MPs reverse Lords changes to national insurance bill

This legislation, introduced following the Autumn 2024 Budget, proposes raising employers’ national insurance contributions (NICs) to 15%, lowering the secondary threshold to £5,000, and increasing the employment allowance to £10,500. 

The full debate can be read here.

Our report on the Lords report stage debate can be read here.

Government's Position on the Lords Amendments

James Murray, Exchequer Secretary to the Treasury, initiated the debate by moving to disagree with Lords amendment 1. He emphasised the challenging fiscal environment inherited by the government and underscored the necessity of the Bill's measures to restore fiscal responsibility. Murray cautioned that accepting the Lords amendments could jeopardise the revenue intended to be raised by the Bill, potentially requiring higher borrowing, reduced spending, or alternative tax increases.

Key Lords Amendments and Commons' Response

Exemptions for Health and Care Providers (Amendments 1, 4, 5, 9 and 13)

These amendments sought to maintain current NIC rates and thresholds for entities such as GPs, dentists, pharmacists, hospices, and care providers. 

The government opposed these exemptions, arguing that they would significantly reduce the anticipated revenue and create disparities in the tax system. 

Opposition MPs highlighted that the rise in employer NICs could strain hospices and care homes, potentially affecting the quality of care provided. They urged the government to consider targeted support for these essential services.

Lib Dem Treasury spokesperson Daisy Cooper said the government “will not get hospitals out of a financial hole by taxing the GPs, dentists, pharmacies and care providers who prevent people from needing to go to hospital in the first place”. 

SNP spokesperson Dave Doogan said the Scottish Government would be providing £13.6 million of compensation this financial year to support GPs in Scotland to retain and recruit staff in the face of the change: “But Scotland’s GPs, any more than England’s, Wales’s or Northern Ireland’s, should not be paying the price for UK government decisions.”

The Commons voted to disagree with these amendments.

Charitable Organisations (Amendments 2, 7, 12 and 16)

These amendments propose to exempt charities with annual revenues under £1 million from the increased NIC rates. 

While acknowledging the vital role of charities, the government maintained that a broad tax base is essential for fiscal sustainability. 

Concerns were raised by opposition MPs that smaller charities might struggle with the increased financial burden, potentially leading to a reduction in charitable services. Shadow Financial Secretary Gareth Davies said that supporting these amendments “would prevent so many services provided by the third sector from being reduced, or even removed altogether”.

Supporting the government, Labour MP Jeevun Sandher said that while each of the amendments in isolation might seem reasonable, “together they introduce individual exemptions that make our tax system less neutral, less simple and less stable.” For example, amendments 7, 12 and 16 “would create non-neutrality between small charities and non-charities. That would incentivise more social enterprises to be charities instead of businesses.”

The Commons disagreed with these amendments.

Transport Providers for Children with Special Educational Needs (Amendments 3, 6, 11 and 15)

These amendments aimed to exempt specialised transport providers from the NIC changes. The minister argued that such exemptions could lead to complexities and potential loopholes in tax administration. 

Labour MP Neil Duncan-Jordan warned that, if these Lords amendments were rejected, “local councils and transport providers will struggle, families will face uncertainty and, I believe, the fundamental right to education will be compromised.” Local council are struggling, he said, adding that “we could certainly raise the money we need if we had a wealth tax and introduced other changes to capital gains tax”.

The minister responded that the Budget and the provisional local government finance settlement set out £2 billion of new grant funding for local government in 2025-26: “That includes £515 million to support councils with employer national insurance contributions. However, it is not ringfenced, which means that it is for local authorities to determine how to use this funding across relevant services and responsibilities.”

The Commons disagreed with these amendments.

Small Employers (Amendments 8, 10, 14, 17, 18 and 19)

These amendments sought to maintain the current secondary NICs threshold for organisations employing fewer than 25 full-time staff. The minister argued that increasing employment allowance from £5,000 to £10,500 already provides substantial support to small employers. 

Llinos Medi, for Plaid Cymru, urged the government “to support these Lords amendments to at least protect more businesses from the damage that the national insurance hike will cause”.

The Commons disagreed with these amendments.

Early Years Education Sector (Amendment 20)

The Lords amendment proposed increasing the employment allowance to £20,000 for providers of early years education. 

Ahead of the debate the Speaker announced that he considered that this amendment would impose a charge on the public revenue not authorised by the money resolution passed by the Commons on December 3, 2024. Consequently, in accordance with Standing Order No. 78(3), the amendment was deemed disagreed to and was not available for debate.

Review of Economic Impact (Amendment 21)

This amendment called for the government to review and report on the impact of the NIC changes on various sectors and economic growth. The minister argued that the assessment of the policy in the Tax Information and Impact Note should be sufficient. 

The Commons disagreed with this amendment.

Commons Reasons

The Commons has returned the bill to the Lords giving the following reason in respect of amendments 1-20: “Because the Lords Amendment interferes with the public revenue, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.”

Amendment 21 is returned “Because information has already been published about these matters and a further review is not necessary.”

The Lords will debate the Bill again on Monday 24 March.

Note: Some material in this report was drafted by ChatGPT. It has been edited, supplemented and checked for accuracy.