National Insurance Contributions (Employer Pensions Contributions) Bill

Judith Cummins Excerpts

Monday 23rd March 2026 Commons Chamber

Consideration of Lords amendments

[Madam Deputy Speaker (Judith Cummins)]

I inform the House that Lords amendments 1 to 12 engage the Commons’ financial privilege. If any of these Lords amendments are agreed to, I will cause the customary entry waiving the Commons’ financial privilege to be entered in the Journal.

Clause 1

Employer pensions contributions pursuant to optional remuneration arrangements: Great Britain

[The Parliamentary Secretary to the Treasury (Torsten Bell)]

I beg to move, That this House disagrees with Lords amendment 1.

[Madam Deputy Speaker]

With this it will be convenient to discuss Lords amendments 2 to 12, and Government motions to disagree.

[Torsten Bell]

I welcome the opportunity to consider the Lords amendments to the Bill. I thank Members of both Houses for their careful scrutiny of it, and I particularly thank the Financial Secretary, Lord Livermore, for leading the Bill so expertly through the other place. Before addressing the amendments directly and explaining the Government’s decision not to support them—I know that will be shocking—I turn briefly to the need for these reforms.

As the Chancellor set out at the Budget, we are taking action to make the tax system fairer and fit for the 21st century. That requires us to keep the effectiveness and value for money of the £500 billion of tax reliefs under review, and it is especially important to do so when costs are expected to increase significantly. The cost of national insurance contributions relief on salary sacrifice into pension schemes was due to almost treble, from £2.8 billion in 2017 to £8 billion by 2031, without reform, which would be equivalent to the cost of the Royal Air Force. This is not only an expensive tax relief, but one with a very uneven impact. The majority of employers do not offer salary sacrifice at all. The vast majority of salary sacrifice contributions are made by higher and additional-rate taxpayers. Salary sacrifice is unavailable entirely to those earning at or near the national living wage, or to the UK’s 4.4 million self-employed workers, and we know that both groups are more likely to be under-saving for retirement.

On this basis, the status quo is indefensible. Change was inevitable, but we have chosen to take a pragmatic approach, with no change until 2029, and a £2,000 cap to allow pension contributions via salary sacrifice to continue.

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[Madam Deputy Speaker (Judith Cummins)]

I call the shadow Minister.

[Mark Garnier (Wyre Forest) (Con)]

I would also like to start by thanking the Lords for their very hard work. I do not think the Government won a single vote during the Bill’s passage in the other place.

Over the past few months, we have seen how enthusiastic the Government are to raid savings. In particular, they are very keen to raid pension pots. Whether by taking powers to mandate private pension funds to invest in Government white elephants or through the Bill we are debating tonight, the Government have established beyond any doubt that they have no interest whatsoever in savers and strivers.

Pensions are important. They provide for security in retirement. The pact that has been established between the state and the pension saver, which goes back to the 1920s, is all about not just helping savers but taking the strain off the state: encourage saving now and there will not be a burden on the state of an impoverished pension in the future. Under the previous Government, we saw the roll-out of auto-enrolment, bringing 10 million people into the savings culture, and we introduced the triple lock to reverse the decline in the value of the state pension under the previous Labour Government.

Despite those positive steps, we recognise that people are still not saving enough for their retirement. As the Government’s own analysis shows, 50% of savers are projected to miss their retirement income targets set by the 2005 Pensions Commission, so we need to do better. I know there is cross-party consensus on that point, if nothing else, so let us be honest: the changes to salary sacrifice arrangements will do the complete opposite. As the Association of British Insurers and Pensions UK have outlined, we should be improving our current offering and providing new opportunities. Instead, the Government are making the situation worse in a desperate attempt to balance the Government’s books, conveniently in three years’ time. Frankly, it makes little sense and that is why we oppose this legislation.

The point of salary sacrifice arrangements is that they incentivise certain behaviours. That is why people are allowed to use these schemes to put money towards not just pensions but workplace nurseries, childcare vouchers and cycle-to-work schemes. Those are all good things. However, in this case the Government have singled out pensions and are attacking one of the most important things that people should be saving towards—their pensions. This is hard-earned taxpayers’ money that could be going towards a good thing. Instead, the Bill will remove an avenue that 7.7 million employees are currently using. The Bill will add even more cost to the 290,000 businesses and charities that use it. It will pile more cost on to students already saddled with student loans. It will harm pensions adequacy and force more people to rely on the state, pushing more costs on to the next generation. I am proud that my colleagues in the Lords, as well as Liberal Democrat and Cross-Bench peers, understand those concerns. The Opposition remain opposed to the Bill, but the amendments do go some way to address those issues and support the stated objectives of this policy, even though we disagree with the fundamental policy.

Lords amendments 1 and 7 would make basic rate taxpayers exempt from this policy. That would protect a group who typically under-save and allow them to continue to put savings into their pensions. The hon. Member for Harlow (Chris Vince) may be interested in listening to this, because he raised a very important point about lower rate taxpayers. The amendments are identical to the amendment we tabled in the Commons and that Labour MPs decided to vote down. As the Government’s own impact assessment clearly states, they are trying to target higher earners or those making larger contributions. While that might be the stated purpose and the political justification, in reality that is not the case for two reasons.

First, the cap will still affect 858,000 basic rate taxpayers, according to the Society of Pension Professionals. In fact, reporting from the Financial Times has highlighted how the Bill will disproportionately affect those people, compared to those on a higher rate of tax. Those on the basic rate of tax pay 8% national insurance contributions, while those on the higher rate of tax pay 2% NICs. That means that on national insurance contributions alone, lower earners are being hit four times as hard by this policy—four times. On Second Reading, I asked the Minister how that could be fair. He did not answer my question then, but I hope he will be able to answer it when he winds up. Maybe he can tell us how the policy is fair for those hard-working people, or whether they are just casualties of rushed policymaking.

Secondly, a behavioural outcome may be that employers will remove salary sacrifice as an option for all their employees. We already recognise that salary sacrifice is mutually beneficial for employees and employers. It is also more attractive to both sides, as it is simple to understand. By enforcing the cap, it will change not only the viability of salary sacrifice arrangements, but employers’ perception of them.This may result in many employers removing them as an option altogether, meaning that 4.4 million people who are supposedly protected may be affected. If this Government were really serious about their policy objective, they would exempt basic rate taxpayers altogether. These amendments give them the chance to do just that and to back hard-working people.

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The amendments the Lords have sent us are not about making the policy unworkable, but about making it practical. Voting for these amendments will allow Labour MPs to back their rhetoric with their actions, to back their constituents and to say, “I back hard-working people. I back small businesses. I back local charities. I back graduates. I back people who save responsibly.” By voting against these amendments, Labour MPs will send a different message to their constituents: “If you work hard to make a decent income, we will tax you more. If you work hard to grow your business, we will tax you more. If you save towards dignity in retirement, we will tax you more.” There is a clear choice tonight, Madam Deputy Speaker. I hope that Labour MPs will make the right one.

[Madam Deputy Speaker (Judith Cummins)]

I call the Liberal Democrat spokesperson.

[Charlie Maynard (Witney) (LD)]

The Liberal Democrats have been clear throughout the Bill’s stages that we think the Government would be misguided to make this change. While it may raise some tax revenue in the medium term, in the longer term it discourages pension saving. It also puts an extra cost and admin burden on small businesses at the worst possible time. For that reason, we support Lords amendments 6 and 12, which would exempt small and medium-sized businesses and charities.

I would like to note again, as I did on Second Reading, that I am sceptical of the timing of this change. It will, very conveniently for the Government, only kick in during the likely election year of 2029-30, and not in 2026-27 or 2027-28. It seems as if the Government are motivated more by a wish to fix their numbers nominally to meet their fiscal rules than by a genuine belief that this change is the right thing to do. [Interruption.] I am asking the Minister to give us a reason why it is deferred and to explain that logic.

Lords amendment 5, tabled by my colleague Baroness Kramer, would raise the proposed threshold from £2,000 to £5,000 on NICs-exempt savings. That would at least mitigate the impact on many lower and middle earners. This would be a sensible way to ensure that it is genuinely those who can afford to pay more who are impacted by this change. The proposed threshold of £2,000 will undoubtedly hit people on relatively modest incomes who are simply trying to do the right and sensible thing and plan for their future. The CBI has also expressed its strong support for a threshold at £5,000.