Charities could be hit hard by ‘job tax’, warn MPs
During a Westminster Hall debate, MPs raised concerns about how the increase in employers’ national insurance contribution could affect charity sector operations. The minister defended the policy arguing that the government is supporting the sector in several ways.
The House of Lords also held a mini-debate about the issue this week, where Peers urged the government to exempt the sector from the national insurance increase. You can read a summary of that exchange at the end of this blog too.
House of Commons Debate - 7 January 2025
This session was led by Joe Robertson (Con) who secured the debate on the impact of changes to employers’ National Insurance (NI) on the charity sector. He raised concern that charities such as Crisis will see their costs rise, leading to a ‘reduction’ in frontline services. He quoted Crisis's chief executive who said: “Increasing employers’ National Insurance contributions will have a dreadful impact on charities at a time when we are seeing unprecedented demand for our services.”
Due to the limited time allocated for the debate and the number of MPs wishing to speak, the chair imposed a one-minute limit on all backbench contributions after the opening speaker.
The Liberal Democrat MP Marie Goldman expressed disappointment that the government has ‘ignored’ the impact of the policy on the charity sector and had chosen to “implement the policy without any compensation and without talking to the sector first ”. She described it as ‘disgraceful’.
Likewise, other MPs voiced concerns for voluntary and community sector organisations that are already under financial pressure, arguing that the additional costs could ‘hit them hard’. While agreeing that the government has received a “terrible inheritance” from the previous government, Daisy Cooper (Lib Dem), said: “The government say that the national insurance hike will result in additional tax revenue of around £25 billion per year, but the Office for Budget Responsibility clearly states that, after allowing for behaviour changes in response to the tax, such as reducing pay, and once public sector employers are compensated, it will only raise revenue closer to £10 billion”.
The shadow minister covering charities, Saqib Bhatti, cited homelessness charities in England that have warned the changes could cost the sector between £50 to £60 million. He highlighted that the opposition voted to exempt charities from the additional costs of NI increases, but Labour MPs voted that amendment down. He asked: “Will the Minister give certainty that the Chancellor’s job tax will not have a negative impact on charities? And can she be certain that the Chancellor will not be coming back for more?”
The charities minister, Stephanie Peacock, recognised members’ concerns and argued that the government has increased the employment allowance which means that more than half of employers, including charities with NI liabilities, will either gain or see no change next year. Additionally, the government has expanded the eligibility of the employment allowance by removing the £100,000 eligibility threshold to “simplify and reform” employer NI. She said the changes allow a small to medium-sized charity to employ up to four full-time workers on the national living wage and pay no employer NI.
The minister emphasised that the government will continue to support the sector in a number of other ways by providing a range of reliefs and exemptions, including reliefs for charitable giving. She said: “The tax reliefs available to charities are a vital element in supporting charitable causes across the UK, with more than £6 billion in charitable reliefs provided to charities, community sports clubs and their donors in 2023-24”.
Peacock concluded her remarks by telling MPs that the biggest individual reliefs provided to charities are gift aid and business rates relief (at £1.6 billion and £2.4 billion accordingly), adding that the government also support the voluntary and community sector through the delivery of direct grant funding.
House of Lords Oral Question - 13 January 2025
Baroness Sater (Con) cited an open letter to the Chancellor that the National Council for Voluntary Organisation has co-signed with 7,361 charities, suggesting an initial estimate of the financial impact of the rise in employer NICs on charities is £1.4 billion a year. She urged the government to exempt the sector in the same way that the government is ‘protecting’ the public sector from the increase. This message was also echoed by Baroness Meacher (Cross Bench).
The minister responding, Baroness Twycross (Lab), acknowledged the concerns raised, but said: “I have not seen the workings out where the sector arrived at the figure”. She reassured peers that the smallest charities should not see a rise in their national insurance contributions. The minister continued that there are other measures within the suite of the tax regime including exemption from business rates “that are among the most generous of anywhere in the world”.
Baroness Grender (Lib Dem) called on the government to tax the banks instead of imposing the tax increase on the charity sector, while Lord Sikka (Lab) asked if the minister agreed that the impact of NICs on the sector could be “alleviated by levying national insurance on capital gains and dividends”.
Baroness Neville-Rolfe (Con) said that the increase in NICs would disproportionately affect charities employing those on lower incomes or working part-time, and the employment allowance “barely scratches the surface of the problem that has been created”. She asked if the government thinks it is right to “target the lower-paid” in this way. Baroness Twycross responded that the government has not increased the tax paid by workers, saying: “My understanding of the NICs change is that it is about employer increases”.