National Insurance Contributions (Employer Pensions Contributions) Bill

[Caroline Nokes in the Chair]

I remind Members that, in Committee, Members should not address the Chair as “Deputy Speaker”. Please use our names or “Madam Chair”, “Chair” and “Madam Chairman”.

Clause 1

Employer pensions contributions pursuant to optional remuneration arrangements: Great Britain

I beg to move amendment 5, page 1, line 10, after “income tax” insert—

“at the higher or additional rate”.

With this it will be convenient to discuss the following:

Amendment 7, page 2, line 26, leave out from “as” to end and insert—

“the amount calculated under subsection (5) for a tax year (but subject to any provision made in reliance on subsection (6C)(a) or (b) of that section).

(5) In 2029-30 the contributions limit must be set at a figure equal to £2,000 uprated by any percentage change in the consumer price index between 2026-27 and 2028-29.

(6) In subsequent tax years the contributions limit must be uprated by the same percentage change as that applied to the consumer price index that year.”

Clause 1 stand part.

Amendment 6, clause 2, page 2, line 38, after “income tax” insert—

“at the higher or additional rate”.

Amendment 8, page 3, line 39, leave out from “as” to end and insert—

“the amount calculated under subsection (5) for a tax year (but subject to any provision made in reliance on subsection (6C)(a) or (b) of that section).

(5) In 2029-30 the contributions limit must be set at a figure equal to £2,000 uprated by any percentage change in the consumer price index between 2026-27 and 2028-29.

(6) In subsequent tax years the contributions limit must be uprated by the same percentage change as that applied to the consumer price index that year.”

It is a great pleasure to be with you yet again, Ms Nokes. I enjoyed our last sparring with the Pensions Minister just before Christmas, which cheered us up to no end.

Let me speak to amendments 5, 7, 6 and 8 as well as new clause 4, which all stand in my name. It will not surprise the Pensions Minister to hear that we are not at all happy with this Bill, which actually will do nothing to enhance pension savings. I will go through each of our amendments in the reverse order of importance.

New clause 4 would require the Government to assess the impact of the Bill, should it receive Royal Assent, before and after its implementation in 2029. We think it is important that the Government do their homework before implementing policies. We asked for something similar in the Pension Schemes Bill, but the Pensions Minister described it as unnecessary. In this case, the Government seem not to have listened to industry, to experts or to savers. Our new clause asks the Government to do that, so that we can better understand the impact. First, how will the Bill affect pensions adequacy? That will be after the pensions review has concluded, so we do need to know. Secondly, how many people use salary sacrifice or optional remuneration arrangements? Thirdly, what are the investment capability of UK pensions?

There has been a certain amount of commentary on this matter. The Association of British Insurers has said:

“We have consistently raised concerns about the potential impact of a cap on pension salary sacrifice on both people’s savings and employers’ resources.”

There are some issues that are of great concern to many people on this matter, so have the Government fully considered the knock-on effect that it will have on investment from UK pension funds? Also, will the Government update the terms of reference for the pensions commissioner, which is being led by Baroness Drake, to ensure that this is considered?

I commend the shadow Minister for what he is saying. This is about not just those on lower incomes, but those on middle incomes. It is about the mums and dads of the students—all this falls back on their shoulders. Does he agree that this Bill is an attack on younger people who have aspirations and hopes for the future? We should be encouraging young people and helping them, and the Government have very clearly fallen down on that.

I completely agree. That is a fundamental problem. We are doing completely the wrong thing for people who want to do the right thing. We are disincentivising people taking responsibility for their future at a time when the state pension is coming under a lot of pressure. It is expected in 11 or 12 years, I think, that less money will be paid into the pension schemes pot than is withdrawn by those of us who are approaching retirement—I declare an interest, in my own case.

You have years to go.

I thank the Minister very much.

Will the shadow Minister give way?

I am trying to finish my speech—in fact, I had finished my speech.

This is a very important point, and we will push amendment 5 to a vote. As I said, we will challenge Labour MPs not to do the wrong thing for their constituents—for the young, hard-working graduates who are desperate to do the right thing.

I call the Liberal Democrat spokesperson.

My chief concern with this Bill is that, like a lot of the measures that the Chancellor announced in the Budget, it looks like it may be a route to some medium-term increased tax revenues, but it gives no thought to longer-term consequences. That will help the Chancellor meet her fiscal rules, but I say “may” because the Bill does not kick in this year, next year, the year after or the year after that; rather conveniently, it will kick in during the election year of 2029-30. That is pretty useful if you are fighting an election and want to meet your fiscal rules, but it is not very useful if you are trying to be fiscally prudent, so that leads to some scepticism about what is actually going on here.

Given the pressures on the state pension and the social care system, it seems extremely counterproductive to reduce the incentives for those who can afford to save more towards their retirement. Let us look at the impact that small businesses have warned about. Pensions UK and the Federation of Small Businesses have jointly expressed their concern that these changes will increase costs for businesses that rely on salary sacrifice to support staff retention and reward. They state:

“Higher National Insurance costs and operational disruption would make it harder to offer competitive benefits, invest in growth, or plan effectively.”

We need to remember the wider context that small businesses are operating in. Even before this Bill, they were battling the sharply rising costs of everything from rents to energy bills, supplies, business rates, the costs of Brexit and so on, and they also have to adjust to the changes in their NICs bills that the Chancellor announced a year ago. One can imagine how that must feel for small business owners—the additional burden heaped on them feels unsustainable.

This Bill is a double whammy on last year’s national insurance hikes—the NICs burden went up last year due to the rate increase, and now this measure is raising their NICs bills for a second time. I would be interested to hear from the Minister what assessment the Government have made of the impact of these changes on businesses, and on small businesses in particular. That is why the Liberal Democrats have tabled amendments requiring the Government to publish full assessments of the impact of the Bill on the recruitment and retention and the tax liabilities of businesses.

The shadow Minister, the hon. Member for Wyre Forest (Mark Garnier), challenged Labour MPs to champion their constituencies. One of the biggest concerns I have about pensions in my constituency of Harlow is the number of people who are not paying into any pension at all, particularly those who are self-employed or lower earners. Does the Liberal Democrat spokesperson agree that the real conversation that we in this place need to be having about pensions is how we encourage people in my constituency and beyond to save for their futures, which I think is what he is suggesting?

I absolutely agree—well said.

The Government may well say that the Bill will not affect low earners, who are likely not to be saving £2,000 in a given year, as the hon. Member for Harlow (Chris Vince) has just said. However, that is too simplistic a way to look at this issue. The impact assessment by His Majesty’s Revenue and Customs found that an estimated 7.7 million employees currently use salary sacrifice to make pension contributions—that is around 25% of all employees. Of these, 3.3 million sacrifice more than £2,000 of salary or bonuses. That leaves millions of middle earners who are already feeling a significant squeeze as a result of myriad other cost of living pressures, who have had their taxes raised by the previous Conservative Government, and who are now facing an even greater hit due to this Government’s jobs tax and the extension of frozen income tax thresholds. If this Bill discourages those people from putting money away for their safety net in later life, the Treasury will pay the price in the long run.

Before the Budget, the Association of British Insurers warned that two in five Brits will save less in their pension if a cap on salary sacrifice schemes is introduced. With social care budgets also stretched to breaking point, we should be doing everything we can to incentivise people who are able to put money aside for a comfortable and supported retirement to do so. As the Institute of Chartered Accountants in England and Wales pointed out in its response:

“At a time when there is a pensions commission considering the adequacy of pension saving, this demonstrates a lack of joined-up thinking from the government.”