National Insurance Contributions (Employer Pensions Contributions) Bill

Exempting basic rate taxpayers in the manner proposed would be incredibly difficult to operate. An individual’s tax band is not knowable until the end of the tax year, which means employers would be required to carry out complicated calculations at the end of the year to reconcile the figures, and they would need to know their employees’ other sources of income, which I do not think anyone would believe is a good idea.

Lords amendments 3, 4, 9 and 10 would make the regulation-making powers in the Bill subject to the affirmative procedure, except for those which solely increase the contributions limit. The Government agree on the importance of maintaining strong parliamentary scrutiny, particularly where changes could affect individuals’ national insurance liabilities. However, the Bill already contains a series of safeguards and the legislative approach taken follows long-standing precedence for national insurance legislation. In addition, the Delegated Powers and Regulatory Reform Committee has carefully scrutinised the powers in the Bill, including the proposed level of parliamentary scrutiny, and concluded that there is nothing in the Bill that it wishes to draw to the special attention of the House.

Lords amendments 6 and 12 seek to exempt small and medium-sized enterprises, alongside smaller charities and social enterprises, from the Bill’s provisions. Again, the Government agree on the importance of supporting small businesses—I am sure that that is a matter of cross-party support—but small businesses are much less likely to use salary sacrifice than larger businesses. Furthermore, the £2,000 cap means that 90% of employees in SMEs making pension contributions through salary sacrifice will be entirely unaffected. Indeed, the largest benefits from uncapped salary sacrifice accrue to larger businesses, not smaller ones. In practice, the changes in the Bill will help to level the playing field between small businesses and their larger competitors. Those wanting to see support for small businesses should support the measures in the Bill. The Government are engaging with employers, payroll professionals and software developers to ensure that the changes are implemented in the least burdensome way possible for employers of all sizes.

I hope that right hon. and hon. Members will understand why it would not be right to support the amendments from the other place, even though we recognise the valuable objectives that have in many cases motivated them. As I said, the Government spend over £500 billion each year on various tax reliefs within the tax system. That is more than double the entire annual NHS budget. The size of the spend means that the Government must always keep the effectiveness and the value for money of those reliefs under review. These are necessary, pragmatic and fair reforms that protect ordinary workers while ensuring that public finances are kept on a sustainable footing. I respectfully propose that this House disagrees with the amendments.

The point of salary sacrifice arrangements is that they incentivise certain behaviours. That is why people are allowed to use these schemes to put money towards not just pensions but workplace nurseries, childcare vouchers and cycle-to-work schemes. Those are all good things. However, in this case the Government have singled out pensions and are attacking one of the most important things that people should be saving towards—their pensions. This is hard-earned taxpayers’ money that could be going towards a good thing. Instead, the Bill will remove an avenue that 7.7 million employees are currently using. The Bill will add even more cost to the 290,000 businesses and charities that use it. It will pile more cost on to students already saddled with student loans. It will harm pensions adequacy and force more people to rely on the state, pushing more costs on to the next generation. I am proud that my colleagues in the Lords, as well as Liberal Democrat and Cross-Bench peers, understand those concerns. The Opposition remain opposed to the Bill, but the amendments do go some way to address those issues and support the stated objectives of this policy, even though we disagree with the fundamental policy.

Lords amendments 1 and 7 would make basic rate taxpayers exempt from this policy. That would protect a group who typically under-save and allow them to continue to put savings into their pensions. The hon. Member for Harlow (Chris Vince) may be interested in listening to this, because he raised a very important point about lower rate taxpayers. The amendments are identical to the amendment we tabled in the Commons and that Labour MPs decided to vote down. As the Government’s own impact assessment clearly states, they are trying to target higher earners or those making larger contributions. While that might be the stated purpose and the political justification, in reality that is not the case for two reasons.

First, the cap will still affect 858,000 basic rate taxpayers, according to the Society of Pension Professionals. In fact, reporting from the Financial Times has highlighted how the Bill will disproportionately affect those people, compared to those on a higher rate of tax. Those on the basic rate of tax pay 8% national insurance contributions, while those on the higher rate of tax pay 2% NICs. That means that on national insurance contributions alone, lower earners are being hit four times as hard by this policy—four times. On Second Reading, I asked the Minister how that could be fair. He did not answer my question then, but I hope he will be able to answer it when he winds up. Maybe he can tell us how the policy is fair for those hard-working people, or whether they are just casualties of rushed policymaking.

Secondly, a behavioural outcome may be that employers will remove salary sacrifice as an option for all their employees. We already recognise that salary sacrifice is mutually beneficial for employees and employers. It is also more attractive to both sides, as it is simple to understand. By enforcing the cap, it will change not only the viability of salary sacrifice arrangements, but employers’ perception of them.This may result in many employers removing them as an option altogether, meaning that 4.4 million people who are supposedly protected may be affected. If this Government were really serious about their policy objective, they would exempt basic rate taxpayers altogether. These amendments give them the chance to do just that and to back hard-working people.