National Insurance Contributions (Secondary Class 1 Contributions) Bill

Committee (4th Day)

Clause 2: Secondary threshold for secondary Class 1 contributions

Amendment 35

35: Clause 2, page 1, line 16, leave out “2025-26” and insert “beginning after the tax year in which an impact assessment is published assessing the impact of the provisions in this section on schools and universities” Member’s explanatory statement This amendment would prevent commencement of this section until a full impact assessment is published for schools and universities.

My Lords, I rise to move Amendment 35 on behalf of my noble friend Lady Barran and to support Amendment 43 in the name of my noble friend Lady Neville-Rolfe. Amendment 35 would delay the commencement of Clause 2 until an impact assessment had been published to fully assess the impact that this tax will have on schools and universities. Amendment 43 increases the employment allowance to £20,000 for universities.

The Government have quite a lot going on in education, with changes to private schools, academies, standards, teacher recruitment and mental health services. This Bill introduces a tax on education, breaking with the long tradition of avoiding taxes on education where possible, which are to the detriment of children and society. This tax increase will be implemented in the middle of a school year, which will put the most vulnerable schools at risk, regardless of how they are funded later. The policy has clearly failed to consider the impact an immediate tax rise will have. The IFS recently published a study indicating that, in the 2025-26 academic year, costs will outweigh funding. Since staffing costs tend to take up a large proportion of a school’s budget, there can be no doubt that this jobs tax will play a role in this funding crisis.

I turn to universities. As the noble Lord, Lord Sharkey, has mentioned previously, this tax increase will cost universities an estimated £372 million a year, as calculated by Universities UK. This is quite a vulnerable sector, as we know. For example, Coventry University has shared that the increase in fees will provide £1.5 million to £2 million in additional income, but the increase in national insurance that it faces will cost £3 million. The Government have given with one hand and taken with the other, as universities expected this fee increase to support their finances. Instead, it will be more than wiped out by the tax increase, when universities across the country already face financial difficulties.

My Lords, I support the amendments in this group: Amendment 35 from my noble friend Lady Barran, which asks for the new employer rates to begin after the tax year in which an impact assessment is published in respect of schools and universities, and Amendment 43 from my noble friend Lady Neville-Rolfe, to which my noble friend Lord Altrincham has added his support and which asks for a higher education allowance. I do so not only because the education of children is an obligation for their parents, who must ensure that children of compulsory school age are receiving an education—most do this in schools—but because, in this country, with its tradition of support for freedom of conscience as an enabling state, not a domineering one, Governments have gone hand in glove with the right of parents to decide what sort of education is best for their children. In these matters, the state has enabled parents to choose, rather than forcing them into state institutions through financial penalties or totalitarian laws.

That view has been part of the political arrangements for education when, irrespective of who is in power, the tradition has been that, where the law requires, the state enables. Barring the often political and ideological debates over education, it has done so through, among other ways, funding. Initially, it was a grant in the mid-19th century. That was followed in the 1870s by Gladstone’s Liberal Party introducing the obligation on parents of elementary education, but he refused the demands of what he called the “Prussian element” in his own party, who wanted to supersede the voluntary schools and replace them with a comprehensive, uniform state system. Thus, he allowed to survive, and indeed encouraged, what we now call voluntary schools: independent schools and Church schools which have educated children in this country for centuries. He expressly supported the right of parents to choose the best education for their children. Voluntary schools would be supported and supplemented by the new board or state schools.

My Lords, I will speak briefly to Amendment 35. I declare an interest as a member of council at UCL.

On the first day of Committee, I spoke in support of my noble friend Lord Storey’s amendment on education, including universities, as the noble Lord, Lord Altrincham, mentioned. That amendment would have excluded specified groups, including universities, from the rise in the employer’s contribution. We prefer exclusion to the delays promoted by Amendment 35. We prefer exclusion because of the disastrous damage that this Bill will quickly inflict on, among other things, our higher education system. We are uncertain whether similar damage will be inflicted on our further education system. Some additional money appears to be promised to FE, but it is not clear how it is going to be allocated. There is talk, for example, of it being used to fund a pay rise.

Perhaps the Minister could tell us to what extent additional funds would be used to offset the rise in employers’ NICs in the FE sector. Holding the FE and HE sectors’ harness from the NIC rise is urgent. University finances are already very fragile, with a few obvious exceptions. I pointed out on the first day of Committee that nearly three-quarters of our universities will be running a deficit by the end of the year. Some 40% already have less than a month’s cash in the bank, and 10,000 jobs are expected to be lost in this academic year. Since we discussed this, only a few days ago, three Russell Group universities—Durham, Newcastle and Cardiff—have joined the long list of HEIs making job cuts and taking other cost-saving measures. The situation is perilous and needs urgent attention. The Government should be planning to safeguard and promote our world-leading university sector, not imposing more costs on it.

My Lords, the Government recognise the great value of UK higher education in creating opportunity and social mobility, as an engine for growth in our economy and in 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 also 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 that demonstrates that the Government are serious about the need to put our world-leading higher education sector on a secure footing. The noble Lord, Lord Sharkey, asked for some specific figures in terms of the additional funding; I will happily write to him with those.

This amendment would, however, introduce new pressures that would have to be met by either higher borrowing, lower spending or alternative revenue-raising measures. In addition, creating new thresholds or rates based on what sector a business is in would introduce distortion and additional complexity into the tax system. Likewise, delaying commencement of this Bill would reduce the revenue generated from it and, as with the previous amendment, would therefore require either higher borrowing, lower public spending or alternative revenue-raising measures.

The Government carefully consider the impacts of all policies, of course, including the changes to employer national insurance. As I have said in previous days of this Committee, an assessment of the policy has been published by HMRC in its tax information and impact note. Further, the OBR’s economic and fiscal outlook sets out the expected macroeconomic impact of the changes to employer national insurance contributions. The Government and the OBR have therefore already set out the impacts of the policy change. This approach is in line with previous changes to national insurance and previous changes to taxation, and the Government do not intend to provide further impact assessments.

My Lords, before he sits down, would the Minister care to comment on the impact—indeed, the double whammy—of taxation for the independent school sector? After assessing the imposition of that, it is now going to be impacted by national insurance too. Can he also comment on the impact on the teachers in terms of pension provision?

I apologise—I did not catch the start of the noble Lord’s question. I am not quite sure what the question is.

The Minister did not comment on the impact on the independent schools sector, which is already reeling from the impact of the VAT that has been imposed on it and the assessments that have been made, including independent schools talking about pension provisions for teachers.

I am not sure that I would share that characterisation from the noble Lord of the VAT policy. We have published an impact assessment for both that policy and this policy. We have no intention of publishing further impact assessments.

I thank noble Lords who have spoken on this group. I thank my noble friend Lady Lawlor for reminding us that education is a public good and for her little history lesson on the delicacy of our educational settlement, not just in the 19th century but going all the way back to Queen Elizabeth I and before; it was most helpful. I also thank the noble Lord, Lord Sharkey, who reminded us that, for this section of the Bill and more broadly, the consequence of these tax rises is policy-driven unemployment. We already know that jobs are going to come out. The noble Lord pointed out that 10,000 jobs may come out of higher education; with 10,000 here or there, the numbers could build up quite quickly.

It is in that context that we ask the Government to approach this area with great caution. The Minister has responded that they have looked very carefully and are aware of the issues, and they are, in their judgment, proceeding with great care. In the light of the Minister’s comments, I thank him and beg leave to withdraw.

Amendment 35 withdrawn.

Amendments 36 and 37 not moved.

Clause 2 agreed.