National Insurance Contributions (Secondary Class 1 Contributions) Bill

(Limited Text - Ministerial Extracts only)

2nd reading
Monday 6th January 2025 Lords Chamber

Moved by

[Lord Livermore]

That the Bill be now read a second time.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I wish all noble Lords a happy new year. It is a pleasure to open this debate. I am aware that the noble Baroness, Lady Kramer, has tabled a regret amendment expressing concern about the measures in the Bill. While I of course understand and respect the points raised in it, this Government had to take some very difficult decisions—not decisions we wanted to take, but necessary decisions to clear up the mess we inherited.

In the time I have available today, I will seek to explain why not acting was simply not an option, and why this Bill is necessary to repair the public finances, while protecting working people and rebuilding our public services.

I will begin by setting out the economic context in which the Budget decisions contained in this Bill were taken. As noble Lords will know, on her arrival at the Treasury last July, the Chancellor was informed of a £22 billion black hole in the public finances—a series of commitments made by the previous Government which they did not fund and did not disclose. Ahead of the Budget, the independent Office for Budget Responsibility had conducted a review into the circumstances surrounding a meeting it held with the Treasury on 8 February last year, at which the previous Government were obliged to disclose all unfunded pressure against the reserve.

The OBR’s review established that at that point the previous Government concealed £9.5 billion. However, as we now know, during the remaining five months they had left in office, the previous Government continued to amass unfunded commitments, which they did not disclose. By the time of the spring Budget, Treasury records show these had reached £16.3 billion. By July, they had reached £22 billion.

The Treasury has provided to the OBR a line-by-line breakdown of these unfunded commitments: 260 separate pressures which the previous Government did not fund and did not disclose. Neither did they make any provision for costs they knew would materialise, including £11.8 billion to compensate victims of the infected blood scandal, and £1.8 billion to compensate victims of the Post Office Horizon scandal.

The country inherited not just broken public finances but broken public services: NHS waiting lists at record levels, children in Portakabins as school roofs crumbled and rivers filled with polluted waste. Yet, since 2021, there had been no spending review and no detailed plans for departmental spending set out beyond this year.

Faced with this reality of broken public finances and broken public services, any responsible Chancellor would have had to act. Some noble Lords, during today’s debate, may argue otherwise: that we should have ignored the black hole in the public finances. But this is the path of irresponsibility, the path chosen by the Liz Truss mini-Budget, when mortgage costs increased by £300 a month, and for which working people are still paying the price.

That is not the path chosen by this Government. Our number one commitment is economic and fiscal stability. That is why, as a result of the Budget—and only because of the measures contained in this Bill, combined with other difficult decisions we have taken—instead of £22 billion of unfunded spending plans, within three years not a single penny of day-to-day government spending will be funded by borrowing.

Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance we faced. And yes, it did mean taking difficult decisions. As a result, however—and only made possible by the measures contained in this Bill—we have now wiped the slate clean, creating a platform of stability in the public finances.

The Budget made another very important choice: to keep the manifesto commitments we made to working people to not increase their income tax, their national insurance or VAT. Compare that with the choices made by the previous Government, who chose to freeze income tax thresholds, costing working people nearly £30 billion. This Government could have chosen to extend that freeze, but that was not the choice we made. Instead, from 2028-29, personal tax thresholds will be uprated in line with inflation once again. However, keeping those promises to working people, while repairing the public finances and rebuilding our public services, did mean we had to take some very difficult decisions on spending, welfare and tax, including those in the Bill before your Lordships’ House today.

The Bill contains three key measures: first, an increase to the rate of employer secondary class 1 national insurance contributions from 13.8% to 15%; secondly, a decrease of the secondary threshold for employers—the threshold above which employers begin to pay employer national insurance contributions on their employees’ salaries—from £9,100 to £5,000; and, thirdly, measures to protect small businesses by more than doubling the current employment allowance from £5,000 to £10,500. The Bill will also expand the eligibility of the employment allowance by removing the £100,000 threshold so that more employers now benefit.

I of course understand that some of these measures mean asking businesses to contribute more, and I fully acknowledge that some impacts will be felt beyond businesses too. These are difficult decisions, and I understand and respect the legitimate concerns that have been raised, including by business. However, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. Some 865,000 employers will now not pay any national insurance at all, and over 1 million employers will pay the same or less than they did before. All eligible employers will now be able to employ up to four full-time workers on the national living wage and pay no employer national insurance contributions. The Government are also setting aside support for the public sector of £5.1 billion by 2029-30, ensuring that there is sufficient funding for our vital public services, including the NHS.

I also recognise that concerns have been raised about the wider economic consequences of the measures contained in the Bill—concerns I am sure we will hear in today’s debate. Let me be clear: not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path, while protecting working people and rebuilding the public services. The economic data we have seen in recent months is, of course, disappointing; in particular, the recent growth figures show the sheer scale of the challenge we face. However, there would have been far greater costs to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years: from the chaos of Brexit and the disastrous deal that followed, through to the Liz Truss mini-Budget, which crashed the economy and devastated family finances.

Let us remember that the OECD now expects the UK to be the fastest growing European G7 economy, and at the Budget, the independent Office for Budget Responsibility was clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term. On living standards, the OBR forecast shows that real household disposable income will increase in real terms in each year of this Parliament; the level of real wages will rise by 3% over the next five years; and the number of people in employment will rise by 1.2 million over the course of this Parliament. Our planning reforms, pension reforms, skills reforms and industrial strategy will all contribute to higher growth, but none are yet included in the OBR’s forecast.

The measures contained in the Bill also contribute to significant new investment in the NHS. That vital investment—amounting to £25.7 billion extra for the NHS over this year and next—is only possible because of this Bill. It includes £1.5 billion for new surgical hubs; more than £1.25 billion to deliver over 1 million additional diagnostic tests; over £2 billion for technology and digital improvements to increase NHS productivity and save staff time; and £880 million more in local government spending to support social care. All of that will support the NHS to deliver an extra 40,000 elective appointments a week, helping us to bring waiting lists down more quickly.

The choices we have made are the right choices. They are not the easy ones, but the responsible ones: to rebuild the public finances, to protect working people and to invest in Britain’s future. None of those things would be possible without the Bill. It is of course possible to make different choices: to ignore the problems in the public finances, to continue to neglect our public services or to fail to protect working people. Noble Lords may wish to argue for that during today’s debate, but this Government were elected with a mandate to fix the foundations of our economy. The Bill delivers on that mandate and provides a foundation of stability on which we will now build long-term, sustainable growth. I beg to move.

Amendment to the Motion

Moved by

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[Lord Moynihan of Chelsea (Con)]

My Lords, it is a great pleasure to follow my noble friend Lady Monckton of Dallington Forest. The pleasure is allayed slightly by the fact that I cannot hope to rise to the excellence of her speech, which I hope the Minister observed very carefully—but perhaps he was too busy.

Like my noble friends Lord Howard of Rising and Lord Mackinlay of Richborough, I declare an interest as an employer. With the proposal to further raise employers’ NICs, the Government seem to want to pursue, in a manner that is hard to understand or explain, yet another way to damage the economy. I offer the Government a few morsels of attempted sanity. Taxing business at higher rates—making it more difficult to start up, maintain or expand a business—was, I am very much afraid to say, tried by the recent Conservative Government over the last few years and it did not work. In the period 2023-24, the economy ground to a halt. Now this new Government are trying the same approach. How can we possibly expect the outcome to be any different this time?

Over the past 18 months or so, while doing research for a book I have been writing, I have studied the available literature on the impact of taxes on economic growth. The clear consensus is that the taxes that hit the economy the worst are taxes on business and the business taxes that have the most negative impact on employment are—surprise, surprise—employment taxes. The clue is in the name employers’ NICs: “employers”; you know, the ones who employ people. Many employers would be happy if they could employ others merely out of the goodness of their heart, but that is not how the world works for the private sector. To keep a private sector enterprise going, a profit must be made. For that, taxes cannot be too high or else the cost of employing an employee becomes prohibitive, the business loses money and then it has to close down. So the first law of tax is: do not tax a business so high that the employers cannot afford to employ the employees. Yet that is exactly what the increase in employers’ NICs does.

Why on earth have our new Government decided to raise employment taxes to a new high? I discern three possible reasons. The first is to achieve economic growth. That is what the Government say their number one objective is, so in theory they must have thought that increasing these tax rates would increase economic growth. The second possibility is a less noble one: to find the money to pay off their allies. After all, politics involves trade-offs, so perhaps that is why they need to do this. The final possibility is that it is just not them in charge. Rather, they are in the grip of the fabled Treasury orthodoxy, taking their orders from officials at the dreaded OBR and the Treasury.

Let us look at these three possibilities. The first is that they are doing it to achieve economic growth. That has certainly been the Prime Minister’s and the Chancellor’s chant—“growth, growth, growth”—both during the election and ever since. The trouble is that this Government have never laid out their theory of what actually creates growth. Beyond discreditable tropes about green jobs, the numbers of which will have little impact on the long-term economy, the Government have been unable to figure out what they have to do to achieve growth.

However, the answer is standing clearly in front of them. The repeated conclusion of every study on growth is: to grow an economy, you need government expenditure in the low 30 per cents, or less, of GDP, with tax revenues at around the same level; and you need light regulation that allows businesses—indeed, all enterprises—to get on with the job of providing the goods and services that the market wants, at a decent price and good quality, without having to spend all their time jumping through regulatory hoops. That is it. Economies with public sector expenditure levels in the mid 40 per cents of GDP, such as ours, taxes at the same high rate and ever-increasing regulation just do not grow fast, if at all. If this new Government really wanted to grow fast, they would be full of plans to shrink expenditure, to tax less and to regulate less. On all three dimensions, they are doing the opposite.

What is the conclusion? Either the claim that the Government are all for growth is just a chant or a slogan and not really meant, or they are so inept that, despite truly wanting the economy to grow—you have to believe that they do—they have no clue that increasing employers’ NIC will have exactly the opposite effect. I wrote an article for a Sunday newspaper yesterday, citing the instance of a friend running a 35-person high street business who, just to stay afloat after these tax hikes, has to fire two of his employees. He had planned to raise his headcount by two before this. The comments section below my article had entries from business owners claiming that they are in similar circumstances—having to fire people—or, worse, saying that the higher taxes mean, as my noble friend Lady Monckton described, that they have to close down their entire business.

As an interposition, I spoke to this friend this morning. He told me that he has been having difficulty figuring out how to fire two people. Obviously, it would not be great on either of them but, luckily, one of them resigned today. I said, “Where’s that employee going?” In an absolutely uncanny echo of what my noble friend Lord Horam said, my friend said, “Well, she’s gone to work for a local council”. She is being paid more. She can work from home for three days a week. On top of being paid more, she is getting that wonderful golden defined benefit pension. What else? Oh yes, she gets a year’s paid maternity leave.

Where is the money coming from that allows local councils and the Government, and the public sector in general, to pay for all of this? The money is not there. My noble friend talked about the fact that we are now below the middle of the advanced economies in GDP per capita. A while back, we were vying with America for the best GDP per capita in the world.

The noble Viscount, Lord Chandos, probably would have described the situation of this new public sector employee as fair, because, after all, that is what she would need for a great life. However, the money is not there for what the Benches opposite always like to describe as “fair”. The noble Lords on the Benches to my left have an inexhaustible list of societal needs that must be paid for. The noble Lord, Lord Eatwell, rightly decried the decline in our Armed Forces expenditure. But the money is not there.

Why is it not there? It is precisely because of the high-tax, high-spend, high-regulation policies that Governments—on both sides of this House, I am afraid—have pursued over the last 25 years. During that 25 years we have not grown, precisely because of spending money on what was fair and what was needed, rather than spending money that we actually had. As a result, our economy has not grown. Had we grown more—say, at the same rate as the United States did during that time—our economy would now be 40% larger than it is right now. The money would be there. There is your needed money—the money that comes from economic growth. There is the economic growth which this Government’s tax increases will instead throttle.

It is not just my friend and his small business. As has been described today, millions of organisations are affected by this tax raise, not just SMEs but charities, NHS general practices, the arts and so on. Employment losses will, over time, be in the hundreds of thousands. I offer the Government a gentle hint: economic growth comes—despite a valiant attempt by the noble Lord, Lord Eatwell, to assert otherwise—from increases in employment, not decreases.

The second hypothesis as to why the Government see it as necessary to impose this NIC hike is that, having paid off their allies so lavishly in the first few weeks after the election, they now need to find the money to pay for this; a 15% pay rise for train drivers and a 22% pay rise for junior doctors, and still those friends of theirs threaten to go right back on strike. With friends like these, I need say no more.

It is certainly true that these expensive commitments—along with so much money about to be poured down the drain on placating the green crowd and to satisfy other allies who think that the answer to the world’s problems is more and more regulation, so that a new regulator or quango is being brought into existence for every week so far that Labour has been in power—mean that an awful lot of money is being spent. With the Civil Service expanding in its thousands by the week, there are no savings in sight to help the Government pay for all these extra commitments.

We come to the third and final hypothesis: that the Government have been told what to do. Without any serious experience in this area, they therefore have no option but to succumb to their officials, but that in turn is driven by the OBR, which knows not much more about business and the economy than do the Government. It is the blind leading the blind.

The Government have created this problem. They increased expenditure in their Budget by £70 billion. Even with an increase to employers’ NICs, only half of that increase would be covered by additional taxes, and even that amount is true only if you believe the estimation of how much extra tax will be collected. It is, in fact, even worse than this. There is a large extra amount of expenditure that the Government and the OBR have persuaded themselves can be categorised in the national accounts as some form of investment, so that it is not included in the published deficit numbers. But every penny of that so-called investment money will have to be found through additional borrowing, which, added together, brings the additional level of borrowing needed to pay for all this to an extra £50 billion or so—and that is assuming that the economy grows at forecast, which an NIC hike makes quite unlikely.

The OBR asserts that, on net, some £15 billion will be raised from this NIC hike. It acknowledges, albeit to far too small a degree, that employment will decline as a result of this tax increase. That should make Labour hang its head. If the Government were to abandon the NIC raise, the OBR says that that would create a further £15 billion hole. The Government are doing what they have been told to do, and thus they proceed with this NIC raise.

The Growth Commission has contradicted the OBR’s calculation and calculates that the long-term impact of this tax increase will be negative £18 billion—and that is even before you get into the social and economic disruption of large numbers of people being laid off. To answer the noble Lord, Lord Macpherson, who is not in his place, and the noble Lord, Lord Eatwell, you pay for this by not doing it. Surely, in his extensive and distinguished public life, the noble Lord, Lord Macpherson, must have understood that ever-increasing tax and spend just does not work.

What is the conclusion? We have a new Government. They came, they saw, they paid off their allies. Without clear detail they claimed a pre-existent £22 billion black hole, but this claim served only to make their options more constrained. They have accepted what they have been told to do by their officials, but imposing this tax is going to make the economy’s position, and theirs, much worse. They still do not appear to have a clue as to what they need to do to get economic growth going in this country.

[Baroness in Waiting/Government Whip (Baroness Anderson of Stoke-on-Trent) (Lab)]

My Lords—

[Lord Moynihan of Chelsea (Con)]

I am almost finished.

I earnestly entreat the Government to set out on a search for an economic growth plan—

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, I am so sorry, but the noble Lord has now spoken for over 15 minutes. I suggest that he bring his remarks to a close.

[Lord Moynihan of Chelsea (Con)]

I just informed the noble Baroness that I was about to finish, and I would have finished by now had she not interrupted a second time. I remind her that it is an indicative time, and one interruption—

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, I am so sorry, but the Companion states that Back-Bench contributions are limited to 15 minutes.

[Lord Moynihan of Chelsea (Con)]

I thank the noble Baroness. It is an indicative time. I will finish.

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[Lord Livermore (Lab)]

My Lords, it is a pleasure to respond to this Second Reading of the national insurance contributions Bill, and in doing so to respond to the points raised by the amendment in the name of the noble Baroness, Lady Kramer. I am grateful to all noble Lords for their contributions during today’s debate. The Budget in October involved taking some very difficult decisions: to clear up the mess that we inherited, to repair the public finances, to protect working people and to rebuild our public services. Faced with the reality of broken public finances and broken public services, not acting was not an option, which is why this Bill is necessary, as my noble friends Lord Chandos and Lord Layard observed.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, the noble Lords, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, focused on the Government’s fiscal inheritance and sought to deny the £22 billion black hole that the previous Government left behind. I am, of course, very grateful to all noble Lords who mentioned the £22 billion black hole and thank them for doing so.

The Treasury has provided to the OBR a line-by-line breakdown of the previous Government’s unfunded commitments—260 separate pressures. Noble Lords need not just listen to the OBR and the Treasury. They need look only at the out-turn data: central government current expenditure, published by the ONS, shows that for the six months since March the out-turn is £11.8 billion higher than forecast. That is £11.8 billion over six months—well on course for £22 billion over the year. The noble Lord, Lord Moynihan of Chelsea, asked why the money is not there. I politely suggest to him that it is because of the policies he supported under the previous Government.

Faced with this reality, as the Chancellor was, any responsible Chancellor would have to act. Ignoring this black hole, as my noble friend Lord Eatwell said, would have taken us down a path of irresponsibility—the path chosen by Liz Truss in her mini-Budget, for which working people are still paying the price.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe, Lady Noakes, Lady Bray of Coln and Lady Porter of Fulwood, the noble Lords, Lord Jackson of Peterborough and Lord Mackinlay of Richborough, and the noble Viscount, Lord Trenchard, sought to argue that the Bill breaches the Government’s manifesto commitments. That is clearly not the case. Despite the pressures on the public finances, the Government made a clear choice at the Budget to keep our promises to working people by not increasing their income tax, national insurance or VAT, and we went further by freezing fuel duty. Compare this with the decision made by the previous Government to freeze income tax thresholds—a decision which cost working people over £30 billion. Instead, our Budget ensures that, from 2028-29, personal tax thresholds will be uprated in line with inflation once again.

Some noble Lords, including the noble Baronesses, Lady Neville-Rolfe and Lady Moyo, the noble Lords, Lord Londesborough, Lord Forsyth of Drumlean, Lord Ahmad of Wimbledon and Lord Ashcombe, my noble friend Lord Eatwell and the noble Viscount, Lord Trenchard, focused on the impact of these measures on employers. We heard a lot during today’s debate from the noble Lords opposite about how much they know about business. One does wonder, then, why the economy was such a catastrophe over the past 14 years.

I accept, though, that the Bill will require some employers to contribute more. These are difficult decisions and not ones we wanted to take. I understand and respect the legitimate concerns that have been raised, including by some businesses. But, taken together, the measures in the Bill mean that more than half of businesses with national insurance liabilities will either see no change or see their liabilities decrease. As my noble friend Lady O’Grady of Upper Holloway said, 865,000 employers will now pay no national insurance at all, and over 1 million employers will pay the same or less than they did before. In answer to the noble Viscount, Lord Trenchard, around 250,000 employers will see their liabilities decrease. Around 940,000 will see an increase and 820,000 will see no change.

The noble Lord, Lord Macpherson of Earl’s Court, asked about reducing distortions. Recent changes, such as reforms of the off-payroll working rules, have reduced distortions and we will keep this issue under review.

To all those noble Lords who asked, we have no plans to combine income tax and national insurance. Relative to other countries, our tax burden on employers hiring average earners remains low. The UK will remain below the OECD average and the third lowest in the G7, below France, Italy, Germany and Japan.

The noble Lord, Lord Jackson of Peterborough, asked about the impact of these changes on the public sector. We have set aside funding to protect the spending power of the public sector, including the NHS, from the direct impact of the changes, totalling £4.7 billion next year, rising to £5.1 billion in 2029-30. We are now working with departments to ensure that this funding is allocated appropriately, and specific allocations will be set out in due course.

In answer to the noble Lord, Lord Bruce of Bennachie, the Barnett formula will apply in the usual way. My right honourable friend the Chief Secretary to the Treasury is in regular contact with the Scottish Government on funding, including on the application of the Barnett formula.

Some noble Lords, including the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, and the noble Lords, Lord Scriven and Lord Sharkey, spoke about the impact of the Bill on GPs, dentists and pharmacists. As the noble Lords will know, every year, the Government consult with each sector about both what services they provide and the money that providers are entitled to in return under their contracts. As in previous years, this issue will be dealt with as part of that process. The Department of Health and Social Care will shortly confirm funding for GPs, dentistry and pharmacy.

The noble Baroness, Lady Kramer, and the noble Lords, Lord Forsyth of Drumlean, Lord Scriven, Lord Udny-Lister and Lord Sharkey, asked about adult social care providers. The Government are providing a real-terms increase in core local government spending power of 3.5% in 2025-26. To support social care authorities to deliver key services, we also announced a further £200 million for adult and children’s social care at the provisional local government finance settlement last month. This will be allocated via the social care grant, bringing the total increase of this grant in 2025-26 to £880 million, meaning that up to £3.7 billion of additional funding will be provided to social care authorities in 2025-26.

Several noble Lords—including the noble Baronesses, Lady Porter of Fulwood, Lady Bray of Coln, Lady Sater and Lady Neville-Rolfe, the right reverend Prelate the Bishop of Southwark and the noble Lord, Lord Blackwell—focused on the impact on charities, including hospices. We are supporting the hospice sector with a £100 million boost for adult and children’s hospices, to ensure that they have the best physical environment for care, and £26 million revenue to support children and young people’s hospices. More widely, the Government provide support for charities, including hospices, via the tax regime, which is among the most generous of anywhere in the world. Tax reliefs for charities and their donors were worth just over £6 billion for the tax year to April 2024.

The right reverend Prelate the Bishop of Southwark asked about listed places of worship. The outcome of this programme is currently being assessed by the DCMS, as it finalises its financial allocation for 2025-26. The right reverend Prelate also asked about SEN transport. In the Budget, the Government announced £2 billion of new grant funding for local government in 2025-26. This includes £515 million to support councils with the increase in employer national insurance contributions, which covers special educational needs home-to-school transport schemes.

The noble Baronesses, Lady Kramer and Lady Neville-Rolfe, asked about childcare and the impact on the rollout of the expanded entitlement. Early years providers play a crucial role in driving economic growth, which is why we have committed to open 3,000 new school-based nurseries in this Parliament. At the Budget, the Chancellor announced that total funding will rise to over £8 billion in 2025-26 to support providers. On top of this, last month, the Department for Education confirmed an additional £75 million to help the sector expand next year, and a further £25 million to support childcare for disadvantaged children through the early years pupil premium.

The noble Baroness, Lady Sater, asked when the impact assessment will be published. The tax information and impact note was published on 13 November, alongside the legislation when it was introduced. The latest forecasts for tax revenues were published alongside the Office for Budget Responsibility’s October Economic and Fiscal Outlook.

Many noble Lords—including the noble Baroness, Lady Neville-Rolfe, the noble Lords, Lord Macpherson of Earl’s Court, Lord Forsyth of Drumlean, Lord Londesborough, Lord Ahmad of Wimbledon and Lord Mackinlay of Richborough, and the right reverend Prelate the Bishop of Southwark—focused on the wider macroeconomic impact of the Bill. As I said in my opening speech, not to act was not an option. The choices we have made were the only route to putting the public finances back on a stable path while protecting working people and rebuilding public services. The economic data we have seen in recent months is disappointing. In particular, the recent growth figures show the sheer scale of the challenge we face, and the noble Lord, Lord Horam, set out the dire inheritance that we faced on growth.

The fact is that there would have been far greater cost to continuing with the irresponsibility and instability that has been a near-constant feature of the past 14 years—from the chaos of Brexit and the disastrous deal that followed, which reduced GDP by 4%, through to the Liz Truss mini-Budget that crashed the economy and devastated family finances. Let us remember that the Office for Budget Responsibility has also been clear that, with particular reference to our capital investments, the Budget will increase the size of the economy in the long term.

The noble Lord, Lord Blackwell, rightly identified the problem of inactivity, which is higher than it was before the pandemic. He rightly identified the issues in the benefits system that contribute to that. The Government will bring forward proposals in this area in the coming months. The noble Lord also asked about public sector productivity. Unlike the previous Government, we have introduced a 2% productivity target for all government departments and have said that above-inflation pay awards will be affordable only if they can be funded from improved productivity.

The noble Baronesses, Lady Neville-Rolfe and Lady Moyo, spoke about the impact on inflation. The independent Office for Budget Responsibility says that it expects inflation to remain close to the 2% target throughout the forecast period. This is of course very different from the previous Parliament, when inflation peaked at 11.1% and was above target for 33 consecutive months, and when mortgages rose by an average of £300 a month following the Liz Truss mini-Budget.

The noble Baronesses, Lady Neville-Rolfe and Lady Noakes, and the noble Lords, Lord Howard of Rising, Lord Elliott of Mickle Fell and Lord Altrincham, spoke about employment. The Office for Budget Responsibility’s October forecast, which takes into account all tax measures announced in the Budget, forecasts that the unemployment rate will now fall to 4.1% next year and remain low until 2029. It also expects the number of people in employment to rise by 1.2 million over the course of this Parliament. As I have said to the noble Lord, Lord Elliott of Mickle Fell, on previous occasions, we remain committed to the 80% employment ambition.

The noble Baroness, Lady Neville-Rolfe, asked about the impact of this Bill on living standards. As noble Lords will be aware, the previous Parliament was the worst for living standards ever recorded. The Office for Budget Responsibility’s forecast shows that real household disposable income will increase in real terms every year over the course of this Parliament.

The noble Lord, Lord Forsyth of Drumlean, and the noble Baroness, Lady Noakes, asked about the impact of the Bill on wages. The independent Office for Budget Responsibility expects real wages to increase by 3% over the next five years.

This Bill also serves another key purpose: to fix our broken NHS and put an end to over a decade of underinvestment, neglect and inequality, as my noble friend Lady O’Grady of Upper Holloway said. That is because this Government inherited not only broken public finances but an NHS experiencing the worst crisis in its history. It is for this reason that the Budget included extra investment of £25.7 billion for the NHS over this year and next—investment that is possible only because of the measures in this Bill.

This Government had to take some very difficult decisions, reflected in the Bill we have debated today; not decisions we wanted to take, but necessary decisions to clear up the mess we inherited. Some noble Lords have today argued otherwise. The noble Baroness, Lady Neville-Rolfe, set out her position eloquently, but I did not hear a single alternative proposal. What is her alternative—that we should have ignored the black hole in the public finances? That is the path of irresponsibility and a repeat of the path chosen by the Liz Truss mini-Budget. That is not the path chosen by this Government. Yes, it was a significant Budget, on a scale commensurate with the challenging inheritance that we faced.

I recognise that the measures in this Bill involve asking some businesses to contribute more. However, as a result, and made possible only by the measures contained in this Bill, we have now wiped the slate clean, creating a platform of stability in the public finances. In doing so, and in contrast to the previous Government’s choice to freeze income tax thresholds, we have protected working people, keeping our manifesto commitments not to raise their income tax, their national insurance, or VAT. Again, as my noble friend Lord Eatwell pointed out, the noble Baroness, Lady Neville-Rolfe, said that this was the wrong tax to raise, but gave no detail about what other taxes she would raise. Would she have raised taxes on working people instead? The noble Lord, Lord Forsyth, at least suggested taxing some pensioners more, but from the Official Opposition there simply is no plan.

We have made historic new investment in our NHS and begun to put an end to years of underfunding and neglect. The choices that we have made to repair the public finances, protect working people and invest in Britain’s future are the only responsible choices in the circumstances that we faced. None of these things would be possible without this Bill. This Government were elected on a mandate to fix the foundations of our economy, and that is exactly what we will do. The Bill delivers on that mandate and provides a foundation of stability upon which we will now build long-term sustainable growth so we can rebuild our public services and make working people better off.

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21:00

Division 1

Baroness Kramer’s amendment disagreed.

Ayes: 46

Noes: 61