National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Mackinlay of Richborough Excerpts

Report stage
Thursday 5th March 2026 Lords Chamber

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.

--- Later in debate ---

[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.