment. I thank the noble Baroness, Lady Smith of Newnham, for her speech and express sympathy for the situation she finds herself in with her father. We all will have sympathy, even if we have not gone through similar things ourselves. As with the previous group, I can understand why the noble Lord, Lord Eatwell, said what he did, and I would prefer that we did not have all these exemptions. But the fact is that there are exemptions. That is what happens. I also say that, with regard to the veterans, the noble Baroness, Lady Smith of Newnham, has done us a great service in showing how many different sectors can be affected by this. We all have a debt of gratitude to veterans. If there was an exemption, as put down in the amendment, that might be an inducement for employers to hire those people. There could be no greater service to those people, who have given everything. As the noble Baroness said, they are very skilled and have a lot to offer. One could go on down the exemption line, but I do not want to incur the ire of the noble Lord, Lord Eatwell, any further. One could apply this to people who have come out of prison, because we want to encourage rehabilitation, and so forth. However, the point is—here I reiterate—that there must be alternative ways of raising this tax. I have not got them. I could, probably, upset most people in Committee today by saying that we should perhaps have looked at introducing national insurance contributions for those over the pension age. There may be quite a few people who would come into that category who could well afford it. There again, however, I will have to watch my back on the Metropolitan line on my way home today, in case I am taken out by a couple of sticks and so forth. I understand the difficulties the Government face, but I reiterate that we are having a deleterious effect on some vulnerable sectors—we have not got on to charities yet, so I will hold my fire on that. However, this is something we should be taking very seriously. With regard to the point about the large majority in the Commons, there is part of me—not the nice part or the Deputy Chief Whip part—that would be very keen to see some Labour Members vote against measures that will affect their local charities and veterans, and so on. We should do a service to the gallant men and women who have taken this up in the other place by making their lives a little easier.

My Lords, this is such a contrast to previous years’ versions of this debate, when there would be myself and the noble Baroness, Lady Kramer, sat over there, and a handful on this side. It is really quite enjoyable to have a debate like this, but whether it is actually productive in any way I am not sure. The problem we have is that veterans are like motherhood and apple pie. How can anyone oppose measures to assist veterans? Well, I can. There is a strange sense of déjà vu, because we had this debate in this Room two or three years ago when the last Government put forward proposals to exempt veterans. I cannot remember the details—you cannot remember everything we talk about here. However, we had the debate and discussion, and I expressed reservations about special measures for veterans. Do we have any information about what impact this has? I suspect it is a bit of tokenism.

My Lords, I wonder whether noble Lords who have been referring to national insurance growth as a jobs tax have actually read the OBR assessment of the impact of the Budget on employment. If they have not, I will quote it here. It states: “The … boost to output from this Budget reduces the unemployment rate by 0.3 percentage points, equivalent to around 90,000 people, on average in 2025 and 2026. Compared to our March forecast, the unemployment rate is lower across most of the forecast, but is in line with its unchanged estimated structural rate by the forecast horizon”. Why is it that the OBR, having considered carefully the impact of the increase in national insurance, has told us that the level of unemployment is going to fall, in its estimation? The reason was spelled out beautifully by the noble Lord, Lord Layard, at Second Reading. Perhaps nobody listened carefully to a distinguished professor of economics setting out why the characterisation of the national insurance rise as a jobs tax is seriously misleading in economic terms. I hope the Committee will forgive me if I repeat the argument of the noble Lord, Lord Layard. The cost to an employer of the increase in national insurance determines the choices that the employer will make with respect to the input of labour in the output that he or she can sell. The increase in national insurance will indeed tend to encourage employers to lower the labour input per unit of output: that is, it will increase productivity. The level of employment then depends on the amount of output. The amount of output—the overall level of employment—is determined, as the OBR points out clearly in the piece I quoted, is determined by the overall fiscal balance, and this Budget injects £26 billion of extra spending into the economy. Therefore, the economies in employment made by individual employers are significantly offset by the overall level of demand in the economy, because it is that overall level that determines employment, not the individual decisions. That is what Keynes taught us in 1936, which is why this characterisation of the national insurance charge as a jobs tax that will cause unemployment actually misses out the vital issue of what the revenues from the tax are used for. If they are used, as they are in this Budget, to increase expenditure, as my noble friend Lord Livermore pointed out in his scene-setting discussion, then employment may rise or fall depending on the fiscal balance—and the fiscal balance of this Budget, as the OBR points out, will reduce unemployment.

That is a very ingenious argument, and I hesitate to argue with such a distinguished economist, but just think of what the noble Lord said. He said that the increase in the labour cost as a result of this tax being imposed will force employers to improve productivity, and the way you improve productivity is by sacking the worker and replacing them with a machine, or AI or some other system. It is a bit of sophistry to suggest that it is not a jobs tax because it will only mean that some people will lose their jobs and that the improved productivity may have an effect. As for basing his argument on the predictions of the OBR, I think unemployment went up today.

It did not. The level of employment went down, but unemployment is not measured by that.

Indeed, but let us not get into that argument. What is the biggest problem facing the country? It is that more than 9 million people who are of working age and capable of working are not working. An argument that suggests that by making it more expensive to take people on, and then add to that—I am not making a Second Reading speech —employment protection, that this will not result in job losses and therefore is not a tax on employment is, even by the standards of great economists, stretching the argument too far. The consequence of this will be, as the noble Lord acknowledged, that some people will surely lose their jobs because employing them will become too expensive.

I just say, in relation to that and to the noble Lord’s arguments, that what he completely forgets is that manufacturing companies faced with this will simply move their production abroad. That is what he forgets.

Maybe I can be helpful by using the Library note on this occasion and a quote that it has from the OBR. The paragraph is headed “Labour supply”: “The OBR expects workers and firms, respectively, may reduce labour supply and demand in response to lower wages and higher employer costs.” That is a reference to these changes, including the NICs. “It anticipates the measures in the bill may reduce labour supply by around 0.2%, or a little over 50,000 on an average-hours equivalent … basis, by 2029/30”. Perhaps that quote about the OBR is helpful in the context of the conversation going on at the moment.

17:00:00

My Lords, the whole Committee has, I know, great respect for the immense knowledge and expertise in economics of both the noble Lord, Lord Eatwell, and his colleague, the noble Lord, Lord Layard. Laying out a theoretical argument about what happens to employment and demand in the economy is entirely valid, but it ignores what actually happens at the level of the individual enterprise, employer or employee. In her amendment, the noble Baroness, Lady Smith, talks about the impact on a specific group of employees. There is nothing in what the noble Lord had to say about the overall macroeconomic impact, which will affect the attractiveness of continuing to employ veterans if the cost of employing them is going to go up. In debating the previous group, we talked about whether community pharmacies could stay in business, given the additional costs that would arise for those businesses. We have to remember that this is not a highly theoretical exercise: the imposition of these massive national insurance changes is going to have a huge impact at the micro level. That is what we are trying to explore in many of the amendments we will look at in Committee, today and next week. They are not answered by theoretical answers at a macro level.

My Lords, I rise to speak to this group of amendments surrounding the exemption of veterans’ salaries from this NI jobs tax; the lead amendment was moved by the noble Baroness, Lady Smith of Newnham. This is a helpful group of amendments to remind us—just as my noble friend Lady Noakes has reminded us—that the social costs of this taxation initiative will fall on individuals. Although we talk about economics in an aggregate manner and debate it in the aggregate, there are social costs, and they are very real. In the aggregate, the Treasury may do quite well from this rise because of wage inflation. Wage inflation is a tremendous friend to the Treasury and will more than make up for the gap that the noble Lord mentioned at the start, which is that we need to find other sources of revenue. Wage inflation is going to support the Government quite nicely through this, but that cuts both ways: obviously, it has an aggregate and fiscal benefit, but it hits hard because the cost of employment goes up a lot. There is a double effect and we are probably seeing that right now. Putting aside the theory about whether we lose jobs in one place and offset them somewhere else, we know that we were down 50,000 jobs in December; the OBR number is an aggregate loss of 50,000 through this initiative. That is a tremendous estimate, of course—who is to say that it has any better insight than anybody else?—but it is already down by 50,000 in December. It is probably a combination of wage inflation and expected tax rises, but that is 50,000 people who are out of a job. As we look through these amendments, we might pause and reflect. Who are these vulnerable employees? Who is actually going to bear the social cost of this change? These amendments perfectly encapsulate the problem, which is that these changes will fall on people who are, and have already been identified as, vulnerable in one form or another. Observations about tax complexity may have been well made by the noble Lord, Lord Eatwell and, by the way, it is not just tax avoidance that is a burden to the economy. Tax compliance is a burden to the economy, as all forms of taxation in this country have become very complex and are a tremendous drag on the economy as things stand. However, that is how we manage our affairs. While we look at this issue, we might pause and think about where the costs fall on individuals—in this case, on veterans. The previous Conservative Government ensured that veterans were a priority. They guaranteed that the funding was sufficient to support veterans in securing highly paid and skilled employment in key sectors across our economy, utilising the skills that they developed in the military. In April 2024, veteran employment was at an all-time high of 89% owing to various initiatives, including the 12-month national insurance relief for employers hiring a veteran into their first role out of military service. This tax incentive was highly beneficial for veterans and business. Following its introduction in 2022, this relief was extended in 2023 and again in the following year, 2024. Following the Government’s decision to impact business through this tax decision, will the Minister at least confirm that they intend to continue this business relief to ensure that our veterans are able to find employment after their service and that businesses are able to benefit from their unique skills and experience? Our military deserve the utmost respect for the service they provide to our country and, as such, the veterans deserve that same level of respect. This tax will be harmful to these people, and if the Government are unwilling to exempt them, at the very least they must explain how they have arrived at the conclusion that it will not be exceptionally detrimental to the employment rate of veterans.

My Lords, I am very grateful to all noble Lords who have spoken in this debate. I will address the amendments tabled by the noble Baronesses, Lady Smith of Newnham and Lady Kramer, and the noble Lord, Lord Randall of Uxbridge, which seek to exempt veteran salaries from the employer national insurance changes. These amendments would create a different employer national insurance rate and threshold set at the current levels for salaries of veterans. The Government of course recognise the huge contributions made by the UK Armed Forces and veterans in this country, and I completely understand the intention behind these amendments. As some noble Lords have mentioned, there is already an employer national insurance relief available for the earnings of veterans, meaning that employers are not required to pay any national insurance contributions up to £50,270 for the first year of civilian employment. At the Budget, the Government decided to extend the national insurance contributions relief for employers who hire veterans to support veterans in their first year of civilian employment for a further year. Despite the challenging fiscal inheritance this Government face, this means we are maintaining this relief and it is not changing as a result of this Bill. Further to this, we have more than doubled the employment allowance to £10,500, meaning that more than half of businesses with national insurance liabilities either gain or see no change next year. Businesses and charities will still be able to claim employer national insurance reliefs, including those for under-21s and under-25 apprentices, where eligible. On veterans more widely, this Government have taken action to demonstrate our commitment to renew this nation’s contract with those who have served. We have awarded £3.7 million in veterans housing grants, veterans will be exempt from the local connection test for social housing in England and veteran cards are now accepted ID for elections. We are progressing veterans support programmes at pace, including a centralised referral pathway designed to support veterans who are homeless or at risk of homelessness, an NHS mental health specialist service designed to help veterans and their families in England and an NHS physical health specialist service designed to help veterans and their families in England. Before I sit down, I shall also address the questions raised by the noble Baroness, Lady Neville-Rolfe, about dentists, which I was unable to answer during the debate on the previous group. As I said, the criteria have not changed, including the exclusion of those doing 50% of their work in the public sector. The eligibility is down to individual businesses, and the proportion of their work in the public sector may vary year to year. All charities can claim, including hospices.

My point was in relation to the points made by the BMA and the dentists. There are two separate points. It is not in this group, but it might be as well to have a discussion on this so that we can be clear about this and on the impact on these important areas for the future of health in the NHS.

Can the Minister clarify something? I understood that the national insurance contributions relief for veterans had been extended for one year and that this Bill was not going to affect veterans. Surely at some point it cuts out. Is that correct, so that this would be valid only up to 2026?

The noble Lord, Lord Altrincham, set out in his speech that it was extended year by year under the previous Government. This Government have done the same thing and have extended it for a further year. On the basis of what I have set out, I hope the noble Baroness will feel able to withdraw her amendment.

I thank all noble Lords who have contributed to the group, and I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

Amendment 3

Moved by

3: Clause 1, page 1, line 1, at end insert— “(A1) The Social Security Contributions and Benefits Act 1992 is amended as follows.(A2) In section 9(1A), after paragraph (aa) insert—“(ab) if section 9AA applies to the earnings, the part-time worker secondary percentage;”(A3) After section 9A insert— “9AA Part-time worker secondary percentage(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b), this section applies to the earnings paid in the tax week, in respect of the employment in question, where the earner is a part-time worker.(2) For the purposes of section 9(1A)(ab), the part-time worker secondary percentage is 7.5%.(3) For the purposes of this section, a “part-time worker” has the meaning given in Regulation 2 of the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000.””Member’s explanatory statement This amendment sets a new National Insurance Contributions rate for part-time workers.

My Lords, all the amendments in this group are in my name. They break, essentially, into two parts. Amendments 3 and 12 relate to national insurance contribution rates for part-time workers. They are not a request for an exemption from the change but would establish a new rate for part-time workers of 7.5%, so this is a far more aggressive pair of amendments than those we discussed in previous groupings. Amendments 58, 59 and 60 are all about reviews. If I may, I will discuss part-time work first and then look at the reviews, to try to provide some clarity. Why have we taken a more aggressive position as we look at the situation of part-time workers? It is because we think that we now need to focus on the most disadvantaged, who are finding work difficult to obtain and finding it hardest to earn in a reasonable way to promote their standard of living. We think that part-time workers need to be viewed through a different lens. Traditionally, they have been an add-on side group, and I think that in some people’s minds there is still the idea that people who work part-time either work for pin money or are extremely well paid and need to work only a limited number of hours. That is not the character of part-time work as it is today, and we want this special category to be identified and recognised. Under the changes to the thresholds in the Bill, in many cases part-time work will be brought into employer NICs for the first time. Currently, a person could typically work 14 hours a week without incurring employer NICs, but that will be reduced to approximately eight hours. It is a dramatic difference. Very few people will be working fewer than eight hours in any meaningful way. The number of people who engage in part-time work has grown significantly. Today, there are about 8.5 million people. That set of people is overwhelmingly made up of those who carry with them some recognised disadvantage: people with health issues, be they mental or physical; people with caring responsibilities who are trying to improve the family income, as well as get out of the house to some degree; and people recovering from periods of unemployment and trying to rebuild their confidence and work credentials. For many young people, part-time work is the entry point. Some of them are students who could not remain in education if they did not have part-time work to go along with it, but it is also increasingly becoming a route to the first job and to getting some sort of credentials that will give you the ability to go on and develop a career in full-time work. With this growing sector, we are changing as a society and using part-time work far more. The Government will be very aware that, as they look at their growth agenda, one of their primary goals is to get older people who have become economically inactive—typically, those aged over 50—back to work. I suggest that part-time work is by far the most likely route for those individuals, so making that attractive, and making them attractive to employers, who may not have thought of employing somebody older who will therefore retire in a certain number of years, may well be a very important part of that strategy.

17:15:00

We also have to think of what are the consequences employers are faced with in that they now have to pay national insurance contributions for part-time workers, who have not been in that category historically. How will this change their behaviour? I suggest that in the behavioural change which the OBR has implied, which is that there will be an attempt to drop those people from the workforce, part-time workers will probably be one of the easiest groups to drop. Any measure such as this will discourage employers from investing in part-time workers with training and career opportunities. Already, employers treat this group with less focus and less interest. As they become a larger part of our workforce, we want employers to change that attitude and look at part-time workers as people for whom training and career opportunities should be offered.

If those jobs go, what happens to them? Two scenarios have now been raised by quite a number of people. One is to say that instead of having a part-time employee, as an employee is more closely engaged with my organisation, I will contract out the work. The Minister already knows that I am very concerned about umbrella companies, which are intermediaries, basically employment agencies. They can deal rather badly with the people who work through them, the contractors. There is now a fear that we are going to get mini-umbrella companies, which will escape some of the requirements for employers’ contributions, and part-time workers will end up focused within those groups, so you have the most vulnerable people again subjected to a group of intermediaries whose reputation is not stellar as regards taking care of the people with whom they engage.

The increased cost of part-time workers will particularly land blows on the hospitality and tourism sectors. We are extremely concerned about that. We will talk about small businesses more later. It is also very notable, when one looks at those sectors of hospitality and tourism, that it is not just young people whom they employ on a part-time basis; it is very often more women and people from ethnic minorities and poorer backgrounds. As I said, this is at entry level.

In hospitality overall, 37% of team members work 20 hours or fewer, with 70% of workers earning £25,000 or less. We are again hitting a hospitality sector that many know is already on its knees, but hospitality lies at the heart of many of our communities. If we want growth across the country, this is one sector where we have to make sure there is real vibrance and viability. So I am raising a whole series of reasons why this sector needs specific treatment.

I said that the last three amendments are reviews, and they are designed to give us some broader understanding of the impact of the Bill. One is a review of the NICs threshold for part-time workers—I do not think I have to say any more than that; it is a review that the Chancellor must provide within six months of the passing of the Bill. The second is a broader review of small businesses, hospitality, tourism and seasonal workers. We think that as we hit the hospitality and tourism sectors, there may be some real issues around seasonal workers that we need to be aware of—again, they are a very disadvantaged and often exploited sector, so we need to make sure we grasp all that. The third is a review of the effect in Scotland. I was hoping that my colleague, my noble friend Lord Bruce, would be available to talk to this, but he is hosting a series of MPs from outside the country and could not abandon them at this time, so I will just state the Scottish issue as I understand it, and others will probably come in.

My understanding is that the Scottish Government—I am no fan of theirs—set their tax rates without any knowledge that this particular tax was going to come in. That makes absolutely no sense. It means that there has to be some sort of meaningful conversation between the London or Westminster Government and the Scottish Government because essentially, tax has to be set with an understanding of how the different levels of government are acting.

But also, as I understand it—the Minister will confirm —where the public sector is going to be reimbursed for increases in employers’ national insurance contribution payments, the payment to Scotland will be on the Barnett formula, which is based on population in Scotland and does not reflect the fact that the structure of the public sector is different there and is therefore proportionately bigger than the proportion reflected through population. In other words, whereas a public service agency in London, for example, would be fully reimbursed for the additional cost of employers’ NICs, its equivalent in Scotland is unlikely to be fully reimbursed because the reimbursement is tied to the Barnett formula. We have asked for a review here but really, there should be far more engagement between the two Governments to try to sort this out. I beg to move.

My Lords, I will speak to Amendments 3, 12 and 59, to which I have added my name. I declare my interests as an investor in SMEs, including those employing part-time workers. In the interests of economic growth and especially flexibility in the labour market, which is so crucial for sectors such as hospitality and retail, the time has come, to use the words of the noble Baroness, Lady Kramer, to aggressively restructure an employer’s NICs scheme rather than subject all employers to one set rate of contributions and, indeed, thresholds, on which I will speak later in group five. Indeed, by dropping the threshold from £9,100 to £5,000, Clause 2 is disproportionately hitting employers who, frankly, have no choice but to employ part-time workers, often on a shift basis. Without introducing a lower secondary percentage, such as the 7.5% proposed in Amendment 3, part-time work will be on the retreat, hitting those very workers who are dependent on such employment and who cannot work full-time, including students, parents and family carers. As we have heard, the numbers published today of payrolled employees have dropped by 47,000 during December alone. That is the biggest fall since November 2020. It would be interesting to receive a breakdown of those figures and to see how many of those departing roles were part-time employees. It would be equally interesting to see whether the OBR will revise its forecast. The NI threshold cliff edge discriminates against part-time jobs, raising costs disproportionately for sectors already having to absorb huge increases in the national minimum wage. It does not fit with the world of flexible, part-time or temporary labour. Remember, we are talking about 8.4 million people who are part-time employed. That is one quarter of our workforce. Amendments 3 and 12 would go some way to softening the blow of the new threshold cliff edge contained in Clause 2 and help protect these vital jobs, let alone the working people.

My Lords, briefly, I agree with much of what the noble Baroness, Lady Kramer, said. But again, to dwell on the coalition, she and I served in the same Government, so agreeing with her is not unusual for me. I wanted to make a brief point. Both previous speakers highlighted the impact on the hospitality industry. The figures are quite startling. There will be an impact of about £1 billion on the industry itself, thereby impacting 750,000 workers. As we have just heard from the noble Lord, Lord Londesborough, the impacts of this are already being felt by an industry which is already challenged. We should look at this again. Perhaps in a later group when we talk about the importance of impact assessments it will again be underlined that we do not just need reviews. Doing the work beforehand, consulting and working with the industry is an essential prerequisite to ensure that these changes are not detrimental and lead to a depression of growth, which I know ultimately was not the intention of the Government, as they stated.

My Lords, usually I have a lot of sympathy and respect for the noble Baroness, Lady Kramer, and my noble friend Lord Londesborough. However, on this occasion I am going to disagree, first, because if you cut tax in one area, you are only going to have to raise it somewhere else. It might benefit the hospitality industry, but some other industry is going to suffer as a consequence.

17:26:00

Sitting suspended for a Division in the House.

17:37:00

My Lords, I will try to be extremely brief because no doubt I will be interrupted again. The point I was making was that if you cut tax in one area, you are going to have to raise it somewhere else. That is always problematic. There are two other reasons why I have some reservations about this amendment. First, it is often thought—the Financial Secretary will remember this because we worked together on measures in the early 2000s—that part-time workers are poor. However, if you look at the poverty statistics, many part-time workers live in quite affluent households. My point is that as a measure to target people on low income, this is a very blunt instrument. It is far better to target them through tax credits, or universal credit as it is now called. My final points relates to having worked on national insurance over three decades or more and is about the danger of creating steps in the system. I remember large numbers of workers bunching below the lower earnings limit, which was totally understandable as it was in their interest and their employer’s interest. By creating steps in the system, you discourage people from moving up the earnings ladder. In the short term, I could understand that cutting national insurance for the self-employed would genuinely incentivise the employment of part-time workers, but once in place, over time the existence of the step would trap many workers in this part-time zone because their employers would not want them to cross the step that resulted in higher national insurance. I warn against targeted measures such as this as they tend to cause difficulty and disappointment.

My Lords, I thank all noble Lords for their contributions, particularly the noble Baroness, Lady Kramer. I regret that the noble Lord, Lord Bruce, is not in his place and associate myself with the request for some information about Scotland. The amendments address a matter of real importance, which is the impact of the measures on part-time and seasonal workers, SMEs, hospitality and tourism. The noble Baroness, Lady Kramer, is right about the importance of part-time working in tourism, pubs, restaurants and events. That sector is sometimes neglected in public policy-making, but it is vital to growth.

17:40:00

Sitting suspended for a Division in the House.

17:50:00

My Lords, on growth, and indeed on the hospitality industry, it is particularly good to have the practical experience of the noble Lord, Lord Londesborough. I agree with him that it would be helpful to understand today’s employment decline a little better in the Committee. According to the ONS, there are 8.4 million people working part-time in the UK, which is approximately one-quarter of the workforce. They work in large and small firms and include many young people, students and carers, as well as disproportionate numbers in hospitality, tourism and retail. I know from my days at Tesco how important part-time workers are to big employers as well as small employers, and, in particular, to 24/7 businesses—retail is a 24/7 business. That includes a lot of employment of elderly people. Also, as was said, part-time workers are not only the lowly paid—I had several part-time directors working for me—and good employers offer proper training to their part-time teams. It is an extremely important part of the economy. While the rise in the national insurance rate to 15% will no doubt hit part-time workers, it is the huge reduction of the threshold to £5,000 from £9,100 that will have the most detrimental consequences for those who work part-time. It is yet another blow to the sector, alongside the increase in the minimum wage that comes into force in April. As a result, a company that employs a part-time worker over the age of 21 who works just eight hours a week on the minimum wage—I think the noble Baroness, Lady Kramer, said it was down from 14 hours a week —will be hit with this jobs tax for the first time, and the hospitality sector will be disproportionately affected. I think Kate Nicholls used the word “eye-watering”. The industry has warned that the measures announced in the Bill will cost it £1 billion overall. My noble friend Lord Ahmad quoted that figure as well. He is right about the adverse consequences of this and the need for consultation on such changes. How can you adjust your business model and be ready if you do not know what is coming? It is really difficult for these companies. For the first time, they will have to pay tax on the wages of thousands of part-time hospitality workers. UKHospitality has estimated that a company employing a part-time worker doing 15 hours a week will see a 73% increase in its national insurance bill. It goes without saying that business will have to make tough decisions, as employing part-time workers is soon to become much more expensive. The trouble is that part-time work provides a flexible form of employment for so many—I have mentioned students and carers, but parents are also affected. It can be very useful in juggling what families do. These are people who rely on the flexibility of part-time contracts and might not otherwise be able to work at all. Can the Minister tell the Committee what assessment the Government have made of the effect of the changes enabled by the Bill on part-time workers? Perhaps he could also comment on the levels of employment within the hospitality sector and how he sees that panning out. How do the Government intend to support industries that will be most impacted by these changes to national insurance contributions? How can he give them hope and how can we be sure that they continue to play their part in growth? It is difficult and we need to try to find some comfort.

My Lords, I apologise for speaking after the Tory Front Bench, but I thought the noble Lord, Lord Londesborough, was continuing after the voting break. I will speak briefly in favour of Amendments 58 and 59. In doing that, perhaps I should declare an interest. I was on the board of the Fawcett Society in 2010 when it brought a judicial review against the emergency Budget of that year for its failure to honour its legal duty under the Equality Act to do with gender impact assessment. In that case, although Fawcett lost the overall case on legal grounds, it was said that the gender impact assessment requirements applied to the Budget and should have been carried out on a couple of aspects of that Budget. With that in mind, I draw attention to the final page of the policy paper of 13 November, which I think we are regarding as an impact assessment. Under the heading “Equalities Impacts”, in this five-page document that my sub-editor’s eye tells me is in 16-point, it states: “Secondary Class 1 NICs are levied on employers rather than individuals. There are therefore no direct equalities impacts”. I would like to question the Minister on how it can be claimed that there are no equalities impacts. Some figures have already been raised, but I point out that 74% of part-time workers are female, 57% of involuntary part-time workers are female, 6 million women are working part time and 10 million women are working full time. According to the Resolution Foundation’s analysis of ONS data, 63% of UK workers under the £9,100 threshold are female. We are seeing national insurance charges increasing the cost of employment by nearly £700 a year for someone working 15 hours a week on the minimum wage. An additional 600,000 women workers are being brought within scope of national insurance. As others have said, on the minimum wage you need to work fewer than eight hours a week to stay below the new threshold. Analysis of this has suggested that women workers are particularly affected by this change. Some of them may want to raise their hours, so this might turn out positive. Some of them may have caring responsibilities that mean that they cannot lift their hours and may then have to leave employment because they are being offered more or nothing. It is also worth pointing out that the Women’s Budget Group has highlighted how the overall impacts of the national insurance changes are likely significantly to increase childcare costs. That is of immediate relevance to working women with direct childcare responsibilities, but, as the Women’s Budget Group pointed out, there are also issues around grandparents, very likely grandmothers, who may find themselves being pushed, and feeling obligated, to leave employment so that they can take up childcare responsibilities. I do not think that that equalities impact can be justified and would appreciate the Minister’s comments.

My Lords, I am grateful to all noble Lords for their contributions to this debate. I will address the amendments and the new clause proposed by the noble Baroness, Lady Kramer, and the noble Lords, Lord Bruce of Bennachie and Lord Londesborough. These seek to set a reduced rate of employer national insurance for part-time workers at 7.5%. As I have said before, the difficult decisions in the Bill were necessary to repair the public finances, protect working people and invest in Britain’s future. This amendment would reduce the revenue raised from the Bill and therefore prevent the Government achieving those objectives. In policy terms, reducing the rate of employer national insurance for part-time workers would create additional complexity in the tax system and distortions in the labour market. The Government have taken action to support those on lower pay by increasing the national minimum wage, which I was interested to hear the noble Baroness, Lady Neville-Rolfe, describe as a blow. I think that will be interesting to those on lower pay. We have also introduced important protections for workers as part of the plan to make work pay. Employers will also continue to benefit from employer national insurance reliefs, including for hiring under-21 and under-25 apprentices, where eligible. The noble Baroness, Lady Kramer, also spoke about umbrella companies and mini umbrella companies. I will just note that the Government are committed to closing the tax gap and have announced, as part of the closing the tax gap package in the Budget, that we will bring forward measures to tackle non-compliance in the umbrella company market, including mini umbrella company fraud. The noble Baroness, Lady Bennett, spoke specifically about equalities impacts. I can say that they were fully considered and we are confident that they are set out in the tax information impact note that she referred to.

18:00:00

I turn now to the proposed new clauses tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Bruce of Bennachie, which would require the Government to produce a report into the impact of the employer national insurance threshold on part-time staff, especially those who are lower paid or working fewer than 16 hours a week; and to produce an impact assessment of the effect of the Act on SMEs, hospitality, tourism and sectors relying on seasonal workers. The Government of course consider the impacts of all policies, including the changes to employer national insurance. Indeed, a detailed assessment of the policy, a tax information and impact note, has been published by HMRC. It includes impacts on the Exchequer; the economy; individuals, households and families; equalities; businesses, including civil society organisations; and details on monitoring and evaluation.

The OBR’s economic and fiscal outlook also sets out the expected macroeconomic impact of the changes to employer national insurance contributions on employment, growth and inflation. The Government and the OBR have therefore already set out detailed impacts of the policy change. The information provided is detailed and is in line with the approach for other tax changes, and the Government do not intend to publish more.

I turn to the proposed new clause from the noble Lord, Lord Bruce of Bennachie, and the noble Baroness, Lady Kramer, requiring the Chancellor of the Exchequer to lay before Parliament a review of the impact of the measures in this Act in Scotland within six months of its passing, considering in particular the impact on small and medium-sized businesses; those in the hospitality and tourism sectors; and those who rely on seasonal workers and on part-time workers.

The changes to employer national insurance apply UK-wide. As I have already set out, the Government have published a detailed impact assessment of the policy. The tax information and impact note sets out the impacts on employers, including those in Scotland. The Government will provide support for departments and other public sector employers for additional employer national insurance costs. This funding will be allocated to departments, with the Barnett formula applying in the usual way. The overall outcome of the Barnett formula on the funding of all devolved Governments is that they receive at least 20% more funding per person than equivalent UK government spending in the rest of the UK.

In light of the points I have made, I respectfully ask noble Lords not to press their amendments.

Before the noble Lord sits down, while no impact assessment is perfect, I think it is very difficult to call this note of 13 November detailed. The only numbers it gives are the global numbers, the £23.7 billion et cetera, and the run, and there are a few textual comments about equalities and things. What it does not do is even break down the costings into the different areas where different measures are being taken. It is not a detailed assessment; it is described, rightly, as an impact note. We will return to this, because we think that transparency and understanding the impact of policies is really helpful, including to His Majesty’s Government.

18:02:00

Sitting suspended for a Division in the House.

18:12:00

My Lords, I feel that it would have been more sensible to take up residence in the Lobbies, but we have not done that. Another vote is expected imminently but, for now, I call the Minister.

My Lords, in answer to the point made by the noble Baroness, Lady Neville-Rolfe, as I have said, the Government and the OBR have already set out the impacts of the policy change. The information provided is in line with the approach for other tax changes and the Government do not intend to publish additional assessments.

My Lords, before the noble Baroness, Lady Kramer, speaks again to her amendment, the Minister said that what the Government have provided is in line with what they did for other tax changes. I remind him that this is not a tax. The reason we are scrutinising this Bill is that it is not a tax; it is national insurance. I do not think that the Minister can run a line saying that, just because this Bill comes from the Treasury, the Treasury is allowed to produce whatever minimalist, large-font document, with no information in, that it wants. There is an obligation on government to produce impact assessments for major policy changes—and, my goodness me, this is a major policy change and I do not think we will be giving up this particular pursuit in Committee.

HMRC has provided a tax information note, as it does for all similar policy changes. The Government have no intention of publishing additional assessments.

My Lords, just to confirm, does the Minister honestly feel that that note is sufficient, given the importance of the issue we are debating?

I believe that that note is in line with what we have done for similar policy changes.

My Lords, I just want to say a quick word to the noble Lord, Lord Macpherson—in a sense, the voice of the Treasury. This notion of part-time workers as very wealthy people who work only a few hours a week is totally dated. The collegiate group of part-time workers, if you like, is now hugely more varied and much more heavily represented by people in disadvantaged positions. We might have known that had we had a more effective impact assessment. I have to say that I have some sympathy with the Minister, because I have been complaining for years—this involves the previous Government as well—about the inadequacy of impact assessments. As a former banker, if I had been presented with that document as a piece of analysis by somebody on a project that I was working on, that would have been the end of them working. We need to move to a world where we get proper information in an impact assessment. I do not think it would be to the Government’s disadvantage; it would lead to far better discussion because we would all be on much more secure ground. With all that said, I am very pleased with the degree of discussion that we have had on an issue that is often overlooked. I beg leave to withdraw my amendment.

Amendment 3 withdrawn.

Amendment 4

Moved by

4: Clause 1, page 1, line 1, at end insert— “(A1) In section 9(1A) of the Social Security Contributions and Benefits Act 1992, after paragraph (aa) insert—“(ab) if the employer is a specified employer under subsection (1B), the specified employer secondary percentage;”(A2) After section 9(1A) of that Act insert—“(1B) A “specified employer” means—(a) a provider of education or childcare to children under five years of age—(i) registered in England in the early years register maintained by the Office for Standards in Education, Children’s Services and Skills,(ii) registered in Wales with Care Inspectorate Wales, or(iii) registered in Scotland with the Scottish Care Inspectorate; or(b) a university.(1C) For the purposes of this Act, the specified employer secondary percentage is 13.8%.””Member’s explanatory statement This amendment provides that early years settings and universities would continue to pay contributions at current rates.

My Lords, I attended Second Reading but, as some noble Lords may have noticed, I was 90 seconds late and the Government Chief Whip said that I could not speak in the debate. I was quite disappointed by that, but never mind, here I am. Nurseries have been struggling financially for more than 20 years, and the outcome of this struggle usually falls on parents in the form of increased fees. As Jess Phillips said, this NI increase will “undoubtedly” make this worse. This is supported by nursery spokespeople, who stress that the most likely outcome of this increase in NI is an increase in nursery fees. This is because the consequence of government-funded nursery places makes most nurseries ineligible for the employment allowance scheme, meaning that nurseries, which are already struggling to break even, cannot apply for discounted NI bills. According to the qualifying criteria for the employment allowance scheme, if 50% of a non-charitable organisation’s work is determined as public work, and 50% of the organisation’s income comes from public funding, the organisation is designated a public body and therefore cannot claim employment allowance. Because of government-funded places in nurseries, many have become a public body under this policy, meaning that they are excluded from applying for the employment allowance. The number of nurseries impacted by this is likely to increase as a result of increased government funding for nursery places. The Government are proposing to increase places by September 2025 so that any child of working parents earning less than £100,000 can receive 30 hours per week across 38 weeks between the ages of nine months and five years old. This will mean that around 70% to 80% of nursery places across the UK will be government-funded. As the number of funded nursery places increases, the larger a nursery’s public-funded income will be, removing them from employment allowance eligibility. The chief executive officer of the Early Years Alliance, Nick Leitch, summarised this problem: “Early years providers are stuck between a rock and a hard place”. If nurseries do not accept government funding for free nursery places, they lose a huge proportion of their income. If nurseries do accept this funding, they lose a huge proportion of their income on NI bills. The Government have yet to estimate how many early years providers will be eligible for the employment allowance when NI charges come in in April 2025, and there has been no explicit response from the Government about how they will support nurseries through this increase in NI costs. In a speech on 17 December about the proposed changes in the Bill, James Murray, the Exchequer Secretary, commented only on the Government’s pledges to increase government-funded childcare places. He reassured that there will be a rise in funding for these places to “over £8 billion” but did not address the implications that the NI increase will have on these nurseries. Repeated throughout his speech was the lifeline that the employment allowance scheme will provide for many organisations, but overlooked was the exclusion of most nurseries from this scheme because of government-funded places. Currently, the likely solution for nurseries is to either increase fees or decrease the number of government-funded places they accept. Neither is a good outcome for increasing access to early care for parents or for children. Nurseries do not have to accept government funding, and if they did not, they could apply for a decrease in NI bills from the employment allowance scheme. Many nurseries do not want to do this because of the income that government-funded places provide. It is also worth noting that currently, even with government-funded places, most nurseries barely break even. The most likely solution is therefore increased fees, so hard-pressed parents will have to shoulder the burden. I beg to move.

My Lords, I have added my name to Amendment 4 in the name of my noble friend Lord Storey, which proposes to exempt universities from the NIC increase, among other things. I will speak to that exemption for universities. I am grateful for the extensive briefing provided by UUK, and I declare an interest as a member of council at UCL. Even before the NIC increases proposed by the Bill, our university sector was in deep financial trouble. Funding per student has fallen to its lowest real level for 25 years and, because of an ongoing inability to recover the full economic cost of research—partly the fault of government—universities lost £5.3 billion on their research activities last year. A decline in overseas student numbers has made the financial problems worse. In the year ending last September, the number of visas issued to foreign students fell by 19% on the previous year, while the decline at master’s level was 25%. All this has produced a situation where many universities face urgent and very serious financial problems. The OfS’s latest modelling suggests that 72% of our universities could be in deficit by 2025-26. It is not as though there are widespread reserves available to smooth the problem. In fact, 40% of our universities are predicted to have fewer than a month’s cash by the end of the next academic year. The proposed employers’ NIC rise will make an already fragile system more fragile and more precarious. The universities will have to find £372 million to fund this increase. There is a risk of real and hard-to-reverse damage to our higher education sector. There has already been extensive media speculation about breaches of covenant, reluctance of lenders to lend, and even insolvencies. This sector is of critical importance to our future and to our prospects for growth. AI is an example. We are well placed to be world leaders because of our research and our research standing. But if we want to fulfil the Prime Minister’s aspirations, we need a healthy and sustainably funded university sector with strong connections to business. The higher education sector is critical in its liaisons with business and in its generation of spin-offs, start-ups and social enterprises, as well as in the generation of IP and in providing key public service workers. Every year, our universities train over 100,000 public service workers: around 42,000 nurses, 21,000 medics and 38,000 teachers. The total economic impact of the sector has been estimated at over £265 billion. This impact is widely spread around the country, not just confined to our largest cities and oldest universities. In very many of our towns and cities, our universities are engines of growth and critically important supporters of the local economy. It is true in general that our universities are of exceptionally high quality and standing. According to the last QS survey, here in the UK we have four out of the world’s top 10 universities and 16 out of the top 100. These are astonishing figures and an astonishing advantage to be leveraged to help produce the growth we need. The figures demonstrate our international standing and our success in education and research, and this standing boosts our soft power. The HEPI 2024 soft-power index found that 58 serving world leaders received their higher education here in the United Kingdom. Perhaps it is in research that our universities most obviously display their world-class quality and reach, but this kind of quality and reach is under severe financial pressures and increasing global competition. Our current financial arrangements rely on a high—disproportionately high—cross-subsidy from overseas students, which is an obviously unstable element in today’s geopolitical world. If we want our international standing to remain at the highest levels, and our universities to continue to be engines of growth, then we need very urgently to do something about our funding system. What we do not need is to impose additional costs on an already overstressed system. We also should not discourage overseas students from coming to the UK, as the previous Government did. These students contribute at least £37 billion to the UK economy. That is important, but it is obviously not a substitute for sustainable funding. Increasing employers’ NIC will not help with any of that and may, in some cases, push some universities to the financial brink. The Minister will be aware of the financial dangers faced by our higher education sector. He will be aware of the conversations in Whitehall and elsewhere about how to reform our funding system and of the urgency of producing a stable and sustainable funding system. He will also know that the employers’ NIC increase will damage universities’ finances, at least until we have a better funding system. The additional funds raised will be relatively small from a Treasury perspective, but relatively and dangerously large from the sector’s perspective. Applying the NIC increases to our world-leading higher education system will inevitably damage its contributions to our leadership in research and in the production of IP. It will damage our prospects for growth. Can the Minister give us his assessment of the likely impact of this NIC rise on our university sector and its ability to operate? We need a proper impact assessment on this and many of the other things that we are discussing.

My Lords, I will speak to Amendment 5 in this group, which would amend Clause 1 to retain the original rate of 13.8% for both charities and housing associations. I refer to my interests as set out in the register. I also support Amendment 4 in the name of my noble friends Lord Storey and Lord Sharkey, and Amendment 8 in the name of my noble friend Lady Kramer. I thank the noble Lord, Lord Randall, for his support for my amendment. Given the previous Government’s record and the legacy they left, charities and not-for-profit organisations, such as housing associations, will be a vital part of the Government’s future plans—for instance, to increase housing and end homelessness, which is an ambition that can and should be realised. I am going to use one case study to highlight what is going to happen to housing associations. I would really appreciate it if the Minister could respond to that case study, which is about the housing association Peabody. For context, the recent government announcement of £500 million for the affordable homes programme for the whole of the UK is the equivalent of around £500 million that Peabody alone spent in the last financial year on bringing new homes into play and having a development pipeline. It is a very significant partner, I would say, in terms of some of the objectives that the Government have. Peabody estimates that the additional cost for it is likely to be around £800,000 and would challenge the viability of some of its services, particularly supported housing and care services that rely so much on high levels of staffing. Those supported housing and care services are provided for more than 10,000 people, with a wide range of complex needs, from addiction to recovery from mental illness, as well as people at risk from homelessness, those with learning disabilities and young people, as well as people who are older and in need of specialist accommodation. For some housing associations, the proposed increase would wipe out much of the additional revenue generated from the Government’s proposed five-year rent settlement. Across London’s 15 largest housing associations, it is estimated that the increase will cost around £30 million, which could impact other key priorities such as new homes in development.

18:30:00

Turning to the charitable sector, which is also included within this amendment, I thank the many noble Lords who slightly jumped the gun and started talking about charitable organisations on previous groups. I thank them for their support in spirit for this. The National Council for Voluntary Organisations estimates that the increase will cost charities £1.4 billion in 2025-26 alone, which will force them to draw on surplus, lower salaries or reduce services. Having worked in the charitable sector, like many others here, I know that the responsibility to maintain a level of workable surplus is essential to good charity governance and the future development of services, but that will be unaffordable with such significant losses. While the Government have committed to reimbursing the public sector, they have not done the same for the charity sector, which is a vital partner in public service delivery.

Charities employ almost 1 million people. Unlike private companies that produce a product, they cannot pass on that cost because the only thing that they pass on is people helping other people. They will be left with the choice of reducing services, reducing pay or going against existing charitable guidelines on surplus. Given that it is estimated that 87% of charities are already subsidising grants and contracts that they have with central government, local government and the NHS—and do that through their own fundraising—it is little wonder that 72% of charities are withdrawing, or considering withdrawing, from public service delivery.

Both these sectors provide vital services. They are critical partners to government and in turn reduce pressure and save costs for organisations such as the National Health Service and the police, to name just two services that are supported. Tax reliefs for charities will not be sufficient to cover this shortfall. National insurance contributions and any changes to them, given some of the previous arguments, are making things even more anomalous, but let us all be honest with ourselves: for anyone who has ever looked into them, NICs have always been an anomalous form of taxation. I ask the Government to think again on charities and housing associations.

My Lords, I rise to speak to the charitable themes of Amendment 5. I declare my interests, as set out in the register, as a trustee of three charities in Perth and Kinross which employ people. The number of people that they employ ranges from 30 to 130. In particular, I am chair of Culture Perth and Kinross, which employs about 130 people, which is equivalent to 98 full-time people. Culture Perth and Kinross has 14 libraries and two museums and, as a charity, we run those things. I have been the chair for nine years. Of course, in the winter, these 16 locations are warm spaces for the people in Perth and Kinross. Although Perth and Kinross has an image which is quite ritzy, it is actually rather a poor place. Statistically, it is one of the poorer places in Scotland, which is statistically poorer than England. As such, we on the board, which is made up of local people of every description, focus very much on that aspect of our community service. I should say that the local council involved is also not very well funded and at the maximum of its borrowings. Of course, it has suffered from the way in which the Scottish Government have dealt with local council funding over the years. We have a very good relationship with the extremely hard-working chief executive of that council. When we have money problems, we cannot go to it. Our money is essentially fixed some way beforehand. We get a lot from the council and some from the Scottish Government; we get some from generous charities, and we have a few individuals who give us money as well, including some who serve on the board. However, our money is fixed. I asked to have the figures made available for this debate, and the figure for us is £124,000 extra. About a third of that is the increase from 13.8% to 15%. About two-thirds of that is the reduction in the limit as it comes in because, in our 98 full-time-equivalent posts—occupied by 133 people—we employ quite a lot of people who do a small number of hours, and we made use of that space of between £5,000 and £9,100 over the starting limit. The board will meet on 31 January to discuss what on earth we will do in this very difficult position. Of course, I have the benefit of having had extensive discussions with the chief executive, and I know what the briefing paper will say because I have helped to settle it. It will say that our options are limited: to reduce staff, which will presumably increase the cost on the Government in terms of people not working; and in particular to reduce opening hours, which will remove the warm spaces that I was talking about a moment ago. I am sure that these are unintended consequences of the changes the Government have wanted to make all round. I have heard the Minister talk many times about why he has taken the choices he has. I understand that, but it occurred to me that, with this type of unintended consequence and with the detail I provided, there is at least a case for some sort of carve-out for smaller charities, either on the increase in the rate or on the increase in the starting limit, or it is simply to have a delay—

Which, indeed, we are about to have, my Lords. The Division Bells have rung and the Committee will adjourn for 10 minutes.

18:36:00

Sitting suspended for a Division in the House.

18:46:00

I had really come to the end but I will repeat my final couple of sentences. I ask the Minister whether there might be some room, given that the net gain to the Treasury in the situation for Culture Perth and Kinross would be very small at best, and that I suspect that for similar circumstances the story would be the same, for an exemption or carve-out for either the increase in rate or the increase in the starting limit for smaller charities, or indeed simply a delay for one year. We are simply not flexible enough to try to attend to the funding requirements for that.

My Lords, I support Amendments 4 and 5, to both of which I have added my name. I echo the excellent words of the noble Lord, Lord Storey, who introduced the issue of the childcare sector. I do not particularly need to add to those words, or indeed to what the noble Lord, Lord Sharkey, said about universities, except to say that I have a university that I can remember being built in my back garden, effectively—it is not really my back garden but I could see it rise. That is Brunel University, which is excellent and, like every other such institution, it has its problems. A few years ago, I suggested that it changed the name to “Uxbridge University”, hoping that some benefactors from across the United States might get confused with Uxbridge and Oxbridge and send lots of money across. Like so many of my cunning plans, that was rejected out of hand. I also want to speak particularly to Amendment 5 about charities, although housing associations are an important issue, too. But the issue of charities is the one we should probably be most aware of. I have to declare that I am a trustee of several charities. I have stood down from a few more in the past year or so but a lot of these charities have approached me and told me of the huge costs. Although for some of the smaller ones the costs may not be the same, in relative terms they are just as difficult. Earlier today, I wanted to get in on a Question about the National Trust, and there were many people on both sides, but particularly on the government and Liberal Democrat sides, saying that the National Trust is a great organisation, and I would echo that. But I wonder how many people who pay their subscriptions want to see them going not towards the landscape or the historic houses, or whatever, but being swallowed up by these increases. One charity where I was a member of the council—a trustee—until earlier this year was the RSPB and it was the same thing. It was a huge amount; we are talking about it having to pay out a couple of million. The thing with charities—I think this was mentioned by the noble Earl, Lord Kinnoull, but I would like to reiterate it—is that it is not a matter of putting any prices up because they are supplying stuff. Their funding comes from either organisations, such as foundations or whatever, or individual donations. Charities are not charging for their services. They are performing lots of things which the state would otherwise have to pick up. One thing which struck me when these organisations approached me, having seen that I put my name down to amendments, is when they told me how much they were going to have to pay they were reticent about me disclosing that, which I will stick to. I thought first, “Why are they so reticent? Is it that they do not want to upset the Government because they want to keep on-side?”. That is a perfectly logical position at this early stage of a Government. After a while, most organisations start to hate the Government rather than the political party who form that Government. Then I thought, “Maybe they do not want to because they have to rely on donations”. Whether it is somebody giving just a few pounds to the Dogs Trust or in a charity shop, if they think that that money is effectively going to the Treasury and not to the good cause that they want to support, they might be less keen. People sometimes do not need much of an excuse. I am sure many noble Lords here today will have heard the excuse when people do not want to give to charities. They say, “Oh, it is not going to go directly to what I want it to go to”. This is something that charities will be nervous about saying publicly. I am sure that the Minister will have had representations from many charities, because they are extremely worried. This has really upset the whole sector, and it should be reconsidered. As the noble Earl, Lord Kinnoull, said, there is another possibility. I do not want to give the Minister too many let-outs, but one possibility would be to delay it. Most of these organisations, particularly by this time of the year, have made their budgets. They have put in applications for funding from other organisations and put various amounts in. To suddenly find an increased cost that they were not expecting makes it very difficult for those budgets to be met. Although I have raised the point on other sectors, to me it is the charitable sector which is the most vulnerable. We should really be considering whether we want to impose this on it.

My Lords, I shall speak briefly on this group, particularly Amendments 4 and 5, but the arguments that I make really apply to many of these early groups because each one is a special plea. My noble friend Lord Davies of Brixton asked, “How can you speak out against an exemption in favour of veterans?”. The same could be said for small animals or whatever tugs at our heartstrings, but it comes back to the argument that my noble friend Lord Eatwell made so powerfully, which is that in an already complicated tax and national insurance system, we should avoid any further complexity if we can, and I think that the price which that may impose on different organisations is a price worth paying. The noble Baroness, Lady Neville-Rolfe, talked about her involvement in attempts to achieve tax simplification when she was in government. It was the Conservative Government who introduced the Office of Tax Simplification and then abolished it, perhaps because it came up with the inconvenient truth that the agricultural and business relief regime should be reviewed and, implicitly, abolished. At Second Reading, I made a declaration of interests which include being a trustee of two charities. One of them is a higher education institution, so it is covered doubly by Amendment 4 and Amendment 5. Many noble Lords who have spoken have referred to their personal experience of charities or different organisations. I have to say that I am struck by the fact that the organisations of which I am a trustee have, without any input from me, taken this philosophically as a cost that they must cope with. No increase in cost is welcome. Energy-led inflation was not. The insurance inflation that we are all suffering from, the wage inflation that we have seen and the overall increase in the cost of living are unwelcome costs for any organisation, large or small, to bear. As I suggested at Second Reading, there is an understanding in many organisations, including commercial ones—I cited the comments of Mr James Daunt, as chief executive of Waterstones and his eponymous chain of bookshops—that the purpose of this revenue-raising from the changes to NI feeds into supporting the community from which organisations draw their employees, customers and donors. For this reason, although I do not welcome the increase in the cases of the organisations with which I am associated and of the many others that are similarly affected, I believe in the simplicity of applying the same rate to pretty much all organisations in the private and voluntary sectors. The arguments for simplicity outweigh those of the individual challenges that this measure will give organisations.

My Lords, it is a great pleasure to follow the noble Viscount, Lord Chandos, who is very wise and diligent. For many years, we were together on the Economic Affairs Committee. I agree with him about the simplification of the tax system. Indeed, the Office of Tax Simplification was a recommendation from the tax commission that I chaired back in 2006 to George Osborne and David Cameron. It was implemented and, somehow, the Treasury managed to bog it down in a way that prevented it doing an effective job. I agree entirely with the noble Lord, Lord Eatwell, that we need a simpler, fairer tax system. The simplest way of dealing with that would be not to have this increase at all because then there would not be the need to have these exemptions. This is a problem that has been created by the Chancellor and the Government. I must say, in speaking to these amendments, that Amendments 4, 5 and 8—

Okay, let us say that we do not have this measure at all. Is the noble Lord going to cover the expenditure by borrowing or is he not going to spend on the health service, care services and the areas set out by the Minister in his scene-setting remarks?

The noble Lord is very diligent in his reading. I am sure that he will have read the all-party report that has only just been published by the Economic Affairs Committee of this House, which points to where savings can be made in welfare in a way that will encourage people back to work to make a productive contribution to our economy. That is my answer to the noble Lord’s question. I have great sympathy with the noble Earl, Lord Kinnoull. As I was about to say, I do not know who did the grouping for Amendments 4, 5 and 8 but it is hard to think of more diverse subjects than education, registered charities, housing associations, town councils and parish councils, all of which are in one grouping. I am astonished that we are expected to deal with all of them here, so I may test the patience of the Committee in trying to address all of them. Do noble Lords remember “Education, education, education”, that great banner carried by Sir Tony Blair, then leader of the Opposition and Prime Minister? Whatever has happened to the Labour Party that it wants to put a tax on the provision of education for those aged five and younger? It is most extraordinary, and therefore this amendment is very sensible. We all know that women, in particular, find it extremely difficult to combine childcare with work; this is adding to the cost of childcare.

19:00:00

However, I worry about the amendment because it says that there should be an exemption for

“a provider of education or childcare to children under five years of age”.

What about peripatetic music teachers, or teachers in institutions that do more than one job? How will that work? Will it apply if one day they do something for the under-fives, or is it the balance? The truth of the matter is that the problem arises because the tax is being increased on teachers in schools, whether of the under-fives or not.

The effect of all this will be to make childcare more expensive. Of course, because the Government are not indexing income tax—I accept that the previous Government did the same trick with fiscal drag—the fact is that people are finding it harder and harder to meet the costs of childcare out of their net income. This will increase the cost of childcare and is therefore hugely undesirable.

Despite “Education, education, education”, we are seeing not only the first ever tax on education in this country, or in most civilised countries, with the imposition of VAT on private schools, but the removal of rates relief and the addition of national insurance. All that will drive up costs prohibitively and increase the burden on the state sector.

Amendment 4 also deals with universities. Why just universities? What about colleges, vocational training and other institutions? Is it just because so many in this House are chancellors or senior members of universities that they have forgotten? What is the Government’s rhetoric? It is all about how we need to improve vocational education in order to improve our productivity and all the rest. What about CTCs, pioneered by my noble friend Lord Baker? Why are they to be saddled with these additional costs? It is not just universities. The noble Lord, Lord Sharkey, spoke with great eloquence and made the case for universities, but no part of education should be subject to these additional costs. While we may want a simpler system, the simple answer is not to do this in the first place.

On the subject of registered charities, the noble Earl, Lord Kinnoull, gave an example, and we can all think of others. The worst thing is that it is increasingly hard for small charities to raise money at all. Big corporates want to have big charities so that they can bolster their credentials and show that they are doing ESG, which is another imposition on the private sector that is completely against improving our productivity and returns for our big businesses. It is harder for small charities to get the resources they need and therefore the impact of this will be highly regressive and mean the difference, in many cases, between continuing to exist and not existing.

Then we have housing associations. The cry goes up that rents are too high and we must have more social housing. In terms of housing associations and social housing, however, the effect of increasing the costs on often hard-working and very stretched people is to make maintenance charges higher when people cannot afford the increases in rent which are arising from other costs as well. Therefore, I think both Amendments 4 and 5 are extremely sensible. I look forward to them being tabled at Report so we can have an opportunity to vote on them.

What about poor old parish councils, which do a fantastic job? Why are they to be singled out as not being given additional support, unlike other parts of local government? It seems grossly unfair. But then, we have a Government who believe that merging the small battalions into large organisations will somehow make them more efficient and relevant. I can tell noble Lords that we did it in Scotland, with both the police and regional government, and it has not been a success. I am sure many colleagues will have had letters of representation from parish councils wondering why they are being left out of support, despite the marvellous work they do.

I do not know if we will cover this in a later debate —I think we will, so I will not say much about it—but I was certainly very moved by the impact on children with special needs and those people who provide the transport for them.

All in all, these are really important amendments, dealing with very diverse and important issues, which really need to be considered separately. I hope that will be possible at a later stage in consideration of the Bill, because I am confident that the Minister will at least make some concessions in this Committee: he cannot possibly just continue telling us about the black hole and the need to have consistency. These are real hard cases that need support. I accept he is not going to abandon the policy of imposing increases in national insurance, but he can at least show some regard to the very hard cases that have been identified in considering these amendments.

Once again, I congratulate the Liberal Democrats on tabling these amendments. They are flawed, for the reasons I have indicated, but perfectly capable of amendment—to broaden the scope from universities, for example. The amendments point to real needs and real hardships that have been created by a Government who have not thought through the consequences of their policies in this and in other taxation.

My Lords, I am standing in what would usually be a winding position, but I think Amendments 4 and 5 have been so thoroughly discussed and I am very much in support of most of the comments. I say to the noble Viscount, Lord Chandos, that I think it is very dangerous to always worship at the altar of simplification. As the noble Lord, Lord Forsyth, said, if it was the precise phrase, you end up with so many hard cases as a consequence of that. The noble Earl, Lord Kinnoull, talked about a specific charity that is delivering warm spaces—and on a day like today, when we have had to bring additional heaters into this Room, boy, something like that comes home. It is now facing additional costs that it could not possibly have planned for, without the time to put any kind of scheme in place that would give it the breathing space to be able to deal with that kind of challenge. I just find it extraordinary. However, I wanted primarily to speak to Amendment 8, which has been less discussed today. I thank the National Association of Local Councils for a briefing. Like many others, I was very shocked when the Government confirmed that the upper tier of local authorities would qualify for financial support to offset the increased cost of employer NICs, but parish and town councils were to be excluded because they do not receive funding through the local government finance scheme. Parish and town councils raise their funding via precept. Therefore, these councils will undoubtedly have to increase local taxes in order to cover the additional costs. They have nowhere else to go. I am sure that that was not in Labour’s manifesto and that this is something Labour did not intend, but there really is no other route they can go down other than to increase council tax. Its calculation is that the NICs increase will cost English parish and town councils approximately £10 million each year, requiring an increase of something between 1.5% and 3% to cover the additional cost—that is £10 million each year, and £50 million over the life of a Parliament. It really is a rounding error. I just cannot understand why town and parish councils were excluded from the provision for upper tier councils. Part of the argument is around fairness, but there is also an argument around democracy. Many people can relate to their town and parish councils, as others have said, in a way that they do not relate to higher tiers. It is at the parish and town level that money goes to projects that are specifically designed around the needs of a local community. They really are very different in the services that they provide. I am concerned, on a broader scale, about the centralisation of local government that we have been seeing: in essence, we are looking at unitary authorities with something like half a million people in them as the decision-making, strategic and implementation element of local government. I very much fear that the difficulties that parish and town councils will face will turn them much more into agencies of that upper tier, rather than something at the level of local government with the capacity to respond to local needs and to underpin the character and nature of each individual community. The amount of money is so trifling that, in putting these councils on an equal basis with upper tier ones, there must be some other agenda at work here. I do not know what it is; perhaps the Minister could enlighten us. This amendment is in my name, as are Amendments 4 and 5. I very much hope that the Government are listening because these are issues of significance.

My Lords, it is a great pleasure to follow the noble Baroness, Lady Kramer. I will be brief; I want specifically to speak in favour of Amendment 8, given that I raised this issue at Second Reading. I should declare my position as vice-president of the National Association of Local Councils. I agree with everything that the noble Baroness, Lady Kramer, said. I have just one point to add. As the noble Baroness was speaking, I was thinking about a recent visit to Shropshire. A whole lot of town and parish council leaders and councillors were gathered in a room and talking about all the projects that their councils were running. One of the things I thought about were the photos and slides that were being shown, and how much volunteer effort was involved in the projects being displayed. The money is spent by town and parish councils because they are close to, and there in, the community. Often, it is a community effort to install the bug hotel in the allotments or to put up swift boxes around towns—all sorts of things that many people get involved in on a voluntary level. In taking money away from that, the multiplier effect is much greater. As the noble Baroness, Lady Kramer, said, we are talking about a tiny sum of money in central government terms but something that is hugely consequential in communities up and down the land. I spoke at some length on charities earlier but there are two specific points that I want to make. I mentioned earlier—the Minister did not respond to me on this—the idea of having a one-year delay for charities so that they have time to work out both the budget and ways to deal with the rise in national insurance; this was something that both the noble Earl, Lord Kinnoull, and the noble Lord, Lord Randall, raised. It would be interesting to hear from the Minister about that point regarding a delay specifically for charities. I wish to pick up the point from the noble Viscount, Lord Chandos, about complexity. An organisation either is or is not a charity. That would be a really simple way to see this, involving low paperwork. Complexity would be easy to introduce; for a small or medium-sized enterprise or something, it might be more complicated. I do not think, I am afraid, that anyone can compete with the Green Party on our views on simplification because we want to roll together income tax, national insurance and capital gains tax. If that were the case, the Green Minister would not be over there: we would be going through this in one day in the House—provided it was still constituted as it is now when we got to that stage.

19:15:00

My Lords, I will speak to Amendments 4, 5 and 8 in this group. It is an unusual group, as the noble Lord, Lord Forsyth, mentioned, because it covers such a diverse range of services. But they are all public services, which is why I agree with the comment from the noble Lord, Lord Davies, which I may have misheard, that this special pleading does not really fit well with the concept of hurting public services. These all have in common the semi-independent provision of public service. That is the essence of the dissonance in government policy for this area, which is that the Government are protecting direct public services but have not really thought through what to do about indirect public services, of which the charity sector is a huge provider and has been now for 20 years. It is almost as if we have fooled ourselves by saying, “Well, it’s in the charity sector now so it’s not a public service”—but large charities deliver public services, as do universities. To imagine that they are entirely private and away from the Government is obviously not in line with other areas of policy. So, that is the essence of why, in an unusual way, these amendments have been gathered. But they have this feature in common and, as we address this, we are trying to find a way through that protects public services. In her very good comments at the start, the noble Baroness, Lady Grender, used the expression “vital partner in public services”. That is what these are: they are vital partners. In essence, sectors of the economy that provide public services—which, certainly within this debate, we should assume are appropriate and are needed—will be affected and, again without a proper impact assessment or proper analysis, the cost of those impacts will almost certainly be taken by the Government. That is the essence of this area of public service delivery, which is that the Government are ultimately on the hook for all this. They are hoping that the services can be provided away from any greater demands on the Treasury, but the truth is that, when it goes wrong, it will go straight back up to the Government. The noble Lord, Lord Sharkey, spoke so well about universities. What is going on in the university sector cannot be anything but bad news for the Treasury. It must be hoping and praying that the whole situation can just be kicked along without a huge hit coming back to the Treasury one way or another, because the sector is in trouble at the moment. But everybody knows that, when it goes wrong, it will go back up to the Treasury. So let us be careful in putting through changes that make vulnerable public service provision more vulnerable. Surely that is the essence of this area of dissonant policy that is coming out from the Bill. Specifically on each amendment, Amendment 4 in the name of the noble Lord, Lord Storey, seeks to exempt both early years providers and universities, and indeed it is fair to say that the Government have not fully considered the impact on the education system. I look forward to further discussion on the individual aspects of the education system later in the debate. There have been calls from across the sector, from early years providers to universities, that costs will be far too much for the sector to bear, so if the Government could appropriately explain their evidence that indicates the opposite, it would be most appreciated. Amendment 5 in the name of the noble Baroness, Lady Grender, seeks to exempt charities, and it certainly seems as though the sentiment across the sector is that this tax will leave many charities in a position where they are forced to reduce services and limit headcount, preventing them offering the same excellent services that they currently do. This tax cannot be seen as anything another than a tax raid that will damage charities across the country. We also support Amendment 8 in the name of the noble Baroness, Lady Kramer, as the Government have contradicted themselves in regard to local councils. When publishing their local government finance policy for 2025-26, they claimed to understand the issues that councils faced and recognised that, in recent years, the costs of providing services had increased, yet the Bill completely contradicts that and highlights the Government’s chosen direction that does not react to the current situation. The Local Government Association has claimed that councils will face a shortfall of £637 million next year as a direct result of this poorly thought through tax change. On top of that, it has estimated that it may cost up to another £1.13 billion through indirect costs on suppliers. Neither of these numbers will be offset by the £515 million compensation the Government intend to give. Will the Government say how they reached such a number and whether they will publish the data they used? These are early questions around these areas of public services. The impacts could be quite large and quite burdensome—ultimately and unluckily, for the Government themselves.

My Lords, I am grateful to all noble Lords. I will address the amendments and proposed new clauses proposed by the noble Baronesses, Lady Grender and Lady Kramer, and the noble Lords, Lord Storey, Lord Sharkey and Lord Randall of Uxbridge, which seek to exclude early-years settings, universities, charities, housing associations and town and parish councils from the new employer national insurance rate. I have listened very carefully to all contributions made in this debate and, of course, I understand the points raised. The Government recognise that early-years providers have a crucial role to play in driving economic growth and breaking down barriers to opportunity. We are committed to making childcare more affordable and accessible. That is why, in our manifesto, the Government committed to delivering the expansion of government-funded childcare for working parents and to opening 3,000 new or expanded nurseries through upgrading space in primary schools to support the expansion of the sector. Despite the very challenging circumstances the Government inherited, in the Budget in October the Chancellor announced significant increases to the funding that early-years providers are paid to deliver government-funded childcare places. This means that total funding will rise to more than £8 billion in 2025-26. It is very likely that many private nurseries will be able to claim the employment allowance, as receiving public funds does not necessarily mean that work is of a public nature, and they should check HMRC guidance. On universities, I of course recognise the great value—

I accept that more money has been allocated to nursery and early-years provision, but providers are also facing increased costs. Does the Minister not accept that the national insurance charge is one that has been implemented by the Government, so the Government are giving with one hand and taking away with the other? The Minister is not really addressing the point that this is an unbudgeted cost that is being imposed on top of all the other costs that they face.

I totally understand the points that the noble Lord is making but, as I said at the outset, there are specific reasons for the Bill. Those decisions are difficult decisions, but they are necessary decisions. On universities, I recognise the great value of UK higher education in creating opportunity, being an engine for growth in our economy and supporting local communities. The Budget provided £6.1 billion of support for core research and confirmed the Government’s commitment to the lifelong learning entitlement, a major reform to student finance that will expand access to high-quality, flexible education and training for adults throughout their working lives. The Secretary of State for Education has since confirmed that maximum fees will rise in the academic year 2025-26 for the first time since 2017, from £9,250 to £9,535 for a standard full-time undergraduate course. This was a difficult decision which demonstrates that the Government are serious about the need to put our world-leading higher education sector on a secure footing. I have previously set out the Government’s position on additional impact assessments. I turn to charities and housing associations. The Government recognise the need to protect the smallest businesses and charities, which is why we have more than doubled the employment allowance to £10,500, meaning that more than half of all businesses, including charities, with national insurance liabilities will either gain or see no change next year. The Government also provide wider support for charities via the tax regime. The UK’s tax regime is among the most generous in the world, with tax reliefs for charities and their donors worth just over £6 billion for the tax year to April 2024. More broadly, the Government deliver a number of grant and support programmes, including the community organisations cost of living fund last year and the ongoing social enterprise boost fund. Across 2023-24, the National Lottery community fund made grant awards totalling more than £900 million, 84% of which were under £10,000, with the majority supporting grass-roots organisations. Regarding housing associations, the Government have announced major steps towards delivering a once-in-a-generation increase in social housing, including supporting the housing associations that deliver this. We are consulting on long-term social rent settlements to provide housing associations with the long-term stability they need to deliver crucial services. I am afraid that I cannot comment on the specific case that the noble Baroness, Lady Grender, set out, as I do not have all the information about it, but I am of course more than happy to discuss with her at any time. On the wider points, any exemptions, carve-outs or delays would of course undermine the fundamental purpose of the Bill, which I have set out before. Finally, Amendment 8, tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Storey, seeks to exclude town and parish councils from the employer national insurance rate change. The Government have no direct role in funding parish and town councils and therefore do not intend to provide further support for the employer national insurance changes. This is in line with the approach taken for previous national insurance policy changes, including the previous Government’s health and social care levy. All these proposed amendments would of course come at a cost. They would necessitate either higher borrowing, lower public spending or new revenue-raising measures. That is not what this Government intend to do. For the reasons I have set out, I respectfully ask noble Lords not to press their amendments.

I am grateful to all noble Lords who have spoken in this group. I want to make one observation. My noble friend Lady Grender and the noble Lord, Lord Randall, talked about charities. Many charities provide services which nobody else pays for and they do not get government funding. For example, this will affect tremendously the hospice movement, which looks after terminally ill people. In my home city of Liverpool, there is a charity called Zoe’s Place that looks after terminally ill babies. It has had major building problems and was looking at having to close down. What happened? The local community and the business community all piled in and saved that building. These increased costs will affect that charity, as they will affect other charities too. With thanks, I beg leave to withdraw my amendment.

Amendment 4 withdrawn.

Amendment 5 not moved.

We now move on to the next group. I call Amendment 6 in the name of the noble Baroness, Lady Neville-Rolfe.

My Lords, before we start on that amendment, it is 7.28 pm and the Committee is due to finish at 7.45 pm. It always used to be the custom that if we would cover only a very short part of a group, we would normally draw stumps at that stage. That is the way it has always been done in the past. Obviously, we do not absolutely have to finish every group, but we do not normally start a quite significant group with a large number of amendments when there are so few minutes left, so I would like clarification on what will happen in this Committee.

In answer to the noble Baroness, I am in the hands of the usual channels.

Good God.

They were once described as some of the most polluted waterways in Europe.

I understand that we have the grace of an extra 10 minutes after 7.45 pm. My understanding was that we would like to carry on and that noble Lords would come back if we do not finish the group. However, the Minister says that he is fine to break now, so if that is the will of the Committee then I am happy to do so. We seemed to be making real progress; I apologise for breaking any convention, but I am happy to be reasonable.

There is also the point that there may be another Division within the next quarter of an hour.

I understand that Amendment 17 has been withdrawn in the Chamber.

I am grateful to the noble Baroness for those comments. In the spirit of good will in the Committee, this would be an appropriate time for us to draw stumps.

In the spirit of good will, the Committee is adjourned.

Committee adjourned at 7.30 pm.