Peers vote to exempt care providers, small business and charities from national insurance increase

These include amending the bill to create exemptions from the employer NICs increase for health and care providers, for charities with annual revenue of less than £1 million, for employers employing fewer than 25 staff and for employers providing transport for children with special educational needs and disabilities.

Further amendments increase the employment allowance for employers in the early years sector and would require a review of the impact of measures in the bill on certain sectors.

The government opposed these amendments – which had been tabled by the Liberal Democrats, Conservatives and Cross Benchers – arguing they would create ‘cliff edges’ and further complicate the tax system. They are expected to reverse the changes in the House of Commons, triggering a round of parliamentary ‘ping pong’.

Unlike finance bills, which cannot be amended in the Lords, national insurance bills are not considered ‘money bills’ so can be, though peers are usually careful to respect the lead role of the Commons on budgetary matters. It is therefore expected that the government will ultimately get their way on all substantial matters of dispute between the two Houses.

A summary of the debate and amendments is provided below. The debate can be read in full here and amendment papers can be viewed here.

The Bill proposes raising employers’ NICs to 15%, lowering the secondary threshold to £5,000, and increasing the employment allowance to £10,500. 

Exemptions for health and care providers

Lead amendment - amendment 1 (Lib Dem) - This amendment provides that care providers, NHS GP practices, NHS commissioned dentists, NHS commissioned pharmacists, charitable providers of health and care, and those providing hospice care would continue to pay contributions at current rates. (Passed)

Baroness Barker (Lib Dem) led the debate, saying that while the government has introduced some public sector exemptions, these do not cover key organisations such as dentists, pharmacists, care providers, and hospices. She argued that these sectors are crucial to the government’s goal of improving health services and suggested that the government could raise revenue in other ways, including by closing capital gains ‘loopholes’, and doing things such as taxing online gambling and taxing share buybacks.

A number of other peers including Baroness McIntosh of Pickering (Con), Lord Hope of Craighead (Cross Bencher) and Lord Howard of Lympne (Con) supported the amendments in this group. Lord Hope cited Cyrenians, a homeless charity in Scotland, that estimated that the increase in NICs would cost them about £170,000 a year. The former Conservative leader Lord Howard welcomed the government funding for hospices but said: “Not a penny of it is available to defray the extra costs of the increase in national insurance contributions… so it will have little or no effect on the crisis in hospice care”.

Lord Eatwell (Lab) opposed the amendments in this group which propose exemptions or threshold adjustments to employer NI, arguing that they would diminish the government’s revenue. He said: “this wild scattering of public funds is not a serious way to determine the structure of public expenditure”. He further criticised the complexity these exemptions could make to the tax system, citing Adam Smith’s The Wealth of Nations work in arguing that “raising revenue should always emphasise the reduction of complexity to make compliance easier and administration more efficient and, most important of all, to reduce opportunities for avoidance”.

Similarly, Lord Hogan-Howe (Cross Bencher) indicated that some of these amendments are ‘attractive’, however, he stated, “I shall not support any of the amendments because I think it is for the Commons and the government to decide on taxation”. This message was echoed by another Cross Bench peer Lord Macpherson of Earl’s Court who said: “These amendments are being applied to narrow professions and employments and will cause all sorts of problems… We do not need a more complex tax system… I wish we would return to the principles of the late Lord Lawson, who believed in as wide a tax base and as low marginal rates as possible.”

Some peers challenged Lord Eatwell’s comments including Lord Wallace of Tankerness (Lib Dem) who said charities such as CrossReach are spending millions of their own reserves on the increased NI payments. Lord Leigh of Hurley (Con) stated: “If the noble Lord consults the organisations… in the charitable and university sector, they will all say that this is a very unfair imposition on their modus operandi”. Baroness Kramer (Lib Dem) said: “I am not going to put simplification ahead of what will basically be the cancellation of something like 2 million GP appointments because of the additional costs on GPs”.

While supporting the amendments in this group, former chancellor Lord Clarke of Nottingham (Con) suggested that “the tax chosen [employer NICs] was one of the very worst possible, in view of the state of the economy as a whole”. He said that while “any tax increase is unpopular… I probably would have gone for fuel tax or VAT”.

Baroness Neville-Rolfe (Con), Shadow Treasury minister , acknowledged that the tax system is not ‘simple’, but argued that the changes would have real impacts on real people in their everyday lives. She cited the Nuffield Trust which has predicted that the government’s ‘jobs tax’ would cost the independent sector’s social care employers around £940 million in 2025-26. She urged the government to listen to experts and “think again”.

Responding to the debate, the Financial Secretary to the Treasury, Lord Livermore, defended the government’s approach and reported that the government has announced £899 million for general practice in 2025-26 and has invested £3 billion annually in dentistry. He continued that hospices will receive an additional £100 million, with £26 million specifically for children’s hospices. Social care funding includes a 3.5% real-terms increase, with £880 million in new grants.

Votes

Amendment 1 (Lib Dems) was passed by 305 votes to 175, a majority of 130.

Also passed (without division) were related Lib Dem amendments 9a, 10, 16 and 23.

Separate Conservative amendments seeking a more limited exemption for hospices were not voted on.

NICs rates for part-time workers and small businesses

Lead amendment - amendment 2 (Lib Dem) – This would have set a new, lower NICs rate for part-time workers. (Rejected)

Proposing amendment 2, Baroness Kramer (Lib Dem) suggested that there are 8.4 million part-time workers in the country who would be hit hard by the changes. She explained that while people who typically worked 14 hours a week incurred employer NICs in the past; that now drops to individuals who work typically only eight hours a week. The impact on the hospitality industry would be particularly great, she said.

Lord Londesborough (Cross Bench), who had tabled several amendments, did not support the NICs changes and argued that by placing the burden “so disproportionately” on small employers, the bill damages jobs, pay and economic growth. He cited a Federation of Small Businesses survey which found 24% of its members faced contraction in the last quarter—the highest level outside the pandemic.

Introducing his amendments, he said that these would protect all small businesses and organisations that employ fewer than 25 staff, including charities. He argued this would help to protect the jobs of some 6 million workers.

“Revenue is vanity, profit is stability, but cash is reality” stated Lord Hodgson of Astley Abbotts (Con) who supported these amendments and claimed that by this bill the government is ‘undermining’ the reality of the cash that is needed by the very smallest companies. Likewise, Lord Elliott of Mickle Fell (Con) praised the amendments.

Lord Eatwell (Lab) disapproved of the amendments and said they “are a classic example of how to distort a market”. He suggested they would create a cliff edge and discourage companies from growing above 25 employees.

The shadow minister, Baroness Neville-Rolfe, expressed her support for the amendments in this group and emphasised the important role of small businesses in economic growth. She then introduced her amendment 34, which seeks to increase the employment allowance for farms.

For the government, Lord Livermore responded that the amendment reducing the rate for part-time workers would reduce revenue, limiting the government’s ability to meet its objectives.

The minister continued that amendments to maintain current rates for businesses with fewer than 25 staff would also have cost implications, requiring higher borrowing, spending cuts, or alternative revenue sources. He suggested that the government is supporting small businesses by increasing the employment allowance to £10,500, freezing the small business multiplier, and reducing business tax rates for retail, hospitality, and leisure from 2026-27.

Rejecting a Lib Dem call for an assessment of the bill’s impact on various sectors, Lord Livermore said HMRC has already published tax information and impact notes on the policy.

Votes

Amendment 2 (Lib Dems) was rejected 97-169, with most Conservatives abstaining.

Amendment 15a (Cross Bench – Londesborough) - to maintain the secondary threshold at which employers become liable to pay NICs on employees’ earnings at £175 for businesses and organisations employing fewer than 25 staff. This was passed by 199 votes to 149, a majority of 50.

Also passed (without division) were related (Cross Bench – Londesborough) amendments 17, 24, 30a, 31a and 32a. These would maintain the monthly and annual per-employee thresholds at which employers become liable to pay NICs at current levels for businesses and organisations employing fewer than 25 staff.

A separate Lib Dem amendment seeking an impact assessment of the effect of the Act on SMEs, hospitality, tourism and seasonal workers and on sectors relying on seasonal workers, was not voted on.

Maintaining current NIC rates for certain employers such as charities

Lead amendment - amendment 3 (Lib Dem) – This would have provided that certain specified employers would continue to pay contributions at the current rates. The specified employers include early years settings, universities, charities, and small businesses. (Rejected)

Lord Sharkey (Lib Dem) introduced amendments in this group which would have added to the list of exemptions from the proposed increase in employers’ NICs including further and higher education. He argued the amendments prevent the already “perilous situation from getting worse” in the education sector.

The shadow minister, Baroness Neville-Rolfe, proposed a series of amendments (led by amendment 4) which would exempt charities with an annual revenue of less than £1 million from the increase in employer NICs. She also put forward amendment 35 which proposed an increased level of employment allowance for charities.

Neville-Rolfe also proposed amendment 5 which seeks to protect children with special educational needs and disabilities (SEND) by exempting those providing them with transport from the NICs increase. She cited the Licensed Private Hire Car Association SEND transport group which has warned of a £40 million funding shortfall in 2025-26 for contracted services.

Finally the shadow minister spoke to her amendment 33, which sought to address early years provision by seeking to increase the employment allowance for early years providers. She said the government were right to be planning to expand the sector, however, “some providers are worried that they will not be able to access the employment allowance because of the public work they do. It would be good if the minister could look at that again. We are seeing very big cost increases in early years provision, which is extremely worrying.”

Lord Leigh (Con) spoke in support of the proposed exemption for small charities, criticising the government for ‘penalising’ 162,000 charities, labelling the government’s approach a “shameful imposition”. Another Conservative peer, Baroness Sater, stated that: “It seems extraordinarily unfair that the government indirectly exempt the public sector but decline to exempt or reimburse the charity sector”.

Baroness Bennett of Manor Castle (Green) introduced her amendments 8 and 41, saying that the former aimed to delay for one year the introduction of the raised level of NI for all registered charities. She also wanted the government to “do something” about SEND transport, arguing that these services will “be thrown into turmoil” as a result of the changes. 

Baroness Grender (Lib Dem) cited the National Council for Voluntary Organisations who predicts failure to retain charities at the current rate will cost the sector £1.4 billion in the next financial year. She continued that most charities cannot offset rising costs like businesses. Higher national insurance forces them to cut staff and services, affecting those in urgent need, such as people needing shelter.

Another Liberal Democrat peer, Lord Bruce of Bennachie, raised an issue in relation to an impact assessment of this Bill on Scotland. He said that, while the government has pledged £4.7 billion in compensation, details remain unclear. This message was also echoed by Baroness Fraser of Craigmaddie (Con), though she was concerned that the drafting of some of the amendments related to charities did not cover Scotland.

In response, the Financial Secretary, while acknowledging peers’ concerns, focused on the funding the government is providing to the early years and education sectors. In respect of charities he emphasised how they would benefit from the government’s increase in the employment allowance as well as from existing tax reliefs. On exempting SEND transport providers, he argued that the government announced had £2 billion in local government grants for 2025-26, including £515 million to help councils with increased employer NICs. He considered the proposed assessment of the Bill’s impact on Scotland as unnecessary.

Votes

Amendment 3 (Lib Dems) was rejected 77-153, with most Conservatives abstaining.

Amendment 4 (Conservatives) – exempt charities that have an annual revenue of less than £1 million from the planned increase in employer NICs. This was passed 235-149, a majority of 86.

Also passed (without division) were related Conservative amendments 14, 21 and 28.

Amendment 5 (Conservatives) - exempt employers providing transport for children with special educational needs and disabilities from the planned increase in employer NICs. This was passed 235-152, a majority of 83.

Also passed (without division) were related Conservative amendments 12, 19 and 26.

Amendment 33 (Conservatives) - increase the employment allowance for employers in the early years sector from £10,500 to £20,000. This was passed 189-151, a majority of 38.

Other amendments, including a Lib Dem attempt to probe the affordability of the changes made by the bill for public sector employers in Scotland, and a Green Party attempt to delay the introduction of the NICs increase for registered charities, were not voted on.

Assessment of the impact of the bill

Lead amendment – amendment 37 (Conservatives) - require a review of the impact of the measures in the bill on economic growth within six months of the day on which it is passed. (Not voted on)

The next debate saw peers debating various proposals for reviews and other assessments of the impact of the NICs increase.

Baroness Neville-Rolfe (Con) proposed amendment 38, requiring a sector-by-sector analysis of the tax, and amendment 37, assessing its impact on economic growth. She said: “We know that economic growth is the Chancellor’s number one policy, so I hope the minister will be able to give the House some clarity on the government’s expectations in this area”. That was a message that was also supported by Lord Londesborough (Cross Bench).

Baroness Lawlor (Con) proposed amendment 42, which asked for a review of the impact of the bill one year on in respect of the different categories of employers in the business sector—small, medium and large.

Lord Eatwell (Lab) argued that amendment 38 is “econometrically impossible” without a clear framework for assessment. He stated that without specifying underlying conditions, results could vary widely, making the amendment ineffective for inclusion in the bill.

Lord Davies of Brixton (Lab) complained about a lack of information on the National Insurance Fund. “I pursue a somewhat quixotic and lonely quest to persuade people of the importance of the National Insurance Fund, the whole point of which is that it receives contributions, has reserves and pays benefits… My complaint is that there has been no discussion of the state of the National Insurance Fund. I am very much in favour of such a discussion because it is a crucial element of our welfare state.”

Baroness Kramer (Lib Dem) said the time has come “for us to make a stand and to say that we need detailed impact assessments of policy… In a Bill as complex as this, and which affects many sectors, the impact note has to be far more granular than the kinds of documents we have received in the past.”

Responding, the Financial Secretary reiterated his arguments made in committee, that the government have published a sufficient assessment of this policy in HMRC’s tax information and impact note.

Votes

Amendment 37 (Conservatives) was not pressed to a vote.

Amendment 38 (Conservatives) - require a review of the impact of the measures in this bill on certain sectors (charities, creative industries, dentists, early years providers, farms, general practitioners, hospices, hospitality, pharmacies, retail, small businesses, social care, universities) within six months of the day on which it is passed. This was passed 182-144, a majority of 38.

Other issues

Report stage concluded with brief debates on two further proposals.

Baroness Noakes (Con) proposed amendment 39, which would have allowed the Treasury to exempt employers from the bill’s changes through regulations, without requiring parliamentary approval. She argued this would serve as a backstop if the bill causes significant problems. She stated: “It is not often that the Opposition Benches offer an unrestricted power to a government to do things, but I and others are so alarmed by the potential impacts of this bill”.

Lord Fuller (Con) argued that the government’s approach undermines councils' financial security and service delivery. He introduced his amendment 43, a probing amendment seeking to respond to concerns about increased costs for local authorities.

The Financial Secretary resisted both proposals.

What’s next

The Bill proceeds to its Third Reading in the Lords on 4 March before returning to the House of Commons, where these amendments are likely to be overturned.