To ask His Majesty’s Government what assessment they have made of the impact of the changes to employer National Insurance contributions, including the reduction in the per-employee threshold, on town and parish councils in Wales.
My Lords, I thank the noble Baroness for her Question. The devolved Governments will receive funding through the Barnett formula in the usual way in 2025-26. The Welsh Government have confirmed that they will use this funding to help local government in meeting increases in national insurance contribution costs. The Government have also announced £515 million of support for local government in England to manage the impact of changes to employer NICs. The Government have no direct role in funding parish and town councils.
I thank the Minister for that Answer. I welcome the Government’s announcement of the £515 million NICs compensation package as part of the provisional local government finance settlement, but I am disappointed that they have confirmed that compensation to local government bodies will not extend to town, community and parish councils. Could she explain why it is fair that some elected bodies are given financial support and others are not?
As I explained, the Government have no responsibility for funding town and parish councils. The Welsh Government’s budget is growing in real terms in 2025-26. In fact, the settlement is the largest in real terms for any Welsh Government since devolution. Currently, the Welsh Government also receive an additional 5% transitional factor as part of the Barnett formula, while they are funded above their independently assessed relative need compared to England to 115%. If they wish to provide further support to town and parish councils, they are able to do so.
My Lords, no other country in the world taxes companies to employ people. We do that through our national insurance contributions, which are now going up from 13.8% to 15%. That will hit all our SMEs hard, which are the backbone of our economy. What will the Government do to support our SMEs to compensate for this additional cost—this evil tax—that we are talking about?
I have heard a great deal from that side of the House about NICs. If we had not had to fill a £22 billion black hole, we would not have had to do it in the first place. None of us on this side of the House would have made that choice unless we had to. We recognise the need to protect small businesses and charities, which is why we have more than doubled the employment allowance to £10,500 and expanded it to all eligible employers. The OBR expects 250,000 employers to gain from the changes to the employment allowance and 840,000 to see no change at all. That is more than half of all businesses, including charities.
Is the Minister aware that the OBR has said recently that it assumes that most of the Government’s increases in national insurance costs will be passed directly on to workers and consumers? Do this Government still claim to serve the working people of this country, or will they now come clean and admit that they are raising taxes on ordinary working people?
The denial of responsibility from that side of the House is quite astonishing. Public services were broken by neglect from the party opposite for 14 years. I am surprised that they do not see the irony in complaining about the measures we are having to take to sort out that mess, including our commitment to an additional £680 million for social care, further funding for local government and a real-terms boost for local government funding. I would rather hear some other ideas from that side of the House than complaints about what we are doing.
Following the Minister’s response, does she agree that the last Government left a massive deficit in the Budget and that, while they do not like the national insurance increases, they have no suggestions whatever on how to bridge the massive gap that they left us?
I agree with my noble friend. When we start to get some alternatives from the other side of the House, I might be more prepared to listen to their arguments about not putting NICs up.
My Lords, I declare an interest as president of the National Association of Local Councils. The Government’s new burdens doctrine has been in place since 2011 and is specifically designed to compensate authorities for this sort of situation. I have reread the guidance today and it specifically mentions town and parish councils, so can the noble Baroness explain why the Government are not following their own guidance in this case? Will she perhaps meet me and representatives of the sector to discuss it?
I am always very happy to meet colleagues from NALC and have done so several times in the past, as the noble Baroness knows. The issue here is that parish and town councils have not traditionally been funded in the same way. It is for upper tier councils to decide. We have provided additional funding for upper tier councils. The local government funding settlement saw a 3.7% real-terms increase in funding. If upper tier councils choose to provide that funding, they are able to do so, but local councils also have the ability to precept, as she will know.
My Lords, in the arts, already struggling theatres and museums are among those affected by these changes. What consideration has been given to mitigate this effect in the arts sector as a whole?
The noble Earl raises a key point. We have looked very carefully at charities and the voluntary sector. Many arts organisations have charitable status and there has been significant support in the tax incentives for charities. In fact, charities receive a better tax incentive in this country than in most other European countries. I know that it is not ideal and, as I say, it is not a decision we wanted to take. Unfortunately, the financial situation left to us by the last Government meant that we had to take it.
My Lords, in Monday’s debate on national insurance, a number of noble Lords raised the issue of special needs transport conducted by local authorities which is contracted out. In his response, the Minister said that £515 million—the figure the noble Baroness has just cited—had been set aside for local government. But that is for local government employees and will not provide support for the additional costs being incurred to provide special needs transport. This is an important area, so will the Minister perhaps look at this again?