National Insurance Contributions: Hospitality Sector

Question

11:17:00

Tabled by

To ask His Majesty's Government what assessment they have made of the impact on the hospitality sector of the cost of the increase in employer National Insurance contributions, and the savings from the increase in employment allowance for the smallest businesses.

My Lords, on behalf of my noble friend Lord Altrincham and at his request, I beg leave to ask the Question standing in his name on the Order Paper.

My Lords, it was this Government’s duty, in the Budget last year, to fix the foundations of the economy and to repair the £22 billion black hole in the public finances. In doing so, and in recognition of the importance of small businesses, including hospitality businesses, to the economy, we protected the smallest businesses by increasing the employment allowance from £5,000 to £10,500. This means that, next year, 865,000 employers will pay no national insurance at all, and 1 million businesses will pay the same or less than they did previously.

My Lords, I thank the Minister for his Answer, but I am afraid that I have to challenge the validity of his data on what he refers to as the black hole. Please let me quote Paul Johnson, the director of the Institute for Fiscal Studies, who said that Rachel Reeves “may be overegging the £22bn black hole”. Most crucially, please let me quote Richard Hughes, the chair of the OBR itself, who said: “Nothing in our review was a legitimisation of that” £22 billion figure. I have a simple question for the Minister: when the OBR’s chair says that nothing in its review was a legitimisation of the number that has now been repeated 59 times from His Majesty’s Government’s Benches, is the chair of the OBR wrong?

I am rather astonished that the noble Earl has gone on this line of inquiry, but I am absolutely delighted that he has, because, as he knows, it is one of my favourite topics; I hope that we can make it 60 times from this Dispatch Box that I talk about the £22 billion of unfunded spending that we inherited from the previous Government. The noble Earl will know that the OBR’s review was on the meeting that it had with the Treasury on 8 February 2024, when, under the legislation passed by the previous Government, the then Government were obliged to disclose all unfunded pressure against the reserve. The OBR’s review has established that, at that point, the then Government concealed £9.5 billion from the OBR. Before we dismiss £9.5 billion, that is equal to the entire capital education budget and the entire capital health budget. That is not a drop in the ocean; that is £9.5 billion. The OBR then made 10 recommendations to stop this from ever happening again, and we have accepted all of those in full. Of course, that was just in February; the previous Government then had until July. What makes anyone think that, because the previous Government thought they got away with it in February, they could stop until July? Treasury figures show that, come the spring Budget—

Too long!

Well, it was quite a long question. The noble Earl asked me to break it down specifically, so I am answering him. By the spring Budget, that number had reached £16.3 billion, and by July, it had reached £22 billion.

My Lords, the changes to the employers’ NICs threshold now mean that someone working part-time for just eight hours will be subject to employers’ NICs—a huge additional cost for the whole hospitality sector, including the pubs, which the Prime Minister says he champions. Will the Government not only reverse this hike but follow the Lib Dem proposal to halve employers’ NICs on part-time workers, saving the hospitality sector and the jobs of so many people who, because of responsibilities, disabilities or other limitations, absolutely rely on part-time work?

The answer to the noble Baroness’s question is no. Of course, we recognise that the retail and hospitality sector has struggled in recent years. At the Budget, we introduced a number of policies, including freezing the business rates small business multiplier. Together with the small business rates relief, this will exempt over a third of properties from business rates. On national insurance, as I have said before, there are consequences to responsibility, but there would have been greater consequences to irresponsibility, and it is not clear to me how the noble Baroness would fund her policies.

My Lords, the increase in the employment allowance for small businesses is most welcome, but can I press the Minister on the exemption for public sector employers from this increase in NICs and urge him to consider extending that exemption to social care and charity companies for example, particularly as they have such a preponderance of low-paid women in their workforce?

The distinction that we are following follows the long-established distinction in these matters, and it is exactly the same as the previous Government had in their health and social care levy. That is a long-standing principle and, as the noble Baroness will know, we have extended a significant amount of compensation to public sector employers.

My Lords, in the noble Earl’s question, the IFS was prayed in aid, but is it not a fact that, throughout the general election, the IFS—particularly Paul Johnson its leader—was saying all the time that there was a black hole that would have to be filled?

My noble friend is quite right. We inherited a situation where there was a complete fiscal fiction. We have had a tough Budget, but we have wiped the slate clean and restored transparency and honesty to the public finances. We inherited a situation where there were no spending plans in place; we have a spending review and, for the first time, we have put certainty into public spending. We inherited a situation where capital spending was falling, and we have ensured that capital spending is rising. We are bit by bit restoring and rebuilding the foundations of this economy.

My Lords, would the Minister acknowledge that SMEs employing part-time workers, particularly in hospitality and retail, are facing 20% to 50% increases in their national insurance contribution bills on April 5, and that this hardly fits with a world of flexible and part-time work, and nor will it help the Government’s mission to get Britain working?

We know it is particularly important to protect the smallest companies, and that is exactly why we doubled the employment allowance, meaning that 865,000 employers will now not pay any national insurance at all and more than 1 million businesses will pay the same or less than they did previously.

My Lords, we are a highly regulated and highly taxed country; that has a big impact on SMEs. On regulation, to appoint a lawyer can take as much as two months, to open a bank account takes three months and even to register for VAT can take weeks. This NIC increase is very much an employment tax: on every person employed, you have to pay 15% NIC. Could the Minister please tell us what they can do to support SMEs, which are the backbone of our economy, in terms of regulations?

I completely agree with the noble Lord that small businesses are the backbone of the economy. Many of the regulations he speaks about were introduced by his Government over the past 14 years. We have committed not to raise corporation tax for the lifetime of this Parliament, giving certainty to business and keeping the rate at the lowest in the G7. We will introduce legislation to tackle late payments, which is a key issue that disproportionately affects small businesses. The upcoming small business strategy will set out a comprehensive plan to ensure that small businesses have access to the right skills, finance and markets to reach their full potential.

My Lords, is it not the case that the Opposition are trying to suggest that the national insurance increases are the result of the Labour Government? Is it not a fact that, if they had not left that deficit, we would not have had to introduce the measures that we have had to introduce recently?

My noble friend is absolutely right. As I have said all along, there are consequences to responsibility, and we have always acknowledged that. But the consequences of irresponsibility—for the economy and working people—would have been far, far greater. We saw exactly that with the Liz Truss mini-Budget, which crashed the economy and saw typical mortgage payments increased by £300 a month.

My Lords, £9 billion was also the cost of giving public sector workers a huge pay rise, without specific related productivity requirements. Recent changes have shown that probably the only people in the country who do not believe that the Chancellor’s Budget has unnecessarily worsened the position of hospitality, charities, hospices and many other small businesses are the Chancellor herself and the noble Lord opposite. Will the noble Lord think again, because of the effect on growth and on these particular sectors?

I notice the noble Baroness did not mention today’s growth figures, which were obviously higher than expected, but, as we have said all along, they are simply not good enough. We are doing everything we can to bring stability back to the economy. The noble Baroness has opposed every single measure that we have taken to restore stability to the economy; she has opposed every single measure that we are putting in place to rebuild the supply side of this economy; she has opposed every single measure we put in place to rebuild the public finances. It is very interesting that she says she opposes the pay rises for public sector workers, and I am sure every public sector worker will be listening closely to what she says.