National Insurance Contributions (Employer Pensions Contributions) Bill

Report stage
Thursday 5th March 2026 Lords Chamber

Report

11:53

Clause 1: Employer pensions contributions pursuant to optional remuneration arrangements: Great Britain

Amendment 1

Moved by

[Baroness Neville-Rolfe]

1: Clause 1, page 1, line 10, after “tax” insert “at the higher or additional rate”
Member’s explanatory statement
This amendment would exempt basic rate taxpayers in England, Wales and Scotland from the £2,000 cap.

[Baroness Neville-Rolfe (Con)]

My Lords, I am pleased to be opening our deliberations on Report by speaking to a powerful group of amendments tabled by not only the Opposition but noble Lords from across the Chamber. This group in many respects shows the scale and breadth of the concerns that are held by noble Lords with respect to this Bill.

My first amendments in this group seek to exempt basic rate taxpayers from this policy. I am grateful to noble Lords from across the House who supported Amendment 1 in Committee and who recognise the seriousness of the issue that it seeks to address. This Bill is a mistaken Bill. It will limit incentives to save into pensions and reduce pensions adequacy. In our lively Committee discussions, Peers with business and tax experience and knowledge of pensions and payroll exposed its failings. The responses from the noble Lord, Lord Livermore, did not allay our concerns. On the contrary, they reinforced them.

The Government have been clear in the Bill’s Explanatory Notes and in Statements made in this House and the other place that this policy is intended to target higher earners. That is the stated purpose and the political justification, but it is not the reality. The Society of Pension Professionals has told us that around one-quarter of those who use salary sacrifice and who will be caught by these changes are basic rate taxpayers. When this was put to the Minister, he did not dispute it. In fact, he went further. He told us that around 74% of basic rate taxpayers currently using salary sacrifice will be protected by the £2,000 cap. That is the current position and, as far as I know, does not allow for wage inflation in the period before the measure takes effect. That could increase the number of basic rate taxpayers who are affected.

The new arrangements take effect in 2029-30, conveniently helping the Government with £4.7 billion of revenue to satisfy their fiscal rules in that crucial year. However, the Minister’s exclamation means that 26% of basic rate taxpayers will not be protected. More than one in four basic rate taxpayers using salary sacrifice will be hit. The Minister also acknowledged that some people earning under £30,000 would be affected. Let us pause on that. This is a policy presented as targeting high earners, yet it will impact workers earning under £30,000. Surely that is, by the Treasury’s own admission, a fundamental contradiction between rhetoric and reality. For a basic rate taxpayer, the 8% national insurance charge represents two-fifths of the value of their income tax relief. In practical terms, the marginal cost of this policy is four times higher for a lower-paid worker than for someone on a higher income. That is a very different definition of a progressive tax. The lower your income, the greater the relative blow.

Our amendment offers the Government a straightforward way out. By exempting basic rate taxpayers from the cap, we would align the policy with its stated objective. If the aim is to target higher earners, let us do precisely that. Let us not drag lower and middle earners into a measure that they were repeatedly told would not affect them. Lower savings today mean lower retirement incomes tomorrow, and lower retirement incomes tomorrow mean greater reliance on the state. That is neither fiscally prudent nor socially responsible.

This is closely related to another of my amendments in the group, Amendment 7, which would require that regulations made under Clauses 1 and 2 should explain the basis on which the Treasury considers certain employed earners to be higher earners for the purposes of the national insurance charge and how the contribution limit reflects that assessment in Great Britain and Northern Ireland. This amendment, which we also tabled in Committee, received a wholly inadequate response. I asked the Minister who in the Government’s view were higher earners. I asked for a number. Was it people on £50,000 a year or £60,000 a year? The Minister refused to give one. Indeed, he did not engage with the point at all. Remember, some basic rate taxpayers will be affected by this policy. They are not higher earners. The Government should be honest about that.

Amendment 7 seeks to ensure that when regulations are forthcoming—and there are a lot of them provided for in the Bill as it stands—the Treasury will do the right thing and explain how the regulations meet the policy intent of affecting only higher earners. It would not impose costs on the Treasury or affect how the policy works but would ensure that we get an explanation of how lower and medium-income workers are to be protected. That is the Government’s stated aim. If the Minister is confident that regulations will meet the Government’s own test, he should accept this amendment.

The final one of my amendments to which I wish to speak, Amendment 29, concerns SMEs and charities. Throughout the passage of this Bill, and in debates far beyond it, many of us have warned about the cumulative burden this Government are placing on smaller employers. Think about the Employment Rights Act, the minimum wage hikes, the spiralling business rates, U-turns and uncertainty, compliance and regulatory costs and, indeed, the previous NICs hike. The list goes on. Each item is a policy that damages small and medium-sized enterprises in our country. They include family firms, start-ups, local manufacturers, high-street shops, care providers and charity and community employers. They often do not have in-house tax teams or compliance departments. They do not have margins that allow them quietly to absorb new fiscal shocks. Many do not offer salary sacrifice, but some do and more may do so now that it is more in the public consciousness thanks to this change.

My amendment simply says that, where the employers are a small or medium-sized enterprise, or a charity or a social enterprise, the provisions of this clause should not apply. If the Government’s intent is to truly address behaviours concentrated in large corporates then they should have no difficulty accepting that smaller employers ought to be shielded.

12:00

In Committee, the Minister sought to reassure noble Lords by stating that only 33% of small businesses offer salary sacrifice arrangements. One in three small businesses potentially exposed to the new cost and to the new complexity is a very substantial proportion of those organisations that make up the backbone of the British economy. Even for those not currently operating such schemes, the signal sent by this Bill is clear: providing pension flexibility or innovative remuneration structures carries risk. At a time when we should be encouraging pension saving and responsible employer contributions, we are creating disincentives.

We are already seeing rising insolvency rates among small firms, business confidence is plummeting and unemployment remains stubbornly high. Against that backdrop, this is not the moment to extend further costs and uncertainty to smaller employers and to charities delivering essential social goods. In Committee, I did not feel the Minister fully grappled with that reality. I hope that, today, he can demonstrate that the Treasury has reflected further on the cumulative impact on SMEs and charities, and explain what assessment has been made of the real-world consequences. If the Government truly want to stand with small businesses and the voluntary sector, they should have no hesitation in supporting that exemption amendment.

I want to speak briefly to amendments in the names of other noble lords. The noble Baroness, Lady Kramer, has tabled an amendment which would raise the cap to £5,000, which we support. This is a sensible proposal which would prevent some lower and middle-income earners being caught by this policy, and address some of our concerns around the cost that this policy would impose on SMEs. The Government should seriously consider an uprating mechanism, as proposed in my other amendments in this group, but this would be a good start. If, in due course, the noble Baroness is minded to test the opinion of the House on this question, we will be pleased to support her.

The amendment in the name of my noble friend Lord Leigh of Hurley would exempt salary sacrifice pension contributions over the limit from being included in student loan repayment definitions. This is an eminently sensible amendment which would help to protect those who are repaying student loans. As noble Lords will know from the extensive media and parliamentary coverage, graduates on the plan 2 loan are being hit particularly hard. This amendment would help to limit the blow that this policy would otherwise exact upon them. The student loan repayment arrangements are very unsatisfactory, as I know from talking to members of our own team. We must not further penalise people for striving, and the amendment would help, in a concrete way, those graduates who are trying to save into a pension. Should my noble friend wish to test the opinion of the House on this matter, we will be pleased to support him.

For the sake of brevity, there are some amendments in this large group which I have not spoken to, such as that in the names of the noble Baroness, Lady Altmann, and the noble Lord, Lord de Clifford. I thank them for their engagement with the Bill throughout its stages and for their proposals today, all of which speak to the same concerns. The Minister has left a lot to be desired after Committee. We shall be listening carefully to his reply today. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I will speak to my amendment in this first group. Needless to say, I agree with everything my noble friend Lady Neville-Rolfe said from the Front Bench. This Bill is a most unfortunate Bill. It clearly has come about because the Chancellor has said to her officials, “I need £5 billion, can you find it now?”, and out of the bottom drawer has come a Bill which has been rejected by so many others. I do not think it was in the manifesto; it is just an opportunistic grab of people’s savings.

The Bill has most unfortunate side effects. As we will show in later amendments, it will not raise the £5 billion that the OBR has been led to believe it will. It will fall far short of that. Proof of that, of course, is in the fact that even the OBR recognises that that £5 billion will fall by half the following year, as people work out what is going on and take evasive action. The reason it will not raise £5 billion is that people will work out, well in advance of it coming into 2029, that there are simple ways round this Bill that already have been identified, and therefore will take pre-emptive action. We are stuck with a Bill that does not work, is not needed and, workers having been penalised by the national insurance increase, penalises savers. In particular, for some bizarre reason, it penalises students who have taken out loans. This is not a good time to be making these proposals.

The Minister, a few minutes ago, suggested that the Chancellor believes that people will be £1,000 a year better off by the time of the next election. Will they really? The Joseph Rowntree Foundation—no friends of mine—has said that when housing costs from rent and mortgage payments were factored into those figures, total disposable income would have risen by just £40 a year. No pandemic to rely on, no Brexit, no nothing—that is just what it is: £40 a year.

This is not the time to impose further hardship on people, in particular students. One benefit of a pension salary sacrifice can be to reduce earnings liable to national insurance for student loan repayment purposes, as the liability to repay student loans is, for employees, based on their earnings liable to national insurance. Frankly, there remains a lack of clarity about how the policy interacts with student loan repayment calculations, which are based on national insurance definitions of earnings. If salary sacrifice pension contributions above the cap are treated as earnings for NIC purposes, this will have knock-on effects for graduate repayment levels. It will mean higher effective repayments for some borrowers, reduced disposable income and a further distortion of incentives around pension savings. The Government have not yet provided sufficient clarity. My amendments seek to address that situation.

I am grateful to the national press, in particular the Times, for its support of this amendment. I hope later to be able to test the opinion of the House on it, unless the Government feel inclined to agree to it.

[Lord Ashcombe (Con)]

My Lords, this is a very large group with a number of issues to address. First, I support my noble friends Lady Neville-Rolfe and Lord Altrincham in Amendment 1 in this group. I remind the House that the Department for Work and Pensions has acknowledged that, as of 2025, around 14.6 million working-age people are undersaving for retirement. Many of these individuals will be basic rate taxpayers, though certainly not all, and some will not have access to salary sacrifice arrangements. This amendment would ensure that only higher taxpayers are affected by the proposed £2,000 cap on salary sacrifice schemes. As a result, no basic rate taxpayer would be drawn into what might only be described as a new trap.

In Committee, the noble Lord stated more than once that 74% of employees who pay only the basic rate of tax—currently applicable up to £50,270—and who benefit from a salary sacrifice scheme would be unaffected by the £2,000 limit before the national insurance becomes payable. However, this necessarily means that 26% would be affected, and no figure has been provided for how many people that represents. Percentages alone can be extremely misleading without the underlying numbers. Therefore, I would be grateful if the minister could inform the House how many employees fall within that 26%, so that we may properly understand the scale of those who stand to be impacted.

This brings me directly to Amendment 7, in asking the Government what the definition of a high earner is. The answer given in Committee was totally noncommittal. May I therefore ask the Minister, as my noble friend Lady Neville-Rolfe has, to be transparent and provide a clear number? Is the threshold £30,000, £50,000, or is it some other number? I do not think this is too much to ask.

As for Amendment 5 in the name of my noble friend Lord Leigh of Hurley and others, there are already many students—including my sons—caught by the student loans repayment scheme. To fleece this cohort of individuals even harder seems extraordinary if salary sacrifice payments are considered as part of their income. They will never have a sufficient pension and, no doubt, some future Government will have to pick up the pieces.

Next, I would like to address the size of the cap, which currently would be £2,000. As I have mentioned, the proposed limitation is simply too low. Moreover, it fails to take account of those employees who may, on occasion, receive an unexpected windfall which they wish to contribute to their pension through a salary sacrifice arrangement. Amendment 12 from the noble Baroness, Lady Kramer, provides for a £5,000 cap, which would give employees the opportunity not only to save more towards their retirement but also to avoid a substantial national insurance liability on such a windfall. Provided inflation remains under control, this is a far more realistic and workable figure. While I would prefer the figure to be £10,000, as in amendments in the name of the noble Baroness, Lady Altmann, I fear that that is a step too far.

The amendments in the name of the noble Lord, Lord de Clifford, and those in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham both address another issue: the quiet but persistent impact of fiscal drag. This is one of the most insidious ways in which Governments raise revenue without taking any overt action. With such a modest cap set out in the Bill, it risks being rapidly eroded by inflation, placing an unnecessary burden on basic rate taxpayers—precisely the group for whom pension saving is the most vital to support. I very much support those amendments.

Finally, Amendments 16 and 27 concern the SME and charity sectors. Last week in Committee, I mentioned many recent legislative changes that these entities have had to face, including the cost of energy, which now appears to be heading even further in the wrong direction. Between Committee stage and now, this has become very personal, as one of my children working in the retail industry was made redundant yesterday due to all these excessive costs. This Bill has not yet hit. I truly wonder if the company will survive. The Bill is, surely, another nail in the coffin for many more employees and, I suspect, a number of companies and charities themselves. They simply do not have the wherewithal to weather these storms, yet this Government insist on piling on ever more expenses, not only through greater national insurance payments but substantial additional associated administration costs. They will need to hire external resources to handle this difficult and pernicious legislation. It will not surprise noble Lords to know that I very much support these amendments.

[Lord de Clifford (CB)]

My Lords, I speak today in support of all the amendments in this group, particularly Amendments 12 and 26 in the name of the noble Baroness, Lady Kramer, and other Peers, and my own Amendments 14 and 27. I would have added my name to the noble Baroness’s amendments, but sadly I was a bit slow, and her popularity beat me. I remind the House of my registered interests as an owner of an SME and an employer.

Both these sets of amendments seek to increase the limit in separate ways. As I have spoken about at both stages of the Bill, the proposal mainly impacts middle-income earners. If the Government were to accept the amendment of the noble Baroness, Lady Kramer, this would allow all basic rate taxpaying workers making regular contributions to salary sacrifice not to have to pay NIC on their contributions. Also, it would encourage and give flexibility for workers on different salaries to increase their pension contributions above the 5% of auto-enrolment without being penalised and having to pay NIC on these increased contributions. Auto-enrolment is such an easy way for employees to raise their pension contributions and show flexibility.

I have seen in my own business that employees on a range of salaries from £30,000 to £50,000 per annum do increase and decrease their pension contributions depending on their current situation. This could be, for example, before starting a family or when they have a salary increase, small bonuses are paid, or they are moving closer to retirement. Accepting this limit will encourage people to save for their long-term retirement and give them flexibility in their contributions.

I have resubmitted my amendment as a suggestion and a compromise between the Government’s limit of £2,000 and the proposed new limit of the noble Baroness, Lady Kramer, of £5,000. My amendment seeks to increase the limit to £5,213.15 as it stands and is linked to the upper threshold of national insurance, at 5% of that amount.

I asked the Minister in Committee if there was any basis to the £2,000 limit other than the researchers’ suggestion to employers in the research commissioned by HM Revenue & Customs on attitudes to salary sacrifice, released in January 2024. Having reviewed the research, it appears that £2,000 is an arbitrary figure, if in some way linked to the median salary. The researchers contacted only 51 employers, of whom only 41 offered salary sacrifice. I believe that the total number of employers who offer salary sacrifice is around 290,000. Surely, only 51 employers is not a significant sample on which to base such an important change to the tax and pension systems.

12:15

My proposed limit is 5% of the national insurance upper earnings limit, and it is directly linked with auto-enrolment employer pension contributions of 5%. As I previously said, this links to a figure that is already in the taxation system. This limit would automatically adjust if NICs thresholds were changed.

In the spring update Statement on Tuesday, the Chancellor referred on many occasions to workers and being fair to them. Surely, it is only fair that all workers on a certain amount pay only 2% on their pension contributions in terms of NIC and that a certain few do not have to pay 8% on their pension contributions due to their salary being between £40,000 and £50,270. The noble Lord, Lord Ashcombe, has already asked for that number to be clarified. By increasing this limit, all employees would pay only 2% on their pension; employers would continue to pay 15% on all contributions. That is the vast majority of the tax—another burden on employers.

I hope the Minister will consider my amendment during the research on the implementation of this Bill, as I believe it provides some simplification to the change to salary sacrifice that the Bill is proposing, bringing fairness to a group of employees on modest salaries who are not being penalised for making pension contributions via auto-enrolment.

We will discuss later, in other groups, the complexity this Bill could bring to payroll systems and HR admin. If you were to treat salary sacrifice on pension payments in the same way that national insurance is calculated, this would address many of the complexities that arose during Committee. I very much hope that the Government will accept Amendments 12 and 26 from the noble Baroness, Lady Kramer, but, if not, that they will consider my amendment as a fair and practical alternative for workers making pension contributions under salary sacrifice.

[Baroness Altmann (Non-Afl)]

My Lords, I first need to declare my interests as a non-executive director of a pensions administration company and as a board adviser to an auto-enrolment master trust. This is a very large group of amendments, and I thank the noble Baroness, Lady Neville-Rolfe, for her excellent introduction. The 15 amendments in this group cover a whole range of different issues, and I will try to be as brief as possible.

I start with Amendment 1, to which I have added my name, which seeks to tease out the Government’s actual policy on pension incentives. As the Minister and other noble Lords have said, around one-quarter of basic rate taxpayers whose employers are using salary sacrifice will be impacted. They will have lower take-home pay and/or lower pension contributions and, clearly, less incentive to pay more into a pension. Therefore, they have more risk of being poor in later life.

We still do not have an explanation for this limit being chosen, and the idea of limiting it to higher rate taxpayers makes enormous sense from the point of view of pension policy. Even a small number of people who are earning less than £30,000 will be caught by this. We have no explanation. I hope that the Minister might be able to help us understand where the £2,000 figure came from and why it is acceptable to hit the pensions and take-home pay of these lower earners.

Any proposal that we have heard over the years—and there have been many—for reforming the incentives for pensions have tried to suggest making the incentives for lower earners better. This Bill does the opposite. With a progressive tax system, using tax relief as an incentive mechanism will always give more generous relief to higher earners than lower earners who are on lower tax. At the moment, the availability of salary sacrifice helps to even that up a bit. If somebody is on a 20% tax rate, for every £4 they put into a pension, the basic rate tax relief gives them an extra £1. That is a 25% uplift. For a 40% taxpayer, for every £3 they put into a pension, tax relief gives them an extra £2. That is a 66% uplift. If you add in the 8% national insurance relief on top of the 20% basic tax relief, these lower or moderate earners will get a 38% uplift. If we take that away, they are back to 25%. I cannot explain how that is consistent with the Government’s aim of improving pension outcomes and helping lower earners or ordinary workers to have a better future. They will have lower take-home pay and/or lower pension contributions as a result of this policy. I understand that national insurance relief has always been a bit of an anomaly, but it is there, so taking it away makes things worse. Higher earners are only losing 2%. I hope that the Minister will look favourably on this amendment, but if the noble Baroness chooses to test the opinion of the House, I will support her.

Amendment 5 in the name of the noble Lord, Lord Leigh, to which I have also added my name, talks about the student loan problem and seeks to find a way to exempt students who are contributing more than £2,000 from higher repayments or lower take-home pay as a result of this policy. I would be grateful if the Minister could help us understand the impact on someone with a student loan who is paying more than £2,000 and will say what the Government’s proposals for mitigating are. If we do not have any such proposals, I hope the House will support the noble Lord’s amendment.

Amendment 12 and related Amendment 26 in the name of the noble Baroness, Lady Kramer, seek to address this problem in a different way by increasing the £2,000 limit to £5,000. These are both arbitrary numbers. There is no specific justification in the modelling of what pension contributions are in salary sacrifice schemes. My Amendment 13 was trying to raise the limit to £10,000, which would mean catching even fewer people but more higher earners. I accept that there is not enough support in the House for going as far as £10,000, which is the minimum contribution that the highest earners can make under the annual limit, but I would certainly support a change to £5,000.

On Amendment 27, which has just been spoken to by the noble Lord, Lord de Clifford, I understand the logic of trying to tie this to the national insurance upper earnings limit. I would support it, but I can see that the support is not widespread. In any case, adding this would make the whole administration system much more difficult to understand and complex. At least a round number of £5,000 is something that people can aim at and see whether they are over it.

The noble Lord, Lord Leigh, mentioned employers taking evasive action to avoid this before 2029. Will the Minister say what is the rush? Why, just a few weeks after announcing this, do we have this primary legislation which raises huge numbers of questions and poses such significant risks to the pension system? What evasive action can employers take? The most likely is that they will significantly reduce their pension contributions if they are not already at the minimum, or just stop salary sacrifice altogether because the costs of changing this system from the current salary sacrifice payroll provision and introducing new provisions will be significant.

This policy goes against everything the Government have rightly said they would like to achieve with their pension reforms. It makes the position of lower earners worse, it makes the pensions of lower earners worse, and it is likely to make overall pension provision worse throughout the economy. I hope that the Government might think again on some of these issues.

[Lord Fuller (Con)]

My Lords, I support Amendments 5 and 21 tabled by my noble friend Lord Leigh of Hurley, which rightly shine a light on the way in which this policy particularly benights graduates who are starting out in their careers. The Government have perpetrated the lie that the restrictions on salary sacrifice will affect only the fat cats, those with the broadest shoulders, whatever that means, the higher earners, another nebulous term, and certainly not hard-working families or those who are paid hourly. It is just not true. It is an example of Labour’s mis-selling, which is why I support Amendment 1 in the name of my noble friend Lady Neville-Rolfe. The Daily Telegraph reports that 3.3 million employees will be affected. The Times accuses the Government of wilfully obscuring the effects of their proposals on employees who are left behind after the real fat cats have run for the border.

By far the most affected group are youngsters at the start of their careers—graduates, people making a start on their working lives. They are already burdened by the Renters’ Rights Act 2025, which has driven up their rents, and the Employment Rights Act 2025, which has made it harder for businesses to take a chance on someone starting out. Graduate programmes have been bombed out by the jobs tax and dynamited by the rise in the minimum wage which reduces the incentive for employees to train up the newbies. Now we have a further insult and assault on Generation Z with the proposals of this slim Bill with fat consequences in an unthinking aggravation of intergenerational unfairness. Let nobody say that Labour is on the side of youngsters who want to get on. Even the OBR has twigged what we on these Benches have been saying for months: that the cumulative effect of all these issues is damaging incentives to work and harming those trying to climb the ladder to success.

At Second Reading, I gave the example of my daughter’s boyfriend who has a good job in the West End. He is no fat cat. He lives in a flatshare in Brixton with people he does not know, but his employer has recognised his hard work and, importantly, the value he brings to the business, so he was given a bonus of £17,000. Of that, he kept less than £6,000—a marginal rate of 71%—not just because of the tax, but on account of his student loan repayments. I do not know how it has taken so long for the OBR to realise that it does not pay to work. How much can these people be expected to bear? At least he had salary sacrifice to save for a pension for his future to reduce his reliance on the state in later life because, let us face it, employers are still shovelling cash into defined benefit schemes that are not even available to students who have to make do and mend with the less generous defined contribution arrangements instead, but even that has been snatched away by this Bill, as the noble Baroness, Lady Altmann, has so forensically exposed.

Taken together, these proposals risk salary sacrifice being taken away as a thing, which will damage employers and damage their opportunities to attract and retain the best talent because it will become just too complicated. As the Spectator’s leader last week asked, is it still worth going to university? When the world’s oldest magazine starts questioning the value of higher education, you have to wonder for our economy, our society, the future prosperity of our nation and what it says about aspiration in these islands. As somebody said last week, you used to get something from hard work, a reward for initiative, doing the right thing, but instead everyone is being beaten with a stick.

12:30

This incessant tinkering undermines confidence in the pension system itself. Long-term plans cannot be made when the goalposts keep moving. People just conclude, “Saving for a pension just isn’t for me”. The consequence of this lack of trust, which this Government are driving, is that you end up with people investing in Lego sets, Star Wars characters, silver slivers and bitcoin. Try spending those at Tesco. It is bad for everybody, but especially the youngsters starting out. The Government are not on the side of these people. They are the ones who are driving intergenerational unfairness. All students and graduates want is for the Government to give them a break—but instead they are being broken and this Bill is the final straw.

[Lord Freyberg (CB)]

My Lords, I apologise for not speaking earlier in the Bill’s passage. I have only recently become aware of how its provisions bear on freelance workers in the creative industries, and I hope the House will permit me to raise those concerns across the relevant groups. I declare an interest: I have worked both as a freelance editor on short-term contracts and on payroll, and I understand from personal experience how differently this legislation lands, depending on which side of that line a worker falls.

I support the amendments in this group, in particular Amendments 1 and 17, which would exempt basic-rate taxpayers from the cap, and Amendments 14 and 27, which would index the limit to the national insurance upper earnings limit, rather than fixing it at a flat £2,000.

The creative industries are built on short contracts. A set designer or director of photography may work for three or four different employers in a single year, such as a commercial house, a broadcaster or an independent film company, each engagement lasting weeks rather than months. Many of those workers are basic-rate taxpayers. The Government have consistently justified the Bill as targeting higher earners, yet, as we have heard, these are precisely the workers it will catch. Amendments 1 and 17 would correct that directly.

Amendments 14 and 27 address a related problem. A creative worker with a good year followed by a lean year faces a rigid £2,000 cap that takes no account of natural variation in earnings. Indexing the limit to the upper earnings limit would at least ensure that it kept pace with the economy.

Amendments 12, 26 and 13 would raise the cap to £5,000—or £10,000, as we have heard—which would substantially reduce the problem for those with fluctuating incomes, and I support the principle behind them.

Finally, Amendments 4 and 20 would remove from the optional remuneration rules any pension contributions where no cash alternative was offered. For a freelancer on a standard short-term contract, where the pension arrangement is simply a term of engagement, not a personal tax planning choice, that is a straightforward matter of fairness. I urge the House to support these amendments.

[Lord Davies of Brixton (Lab)]

I want to contribute, by supporting the Government, a bit of sense to this debate. We have heard so much doom and gloom, but what is the reality? What impact are these measures going to have? I am sure my noble friend the Minister will be able to tell us.

The first point to understand is that salary sacrifice for pension contributions really makes no sense. It is a form of regulatory arbitrage. It has never made any sense and it is notable that previous Governments have taken away almost all forms of salary sacrifice on other in-work benefits, without forecasting the end of incentives for working. I have always been against it in principle—I would be happy to see it removed entirely, but possibly that might be politically suicidal—but a £2,000 limit seems an entirely reasonable approach to providing some fair incentive without the opportunity for, in truth, gross inequality. We are told that this measure hits the lower paid and not so much the higher paid, but of course the people who make most use of this are people with enormous bonuses. That is where the money is going and these measures will stop that.

Secondly, it is not an essential element in our current pension system. The key question that none of the previous speakers has addressed is: what is the right level of tax incentive for pension saving? That is a proper debate, and it cannot be answered by saying that more is always better. We have to draw up a fair judgment on where, and how far, tax incentives to encourage people to save for retirement should go. It is obvious that, if you reduce tax incentives, there will be an impact on people’s decisions. One impact that it might have is to encourage them to save more, because, if they have a target pension in mind, they will need to save more money than they did previously.

Thirdly, figures are quoted for the impact on individuals, particularly those under the higher-rate threshold. Well, I have a spreadsheet and I have calculated those figures, and, as I said at Second Reading and in Committee, the effect on basic-rate taxpayers on incomes around and above the median level is marginal. What sorts of figures do you think we are being told are going to have such a shattering effect on the pension system? For someone on median earnings, paying the median contribution rate, it is nothing. Maybe, if you earn a bit more towards the tax threshold, it will be something like £40 a year.

Now, nobody likes paying more tax. I could explain that the reason why there is this demand for more taxes is 14 years of mismanagement by the previous Government, but I will leave that to my noble friend. But it does annoy me that so much emphasis is placed on what is essentially a sideshow to the important questions of pension provision that we are going to have to address.

[Baroness Altmann (Non-Afl)]

As I think the noble Lord knows, I have enormous sympathy with everything he says, and there is a strong case for reforming and improving the incentives for low earners. However, does he not accept that, if you change for the worse the incentives on the people who earn least, for whom it is most difficult to contribute, there is bound to be an effect at the margin, however large or small the difference is? If your pension is giving you lower take-home pay because something you have is being taken away, that can have only negative consequences. Therefore, there are risks in this proposal as it stands.

[Lord Davies of Brixton (Lab)]

I thought I said in my earlier remarks that there will be a marginal effect: I accept that, although we do not actually know what that marginal effect will be. It is all hypothetical at the moment. One thing we do not know from the OBR figures is quite what the reaction will be and how people will adjust their behaviour between now and when this comes in.

I accept the noble Baroness’s point but, as I say, nobody likes paying tax and nobody wants to pay more tax. If you ask people whether they want to pay more tax they say no, but it has to fit in with the Government’s overall financial strategy.

Of course, only some people gain an advantage from salary sacrifice. Many private employers just do not offer it. The number is increasing all the time, which is part of the problem because it is increasing the cost. Nobody in the public sector benefits from salary sacrifice. We can, and will, have an interesting debate about public service pensions, but noble Lords should understand that it is unequal that people in the private sector can take advantage of salary sacrifice but people in the public sector cannot.

[Baroness Kramer (LD)]

My Lords, I thought it might be best to combine standing as a winder and talking for a few moments to the two amendments in this group that are in my name. I start by thanking the noble Baroness, Lady Neville-Rolfe, who made an incredibly powerful speech to introduce the whole series of amendments in this group. I thank her for signing my two amendments, Amendments 12 and 26. Amendment 26 is the Northern Ireland parallel to Amendment 12, so we need not treat it separately. I also thank the noble Lords, Lord Altrincham and Lord Londesborough, for signing my amendments. The noble Lord, Lord de Clifford, would also have signed them had space been permitted on the Marshalled List.

I also talked very extensively, both at Second Reading and in Committee, and I will try to discipline myself not to repeat those comments, particularly because speaker after speaker has so fully described the issues that are at stake. I find myself in complete disagreement with the noble Lord, Lord Davies of Brixton, which does not happen very often, but I think that the Government will recognise that, for a whole series of political leanings around the House, there is very common ground on this issue.

My Amendment 12, as others have described, would lift that limit on salary sacrifice contributions subject to NICs relief to £5,000 a year. I discussed in detail in Committee why I talked to various people and came to that number, but the key point I want to emphasise—others have made it, but let me make it again—is that it would strongly benefit younger people and quite low earners. We are looking primarily at the second decile of earners, who are probably on their first or second pay rise. They are still low earners and still living a life much more akin to that of a student. They are sharing accommodation and do not yet have mortgages, children or families. Many have, very responsibly, with the nudge that is given by this tax relief, been encouraged to start seriously saving for pensions, well in excess of that £2,000 benchmark that the Government propose.

As these people move on in their lives and acquire children and mortgages, their pension savings drop. Those very early savings that then have a chance to accrue over a working lifetime are very significant in the end result to the quality of pension that they receive. That is why we took an approach that we thought would, in a very simple way, enable this group of people to continue with that incredibly positive behaviour.

In this group, I will certainly support the amendments that the noble Baroness, Lady Neville-Rolfe, will choose to move. I want to make particular reference to the amendment from the noble Lord, Lord Leigh, on student loans. It is absolutely essential. The Government have recognised—at least, this is what I understood from the Minister’s responses in Committee and at Second Reading—that the Bill quite unintentionally puts serious additional costs on to graduates. I find it absolutely ridiculous that, having recognised that there is an unintentional impact and that it is problematic, the Government are not correcting it in this Bill. As far as I can understand, they are waiting for some future piece of legislation to make that change.

[Lord Davies of Brixton (Lab)]

May I just press the noble Baroness on the point she made about serious additional costs? Would she care to quantify what those serious additional costs are?

[Baroness Kramer (LD)]

Let me refer back to the example I gave in Committee. The noble Lord will be aware, on that additional contribution, that the graduates are paying the 8% additional in NICs but, on top of that, because it pulls them into scope of having to make repayments at the margin, the impact is 17%. It has a huge impact on graduates who are now just beginning to reach the level where they would have anticipated they would start to repay, and they suddenly hit this really serious spike. I think he has seen the numbers that some of the people have sent to us, and the Chartered Institute of Taxation could help him with those numbers if he wants to look at them. The Government, I think, recognise that problem but my answer is to fix it.

[Lord Fuller (Con)]

I think what the noble Baroness has just explained is that for those people with the greatest earnings potential, which our nation needs, there is an arbitrary cap on aspiration. There is a point which is just not worth going past. That is not just damaging for them, their families and their futures; it is also bad for the economy. That, I say to the noble Lord, Lord Davies of Brixton, is where the prejudice lies: it is on the individual, but the whole of society suffers by having the cliff edge effect that the noble Baroness is referring to.

12:45

[Baroness Kramer (LD)]

On this issue of students, I really think this is unintentional, taking the Minister and others at their words. That is why accepting the amendment from the noble Lord, Lord Leigh, and correcting the issue now is something that I consider to be very important.

As I said, there is no need for me to keep speaking. I have made it clear that I will support quite a number of the other amendments in this group if they are moved, because collectively they address a fundamental problem. I appreciate all the comments that have been made in support of the amendments in my name.

[Lord Londesborough (CB)]

My Lords, I support broadly all the amendments in this group, but specifically Amendments 12 and 26 in the name of the noble Baroness, Lady Kramer, to which I added my name. I will be genuinely brief. These amendments, by raising the cap to £5,000 per annum, would address a core problem in the Bill: the limiting or deterring of the so-called moderate earners we have heard about from contributing sufficiently to their pension pots, which, as we already know, are nowhere near sufficient for the vast majority to fund their retirements. We are talking about retirement periods of 25 to 30 years if demographic trends continue. As we have heard, this includes many in the early stages of their working lives who need to get into the habit of contributing to pensions at the formative stages of their careers.

I remind the House of a stat that came out in Committee. On average, our current workforce will outlive their pension savings by eight to nine years, and this funding gap is widening year by year. Clause 1 is, in effect, raiding pensions to keep the Treasury within its fiscal rules in three years’ time. It is another crude example of kicking the can down the road, leaving another generation to sort out another widening deficit.

I was interested to hear the comments from the noble Lords, Lord Leigh and Lord Ashcombe. They raised some pertinent questions over the revenue-raising forecasts. I also fear that the Treasury has wildly underestimated the level of accelerated salary sacrifice over the next three years in the run-up to these measures. I have witnessed a number of business plans in companies that I am involved in; I should, of course, declare my interests as set out in the register.

To conclude, I fully endorse the excellent opening comments from the noble Baroness, Lady Neville-Rolfe, and the comments we just heard from the noble Baroness, Lady Kramer. I encourage your Lordships to support their amendments should they decide to test the opinion of the House.

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

My Lords, I am very grateful to all noble Lords who have contributed to this first group of amendments. I turn first to Amendments 1 and 17 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, which seek to exempt basic rate taxpayers from the Bill. As the noble Baroness, Lady Neville-Rolfe, noted, the vast majority—74%—of basic rate taxpayers using salary sacrifice will be unaffected by the changes in this Bill. Specifically, three-quarters of those earning up to £50,270 and using salary sacrifice will be entirely protected, and that rises to 95% when looking at those earning £30,000 or less who use this mechanism to save into their pensions. The minority of basic rate taxpayers with contributions above £2,000 will continue to benefit from employee national insurance relief worth £160 a year in addition to the full income tax relief they receive on their pension contributions. Half of those basic rate taxpayers contributing above £2,000 will face an additional national insurance contribution liability of less than £50 a year.

Exempting basic rate taxpayers would also be exceptionally difficult to operate in practice and would add considerable additional administrative burden on to employers. That is because, unlike income tax, national insurance does not operate on an annual aggregated basis, nor does it determine liability by reference to an individual’s final tax position. An individual cannot be confirmed as a basic rate taxpayer until their full income position is reconciled at the end of the tax year, taking account of potentially multiple employments and other sources of income. To apply a tax band-based exemption, employers would be required to undertake year-end reconciliations across employments and account for other sources of income as well that sit wholly outside the design of the national insurance contributions system. This would represent a fundamental departure from established payroll processes, imposing significant complexity, cost and risk on to employers and payroll providers.

Amendments 16 and 29, in the names of the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Altmann, and the noble Lord, Lord Altrincham, seek exemptions for small and medium-sized enterprises, charities and social enterprises. Exempting small and medium-sized enterprises and charities in the way proposed by the amendment would add considerable complexity to the tax system and would not be proportionate to the limited impact this policy is expected to have on those businesses. The changes in this Bill primarily affect larger employers, which are significantly more likely to operate salary sacrifice arrangements and to have employees contributing above the £2,000 cap.

Small businesses are significantly less likely to offer salary sacrifice than larger businesses. Only 28% of employees in SMEs use salary sacrifice for pension contributions, compared to 39% in larger firms. When it comes to contributions above the £2,000 cap, the difference is even clearer. Only 10% of employees in SMEs make pension contributions through salary sacrifice that exceed the value of the cap, compared to 18% of employees of larger firms. This underlines that the largest benefits from uncapped salary sacrifice are concentrated in bigger firms, not smaller firms.

In practice, the changes in this Bill will level the playing field between small businesses and their larger competitors, ensuring that the national insurance contribution advantages of salary sacrifice are not disproportionately concentrated among employees in big firms. More widely, the Government recognise the importance of supporting small businesses and charities alike.

This leads me to Amendments 7 and 23 in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham. These amendments seek clarity on the basis on which the Government consider certain employed earners to be higher earners for the purposes of the national insurance charge and how the contributions limit reflects that assessment. The Explanatory Notes for this Bill set out clearly that the Government’s objective is to limit the national insurance contributions relief available to higher earners on employer pension contributions made through salary sacrifice, while protecting lower-earning pension savers. These changes are about fairness and consistency across the labour market.

Additionally, groups who are most likely to be undersaving for retirement, such as those on the national minimum wage and the UK’s 4.4 million self-employed workers are completely excluded from using salary sacrifice altogether. The cap we are introducing through this Bill will protect the majority of basic rate taxpayers using salary sacrifice and ensure that the cost of national insurance relief on pension salary sacrifice is put on a fiscally sustainable footing.

I now turn to Amendments 5 and 21 tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baronesses, Lady Altmann and Lady Kramer, which seek to exempt salary sacrifice pension contributions over the £2,000 limit from being included in the definition of earnings used to calculate student loan repayments for employees. Student loan repayments are calculated using the same earnings base as class 1 national insurance contributions. As a result, salary sacrifice currently reduces both national insurance contributions and the earnings used to calculate student loan repayments. Any change in student loan repayments arising from this measure is a mechanical consequence of restoring those earnings to the national insurance contributions base. It is not a change to student loan policy itself; rather, it flows from levelling the playing field between those who are able to use salary sacrifice arrangements to reduce their earnings for national insurance contributions and those who are not. Of those employees making pension contributions through salary sacrifice, younger people are far more likely to be protected by the £2,000 cap than those above the age of 30. Some 76% of those in their 20s—

[Baroness Kramer (LD)]

Can I just get some clarification? The Minister is making me believe now that I must have misunderstood previous comments. Is he saying that he will not be, or there is not an anticipation he will be, bringing in legislation to remove that impact on student loan repayments? I had understood—and I could have been totally wrong, but I think others have understood as well—that that was what the Government intended.

[Lord Livermore (Lab)]

I am afraid I do not know what led the noble Baroness to believe that. That is not in any way my intention at this point.

As I was saying, 76% of those in their 20s who use salary sacrifice are protected by the cap, compared to half of those aged 30 and above. The Government do not believe that this Bill is the appropriate vehicle through which to amend the basis of student loan repayments—

[Baroness Altmann (Non-Afl)]

Can the noble Lord explain to the House why it is okay for those whose contributions are lower than £2,000 to get this special advantage of salary sacrifice, while those not lucky enough to have an employer with salary sacrifice should be denied it? The issue seems to be the salary sacrifice itself. The noble Lord is saying it is an anomaly, but the fact that people are getting it because their employer is using salary sacrifice and then you are taking it away does not make things fairer, as far as I can see.

[Lord Livermore (Lab)]

I think it does make the system fairer. We discussed this extensively at Second Reading and in Committee. The Government intend to make the system both fiscally sustainable and fairer, and I think that is exactly what we are doing with this legislation.

As I have said, the Government do not believe this Bill is the appropriate vehicle through which to amend the basis of student loan repayments. As the Prime Minister said last week, the Government inherited from the previous Government a broken student loan system, and we will look at ways to make that fairer.

I turn, finally, to Amendments 12, 13, 14, 15—

[Lord Leigh of Hurley (Con)]

With respect, that is exactly what the noble Baroness, Lady Kramer, has asked. The Minister has said that he did not say that, but he has just read it out.

[Lord Livermore (Lab)]

I was asked whether I was today saying we would do anything to this legislation; no, we will not. Will we look at how to make the system fairer? Yes, we will. I think those two things are perfectly consistent.

[Lord Leigh of Hurley (Con)]

With respect, at either Second Reading or in Committee—I think in Committee—there was a statement that there would not be in this legislation, but other legislation, changes to the definition of earnings for students to get around the problem in this Bill.

[Lord Livermore (Lab)]

That was not a commitment I gave. What I said in Committee, and say again today, is this is not the right Bill to change the student loan repayment system. We will, however, look at ways to make the system we inherited from the previous Government fairer. That remains the position.

I turn, finally, to Amendments 12, 13, 14, 15, 26, 27, and 28, tabled by the noble Baronesses, Lady Neville-Rolfe, Lady Altmann, and Lady Kramer, and the noble Lords, Lord Altrincham, Lord Londesborough and Lord de Clifford. These amendments seek to increase the value of the cap or to uprate the cap by the percentage change in the consumer prices index or retail prices index. The purpose of the Bill is to cap an unchecked relief which predominantly benefits higher and additional rate taxpayers while protecting ordinary workers using salary sacrifice to make pension contributions. All employees using salary sacrifice will still benefit from national insurance contributions relief on £2,000 of contributions made via salary sacrifice. For a basic rate taxpayer, this is an additional £160 of relief relative to employees who do not use salary sacrifice.

The Government will keep the level of the cap under review, but we do not agree with the approach set out in these amendments, which seeks to uprate the cap in line with inflation. Automatic indexation of the cap would introduce a mechanism inconsistent with the treatment of other major pension tax reliefs, which are not routinely indexed. The Government’s view remains that the future level of the cap in the next decade and beyond is for Budgets in those decades. In light of the positions I have set out, I hope noble Lords may feel able not to press their amendments.

[Lord de Clifford (CB)]

Before the Minister sits down, my amendment would link the limit not to inflation but to the national insurance threshold. Therefore, if the Government wish to hold that threshold to raise more funds, they can. I just wanted to make that clear to your Lordships.

[Lord Livermore (Lab)]

I am grateful to the noble Lord. I think the position remains the same, though.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank all noble Lords who contributed to this debate. I welcome the noble Lord, Lord Freyberg, to the fray and thank the Minister for his responses. He did not respond to the question raised by my noble friend Lord Ashcombe, the noble Lord, Lord de Clifford, the noble Baroness, Lady Altmann, and me about who high earners are and why those in the £40,000 to £50,000 band should pay 8% not 2%—four times higher. Indeed, why has the £2,000 limit been chosen in the first place?

On SMEs, on which I will also divide the House later, I think the lower incidence of the use of salary sacrifice actually makes the case for not imposing the complexities and administration of salary sacrifice on SMEs and charities. I will leave my noble friend Lord Leigh to wind up on student loans.

I am afraid that we on these Benches are unconvinced that the Government are meeting their policy objective of protecting workers on lower and medium incomes. As my noble friend Lord Leigh said, we are not sure that the Government are even going to raise the desired revenue. The Bill obviously hits those on lower and medium incomes and the protections are not in the Bill, which would ensure that the Government’s own policy objective is achieved. What is the hurry? I would like to test the opinion of the House on exempting basic rate taxpayers from the £2,000 cap.

13:02

Division 1

Amendment 1 agreed.

Ayes: 214

---

Conservative: 139
Liberal Democrat: 40
Crossbench: 19
Non-affiliated: 8
Democratic Unionist Party: 4
Ulster Unionist Party: 2
Green Party: 1
Labour: 1

Noes: 142

---

Labour: 132
Crossbench: 9
Non-affiliated: 1

13:12

Amendment 2

Moved by

[Lord Fuller]

2: Clause 1, page 2, line 14, at end insert—
“(6DA) Regulations made under subsection (6A) must make provision enabling an employed earner to carry forward any unused part of the contributions limit from the three immediately preceding tax years for the purposes of determining the contributions limit applicable in a subsequent tax year.(6DB) For the purposes of subsection (6DA)—(a) an amount is “unused” to the extent that the amount foregone in relation to benefits mentioned in subsection (6A) for a tax year is less than the contributions limit for that year,(b) regulations may make provision about the order in which unused amounts are to be treated as used,(c) regulations may make provision about cases in which an employed earner was not within subsection (6A) for the whole or part of a tax year, and(d) regulations may make such consequential, supplementary, incidental or transitional provision as HM Treasury considers appropriate.”Member’s explanatory statement
This amendment would require regulations to provide for a three-year carry-forward of unused amounts of the annual contributions limit, aligning the treatment of salary sacrifice pension contributions for National Insurance purposes with the existing three-year carry-forward framework in the pensions annual allowance regime in Great Britain.

[Lord Fuller (Con)]

My Lords, it is a pleasure to lead this group and to present my own amendments, Amendments 2, 3, 18 and 19, and the associated report requirement in Amendment 30. I will also speak to Amendments 6 and 22 in the name of my noble friend Lord Mackinlay. My amendments are superficially similar, but they contain important differences, as identified in the explanatory statements. They are designed to make these proposals consistent with the wider canon of the existing tax system, reducing confusion and improving long-term confidence in the whole idea of doing the right thing, saving for your future and reducing your reliance on the state in later life.

Amendment 2 and the reflecting one, Amendment 18, as the mirror for Northern Ireland, address the ability of employees to carry forward unused entitlements. This is entirely consistent with the three-year rule that already applies to pension contributions, of which more later.

Amendment 3, for Great Britain, and the associated Amendment 19, for Northern Ireland, seek to protect those with variable incomes, perhaps in seasonal or weather-dependent professions. They would allow an employee with an irregular income to enjoy averaging over three years to ensure they are not disadvantaged compared with those on salaried payrolls. This is not new news. The principle of averaging is already established as part of the tax system: just look at farmers and market gardeners. So, once more, my amendments seek to apply consistency across the entirety of this tax system, and within Great Britain and Northern Ireland.

Let me focus on Amendments 2 and 18, on the carry-forward and the three-year rule. I should say that, if push comes to shove and the opportunity to divide the House arises, I will seek to press Amendment 2 to a vote. So far as carry-forward is concerned, I am thinking of an employee engaged in seasonal work with variable pay but who wants to save a regular amount each month on salary sacrifice. How does he set his regular monthly contribution at the beginning of the year, not knowing whether he will bust his allowance at the end?

The three-year rule for pensions is helpfully explained on the GOV.UK website, which says:

“You can carry forward unused allowance from the 3 previous tax years. This … allowance only applies to pension savings made to your UK registered … schemes”,


and so forth. That exists because the Government know that people have irregular incomes and, especially for the self-employed, it can take months after the tax year to get your accounts done. So, to be consistent—and this is a pensions Bill—my proposals would allow any salary sacrifice allowance to be carried forward for three years, subject to the proviso that you cannot sacrifice more than you can earn, self-evidently. Frankly, it is as simple as that.

13:15

Outside the Treasury, in the real world, this Bill will introduce a special unfairness to a particular type of hard-working employee who is juggling several jobs and make it nearly impossible for their employers to administer it. Millions of people work in tourism and hospitality, at visitor attractions and at sporting events. In many cases, it is a second job, but pubs and restaurants certainly have variable and seasonal hours. I am thinking of the hourly paid, including shift workers and those working term-time: those people who take up the slack in a modern economy and make it work. We need them, and I must admit that I thought the Labour Party existed to champion these people.

Most people who save for a pension make these monthly contributions and it is difficult to nail down a value when your pay is up and down like a fiddler’s elbow, so people are cautious. But that caution should not be a reason why they cannot take advantage and miss out on the opportunity at the end of the year. Whether they are a civil servant or an ice-cream seller, the ability to take advantage of salary sacrifice should be equally available to one and all, otherwise we discriminate against those at the bottom of the salary range who are striving the hardest. That is what I seek to remedy through these amendments.

It is also important for those people who move between jobs. Moving between jobs is part of a thriving economy; it provides for labour market liquidity and allows trade to respond to changing circumstances. Let us not make it even harder by adding another bureaucratic friction to the labour market, damaging incentives, adding complexity and making it harder for people to do the right thing. That is the risk that the Bill brings to the table.

Turning now to Amendment 6 in the name of my noble friend Lord Mackinlay, to which I have added my name, in Committee last time we asked the reasonable question: who or what will be responsible for calculating national insurance for employees under a restricted and curtailed salary sacrifice regime, if they are employees with multiple employments or fluctuating income? Will it be the employee or the employer? It is a reasonable question. Last time, the Minister either did not know or would not say. From the blank faces in the Box, it seemed that no one in the Treasury had given the matter much thought either, but it was said then said that this would all be dealt with by regulation. I am afraid this just will not wash.

If mistakes are made through complexity, however inadvertently, presumably there will be penalties: possibly criminal penalties. Clarity on where the buck stops needs to be in the Bill; you cannot just make it up as you go along. This is not being pedantic. I want to know, as does everybody else, who will be on the hook for this. If national insurance is miscalculated, in particular for the millions with multiple employments, who carries the can? Perhaps I can be helpful.

I have thought more about this than the Treasury appears to have done. Look, it cannot be the employee who calculates this. They do not do the payroll arithmetic or manage PAYE, with the complexities of classes 1, 2 and 4, upper and lower earnings limits and other thresholds. That much is clear. Nowadays, it is so complicated that you can do it only with specialist software. You cannot expect employees to have that and, in the event, we know that only 3.8% of the self-employed have signed up to the quarterly Making Tax Digital process so far, from 1 April. No, it cannot be the employee—but it cannot be the employer, either.

Let us take the example of the employee who takes several jobs. How will her employer know when, or if, she has maximally sacrificed her two salaries without reference to the other? Unless, of course, the salary sacrifice limit is per employment, in which case, I think that everyone will be content, because that is what we are trying to achieve here. But, assuming not, how is the employer to know whether his employee has multiple engagements? Even if he did, how is he going to apportion the allowance between employers so the cap is not broken in aggregate with so many conflicting thresholds, variations, cliff edges and combinations of self-employment, with upper and lower earnings limits? It is just unknowable. How is this going to work? Can it ever work if we are forcing 3.3 million people into self-assessment? Really? How is the employee juggling several jobs going to calculate it anyway?

If the noble Lord does wish to persist with this, the law needs to be clear on whether criminal liability for wrongdoing arises from this unnecessary complication. This is a slim Bill with big consequences. It amounts to a poison pill, dated for 2029, left for the next Government to deal with, and in the meantime, nobody knows whether it is going to work, or even whether it can work. This is not just for the fat cats. The ham-fisted way in which the Bill ignores the real-life complexity for those real-life people and their real-life examples—which exist outside the cosy, monthly-paid final salary pension world in which the Treasury exists—needs to be answered. How are HR and payroll departments, or the hard-pressed small business owner, going to manage these complex interactions? How are the Government going to make it easy for people to save regularly and consistently into a pension if they have multiple employments, are between jobs or have variable pay?

If we are to be consistent within the canon of the tax system and avoid gaps, clearly a three-year carry-forward for salary sacrifice must come into it for equity and consistency. This is otherwise just another tax policy that is damaging the national economy and growth while benighting incentives for individual employees and the companies for which they work. It makes it more difficult to work hard and climb the ladder, and it makes it harder to save for a secure retirement; it harms incentives for employers to attract the best talent. It is the worst possible message at the worst possible time. I beg to move.

[Lord Mackinlay of Richborough (Con)]

My Lords, I am pleased to support my noble friend Lord Fuller, who has similarly reciprocated his enthusiasm for one of my amendments. Quite a few things come to mind in the amendment from my noble friend. One is the normality across other parts of the tax system. It is very normal, because life does not fit into a timeline of 6 April to 5 April every year. We could have a discussion about why we on earth we have 6 April to 5 April, but life does not fit within those dates completely cleanly. It changes on an annual basis: one might have a good year, then one might have a bad year. That is reflected in pension contributions for tax purposes. One is allowed to carry forward three years’ worth of unused allowance. Currently, £60,000 of pension contribution is allowable if relevant earnings are sufficient. In year 4, one could technically pay £240,000. It seems very normal, therefore, that we should apply a similar carry-forward of unused prior-year benefits, as my noble friend Lord Fuller has explained so eloquently.

The reason I have laid my Amendment 6 and Amendment 22, which is the mirror for Northern Ireland, is the total ambiguity that we heard in Committee last week. If this legislation has some flagship numbers and ideas, £2,000 comes to light as a key one. After the Minister was unable last week to assure the Committee whether this £2,000 was per employment or per employee, to manage for themselves, I have laid a very simple “beyond doubt” amendment so that we can perhaps flush out from the Minister what is intended. It will not be sufficient today merely to say that it will be sorted through regulation, advice and guidance in the future. We need this on the face of this Bill, because it is what the Bill is all about.

There are numerous thresholds in the national insurance regulations. We have the primary threshold; we have then the secondary thresholds; we have upper earnings limits; we have special thresholds for under-21s, for apprentices up to 25, for employees in freeports and for employers and employees in investment zones, and special exemptions for veterans. The employee need not worry about the complexity of those arrangements because they are all worked out by the employer on a per-employment basis. If an employee is in multiple employments, which is not uncommon these days—the circumstances might be, for example, that one was getting paid at the lower limit—the accumulation of benefits of national insurance payments, even though they may be at 0%, would apply across each of those employments, so, technically, no national insurance might be paid in certain circumstances. Surely, then, something similar will need to apply for these regulations and the £2,000 threshold. If it does not, we will have some extreme complications, which the Minister explained and said he wanted to avoid in respect of Amendment 1 on which we have just voted in favour. In opposing that amendment, his claim was about the complexity across employments and the employer not knowing whether the employee in question would be a basic rate taxpayer or a higher rate taxpayer. Similar complexity seems to be an ambiguity within this Bill, which I am now trying to solve. It surely must be per employment.

There is also an issue of GDPR. Why should a primary, secondary or tertiary employer have the right to know what an employee is earning elsewhere? That is a matter of secrecy, of privacy, of confidentiality and certainly of GDPR. If the idea within this legislation is that this is £2,000 per employee, I struggle to understand how the confidentiality that the employee is entitled to can possibly be allowed to stand. Perhaps this will come out in the rules and guidance later.

My amendment is one of ease, of getting this into the open now so that the complexity that would apply across multiple employments does not come to pass. We may otherwise be left with the grave fear that national insurance is going to become yet another tax. Many of us have thought for a long time that it really is a little bit of another tax, but its operation is very different, which makes it not a tax. We need to get this rounded down, because otherwise we will start to wonder whether the next stage, across all those different rates that I have described within the national insurance administration rules, is then going to apply for multiple employments, so national insurance becomes cumulative, a little bit like tax. That will be the fear: that to take national insurance as a new tax is the Government’s new plan.

As a chartered accountant and chartered tax adviser who is still practising, I could go on about this for some time. In brief, however, this legislation is a sledgehammer to crack a nut that does not even exist. As was so ably mentioned by the noble Lord, Lord Altrincham, why are we considering this today, on the basis of 51 replies out of 250,000 employers? Surely leave this a year or so, get a better sample—rather more than 51—so that we can base government ideas on some facts rather than on guesswork.

[Lord Leigh of Hurley (Con)]

My Lords, I shall speak principally to my Amendment 20 in respect of optional alternative arrangements. I thank the Minister for his letter of last night setting out the position on optional remuneration arrangements. I think it is fair to say that was already in the public domain and raises questions on second reading. The letter does not provide any illumination on interpretation of what an optional remuneration arrangement is in certain scenarios; we have discussed those scenarios at previous readings. Perhaps the one to highlight is collective bargaining. It is disappointing that there are not many Labour Peers here with a union background as there were earlier this afternoon.

Imagine a collective bargaining situation where there are two options on the table. First, a 5% pay increase with employer pension contributions staying at 8%, and, secondly, a 4% pay increase—lower than 5%—but with an increased employer pension contribution of 10%. If the workers take the latter option, is this an optional remuneration arrangement? I think, by the definitions given, that it is. Are the unions ready for this? Be assured that, if the Bill goes through, we will pursue this, and unions will find, to their horror, that their members are paying national insurance, which they did not think would be the case.

13:30

This lack of guidance was first raised by the Chartered Institute of Taxation, of which I declare that I am a member, when the legislation on optional remuneration arrangements first came out in 2017. It is still the case with new employees. If a new employee has a discussion with an employer about their terms before they are employed, is that a salary sacrifice scheme? That is not clear; nor is it clear regarding terminations and other situations.

The clarity needed to interpret the rules on optional remuneration arrangements is clearly lacking. While employers and advisers have been doing their best to interpret the rules since they first came out, salary sacrifice pension contributions being brought within the rules on optional remuneration arrangements—they must be the largest in number to benefit from these rules—significantly increases the risk that employers and employees will make mistakes. It would not be so bad if there was only one employer secondary class 1 NIC at stake, but, with employee primary class 1 NICs also being due, this will create friction between employer and employee as to who picks up the tab if a mistake happens. HMRC usually assesses the employer, so it is then a question of whether the employer has a right of recovery against the employee.

There is a lot in the Bill that is badly drafted and not clear or thought through. I have put down Amendment 36, which would delay the Bill coming into force. As that is less likely to be successful, I support Amendment 9, which would mean that, when these regulations come through, as they must, proper democratic scrutiny is applied by this House.

[Lord Ashcombe (Con)]

My Lords, very briefly, I support Amendments 6 and 22 from my noble friends Lord Mackinlay and Lord Fuller. As we have heard, the practical application of the £2,000 cap per person must be clearly defined in primary legislation. Leaving such a significant distinction—whether the cap applies to an individual or to each job they may hold—to secondary legislation would create profound uncertainty.

The administration of salary sacrifice schemes is already complex. It is unreasonable to expect each employer to know whether their part-time employees have additional jobs elsewhere, let alone what they earn in those roles. Many of these additional jobs may be sporadic or seasonal, with even the employee unsure of when work will arise or what their pay will be, particularly if it is commission based. It is difficult to believe that the Government intend individuals with multiple jobs to track their own cumulative salary sacrifice across different employments; nor, I suggest, is it remotely feasible for HMRC to monitor such arrangements effectively. From a practical standpoint, this amendment is simply common sense.

I turn quickly to those amendments that address the affirmative procedure. As I mentioned earlier, it is widely recognised that pension legislation is, at best, complicated, and particularly important to individuals when they retire. It is only right that changes in legislation that concern so many people and so much capital should be subject to proper parliamentary scrutiny. This is not a political issue but one of immense importance; it should therefore be subject to affirmative procedure.

[Lord Freyberg (CB)]

My Lords, as mentioned in the previous group, the creative industries are defined by workers holding multiple short-term contracts with different employers across a single year. The central question that this group addresses, and which has been repeated several times today, is one that was put to the Minister in Committee and remains unanswered: is the £2,000 contributions limit £2,000 per person across all employments, or £2,000 per employment? The Minister was asked precisely this question in Committee by the noble Lord, Lord Mackinlay of Richborough, who has repeated it today. The Minister’s answer was:

“That intention will be set out in the regulations once we have fully consulted relevant employers”.—[Official Report, 24/2/26; col. GC 365.]


I have no doubt that that consultation will be thorough, but for workers planning their finances now, and employers designing payroll systems well before 2029, that leaves a gap that the Bill itself should fill. Amendments 6 and 22 would fill it: the limit would apply in relation to each employment.

Even with that resolved, a second problem remains. As we have heard from the noble Lords, Lord Fuller and Lord Ashcombe, when a worker moves between employers mid-year, no mechanism exists for tracking what has already been sacrificed or reporting it to the next employer. Amendments 36 and 39 would address this by making commencement conditional on the Government first publishing guidance that answers both those questions.

There is a further complication that has not been addressed by debates in either House. Many creative workers are engaged by the BBC under schedule D terms as self-employed contractors with no access to salary sacrifice. However, under the off-payroll rules that have applied to public sector bodies since 2017, the BBC must assess whether each such engagement is “employment in substance”. Where the BBC concludes that an engagement is employment in substance, the worker is deemed an employee for NIC purposes, yet they have no actual contract to vary. Salary sacrifice requires a varying employment contract; deemed employment, created by statute, is not a contract. The worker acquires the NIC liability of employment without access to its benefits. That same worker may also be genuinely self-employed with one employer and employed in an ordinary sense with another all in the same year, with no framework in the Bill to accommodate any of it.

These amendments would not change the policy or the 2029 commencement date. They would ensure that, when the Act comes into force, the people it affects know how much it applies to them. I will therefore be supporting all four amendments.

[Baroness Kramer (LD)]

My Lords, I will slightly anticipate the noble Baroness, Lady Rolfe, moving Amendments 9, 10, 24 and 25, which would require affirmative resolution for key elements of the Bill. Frankly, I do not think I have ever seen a Bill for which affirmative action was more required. In the other amendments, which have been brought forward so eloquently from across this House, we have some flavour of the extraordinary complexity.

I suspect that decision-makers at the top of the Government thought that this was something really simple, and that they were just going to put a cap on, with the rest being relatively easy to manage. However, the actual management of this is a complete nightmare. I cannot believe that a Bill that has been through the House of Commons already is on Report in the House of Lords, and yet we still do not know if the cap is going to apply to each employee or to each employment—which, to my mind, is two different Bills.

I completely agree with the noble Lord, Lord Leigh. I can see the nightmare of people wondering, “If I say this sentence, will I be caught by operational remuneration? Do I have to pretend, wink, or make sure I do not put anything down in an email?” We should not be putting people into situations where they have to try to work out how they handle this whole range of arrangements. The noble Lord, Lord Freyberg, knowing the creative industry so well, has thrown further complication into this. I very much suspect that the Government had absolutely no idea of the mare’s nest they were getting themselves involved with. I wish these issues had been teased out before this point.

The response brought forward by the noble Baroness, Lady Neville-Rolfe, of at least having affirmative resolution gives us some possibility of trying to scrutinise what has happened. This is an extraordinary situation. We do not know the core character of this Bill, so we will be dependent on those working through the affirmative resolutions to decide how on earth they will deal with what will turn out to be the form that eventually comes before us.

[Baroness Neville-Rolfe (Con)]

My Lords, I begin by thanking noble Lords with amendments in this group—my noble friends Lord Fuller, Lord Mackinlay and Lord Leigh and the noble Baroness, Lady Altmann—for their proposals, and for their forensic questions on the detail of the schemes and on any guidance that the Government might issue to minimise errors and problems.

There are numerous shortcomings in the Bill around operational detail and how everything will apply in practice. The reality is that we have very little clarity on how the Bill will work. It is designed to apply to a very narrow and limited set of employment and remunerative circumstances, and anyone who falls outside that definition has to wait for regulations, which will not be subject to the affirmative procedure.

We have no clarity on how the policy will apply to people working in numerous jobs. Is the cap per employment or per person? If it is per person, it will be very difficult to administer. We also need to know where responsibility for enforcement lies. There is no clarity about people with fluctuating remuneration: will they be penalised for saving during higher income periods because they hit the cap in some years and have no income to pay into pensions in others? What about anyone who has an unconventional pattern of remuneration for their job or jobs? How will it work for them? We have heard already that the arrangements for student loans are unclear, even after recent discussion, and we heard from my noble friend Lord Mackinlay about GDPR and from the noble Lord, Lord Freyberg, about the off-payroll rules. That is quite a lot of detail that has to be worked out.

My amendments in this group would help to deal with that by ensuring that all regulations would be subject to the affirmative resolution procedure, aside from those designed to increase the cap—that would be positive if it goes up, and you would not need to have an affirmative resolution because it would be beneficial. I am very grateful to the noble Baroness, Lady Kramer, and my noble friend Lord Ashcombe for their understanding and their vocal support for having this extra scrutiny.

When the regulations are developed, they will apply the cap to thousands of people and businesses who will be drawn into complications for the first time. My proposals would not impose a cost on the Exchequer or undermine what the Government are trying to do; they would simply ensure that, when the Treasury comes up with an answer to the questions that have been raised today, we will get a meaningful chance to debate and scrutinise the answers, as we are doing with the Bill at the moment. The Government really should have put the detail in the Bill but, in the absence of that, my amendments would ensure that we retain as much oversight as possible as the detail comes through. I can think of no reason why the Minister would not adopt the affirmative resolution if he cares about oversight, due process and the scrutiny of a policy which will affects millions of people. There are 7.7 million people using salary sacrifice and Amendment 9 should be an obvious amendment to support.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords who have spoken in this debate. I will begin by addressing Amendments 6, 22, 36 and 39, tabled by the noble Lords, Lord Mackinlay of Richborough, Lord Fuller, Lord Leigh of Hurley and Lord de Clifford, and the noble Baronesses, Lady Altmann and Lady Kramer, which seek clarity on the operation of the cap. I listened carefully to the requests made in Committee and again today to provide further reassurance to employers, payroll providers and individuals. Having put noble Lords’ concerns to officials in HMRC and the Treasury, I am pleased to confirm to your Lordships’ House that the cap will operate in line with other limits and thresholds within the national insurance regime. That is, the £2,000 cap will apply to each employment an individual undertakes.

To be clear, each employment will be treated separately for the purposes of the contributions limit for national insurance contributions. Any individual who has more than one employment and who sacrifices salary in more than one of those jobs will be able to do so independently in each case. Only 2% of those using salary sacrifice for their pensions have more than one job, and not everyone in this small group can or will use salary sacrifice in both their jobs. None the less, the approach I am confirming today provides clarity, aligns with the existing principles of the national insurance regime, and avoids the operational and administrative risks and burdens that could arise from attempting to operate a single cap across multiple employments. I confirm that this will be set out in legislation in subsequent regulations. The Government will also continue to engage with employers, payroll providers and other stakeholders to work through the detail of the policy ahead of its implementation.

I turn to Amendments 2 and 3 and the corresponding Northern Ireland Amendments 18 and 19 from the noble Lord, Lord Fuller, which each seek to introduce a carryover mechanism for any unused amounts of the cap allowance, including for those with fluctuating earnings.

13:45

[Baroness Altmann (Non-Afl)]

Can the noble Lord clarify a connected point: if somebody changes jobs within the year, does that mean they will start a new £2,000 accrual of the exemption?

[Lord Livermore (Lab)]

Yes, I believe it will, because it is per job.

I will make three main points in response to the amendments from the noble Lord, Lord Fuller. First, the changes proposed would impact only a minority of those in receipt of salary sacrifice. The vast majority of people using salary sacrifice undertake traditional employment on stable contracts: 85% have been in their job for over a year, 88% work full-time and 97% have a permanent contract.

Secondly, although the cap we are introducing will be based on each employment, the Government are committed to continuing to engage with stakeholders as we design the detailed operation of the cap and provide for it in secondary legislation. That engagement will enable us to test how different approaches affect those with uneven salary patterns and ensure that the policy is introduced in the least burdensome way.

Thirdly, on the point made in Amendments 2 and 18 on the pensions annual allowance, that allowance limits the amount of pension savings that can benefit from tax relief in any given year. It is set at £60,000 for the vast majority of individuals. The purpose of the allowance is to deal with exceptional or uneven patterns of pension saving, including one-off spikes or fluctuations in defined benefit accrual. It is specifically not designed to deal with day-to-day saving. The allowance also relies on individuals holding accurate records across multiple years in order to track eligibility and usage. That may be manageable in a pensions tax context, but it would be wholly unsuitable for a national insurance cap that must operate through real-time payroll systems. This also applies to other mechanisms proposed by these amendments that look to roll an allowance over multiple tax years.

For these reasons, the Government believe that introducing a carryover in this Bill would create significant complexity, and consequently administrative burdens, for individuals, employers and payroll providers.

I turn now to Amendments 4 and 20, tabled by the noble Lord, Lord Leigh of Hurley, and noble Baroness, Lady Altmann. I begin by setting out clearly that these provisions operate squarely within the existing framework of the optional remuneration arrangements, or OpRA rules, introduced in 2017. The Bill relies on that existing statutory concept rather than creating a new or expanded test. As a result, its reach is already constrained by well-understood boundaries that are routinely applied in both tax and national insurance contexts. Under that framework, the legislation is engaged only where remuneration is structured in a way that offers the employee a genuine alternative, typically between receiving cash earnings and receiving a pension contribution. It is that element of choice which brings an arrangement within scope. Where no such alternative is presented, for example, where pension contributions are made as a fixed and non-negotiable part of the remuneration package, those arrangements simply do not meet the statutory definition.

[Lord Mackinlay of Richborough (Con)]

This is an important point in many ways. The Minister will be aware that within an owner-managed director business, the director has absolute discretion about how he or she may take their overall package, whether that is dividends, usual PAYE employment or, quite normally, the company making a pension contribution. Would such a situation fall within these rules because the director is effectively the be-all and end-all making that option and discretion themselves? No other party is deciding whether thou shalt have this or that. Can the Minister give his early impressions about how that situation may be dealt with?

[Lord Livermore (Lab)]

It sounds to me, although I realise it is an odd phrase to use because you are negotiating with yourself, that that is established as a negotiated contract and, therefore, that is not an option that arises for you after that contract is negotiated. I think that in the example the noble Lord gives it would not be, but obviously that will be set out very clearly in guidance going forward.

The Government’s view is that the Bill already draws the appropriate and proportionate boundary. It addresses arrangements involving a choice between cash and pension provision, while leaving ordinary, non-optional employer pension contributions wholly outside scope.

[Lord Leigh of Hurley (Con)]

Will the Minister clarify my question on collective bargaining? In view of his earlier comments, will he clarify the situation where a person moves company within a group, which is quite common? Is that a new employment for this purpose?

[Lord Livermore (Lab)]

If it is a new employment contract, it is a new employment. It is a new job. I think that should be fairly clear. On his point about collective bargaining, it is my understanding that it would be outside of scope. Again, that will be set out clearly in guidance.

Finally, I turn to Amendments 9, 10, 24, 25, 30 and 41 from the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham and Lord Fuller, which relate to parliamentary scrutiny and propose an impact report on the contributions limit.

The core policy is set out in primary legislation to provide certainty for employers, with detailed operational matters deliberately dealt with through regulations to allow time to engage with employers. The approach we have taken follows long-standing precedent in national insurance legislation and ensures that the design is workable, fair and consistent with the wider national insurance contributions framework.

Early and sustained engagement with industry is central to the Government’s approach. The regulations will set out the detailed operational framework, including matters such as administration, process and interaction with payroll systems. These are best informed by technical expertise from employers, payroll providers and software developers themselves. Building on that engagement, the Government will consult on the regulations ahead of implementation. This will allow stakeholders to scrutinise the detailed design, raise practical concerns and begin preparing well in advance. It is through this process of consultation, guidance and industry engagement that employers will gain the clarity they need on how the system will operate in practice.

I also remind the House that a tax information and impact note has already been published, setting out the expected impacts of the policy on individuals, employers and the Exchequer. As with other tax measures, the Government will continue to monitor the operation of the policy as it is implemented and informed by ongoing engagement with Parliament and external stakeholders. Additionally, I assure the House that the Government intend to lay the regulations in good time before they commence. This will both support employer readiness and ensure that Parliament has a proper opportunity to scrutinise the regulations before they take effect.

The Bill draws a clear and appropriate distinction in relation to what matters should be dealt with by way of affirmative and negative procedure. Where regulations reduce the generosity of the £2,000 cap and increase Class 1 national insurance liability, they are subject to the affirmative procedure, ensuring full parliamentary scrutiny where contributor liability is increased. By contrast, regulations that implement the policy framework, set out administrative and operational detail or increase the cap so that less national insurance is payable are subject to the negative procedure. This reflects long-standing practice in national insurance legislation, where secondary legislation under the negative procedure is used for the operation of reliefs and matters of administration.

I also remind noble Lords that the Delegated Powers and Regulatory Reform Committee has scrutinised the Bill and raised no concerns about the proposed level of parliamentary scrutiny. Taken together, this approach provides robust parliamentary oversight where liabilities increase, while reflecting the well-established precedent for legislating for administration and reliefs through secondary legislation subject to negative resolution.

For these reasons, the Government do not believe that additional statutory requirements are necessary. In light of the positions I have set out, I hope that noble Lords will feel able not to press their amendments.

[Lord Fuller (Con)]

My Lords, I have written plenty down, but I am not going to say very much of it. I thank the Minister for accepting most generously the principle that this Bill was not ready to be passed into law, and I accept the reassurances he has given so far concerning the amendments I laid. It was absolutely right that we challenge the principle: criminal penalties should not come through regulation; they need to be in the Bill. The complexity has been outlined and, in light of the other amendments before us, I beg leave to withdraw Amendment 2.

Amendment 2 withdrawn.

Amendments 3 and 4 not moved.

Amendment 5

Moved by

[Lord Leigh of Hurley]

5: Clause 1, page 2, line 14, at end insert—
“(6DA) In cases where the contribution limit is exceeded, regulations must make provisions for such amounts not be treated as earnings by virtue of the Education (Student Loans) (Repayment) Regulations 2009 (S.I. 2009/470), Part 4, Regulation 41.”Member's explanatory statement
Income for student loan purposes is defined on an NI basis. This amendment exempts salary sacrificed pension contributions over the limit from being included in student loan repayments definitions, and so aligns with other benefits in kind.

[Lord Leigh of Hurley (Con)]

I wish to test the opinion of the House because I do not think students can wait for subsequent legislation to be brought forward to this House, and there is a risk it might not be. Students need absolute clarity that they are not going to be punished unfairly by this Bill.

13:55

Division 2

Amendment 5 agreed.

Ayes: 208

---

Conservative: 138
Liberal Democrat: 43
Crossbench: 18
Non-affiliated: 5
Ulster Unionist Party: 1
Democratic Unionist Party: 1
Labour: 1
Plaid Cymru: 1

Noes: 142

---

Labour: 136
Crossbench: 4
Non-affiliated: 2

14:05

Amendments 6 and 7 not moved.

Amendment 8

Moved by

[Baroness Kramer]

8: Clause 1, page 2, line 14, at end insert—
“(6DA) Before making regulations under this section, the Secretary of State must lay before Parliament a statement confirming that the requirements in section 1(3) of the National Insurance Contributions (Employer Pensions Contributions) Act 2026 have been complied with.”Member's explanatory statement
This amendment, connected with another in the name of Baroness Kramer, creates a number of criteria by which the Secretary of State has to abide, before enacting the provisions in subsection (6A).

[Baroness Kramer (LD)]

My Lords, this group has just two amendments: Amendments 8 and 11. While the former is just a paver for the latter, it is apparently required for Amendment 11 to go into the Bill. I make it clear that I am speaking in order to get the contents of my speech on the record; I do not intend to press either amendment, even though I think they are important.

It has been clear from the debate so far that the Bill fails to provide Parliament with the information it needs to assess the legislation. I am very glad that we have now passed the language on affirmative resolution. I also thank the Minister for giving us clarity now on how the cap operates: it is per employment rather than per employee. That is hugely important clarification.

Throughout the debates on the Bill, there has been confusion over the numbers and consequences. To get greater clarification, my former colleague and pensions expert, Sir Steve Webb, submitted an FoI request to obtain the numbers that can explain the conclusions of the Budget Red Book of November 2025 and the OBR’s supplementary analysis of 2026 as it refers to the impact of the Bill. Sir Steve’s request was answered in part, but key requests were refused. Therefore, I am trying to capture those requests in Amendment 11.

The amendment seeks the estimates used by HMRC of the number of basic rate taxpayers using salary sacrifice arrangements above £2,000; a similar disclosure for higher and additional rate taxpayers; the expected number of employers expected to reduce their pension contributions in each group; and the contribution to the revenue numbers in the Red Book from increases in employers’ NICs—and, separately, employees’ NICs—as a consequence of the Bill. With that information, we can make a reasonable judgment of the impact of the Bill on workers, employers and pensions, and get a grip on the likelihood of the revenue outcomes forecast in the Red Book, which at present look exceedingly doubtful, as others have said.

Sir Steve was not denied the disclosures he requested because they do not exist—quite the opposite. HMRC said in its letter to him, “We can confirm that HMRC holds the information you have requested. The reason for the denial is to protect the integrity of the policy-making process and to prevent disclosures that would undermine this process”. Apparently, transparency

“needs to be weighed against the public interest in avoiding the disclosure of information which may inhibit the decision-making process”.

The information—noble Lords have heard me list it—is not commercially sensitive; it does not deal with state secrets. We are not looking for transcripts on advice but simply for basic numbers that any person would require to assess the Bill. I begin to think that, if the numbers were shown the light of day, the policy might collapse. I greatly fear that we really should be aware of them, and I want to be sure that no regulation can be put in place until Parliament has seen and scrutinised this information. I very much hope that the affirmative action resolution we passed a few moments ago will help us do that.

This is simply a statement to the Government: they need to give Parliament the information and numbers it needs to assess a piece of legislation properly. Scrutiny is meant to be our job, and we cannot scrutinise if the appropriate numbers are not provided. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to the amendment tabled by the noble Baroness, Lady Kramer. It would be helpful if the Minister could explain a little more about what the Government believe the intention and the outcome of this policy will be. He did not answer my question earlier on why there is a rush to get this measure through Parliament so fast. Have the Government quantified the extra employer costs of the higher 15% national insurance contributions from the employer, and the 8% or 2% extra national insurance contribution per member, and quantified it in money terms and in what it will mean for pension provision and future pensioner poverty?

[Lord Altrincham (Con)]

My Lords, I thank the Minister for listening so carefully, as ever, and considering the comments made by our Benches. The amendments in the name of the noble Baroness, Lady Kramer, are well written and would ensure that, before regulations are made to implement the cap, the Government must publish the relevant information on how many basic rate taxpayers are affected. The policy rests on a concept of excess savings—or at least tax advantaged excess savings—and it may catch a whole range of taxpayers who have insufficient savings.

It is very useful for us to tease out the difference between these two outcomes. That is possible only if we have much more information on the distribution impacts of the policy, which the Government should be comfortable sharing with us. As we debate this, we have heard a range of observations on who is affected. The noble Lord, Lord Davies, gave a colourful description of it affecting people with enormous bonuses. That is one perspective. The noble Baroness, Lady Altmann, reminds us that it goes against policy for very large numbers of people to have insufficient pension savings. In other areas of government policy, we are trying to rebalance that, so the policy is dissonant on pension savings. The Government should be open and happy to share this information with us.

As the noble Baroness, Lady Kramer, pointed out, the Government already have this information. That may well be sufficient evidence for us to appreciate that the incentives are rather marginal and that the gains could be rather small. Based on the numbers that we have had in the debate, the number of basic rate taxpayers who are supporting this policy would be quite small and the contribution would be extremely small to the tax take. It might be useful for us to reflect on whether it is worth destabilising pension savings for that purpose.

The noble Baroness has done a good job of setting out the rationale for her amendment. I do not want to intrude further on your Lordships’ House by repeating her arguments. These amendments are sensible and chime well with the amendments that we have tabled from these Benches, which would require the affirmative resolution procedure for most regulations. A debate on those questions will be greatly aided by the information that the noble Baroness has set out. We will be listening carefully to the Minister’s response.

[Lord Livermore (Lab)]

My Lords, Amendments 8 and 11, tabled by the noble Baronesses, Lady Kramer and Lady Altmann, seek to make commencement of the Act conditional on publication of estimates relating to the distributional impacts of the policy.

The Government agree on the importance of transparency. However, we do not believe that additional publications are necessary to achieve that objective. A number of documents have already been published which set out the distributional impacts of this measure. The Government’s budget document sets out that 74% of basic rate taxpayers currently using salary sacrifice will be unaffected by this change. This means that 26% of basic rate taxpayers would pay more. Of those, half will face a modest annual additional NICs liability of less than £50. I have confirmed previously that 87% of pension contributions made via salary sacrifice above £2,000 are forecast to come from higher and additional rate taxpayers.

The tax information and impact note was published alongside the introduction of the Bill. This sets out that an estimated 7.7 million employees currently use salary sacrifice to make pension contributions. Of these, 3.3 million sacrifice more than £2,000 of salary or bonuses. This means that 44% of employees using salary sacrifice for pensions would be impacted by this measure, while 56%—around 4.3 million people—are protected by the £2,000 threshold.

The tax information impact note sets out the expected equality impact of the measure. It notes that employees with salary sacrifice contributions are estimated to be of typical working age. The 52% who are aged 31 to 50 are estimated to be overrepresented compared with the prevalence in the employee population in general, of 44%. It notes that men are estimated to be overrepresented in the population making salary sacrifice pension contributions compared with the prevalence in the UK adult population.

The tax information impact note sets out the number of employers expected to be impacted by this measure—290,000; the one-off costs, including familiarisation with the change, the training of staff and the updating of software; and expected continuing costs, including performing more calculations, and recording and providing additional information to HMRC where salary sacrifice schemes continue to be used. This equates to a one-off £75 and an ongoing £99 per business per year.

14:15

The Government published a policy costing note which includes detail on the costing of the measure, including the tax base, static costing and a summary of the behavioural responses expected by employees and employers. As part of the explanation of the tax base, the policy costing note sets out that, in 2024, an estimated £32 billion of pensions contributions used salary sacrifice pension arrangements with a value of contributions predominantly from higher and additional rate taxpayers. As part of the explanation of the expected behavioural responses to the measure, the published costing note sets out the range of behaviours accounted for in the costing, including employers’ response to compensating staff, employees’ pattern of pension contribution, and a range of others, including pass-through, forestalling and other impacts.

The Office of Budget Responsibility published its economic and fiscal outlook, which provides the OBR’s independent scrutiny of the Government’s policy costings. The OBR published a supplementary forecast note, which provided additional information that it received prior to last year’s Budget to further increase the transparency of this measure. Taken together, these publications already provide an appropriate and comprehensive assessment of the distributional impacts.

[Baroness Kramer (LD)]

My Lords, we have important votes ahead of us, so I beg leave to withdraw.

Amendment 8 withdrawn.

Amendment 9

Moved by

[Baroness Neville-Rolfe]

9: Clause 1, page 2, line 19, leave out from “4(6A)” to end of line 21
Member's explanatory statement
This amendment and others in the name of Baroness Neville-Rolfe would make most regulations subject to the affirmative procedure, except those solely increasing the contributions limit. They ensure parliamentary scrutiny of the policy’s operation, particularly in relation to people with irregular earnings, multiple jobs or atypical remuneration patterns.

[Baroness Neville-Rolfe]

My Lords, I beg leave to test the opinion of the House.

14:17

Division 3

Amendment 9 agreed.

Ayes: 198

---

Conservative: 130
Liberal Democrat: 42
Crossbench: 15
Non-affiliated: 6
Democratic Unionist Party: 2
Ulster Unionist Party: 1
Labour: 1
Plaid Cymru: 1

Noes: 139

---

Labour: 132
Crossbench: 4
Non-affiliated: 3

14:27

Amendment 10

Moved by

[Baroness Neville-Rolfe]

10: Clause 1, page 2, line 21, at end insert—
“(b) after subsection (1), insert—“(1A) Subsection (1) does not apply to regulations under section 4(6A) which make provision only for increasing the amount of the contributions limit for a tax year.””Member's explanatory statement
This amendment and others in the name of Baroness Neville-Rolfe would make most regulations subject to the affirmative procedure, except those solely increasing the contributions limit. They ensure parliamentary scrutiny of the policy’s operation, particularly in relation to people with irregular earnings, multiple jobs or atypical remuneration patterns.

Amendment 10 agreed.

Amendment 11 not moved.

Amendment 12

Moved by

[Baroness Kramer]

12: Clause 1, page 2, line 26, leave out “£2,000” and insert “£5,000”
Member's explanatory statement
This amendment changes the initial contributions limit to £5,000 in Great Britain.

[Baroness Kramer (LD)]

I wish to test the opinion of the House.

14:29

Division 4

Amendment 12 agreed.

Ayes: 194

---

Conservative: 125
Liberal Democrat: 42
Crossbench: 17
Non-affiliated: 7
Ulster Unionist Party: 1
Democratic Unionist Party: 1
Labour: 1

Noes: 140

---

Labour: 136
Crossbench: 2
Non-affiliated: 2

14:39

Amendments 13 to 15 not moved.

Amendment 16

Moved by

[Baroness Neville-Rolfe]

16: Clause 1, page 2, line 27, at end insert—
“(5) The amendments made by this section do not apply where the employer—(a) is a small or medium-sized enterprise, or(b) is a charity or social enterprise which meets the conditions in subsection (6).(6) The conditions are that—(a) the employer meets the definition of a small or medium-sized enterprise in section 465 of the Companies Act 2006 (companies qualifying as medium-sized: general), and(b) the employment is carried out wholly or mainly for the purposes of that charity or social enterprise.(7) In this section—“charity” has the meaning given by section 1 of the Charities Act 2011; “social enterprise” means an undertaking which—(a) has as its primary purpose the achievement of social or environmental objectives, and(b) principally reinvests its profits for those purposes;“small or medium-sized enterprise” has the meaning given by section 465 of the Companies Act 2006.”Member’s explanatory statement
This amendment exempts small and medium-sized enterprises, and small and medium-sized charities and social enterprises, from the provisions of the Bill in Great Britain.

[Baroness Neville-Rolfe (Con)]

My Lords, I wish to test the opinion of the House on this amendment relating to SMEs and charities.

14:40

Division 5

Amendment 16 agreed.

Ayes: 193

---

Conservative: 127
Liberal Democrat: 42
Crossbench: 15
Non-affiliated: 6
Ulster Unionist Party: 1
Democratic Unionist Party: 1
Labour: 1

Noes: 143

---

Labour: 139
Non-affiliated: 3
Crossbench: 1

14:49

Clause 2: Employer pensions contributions pursuant to optional remuneration arrangements: Northern Ireland

Amendment 17

Moved by

[Baroness Neville-Rolfe]

17: Clause 2, page 2, line 38, after “tax” insert “at the higher or additional rate”
Member's explanatory statement
This amendment would exempt basic rate taxpayers in Northern Ireland from the £2,000 cap.

Amendment 17 agreed.

Amendments 18 to 20 not moved.

Amendment 21

Moved by

[Lord Leigh of Hurley]

21: Clause 2, page 3, line 26, at end insert—
“(6DA) In cases where the contribution limit is exceeded, regulations must make provisions for such amounts not be treated as earnings by virtue of the Education (Student Loans) (Repayment) Regulations 2009 (S.I. 2009/470), Part 4, Regulation 41.”Member's explanatory statement
Income for student loan purposes is defined on an NI basis. This amendment exempts salary sacrificed pension contributions over the limit from being included in student loan repayments definitions, and so aligns with other benefits in kind.

Amendment 21 agreed.

Amendments 22 and 23 not moved.

Amendments 24 and 25

Moved by

[Baroness Neville-Rolfe]

24: Clause 2, page 3, line 31, leave out from “4(6A) to “shall” in line 32
Member's explanatory statement
This amendment and others in the name of Baroness Neville-Rolfe would make most regulations subject to the affirmative procedure, except those solely increasing the contributions limit. They ensure parliamentary scrutiny of the policy’s operation, particularly in relation to people with irregular earnings, multiple jobs or atypical remuneration patterns.

25: Clause 2, page 3, line 34, at end insert—
“(11ZZB) Subsection (11ZZA) does not apply to regulations under section 4(6A) which make provision only for increasing the amount of the contributions limit for a tax year.”Member's explanatory statement
This amendment and others in the name of Baroness Neville-Rolfe would make most regulations subject to the affirmative procedure, except those solely increasing the contributions limit. They ensure parliamentary scrutiny of the policy’s operation, particularly in relation to people with irregular earnings, multiple jobs or atypical remuneration patterns.

Amendments 24 and 25 agreed.

Amendment 26

Moved by

[Baroness Kramer]

26: Clause 2, page 3, line 39, leave out “£2,000” and insert “£5,000”
Member's explanatory statement
This amendment changes the initial contributions limit to £5,000 in Northern Ireland.

Amendment 26 agreed.

Amendments 27 and 28 not moved.

Amendment 29

Moved by

[Baroness Neville-Rolfe]

29: Clause 2, page 3, line 41, at end insert—
“(5) The amendments made by this section do not apply where the employer— (a) is a small or medium-sized enterprise, or(b) is a charity or social enterprise which meets the conditions in subsection (6).(6) The conditions are that—(a) the employer meets the definition of a small or medium-sized enterprise in section 465 of the Companies Act 2006 (companies qualifying as medium-sized: general), and(b) the employment is carried out wholly or mainly for the purposes of that charity or social enterprise.(7) In this section—“charity” has the meaning given by section 1 of the Charities Act 2011;“social enterprise” means an undertaking which—(a) has as its primary purpose the achievement of social or environmental objectives, and(b) principally reinvests its profits for those purposes;“small or medium-sized enterprise” has the meaning given by section 465 of the Companies Act 2006.”Member's explanatory statement
This amendment exempts small and medium-sized enterprises, and small and medium-sized charities and social enterprises, from the provisions of the Bill in Northern Ireland.

Amendment 29 agreed.

Amendment 30 not moved.

Amendment 31

Moved by

[Baroness Neville-Rolfe]

31: After Clause 2, insert the following new Clause—
“Review of impact on small and medium-sized enterprises(1) The Secretary of State must, within 12 months of the passing of this Act, lay before Parliament an independent report assessing the impact of the provisions of this Act relating to employer National Insurance contributions on small and medium-sized enterprises, including social enterprises in Great Britain and Northern Ireland.(2) The report under subsection (1) must, in particular, assess the impact on—(a) administrative and compliance costs arising from changes to payroll, pension and benefits administration,(b) the complexity of operating salary sacrifice and workplace pension arrangements,(c) the operability of these changes for those in receipt of irregular remuneration, those with seasonal working patterns or those with multiple employments(d) employment costs, and(e) the ability of small and medium-sized enterprises to attract, retain and reward staff.(3) The report under subsection (1) must assess the impact of this Act in the context of the cumulative impact of changes to employer National Insurance contributions affecting small and medium-sized enterprises since July 2024.”Member's explanatory statement
This amendment requires the Treasury to commission and lay before Parliament an independent review of the impact of the Act’s employer National Insurance provisions on small and medium-sized enterprises and social enterprises, including administrative complexity and employment costs, and in the context of the cumulative effect of recent changes to employer National Insurance contributions.

[Baroness Neville-Rolfe (Con)]

My Lords, Amendment 31 is in my name and that of my noble friend Lord Altrincham. I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord Londesborough, for putting their names to it. I will also speak to Amendment 33 in the name of the noble Baroness, Lady Sater, a charity professional in the best meaning of the word. She is very sorry not to be here today. Her amendment is in the same spirit as ours, and she is right that the impact on charities is very important and should be kept under review.

His Majesty’s Official Opposition will continue to be a voice for small and medium-sized enterprises. We have heard, time and time again, from small businesses about the weight of burden that this Government continue to pile upon them—tax after tax, regulation after regulation. The Minister did not even answer my question at Question Time this morning about whether he would consider options for exempting SMEs from the burden of regulation. This amendment presents such an opportunity for the Government and would demonstrate that they listen; to show that they take seriously the mountains of complexity heaped upon small businesses and small social enterprises; and to provide some measure of relief and some acknowledgement publicly that these cumulative pressures cannot be ignored indefinitely.

The Minister suggested in Committee that only some 10% of employees in small and medium-sized enterprises have pension contributions through salary sacrifice that exceed the proposed cap. That may well be the case today, but with public awareness, more SMEs may introduce it. We on these Benches would like to see that figure grow, as saving for a pension is one of the most desirable and cost-effective methods of saving, as I am always explaining to the next generation. Salary sacrifice is also one of the few tools available to a small employer competing against a large corporation for talent and productive workers.

An independent review over a year would allow us all to consider the impact of the changes on SMEs and charities. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to Amendment 31, and I support Amendments 32 and 33. All these amendments seek to help the Government to recognise that there is a serious impact if this Bill goes through as currently proposed, particularly on employers in smaller and medium-sized companies. I believe that the Minister confirmed that some 99% of employers in auto-enrolment are SMEs. The costs of complying with pension auto-enrolment have already been significant. Some of those employers have been advised that it is a “no-brainer” for them to use salary sacrifice as a way of mitigating some of the extra costs involved in having to provide pensions for their staff who want to stay in them.

We have imposed these extra costs on employers already; some employers have been good enough to put in more than the auto-enrolment minimum. What this Bill would do is to pile extra costs on to them, because if they are using salary sacrifice, they will have to renegotiate employment contracts, change payroll software systems, change the information that they give to their workforce about their pension arrangements and answer lots of questions that are bound to arise as a result of any of the changes that are proposed.

It should therefore be incumbent on the Government—indeed, it is quite astonishing that this was not already done before we got the legislation—that there is a proper, independent review of the costs imposed on smaller and medium-sized employers as a direct result of this legislation. That should inform the way in which the legislation is implemented, so that we try to do whatever we can to avoid the kind of problems that we have seen, where there are implications for employment levels, salary levels and indeed for pension investment and provision as an unintended consequence of perhaps well-meaning legislation, or legislation designed to hit an entirely different target, that is potentially going to fall on both employers and their workforces. We have seen that the extra national insurance costs have had an impact on employment levels already. I ask the Minister again: what is the rush in getting this legislation on to the statute books before we know its implications and what it will mean in practice for the corporate sector? First, can the noble Lord explain the rush and, secondly, consider putting this on hold until the full implications are better understood?

[Lord Freyberg (CB)]

My Lords, I rise to support Amendment 31. It is of particular relevance to the creative industries and would require an independent review of the Act’s impact on small and medium-sized enterprises within 12 months of its passing. It would specifically require that review to examine the impact on those with “irregular remuneration”, “seasonal working patterns”, or “multiple employments”.

That language almost exactly describes the working pattern of a freelance editor, a set designer or an editor moving between short-term contracts across a year. Many of the production companies, commercial houses and independent studios that engage those workers are themselves SMEs. Amendment 31 would ensure that Parliament receives evidence of how the Act operates in practice for both the workers and the businesses that depend on them. I therefore urge the House to support it.

[Lord Leigh of Hurley (Con)]

My Lords, I support these amendments. I declare an interest in that I am involved with a number of small and medium-sized enterprises. These amendments mirror amendments that we tabled to the then Employment Rights Bill, because we thought that the Government wanted to help and protect small and medium-sized businesses. That turned out not to be the case, which was very disappointing. Representations were made, and have been made in this instance, by the bodies that represent such small businesses that they do not welcome this.

15:00

I submitted a freedom of information request for the meetings that the Employment Ministers had with trade representative bodies, because it was claimed that they were in favour of the Employment Rights Bill’s non-exemption for SMEs. I do not know whether the Government have received representations from SMEs in respect of this; it would be very interesting to hear from the Minister what they have said.

On the proposed new clause in Amendment 33, which concerns charities, the Minister might recall that I tabled three amendments to the NI Bill to exempt charities, social care homes and hospices. The Government did not accept any of those. Surely the Government want to help charities as much as possible, particularly those, such as hospices, that cannot raise revenue to compensate for any extra costs that this might incur to them. I therefore hope that the Government will consider this very carefully and show some flexibility.

[Lord Davies of Brixton (Lab)]

I have just two points. First, I am perhaps the only person in the House who believes in the National Insurance Fund. I am in favour of the National Insurance Fund in principle. It is a fund into which people pay contributions and accrue entitlement to benefits. I am therefore against a detached look at a very small part of the overall operation of national insurance; that would clearly be a mistake. You have to look at the whole thing together. I am not necessarily against that. I suspect that the Treasury will not be keen but, in principle, it is time for it.

However, my second point is that that makes sense only if we look at the tax treatment of pension schemes, which is the electric third rail of pensions politics. There has been a lot of discussion in the think tanks about the tax treatment, and proposals such as flat rate relief have been made. It is a massive subject—one that it is time to review. For the same principle, it would be wrong to look at this tiny part of the overall structure. I am therefore against the amendments, but the general principle—that the issue needs to be looked at—is a good one.

[Lord Londesborough (CB)]

My Lords, I support Amendment 31 in the name of the noble Baroness, Lady Neville-Rolfe, to which I have added my name. I also add my vocal support for Amendment 32 from the noble Baroness, Lady Kramer, which I should have added my name to but did not. Both amendments concern the impact on SMEs. I am more concerned about the “S” part of that acronym, because medium-sized businesses with payrolls of over 100 staff are a lot better equipped to deal with the provisions of the Bill. I heard the Minister saying that only 10% of this group apply for salary sacrifice, which is a glass-half-empty argument. It is precisely because of that that we should be very concerned about the 90% who are missing out entirely on salary sacrifice.

When we go back to Amendment 31 and look at the impact, the employment data this year for SMEs is utterly dire—on vacancies, payroll and employment, part-time and full-time. I will not go through all the data, but I remind your Lordships that only 10 days ago, the Federation of Small Businesses wrote a letter to the Chancellor of the Exchequer warning that one-third of its members are planning either to shut down their business this year or to reduce their headcount, and that should send a real chill down the spine. I simply do not believe that the Government understand what it is to develop and foster a thriving SME ecosphere, on which, at the bottom of the pyramid, our economic growth utterly depends. I therefore throw my support behind these two amendments.

[Baroness Kramer (LD)]

My Lords, Amendment 32 is in my name. I realise that Amendment 31 is a broader amendment, and I have no objection to it whatever. It was written in response to a particular issue identified by the Federation of Small Businesses, which is that small businesses that use salary sacrifice regard it as one of the perks they can offer, in a very competitive market, for particular skill sets. Churn is a major problem for small businesses, so to be able to keep people and keep them happy really matters. It is tough for a small business, particularly when it is looking for a person with highly desirable skills, to compete against big businesses, which can offer perks of many different kinds. They may not offer salary sacrifice to the same degree, but they can offer other kinds of perks and advantages.

I am very concerned about the competitive impact on small businesses. I strongly agree with the noble Lord, Lord Londesborough, that this group is the foundation of our economy and its condition currently leaves us worried. At a time of a big push for growth, many of the unicorns will fall into a sector where they are in a battle for skills against large existing companies. My Amendment 32 would review within 12 months the impact very specifically on SME recruitment and retention. I hope the Government will pay serious attention to this area.

[Lord Livermore (Lab)]

My Lords, Amendments 31, 32 and 33, tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, would require a review of the legislation’s impact on small and medium-sized enterprises, charities and social enterprises. As set out earlier, the Government agree on the importance of transparency, and a number of documents have already been published which set out the impact of this measure. As I said on Amendments 16 and 29, the Government fully recognise the importance of supporting small businesses and charities alike. In practice, the changes in the Bill primarily affect larger employers, who are significantly more likely to operate salary sacrifice arrangements and to have employees contributing above the £2,000 cap.

Charities and their donors benefit from a wide range of reliefs and exemptions across multiple taxes, including VAT, inheritance tax, stamp duties and gift aid. Ahead of the cap taking effect, the Government will continue to work closely with employers, payroll providers and other stakeholders, including representatives of the charity sector, to ensure that changes are implemented in a clear and proportionate way for organisations of all sizes that operate salary sacrifice arrangements. In light of the position I have set out, I hope that the noble Baronesses will feel able not to press their amendments.

[Baroness Neville-Rolfe (Con)]

My Lords, I thank noble Lords for their contributions to this debate, which is an important one, and I am grateful to those who spoke in support. We heard from the noble Lord, Lord Freyberg, about the positive implications for the creative sector, and of course my noble friend Lord Leigh, who is very much in touch with trade representative bodies and charities, supported the amendment. The noble Lord, Lord Londesborough, raised again the question of data, which we were talking about at Question Time, and his concerns about the demise of SMEs under the burden of red tape.

Finally, I strongly support the noble Baroness, Lady Kramer, and the Federation of Small Businesses, which is such a useful source of information, on the need to be able to keep employees happy and to retain them. The same is true in charities and social enterprises, as I am sure my noble friend Lady Sater would say if she had been able to be with us today.

The case for a comprehensive and independent impact assessment of this legislation on small and medium-sized enterprises and social enterprises could not be clearer, nor, I am afraid to say, could the Government’s failure to undertake one. We have heard today of the depth and breadth of concern, and that is why we have voted and agreed on an exemption for SMEs and charities. But there is a risk that this will be rejected in the other place, in which case this review will be even more important.

Although some documents have been published, as the Minister said, the Office for Budget Responsibility’s own analysis points to significant uncertainty surrounding the effect of these measures. That uncertainty is not a reason for the Government to look away; it is precisely the reason that they must look more closely. When the OBR itself signals uncertainty, the duty falls on the Government to acknowledge what they do not yet know and to commit to finding it.

That brings me to an important matter which the Minister may want to comment on or follow up, perhaps in the next group. The Government announced last year a commitment to reduce the administrative burden on business by 25%. I remember welcoming that announcement. It was not a quiet aspiration buried in a footnote; it was a public commitment made with fanfare. Yet if the Government’s answer whenever we ask about the administrative impact of a specific policy is simply that such an impact cannot be measured, one must ask how precisely the Government intend to meet that target.

I fear there are only two conclusions. Either the Government have a means of measuring administrative impact, which they have chosen, curiously, not to deploy on this occasion, in which case they should do so, or the commitment to reduce the burden on business by a quarter was an empty promise from the outset.

But we have had a good debate today, and time is getting on. In the circumstances, I beg leave to withdraw my amendment.

Amendment 31 withdrawn.

Amendments 32 and 33 not moved.

Amendment 34

Moved by

[Lord Ashcombe]

34: After Clause 2, insert the following new Clause—
“Publication of relevant documents and reports(1) HM Treasury must maintain a single, publicly accessible location on a Government website in which all documents relevant to the operation and implementation of this Act are published.(2) Documents to be published under subsection (1) must include—(a) any Tax Information and Impact Notes relating to this Act,(b) any guidance issued to employers or employees relating to the operation of section 4(6A) of the Social Security Contributions and Benefits Act 1992 (as inserted by section 1) or section 4(6A) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (as inserted by section 2),(c) any consultation documents, technical notes or policy papers relating to regulations made under those provisions,(d) any reports or reviews concerning the operation, impact or effectiveness of this Act, and(e) any regulations made under section 4(6A) of those Acts and any accompanying explanatory memoranda.(3) HM Treasury must ensure that any document falling within subsection (2) is published in the location described in subsection (1) no later than the day on which it is laid before Parliament or otherwise made publicly available.(4) HM Treasury must ensure that the location described in subsection (1) is clearly advertised and regularly updated.”Member's explanatory statement
This amendment seeks to require the Treasury to publish all documents, guidance, consultations, regulations and reviews relating to the Act in a single, publicly accessible location to ensure transparency and ease of access for Parliament and businesses.

[Lord Ashcombe (Con)]

My Lords, I speak to my Amendment 34 in this group, and I am grateful for the support from the noble Lord, Lord Londesborough. Pensions legislation is, as many of your Lordships appreciate, inherently complex and difficult to understand. It is also currently undergoing further refinement in this House, which will inevitably bring more change. My amendment seeks to make life easier for those who provide pensions and those who invest in them. Its purpose is straightforward: to require the Treasury, should this Bill pass, to publish all documents, guidance, consultations, regulations and reviews arising from the Act in a single, publicly accessible and advertised location. This would support transparency and ensure that both Parliament and business can easily find the information that they need.

In Committee last week, the Minister referred to at least four different documents containing differing information and mentioned them this morning or this afternoon as well. This week, we learnt in the Times that Sir Steve Webb made a freedom of information request asking for a more detailed breakdown of the composition of the £4.5 billion to be raised in 2029 as a result of this Bill, who will be affected and how employers are expected to react to the changes. HMRC indicated that the information requested would “undermine” the policy-making process. Is it not our duty to ask the questions and expect a proper response in order to hold the Government to account? This would, of course, have added another document to those that would be publicly accessible.

In my professional life, I work for Marsh, a global company whose code of conduct for the greater good includes two principles that are particularly relevant to this debate—the code, of course, is written with the regulators in mind. They are that we treat customers fairly and we that communicate honestly and professionally with investors and the public. I am not convinced that the current approach to information accessibility meets either of these standards. It is difficult to imagine customers or investors being satisfied if told that essential documents are scattered across multiple websites and must be hunted down individually. Yet this is precisely the situation facing those who wish to understand the documents associated with this Bill. Why should the Government not be held to the same standards as the private sector? This amendment is simply about ensuring openness and transparency. It would create a single, reliable point of access for all relevant material, replacing the current scramble to locate information needed to make what are often complex and consequential decisions. I beg to move.

15:15

[Lord Londesborough (CB)]

My Lords, I have added my name to Amendment 34 from the noble Lord, Lord Ashcombe, and I offer my support. It is entirely pragmatic. I would also throw into this documentation reservoir the OBR’s forecasts, which I found quite confusing in relation to the impact of the Bill. What is being suggested in this amendment does not apply only to the National Insurance Contributions Bill, and many of us as parliamentarians—certainly I as one—find the paperwork around Bills often baffling and confusing, and to bring this together in a far more coherent way would make us better legislators. But let us spare a thought for the CEOs, the finance directors and the CFOs, two of whom have come to me and asked me to explain how the Bill is going to impact their businesses, and I struggle to do so.

As many noble Lords know, I am a bit of a productivity disciple and our productivity in this area is really poor. Part of the reason for that is that the publication of relevant documents is so scattergun. If you do not have a legal training, as most of us do not, it is a challenge not just in terms of legal language but often in numeracy. In Committee, we often found that we did not know whether the Bill applied per person or per job. We now have a clarification, for which I thank the Minister. But that is pretty damning in itself, is it not?

So I wholeheartedly support this. There is no controversy. I think Governments of all colours need to do a far better job of explaining the thrust of their legislation.

[Baroness Altmann (Non-Afl)]

My Lords, I rise briefly to speak to my Amendments 35 and 40 in this group, which seek to do similar things in different ways from the other amendments in this group, all of which I support. I certainly think that the suggestion from the noble Lord, Lord Ashcombe, on the publication of relevant documents and reports makes significant sense, and having a repository of information would certainly be helpful.

This group of amendments is yet again trying to help the Government see that they are premature in laying the legislation and there is not enough understanding of what the impacts in practice will be for employers and workers. In Amendment 35, each area on which I ask for an independent report to be produced is itself a complex area of pensions administration that needs to be understood before we make the kind of change that sounds simple but in practice will be anything but.

It sounds as if it will not make much difference, but in practice, it could cost significant sums to employers, as well as having this significant potential impact on making pension provision worse across the country. At the very time when we are talking about perhaps making state pensions a bit less generous or delaying the age at which they will start, it makes private pensions even more important for anyone in poor health who cannot wait until the ever-rising state pension age. The idea is for them to have something to fall back on to bridge the gap, at least.

I hope the Minister, for whom I have enormous respect and who I know is very well intentioned and understands these issues, will take back to his department the deep unease across this House at the lack of preparedness and information that we have been given. Once again, could he help explain—and if not today, perhaps he will write to me—the seemingly inordinate rush, within just a few weeks, to bring in this legislation, which is not due to start until 2029, so that we have a better understanding of what the Bill’s impacts would be?

[Lord Freyberg (CB)]

My Lords, I support Amendment 35 in the name of the noble Baroness, Lady Altmann, which would require the Government to commission an independent review within 12 months of passing the Act, covering a comprehensive range of impacts. Among the items it would have to consider are, explicitly, “workers with multiple jobs”, and

“workers who change jobs during any tax year and have made pension salary sacrificed contributions”.

Those two categories define the working life of a freelance creative. The Government’s answer throughout the Bill has been that these questions will be resolved in regulations. Amendment 35 would at a minimum ensure that Parliament sees independent evidence of whether that resolution has worked in practice.

Amendment 40, also in the name of the noble Baroness, Lady Altmann, would go further and make commencement conditional on a review of the Act’s practical feasibility. Given the complexity we have heard about and that I have described for workers with mixed employment statuses, including those engaged by the BBC under off-payroll rules while simultaneously working for other employers, that is not an excessive precaution. Therefore, I support both these amendments.

[Baroness Kramer (LD)]

My Lords, I shall be exceedingly brief. The amendment proposed by the noble Lord, Lord Ashcombe, is, quite frankly, genius. We have all had a struggle trying to get our hands on information that is scattered in so many different places, and I am fairly sure that if this was put with a secret ballot to civil servants they would all sign up because they struggle as well. It makes it very difficult when new policy comes through to try to work out what on earth the consequentials are, what numbers to look at, how to weigh these issues and how to understand distribution of impact, so I support his amendment.

This is such a complex Bill. When the instructions went down to put the Bill in place, I am sure there was absolutely no sense of the complexity that was going to be entangled in it. Amendment 38 in my name was triggered particularly by the OBR publication, again in response to an FoI, Costing of charging NICs on salary-sacrificed pension contributions, which was a supplemental analysis. The word “uncertainty” appeared in so many parts of it that we began to have a sense that no one could have huge confidence in the final numbers that were appearing, and it was very honest of the OBR to make it clear that there were vast uncertainties underpinning large parts of this work.



Very much like the noble Lord, Lord Leigh, I still do not think that we have bottomed out the problem with optional remuneration arrangements. It is easy to assume that we can distinguish between a negotiation where we are choosing between cash and a pension and having a negotiation that involves cash and a pension. But can we claim that the two are not related to each other, so that we do not get trapped by OpRa? There is a lot in here, and a review is the least we should do to make sure that we have a grip on these things and that Parliament gets to see it when it is still in a position to make some decisions.

[Lord Altrincham (Con)]

I thank the Minister for his usual courtesy in hosting the debate. The amendments in this group all underscore another substantial shortcoming in how the Bill has been approached: its effects and impacts have not been properly assessed in advance. I suspect that the Minister does not have the information on how the Bill will affect pensions saving adequacy, which I highlight in my Amendment 37, and how it will affect employer costs, pensions adequacy and workers’ take-home pay, which the noble Baroness, Lady Altmann, raises in her amendment.

These are serious questions. As was noted in Committee, if the Treasury had done better work in preparation for the Bill, it would already be able to give us the answers to the questions that these amendments raise. These are the questions that businesses, employers, savers and industry are asking. As my noble friend Lord Ashcombe highlighted, the information must be in an easily accessible format in a single place, because it will be relevant to more than just policymakers and parliamentarians: businesses and employers will be trying to understand what all this means for them, as well as employees saving for their pensions, who will be trying to understand how they could be affected.

My amendment raises the question of pensions adequacy. People are not saving enough for their pensions and the Government are worsening incentives to do so with the Bill. The Minister should consent to a review of this matter before the Bill comes into force. The Government must make sure that they know the facts, so that we can ensure that they do not inflict unintended harms. As a point of good governance, the Minister should accept this and the other amendments in this group.

[Lord Livermore (Lab)]

My Lords, I am grateful to noble Lords for their contributions to this debate.

Amendments 35, 37 and 40, tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, cover the impact of the future Act on pensions adequacy and on pension-saving behaviour and participation. As I have already set out, the Government agree on the importance of transparency, and a number of documents have already been published that set out the impacts of this measure.

I turn to the principled point raised about the impact of this policy on pensions adequacy and savings behaviour more specifically. As we discussed in Committee, salary sacrifice existed in the 2000s and early 2010s, yet there were falls in private sector pension saving during that period. The key factor that has led to an increase in saving in recent years is automatic enrolment. As a result of that, over 22 million workers across the UK are now saving each month.

Although we all share a commitment to improving pensions adequacy, many groups at highest risk of undersaving, including the self-employed, lower earners and women, are not the most likely to benefit from salary sacrifice. Only one in five self-employed people saves into a pension but they are entirely excluded from salary sacrifice. Low earners are most likely not to be saving, but higher earners are more likely to be using salary sacrifice. Many women are undersaving for retirement, but many more men use pensions salary sacrifice. The pensions tax relief system remains hugely generous and there remain significant incentives to save into a pension. The £70 billion of income tax and national insurance contribution relief that the Government currently provide on pensions each year will be entirely unaffected by these changes.

Amendment 38, tabled by the noble Baroness, Lady Kramer, would require the Government to lay before Parliament a formal review of the Office for Budget Responsibility’s supplementary forecast information release of 5 February 2026, and specifically its analysis of behavioural responses by organisations to the provisions in the Bill. The OBR’s economic and fiscal outlook and its supplementary forecast publication set out how behavioural responses have been considered in certifying the costings. A summary of these behavioural assumptions was also published in the policy costing note accompanying the Budget. The supplementary forecast information was drawn from analysis and data—

[Baroness Altmann (Non-Afl)]

It would be helpful to have on record some idea of who is responsible, when talking about behavioural response, for reporting to HMRC and for compliance, and who will face penalties for any national insurance contributions that are due which were wrongly deducted. Is it payroll providers? Is it employers? Is it the members? If any of those groups are on the line for paying penalties, would not the limit itself perhaps put paid to salary sacrifice? Is that something that the Government have considered?

[Lord Livermore (Lab)]

All those points will be set out in regulations, and I am more than happy to confirm that to the noble Baroness in writing.

The OBR’s economic and fiscal outlook and its supplementary forecast publications set out how behavioural responses have been considered in certifying the costings, as some of these behavioural assumptions were also published in the policy costing that accompanied the Budget. The supplementary forecast information was drawn from analysis and data supplied to the OBR by the Government ahead of Budget 2025, in line with a standard process by which the OBR scrutinises and certifies costings. The Government’s published costings therefore already reflect these behavioural effects. The OBR has certified these costings in the usual way. Given that the material referenced is already publicly available and has been fully reflected in the certified policy costings, the Government do not believe that it is necessary to review the OBR’s supplementary forecast.

15:30

Amendment 34, tabled by the noble Lords, Lord Ashcombe and Lord Londesborough, seeks for the Government to publish all documents, guidance, consultations, regulations and reviews relating to the Act in a single, publicly accessible location, to ensure transparency and ease of access for Parliament and business. I agree that publications setting out the impacts of policy changes should be accessible to Parliament and the wider public. I have already referred to a number of different publications during today’s debate. I assure noble Lords that these are all publicly accessible and transparently laid out by the appropriate authorities.

Taking each in turn, the documents relating to announcements at the most recent Budget are all published on GOV.UK under the Budget 2025 collection. This includes the Budget document itself and the published policy costing notes. All tax information impact notes are published on GOV.UK under the heading relating to the fiscal event that each pertains to. All the other documents pertaining to the Bill, including the Explanatory Notes, are published on the UK Parliament website. The Explanatory Notes include a hyperlink to the tax information and impact note. The economic and fiscal outlook and supplementary information about its forecast is published by the Office for Budget Responsibility on the OBR’s website. Additionally, the Economic and Fiscal Outlook March 2026 is published on GOV.UK.

In the light of the position that I have set out, I hope noble Lords feel able not to press their amendments.

[Lord Ashcombe (Con)]

My Lords, I thank the Minister for his responses and thank those who have taken part in this short debate. I am not sure that we have unknown unknowns, because the Minister has again stated where these various documents are scattered around, but we have an unresolved unresolved. As noted by the noble Lord, Lord Londesborough, this will reappear time and again as we go through different Bills in the Chamber.

Looking to the amendments other than my own, over the last month or so, as we have debated this complex subject, an awful lot of unknowns have appeared. Therefore, we should have clear thought put into, and publications on, what is going to happen, prior to the Bill being enacted—because it does not come into force until 2029—and subsequently on whether there is any degree of similarity after that, as I am not convinced. Having said that, I beg leave to withdraw my amendment.

Amendment 34 withdrawn.

Amendment 35 not moved.

Clause 3: Extent, commencement and short title

Amendments 36 to 41 not moved.