National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Caroline Nokes and Mark Garnier

Committee of the whole House
Wednesday 21st January 2026 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

I beg to move amendment 5, page 1, line 10, after “income tax” insert—

“at the higher or additional rate”.

This amendment would exempt basic rate taxpayers in England, Wales and Scotland from the £2,000 cap.

[The Second Deputy Chairman]

With this it will be convenient to discuss the following:

Amendment 7, page 2, line 26, leave out from “as” to end and insert—

“the amount calculated under subsection (5) for a tax year (but subject to any provision made in reliance on subsection (6C)(a) or (b) of that section).

(5) In 2029-30 the contributions limit must be set at a figure equal to £2,000 uprated by any percentage change in the consumer price index between 2026-27 and 2028-29.

(6) In subsequent tax years the contributions limit must be uprated by the same percentage change as that applied to the consumer price index that year.”

This amendment would uprate the £2,000 cap by the percentage change in the consumer price index during the period before 2029-30, and would require the cap to be uprated by the same percentage as the change in the consumer price index each year thereafter.

Clause 1 stand part.

Amendment 6, clause 2, page 2, line 38, after “income tax” insert—

“at the higher or additional rate”.

This amendment would exempt basic rate taxpayers in Northern Ireland from the £2,000 cap.

Amendment 8, page 3, line 39, leave out from “as” to end and insert—

“the amount calculated under subsection (5) for a tax year (but subject to any provision made in reliance on subsection (6C)(a) or (b) of that section).

(5) In 2029-30 the contributions limit must be set at a figure equal to £2,000 uprated by any percentage change in the consumer price index between 2026-27 and 2028-29.

(6) In subsequent tax years the contributions limit must be uprated by the same percentage change as that applied to the consumer price index that year.”

This amendment would uprate the £2,000 cap in Northern Ireland by the percentage change in the consumer price index during the period before 2029-30, and would require the cap to be uprated by the same percentage as the change in the consumer price index each year thereafter.

Clause 2 stand part.

Clause 3 stand part.

New clause 1—Review of impact on SME recruitment and retention—

“(1) The Treasury must, within 12 months of the passing of this Act, lay before Parliament a report assessing the effect of its provisions on small and medium-sized businesses with regard to the—

(a) recruitment of staff, and

(b) retention of staff.

(2) The report under subsection (1) must also consider the cumulative impact of changes to employer’s national insurance on businesses affected by this Act since July 2024.”

This new clause would require the Treasury to review and report on the impact of the Bill’s provisions relating to National Insurance contributions on the ability of SMEs to recruit and retain staff.

New clause 2—Review of impact on small and medium-sized business tax liabilities—

“(1) The Treasury must, within 12 months of the passing of this Act, lay before Parliament a report assessing the effect of its provisions on small and medium-sized businesses with regard to—

(a) businesses’ overall tax burden,

(b) employment costs, and

(c) business solvency.

(2) The report under subsection (1) must also consider the cumulative impact of changes to employer’s national insurance on businesses affected by this Act since July 2024.”

This new clause would require the Treasury to review and report on the impact of the Bill’s provisions relating to National Insurance contributions on the overall tax burden and employment costs faced by SMEs.

New clause 3—Review of impact on employee marginal tax rates—

“(1) The Treasury must, within 12 months of the passing of this Act, lay before Parliament a report assessing the effect of its provisions on the number of employees brought into a higher marginal rate of income tax.

(2) The report under subsection (1) must give particular regard to the impact of the freezing of income tax thresholds between April 2022 and April 2031.”

This new clause would require the Treasury to review and report on the impact of the Bill’s provisions relating to National Insurance contributions on the number of employees who move into a higher tax band due the increase in their taxable income due to the effects of this Bill.

New clause 4—Reviews of the impact of the Act—

“(1) The Treasury must, before March 2029, lay before Parliament an assessment of the impact of the changes made under this Act.

(2) The assessment made under subsection (1) must consider—

(a) the adequacy of pension contributions made by or on behalf of individuals affected by this Act,

(b) use of salary sacrifice schemes and optional remuneration arrangements, and

(c) any effects on the investment capability of UK pension funds.

(3) The Treasury must lay before Parliament a follow-up assessment of the impact of the changes made under this Act before March 2034.”

This new clause would require the Treasury to undertake an impact assessment of the effect of the change made under this Act, before they take effect, and again five years later.

New clause 5—Calculation and publication of lifetime pension values—

“(1) The Treasury must calculate and publish the projected lifetime value of an individual’s pension before and after the changes made by under this Act.

(2) For the purposes of subsection (1), the projected lifetime value is the total amount of pension income an individual is expected to receive over their lifetime.

(3) The calculations made under subsection (1) must—

(a) be based on clearly stated assumptions, and

(b) include illustrative examples covering different pension entitlements.”

New clause 6—Assessment of changes to pension saving through salary sacrifice schemes—

“(1) The Chancellor of the Exchequer must, within 15 months of the provisions of this Act coming into effect, lay before Parliament an assessment of the effect of this Act on the amount saved into pensions through salary sacrifice schemes.

(2) The assessment made under subsection (1) must include an—

(a) estimate of the total amount saved into pensions through salary sacrifice schemes in the 12 months preceding the provisions of this Act coming into effect,

(b) estimate of the total amount saved into pensions through salary sacrifice schemes in the 12 months following the provisions of this Act coming into effect, and

(c) an assessment of the difference between those amounts.”

[Mark Garnier]

It is a great pleasure to be with you yet again, Ms Nokes. I enjoyed our last sparring with the Pensions Minister just before Christmas, which cheered us up to no end.

Let me speak to amendments 5, 7, 6 and 8 as well as new clause 4, which all stand in my name. It will not surprise the Pensions Minister to hear that we are not at all happy with this Bill, which actually will do nothing to enhance pension savings. I will go through each of our amendments in the reverse order of importance.

New clause 4 would require the Government to assess the impact of the Bill, should it receive Royal Assent, before and after its implementation in 2029. We think it is important that the Government do their homework before implementing policies. We asked for something similar in the Pension Schemes Bill, but the Pensions Minister described it as unnecessary. In this case, the Government seem not to have listened to industry, to experts or to savers. Our new clause asks the Government to do that, so that we can better understand the impact. First, how will the Bill affect pensions adequacy? That will be after the pensions review has concluded, so we do need to know. Secondly, how many people use salary sacrifice or optional remuneration arrangements? Thirdly, what are the investment capability of UK pensions?

There has been a certain amount of commentary on this matter. The Association of British Insurers has said:

“We have consistently raised concerns about the potential impact of a cap on pension salary sacrifice on both people’s savings and employers’ resources.”

There are some issues that are of great concern to many people on this matter, so have the Government fully considered the knock-on effect that it will have on investment from UK pension funds? Also, will the Government update the terms of reference for the pensions commissioner, which is being led by Baroness Drake, to ensure that this is considered?

We are unlikely to press new clause 4 to a vote. However, I believe that the Liberal Democrats’ new clause 5 would have a similar effect. Should the Liberal Democrats wish to move the new clause, we would support it.

Amendments 7 and 8 concern the indexation of the cap. These amendments look to make the £2,000 cap naturally rise in line with the consumer prices index. We have brought these amendments forward because if the cap remains static, it will become increasingly meaningless. We have seen today, when we have had an above-expectation inflation rise of 3.4%, that would clearly devalue the value of the cap, even by the time that it is implemented in 2029. Our amendments seek to address that so that salary sacrifice arrangements do not become redundant without parliamentary intervention. Obviously, we use CPI because it is the basis for inflation. Again, the ABI has made a similar argument, as the cap does not allow for inflationary changes. Having said that, we do not propose to press those amendments.

Let me move on to amendments 5 and 6, which we feel particularly strongly about. They are mirror arrangements for each other. Importantly, we are trying to make what we feel is a very poor Bill into something that is less poor. The amendments would make basic rate taxpayers exempt from the £2,000 cap. They would support the group in the UK that typically under-saves and is the least prepared for retirement. According to the Society of Pension Professionals, a quarter of the people who enjoy salary sacrifice, who will be hit by the changes that this Bill brings in, are basic rate taxpayers. Around 850,000 basic rate taxpayers will be affected by the cap.

More fundamental to that is the fact that this group of people—lower-paid workers—will be hit disproportionately hard. Salary sacrifice allows an employee to give up a certain amount of their salary to be contributed to their pension directly by the employer. We all understand that, but it not only takes advantage of the income tax allowance, as with all pension contributions, but allows national insurance contributions to be included and transferred into the pension, in the case of an employee national insurance, and allows for employer national insurance to be used at the discretion of the employer.

The employee element—the national insurance that we all pay as employees—is the important part of this matter. While higher rate taxpayers will continue to enjoy 40% tax relief at their higher rate, the national insurance is just 2 percentage points—around one-twentieth of the tax break on the income tax. While a basic rate taxpayer enjoys just 20% income tax breaks, their national insurance contribution is 8%. The effect on lower-paid workers is four times that on higher-paid workers. That is not a good thing—indeed, 8% is two-fifths of the value of the other contribution for which they benefit from their income tax savings.

In absolute terms, as I have said, the marginal rate is four times more expensive for lower rate taxpayers than it is for higher rate taxpayers, but there is an even bigger problem: this is a harder attack on other types of savers than we had anticipated. Another group of people affected are those paying back student loans. Graduates pay back their student loans once they pass the thresholds of £28,745, and they do so at a rate of 9%. Graduates who would otherwise enjoy that 9% that goes into student loans being paid into a pension will not see it being paid into their pension because of the salary sacrifice cap. The effective loss for a graduate paying back student loans is 9%. Graduates on the basic rate of tax will see not just a loss of 8% for their national insurance schemes, but a total loss of 17% of the benefit at the marginal level above the £2,000 cap.

The director of the Chartered Institute of Taxation agrees. She said:

“The change will disproportionately affect basic rate taxpayers because they will pay at 8% NIC on contributions over the £2,000 cap, compared with a 2% charge on higher earners. It will also disproportionately impact those with student loans who earn above the repayment threshold, as they will have incurred an extra 9% student loan deduction from their pay.”

At a time when we are trying to get people to do the right thing and save for the future, it seems that the Government want to whack the lower-paid harder. Because of the way that this system works, they will whack the lower paid. They also want to whack a younger generation even harder than those who enjoyed free university education. That younger generation cannot afford to buy a house and have to pay for university education. The Government have made it far harder to get a job, with their jobs tax, and at a time when we are desperately trying to get people to save for their retirement, they are making it harder to save for a pension.

I challenge Labour MPs. Why are they being whipped to vote against these measures and against the interests of lower-paid people? Why are they being asked to vote against the interests of graduates and younger people and vote for a regressive tax?

--- Later in debate ---

[Mark Garnier]

I am trying to finish my speech—in fact, I had finished my speech.

This is a very important point, and we will push amendment 5 to a vote. As I said, we will challenge Labour MPs not to do the wrong thing for their constituents—for the young, hard-working graduates who are desperate to do the right thing.

[The Second Deputy Chairman]

I call the Liberal Democrat spokesperson.

--- Later in debate ---

[Mark Garnier (Wyre Forest) (Con)]

The Pensions Minister is absolutely right that there is an awful lot that we agree on. It is always a great pleasure to spar with him and agree on certain things, but this Bill is not one of them. Let me be clear why we disagree with the Minister.

First, the contributors to the research done by His Majesty’s Revenue and Customs were absolutely against this Bill. The report, which was published last year and which the Minister mentioned on Second Reading, concluded that all the hypothetical scenarios explored in the research, including the £2,000 cap, were viewed negatively. It also pointed out that the £2,000 cap was the most complicated option presented. Given that the Government tabled no amendments to address the genuine concerns of savers and industry, it seems that the Minister is still apparently chuffed that he is implementing a policy that is, at best, the least worst option for everybody who was asked to comment.

Secondly, the Government are voting for a Bill that will add to the administrative burden on businesses. The pensions system is already incredibly complex for experts to navigate, let alone the general public. That is why salary sacrifice arrangements have been such a popular savings tool for both employees and employers. The principles are easy to understand, with the only real piece of admin being on the employer to ensure that the employee does not fall below the national living wage. But what are the Government doing? They are going for the option that the report considered to be the most complicated.

The Government are choosing to confuse with complications a system that is currently the simplest to deliver. The changes will add an estimated £30 million each year in administrative costs to employers—and this comes at a time when businesses and the wider economy already pay an estimated £15.4 billion just to comply with the tax system. What about the effects on businesses, which see a 15% employer national insurance bonus through helping people to save? The changes will mean that employers will be hit with a 15% increase on the costs of employment.

The savings that employers achieve through salary sacrifice arrangements are often invested back into their employees and their businesses, including through increased pension contributions to all employees, higher wages, or more investment into plant and machinery for growth. That is a good thing. The Government are now taking money away from the productive part of the economy and putting it into other parts. No wonder businesses think that this is a nonsensical policy delivered by a directionless Government, who forget that businesses are the ones that create wealth in our economy, add value to it and drive growth.

Thirdly, the Government are supporting a Bill that will not actually raise the stated revenue. As my hon. Friend the Member for North Bedfordshire (Richard Fuller) pointed out when winding up on Second Reading, the change appears to have been timed to maximise revenue in 2029-30: the year that counts for the Chancellor’s fiscal rules. That is £4.8 billion to fill the Chancellor’s black hole—she will have one by then—in order to make a cynical attempt to stick to a fiscal rule. This is a cynical measure that destroys a lifetime of savings opportunities for just one year of revenue. Frankly, it is also likely that the Government will not raise anywhere near the £4.8 billion budgeted for, as higher earners max out the benefits of the scheme before it comes into force in 2029; and, in any event, people are figuring out a workaround.

Fourthly, the Government are voting for a Bill that harms lower earners the most. As I pointed out earlier, the Society of Pension Professionals estimates that over 850,000 basic rate taxpayers who use salary sacrifice will be affected by the changes, and those 850,000 people will be taxed at a higher rate than their wealthier colleagues—something that the Government apparently seek to target with this policy. And I always thought that Labour Governments were meant to be on the side of working people, Madam Deputy Speaker!

Fifthly, and finally, the Government are voting for a Bill that will make the impending pension adequacy crisis worse. As I said in my introduction, there is widespread agreement that people are not saving enough, so why make the second largest revenue-raising measure of last year’s Budget one that goes after people’s savings for later life? It goes against that basic, important and agreed objective of people planning for their futures. More importantly, it goes against the Government’s own financial inclusion strategy.

As the Economic Secretary to the Treasury set out in November,

“Our aim is to create a culture in which everyone is supported to build a savings habit, building their financial resilience in the long term.”

How does the Bill accomplish that reasonable ambition? It won’t, because it disincentivises employees from saving more in their pensions and it disincentivises employers from providing it as an option in the first place.

Altogether, it is the wrong policy that sends the wrong message at the wrong time. We gave the Government a chance to address some of those concerns earlier, and they did not take it. We hear all those concerns loud and clear from businesses, savers and all the rest of them, which is why we want the Government to think again on this issue and why we will vote against this Bill on Third Reading.

People are simply not saving enough for their retirement. Rather than restricting the options, we should be encouraging the creation of new incentives that encourage people to save more. Instead, the Government are pushing through a Bill that will do the opposite. It is unbelievably unpopular because it punishes 3.3 million people who actively try to save for retirement by punishing the 290,000 employers who incentivise their employees to save. Worst of all, it breaks another of Labour’s manifesto promises: that it will not increase taxes on working people. It remains the wrong policy to pursue, and that is why we will vote against it.

[Madam Deputy Speaker]

I call the Liberal Democrat spokesperson.

National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Caroline Nokes and Mark Garnier

2nd reading
Wednesday 17th December 2025 Commons Chamber

[Mark Garnier]

Indeed—our report, though it was published in May this year. It is a weighty tome. Even its title is pretty dry: “Understanding the attitudes and behaviours of employers towards salary sacrifice for pensions”. The Minister proudly told us that this document underscored the rationale for—[Interruption.] Oh—because it is important stuff. He told us that it underscored the rationale for capping salary sacrifice. However, having read the report, I can tell the House that it actually concludes that:

“All the hypothetical scenarios explored in this research”,

including the £2,000 cap, “were viewed negatively” by those interviewed. The changes would cause confusion, reduce benefits to employees and disincentivise pension savings. The report the Minister is using tells him not to do this.

The report also goes into why salary sacrifice for pensions is used by employers in addition to the incentive of paying into a pension, stating that extra benefits include: savings for employees, so that they have more to spend on essentials, tackling the cost of living crisis; savings for employers, which they can then invest back into their business and staff; and incentives for recruitment and retention. These are all good things—this is the stuff of delivering growth and the basis of creating a savings and investment culture. Why would this Government want to take it away?

The report came to the conclusion that of the three proposed options for change, the £2,000 cap is no more than the least terrible option. [Interruption.] The Minister talks about it being a secret plan—it is a published document. What is he talking about? It is the most extraordinary thing. He refers to it in terms that none of us recognises. But he has brought this in—this is the point. Is the Minister chuffed that his choice comes down to the least worst option for everyone? Here is the truth: it was the Chancellor’s choice to introduce this policy, and this Government are the ones implementing it—they are the ones who are in government.

Let us get to the measures and the impact of the Bill. To be fair, it is a very even Bill; there is something in it for everybody to hate. Take middle-income earners, who are typically in their 30s, and who earn on average a touch under £42,000 a year. This is the target area where the attack on savings starts. This is right at the point in life where people should be doing their very best for their future retirement. It is a perfect target market for the Government’s savings ambitions. However, it does not stop there. In total, at least 3.3 million savers will be affected, which is 44% of all people who use salary sacrifice for their pension. These are all people who work hard—people on whom the Chancellor promised not to raise taxes.

In fact, middle-income employees will be affected more than higher earners. According to the Financial Times, under the Bill, an employee who earns £50,000 and sacrifices 5% of that will pay the same amount in national insurance contributions as an employee on £80,000. If the contribution rate is doubled to 10% of their salary, the disparity grows even further, meaning that an employee earning £50,000 will pay the same amount in national insurance contributions as an employee on £140,000. How is that fair? The Government keep telling us that this policy will affect top earners, but the reality is that those on middle incomes will be disproportionately hit—the very people we should be encouraging to save more.

The Bill will also potentially hit low earners. Somebody who is lucky enough to get a Christmas bonus will not be able to add it to their salary sacrifice, taking advantage of any headroom, because the accounting looks at regular payments, not one-offs. [Interruption.] I am slightly worried, Madam Deputy Speaker, that the pairing Whip has a rather bad cough; I hope he gets better. This will potentially hit the 75% of basic rate taxpayers the cap supposedly protects.

Finally, the Bill hits employers. In the previous Budget, the Government absolutely hammered business. They increased employer national insurance contributions to 15% and, at the same time, reduced the starting threshold to £5,000. Businesses reacted and adapted. They were reassured by the Chancellor’s promise that she would not come back for more, yet here we are discussing further tax rises on businesses.

Let us look at the actual impact this raid on pensions will have on employers. According to the Government’s own impact assessment, it will hit 290,000 employers. A business highlighted in the 2025 report that

“If salary sacrifice were to go away, it would be additional cost of £600,000 to £700,000 per annum to the company in national insurance”.

While the Government are not abolishing it altogether, 44% of people currently using salary sacrifice—[Interruption.] I am worried; the pairing Whip is coughing. Anyway, there is going to be a cost, and that money will be taken away from businesses. This is going to be—[Interruption.] The Minister is chuntering from a sedentary position; he is obviously proud of what he is doing to the pensions industry.

Furthermore, the change will create administrative burdens for employers. With the current system, there are few administrative issues; the only thing that businesses have to bear in mind is ensuring that their employees’ pay does not fall below the national living wage—that is it. So what do the Government do? They go for the most complicated option that the report considered. That was explicitly stated by those involved in the research. As a pensions administration manager for a large manufacturing employer said,

“We’d have to reconfigure all our payroll systems and all our documentation. It would be a big job.”

The National Audit Office estimates that the annual cost on business just to comply with this Government’s tax system is £15.4 billion, yet the Government feel that the time is right to put more costs on businesses. I have to ask, what happened to the Chancellor’s pledge to cut red tape by a quarter?

I think I will move on to my conclusion in order to save people. [Laughter.] There was some great stuff in this speech, but I understand that people want to get away and wrap their Christmas stockings—particularly the Pensions Minister who, like the Grinch, is taking a lot of money away. To conclude, the Government should think again on this policy. People are simply not saving enough for their retirement. We need to do more to encourage them to save for their retirement. I know that the Minister would agree with that, so I hope that he hears the genuine concerns I have raised on behalf of a lot of people. Many people and businesses and are very worried about this policy, and he needs to take it away and think carefully about it.

Fundamentally, we are taking away something that is beneficial to the individual while also being tax efficient for business. Instead of encouraging the creation of incentives such as salary sacrifice or pensions, we are reducing the number. It is the wrong policy, and it sends the wrong message at the wrong time. All it does is add to the ongoing narrative that, “If you work hard to make a decent income, you will lose out. If you work hard as an employer to grow your business, you will lose out. If you try to save towards dignity and retirement, you will lose out.” It is the wrong policy to pursue and we will definitely vote against it tonight.

[Madam Deputy Speaker (Caroline Nokes)]

I remind Members that the knife will fall at 7 o’clock.