National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Londesborough Excerpts

Tuesday 24th February 2026 Grand Committee

[Lord Mackinlay of Richborough (Con)]

My Lords, let me make my declaration. I am a chartered accountant and chartered tax adviser, so such legislation is the thing I live for on a daily basis.

My noble friend Lady Neville-Rolfe has laid out the ambitions of pensions. Unfortunately, in the first 18 months of this new Government, pensions are seemingly no longer protected as something desirable—that is, something we wish on our population so that they can build for the future and have a good, well-funded retirement.

Let us consider what this new Government have already done. One of their first moves in their first Budget in 2024 was to lay out the framework for bringing private pensions into the net of inheritance tax. As an adviser, I have to say that, when my previous Government introduced a measure to take personal pensions out of IHT, it was a very generous measure, but it has, I think, proved its worth. I was somewhat sceptical— I am one of those people who likes a low tax regime—but having IHT-free pensions was always quite a generous measure. Over time, it has shown itself to be a very good measure, because people are contributing towards pension funds in a way they may not have been encouraged to do. That has to be to the good.

I am sure that I do not need to tell this Committee about a lot of the planning behind pensions and why people do it. The reason outlined by my noble friend Lady Neville-Rolfe for exempting lower rate taxpayers from this regime is a good one. I say this as a practitioner: if the thought is that this is some loophole that is massively exploited by the great body of UK taxpayers, that has never been my experience, I am afraid. I do not see levels of salary sacrifice that would be sufficient to have even put this on the radar in the first place, frankly.

Why do basic rate taxpayers pay into pensions? I am afraid that not enough do. Thankfully, the implementation of auto-enrolment under our last Government will, I think, bear fruit as one of the most positive footprints that we left. We will, in time, have hundreds of billions of pounds put aside in good funds. Nest has been a great success, offering a variety of funds that taxpayers can choose, from lower risk to higher risk, and there is even a sharia fund, which was news to me. No matter what, the whole spectrum of the UK taxpaying base in auto-enrolment will be building up a fund for the future. During our time in government, we thought pensions were a good; they will restrict the number of people who may be looking for or needing pension credit in the future, because they have built up a decent amount for themselves.

For the 40% taxpayer, of course, putting aside for a pension is almost a no-brainer, because the tax saving is a good in itself, even if one is putting into a slightly riskier equity-based fund. Because you protected it through a good amount of tax relief, the downside still makes taking a bit of a risk worth while. Again, over time, risk usually means a potentially higher return. For those stuck over that £100,000 to £125,140—whatever it is—threshold for the 60% rate, one does not really need to be a rocket scientist to know that using pension planning to try to get back below £100,000 is a good deal. Beyond that, at 45%, pension planning is a very good way to go. For the higher rate taxpayer, it is so obvious to do that type of pension planning. That follows some of my noble friend Lady Neville-Rolfe’s thinking that the higher rate taxpayer does not particularly need that additional help, even though I am never one to say that more taxes should be paid.

For the basic rate taxpayer, however, we need to encourage as much as we can. There is not much encouragement from the 20% relief; that is not very dynamic or exciting. Dare I say that if one stays a basic rate taxpayer, the risk of inheritance tax will potentially not fall on that type of family, given that you have two £325,000 thresholds and the relief for domestic property, potentially allowing £1 million for a couple? It is a broad-brush but perhaps reasonable guess that, if one stays a basic rate taxpayer throughout life, the £1 million threshold will probably be exempt from inheritance tax. It is exactly those people who need the help and support.

What we see with this legislation is not any grand plan for pension planning; there is a grand plan to take a little more money from a lot of taxpayers for the benefit of the Treasury. In so doing, I am afraid that this Government are in serious danger of destroying those really good foundations that we laid—with the support of the Labour Party at the time, broadly—in personal planning, particularly in auto-enrolment, and all that good work done over many years.

In support of my noble friend Lord Leigh of Hurley’s very clever observation, which had escaped me, about the recognition of income for the purpose of calculating income for the student loan, it may be that the Financial Secretary to the Treasury’s interpretation is that there is nothing to worry about and this is already covered and will never be pursued. If that is the case, a statement from the Floor today would be helpful in that regard. Even if there is some ambiguity, which I have no doubt that there is between this multitude of regulations —for national insurance, student loan and taxation purposes—I see no reason why the Government would not adopt this amendment as very sensible. I thank my noble friend for pointing out something that the drafters had perhaps not seen in the first place.

I will be speaking, no doubt, at regular points during the day, but these are my initial observations. The Government should be very careful: they are destroying a very good bedrock, which we created, of pensions that were to benefit many millions of people across this country. This is a small tax-raiser too far, which will bear dreadful fruit into the future.

[Lord Londesborough (CB)]

My Lords, I support all the amendments in the first group but will restrict my comments to Amendment 1 in the name of the noble Baroness, Lady Neville-Rolfe. This concerns the £2,000 cap in Clause 1, which unfortunately hits a crucial cohort of workers: those going through the gears, where their earnings are moving up from around £25,000 per annum to £50,000. There is a disproportionate impact on the younger end of the workforce—those getting promotions and taking on added responsibilities —whom we as a nation need to encourage to increase their pension contributions, given our rapidly ageing population. This cohort’s life expectancy may be nearer 90, if current trends continue.

There is also a disproportionate impact on our SMEs, which I will address in more detail later. Given the high preponderance of basic rate taxpayers in their workforces, the Bill will, as it stands, make growth, recruitment and retention of staff that much harder, at a time when they are still absorbing the £25 billion hike in employers’ national insurance contributions.

My final point at this stage is on bonus payments, specifically bonus sacrifice arrangements, which are a particular target of the Bill. This really is not smart economic policy, given our need for a performance-driven workforce, where bonuses on merit play a critical role in improving productivity, especially in the private sector. Frankly, they should also feature more, not less, in the public sector.

[Lord Ashcombe (Con)]

My Lords, clearly there remains a tension within government between the Department for Work and Pensions and the Treasury. As we heard at Second Reading, the DWP is focused on encouraging people to save more for their retirement, yet the Treasury continues to pursue measures to fill its coffers, while increasing the burden on both employees and employers yet again.

The Minister spoke of protecting ordinary workers yet, in many cases, the Bill does the opposite. It penalises individuals who are trying to act responsibly, and prepare for a secure and dignified retirement, by removing the very tool—national insurance relief—that was put in place to assist saving for a pension. With the average salary, as we have heard, being around £37,500, anyone on that income who sacrifices more than £2,000 into their pension will face an additional national insurance charge of 8% above that £2,000. That will be a penalty and the reality for all basic taxpayers.

It is difficult to imagine that the DWP can view this outcome with enthusiasm. Once again, the Treasury appears to be prioritising short-term revenue over long-term stability, leaving future Governments to address the financial consequences created today. It is precisely these workers—those on modest incomes who are doing the right thing by saving—who need the most support in building their pensions, rather than being pushed towards greater reliance on the state in the future.

For that reason, I strongly support, and I believe the DWP would agree—I have not spoken to the department —Amendments 1 and 14 in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham, and the noble Baroness, Lady Altmann. Briefly, I also support my noble friends in their Amendments 2 and 15, having heard the arguments this afternoon concerning the definition of higher earners. It is simplicity to me that transparency is essential, as opposed to opacity, which can lead only to confusion. Therefore, I believe that this issue should be tied down.

Finally, I would also like to offer my support to Amendments 3 and 16 in the names of my noble friend Lord Leigh of Hurley and the noble Baroness, Lady Altmann. Many graduates, including my two sons, already shoulder a significant and in many cases unnecessary burden in repaying their student loans at interest rates that feel wholly disproportionate. It is not until they are paid about £66,000 that they start to pay down the interest. There are few graduates—probably even fewer in the current hiring climate—who reach this sort of pay quickly. I suspect it takes at least five years —that is the case for one of my sons on the fast track in the Civil Service—and much longer for the majority.

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[Lord Londesborough (CB)]

My Lords, I will speak to Amendment 6, tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, which I have signed, and to Amendments 7, 11, 20 and 23, tabled by the noble Baronesses, Lady Kramer and Lady Altmann, to which I have also added my name. I am broadly supportive of all the amendments in group 3, including the very practical suggestions that we have just heard from my noble friend Lord de Clifford.

I will start with the very reasonable proposal in Amendment 6 to uprate the £2,000 cap by the percentage change in the CPI. I will not get involved in CPI versus RPI, which has just been very well covered by the noble Baroness, Lady Kramer. Without one of these mechanisms, we are allowing inflation and fiscal drag, as the noble Lord, Lord Altrincham, pointed out, to diminish the real contribution value of what will be for many significantly reduced salary sacrifice. These amendments address that and I believe they are hardly controversial.

Amendment 7 in the name of the noble Baroness, Lady Kramer, is more material in terms of the numbers, changing the contribution limit from £2,000 to £5,000, but, again, it has my support. My overarching concern about this £2,000 cap is that it will compound the existential problem of inadequate pension provision in this country. I encourage the Minister, if he has not already done so, to read carefully the latest report from the Economic Affairs Committee, Preparing for an Ageing Society. On that committee, I sit with the noble Lord, Lord Davies of Brixton, although we are both about to be rotated off, and one of us possibly removed entirely from this place—but that is a separate issue.

During the inquiry, expert witnesses warned us that, despite the success of automatic enrolment, we are in a situation where we have created an awful lot of small pension pots that are hard to find, hard to keep track of and, crucially, do not add up to enough, including those pension plans deemed to be in the upper quartile. UK people currently outlive their pension savings by about eight and a half years and, of course, the gap is even greater for women. As life expectancy increases, this problem will only grow worse.

[Lord Ashcombe (Con)]

My Lords, the amendments in this group either increase the level of pension contributions exempt from national insurance or seek to prevent fiscal drag. Both aims are very welcome. In many respects, the higher the exempt amount, the better; on the face of it, Amendment 9, in the name of the noble Baroness, Lady Altmann, is the most attractive in that regard. Although it does not provide protection against fiscal drag, she did explain why. That said, assuming inflation remains under control, it would take many years for average contributions to reach the equivalent of £10,000, one hopes, just as it would take a fair amount of time—half, obviously—to reach the £5,000 level proposed in Amendment 7 by the noble Baroness, Lady Kramer, and others. Both would, however, offer meaningful support to average earners who receive a windfall. My noble friend Lord Leigh of Hurley addressed the issue of bonuses earlier. Those earners may wish to act prudently by making a significant one-off pension contribution, without being caught by this punitive tax charge.

The amendment in the name of the noble Lord, Lord de Clifford, offers a simple and workable approach, which he explained, yet this modest uplift would not be free of any fiscal drag, as we already know the basic tax rate on which the salary sacrifice threshold will be based. However, the amount would move if the tax bands increased—if only. I fear that, in the long term, this would work against the very employees the noble Lord seeks to protect, but it is better than the £2,000 mentioned in the Bill.

Finally, I turn to the amendments designed to counter fiscal drag, a mechanism that, as we all know, is one of the least transparent ways in which Governments of all colours raise revenue. Who does it fall upon most heavily? Once again, it is the middle and lower earners of this country: the teachers, nurses, engineers and shop owners—the list goes on—the people on whom the nation depends. Yet the Bill risks penalising them for doing exactly what we encourage: saving responsibly for a decent pension in retirement. The amendments in the names of my noble friends Lady Neville-Rolfe and Lord Altrincham anchor the thresholds to the consumer prices index, while those in the names of the noble Baroness, Lady Kramer, and the noble Lord, Lord Londesborough, use the retail prices index, and we have just heard why.

However, taken together, this group of amendments is of real importance and I support them all, to a greater or lesser extent. We have to try to move this absurdly low number. Each of them, in different ways, seeks to protect the middle and low earners who are trying to do the right thing and save for their futures.

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[Lord Londesborough (CB)]

My Lords, I will speak to Amendments 12 and 26, tabled by the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham, to which I have added my name. I am also supportive of Amendment 27 in the name of the noble Baroness, Lady Kramer, to which I should have added my name; I apologise for not doing so.

I spoke in the previous group about pension inadequacy. This is especially true for employees in our start-ups, scale-ups and SMEs in general. So the exemptions proposed in Amendment 12 get my full support. I should declare my interests as a chairman, investor and adviser to a range of start-ups and scale-ups.

There is an element of Groundhog Day here: some noble Lords will remember that I tabled a similar exemption on behalf of SMEs in last year’s NICs Bill. With the invaluable support of the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, we achieved a majority of about 100 on Report. At that point, we issued some fairly blunt warnings in relation to jobs; I am afraid that those warnings have been borne out by the employment figures, especially at entry level and in part-time roles among SMEs. These same employers, who are struggling both to create new jobs—look at the vacancy numbers—and to sustain existing ones, face yet more complications and costs in the area of national insurance contributions. Increased burdens at a time when we desperately need to generate per capita economic growth are not well timed.

Some noble Lords will have read the recent letter a couple of weeks ago from the FSB—the Federation of Small Businesses—to the Chancellor of Exchequer. It made for particularly grim reading. More than a third—I emphasise that—of employers among SMEs plan either to shut down their companies or to reduce output due to higher employment costs, increased business rates and increased energy costs. If we want to protect our vital SME ecosystem, we need to stop punishing them—I say “punishing” because it is appropriate, as these are punitive measures—and complicating their business of employment.

In the light of what I have just said, there is a clear need for a review of the impact of the Bill on SMEs, as is outlined in Amendment 26, which also gets my full support.

[Lord Ashcombe (Con)]

My Lords, I support the amendments in this group in the names of my noble friend Lady Neville-Rolfe, the noble Baroness, Lady Kramer, and others—in fact, quite frankly, most of the noble Lords currently in Committee.

These amendments speak directly to the reality facing SMEs and charities, which are organisations that form the backbone of our economy and social fabric. These employers have already endured a succession of rising costs—I have a few to add, so I will go through them again—such as higher national insurance, changes to inheritance tax, increases in the minimum wage, new obligations under the Employment Rights Act, business rate adjustments and the continuing shock of energy prices. A handful of sectors have received modest relief but, for most, these pressures fall straight to the bottom line. The cumulative effect is profound.

Charities are no better placed. They are all under extraordinary strain, yet they provide services that the state itself cannot easily replace. How do these organisations continue to operate if further costs are piled on them? My noble friend mentioned the outrageously appalling numbers.

There is even more concern when donors are typically being more hesitant, due to the overall sentiment in the country to donate. This is not merely short-sighted; it risks creating far greater financial and social pressures for future Governments. The Bill adds yet another cost: it raises employment expenses at a time when many organisations are already stretched to breaking point. It undermines their ability to offer competitive pension packages, often one of the few tools available to attract and retain skilled staff. There is a high chance that these businesses will simply withdraw salary sacrifice schemes and may simply withdraw themselves from the market.

Implementation is scheduled for 2029, which gives these operations time to review the situation, which is, as we have heard, very complex. Many SMEs do not have HR teams to manage new thresholds, payroll changes or contract revisions. They will be forced to pay for external support that they can scarcely afford in the current climate. This is not a policy that encourages growth; it is one that diverts time, money and energy away from the very activities that drive economic vitality. This is on the basis of companies that employ on an annual basis, but what happens if they take on shift and seasonal workers who may have more than one occupation, which we have already heard quite a lot about? The complexity merely increases ever more, as does the expense, if the company is prepared to continue with salary sacrifice schemes at all.

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[Lord de Clifford (CB)]

I have the pleasure of supporting the amendment from the noble Baroness, Lady Kramer. At Second Reading, I raised behavioural change and the OBR’s forecast about the drop in income is essential. Employers will look to find the most tax efficient way to make pension payments, and therefore we need the OBR to make sure that it accounts for these payments. As an employer, although it will increase administration, if there is a saving to be made, we will look for opportunities to pay pension payments in alternative ways. We covered that earlier, and the Minister gave a little reassurance that employer pension contributions may be acceptable and will not be counted as a salary sacrifice. As an employer, that would be welcome.

[Lord Londesborough (CB)]

I will very briefly add one question about the OBR forecast. I think that the noble Baroness, Lady Kramer, said at Second Reading that she found the timing “weird”. I certainly find it extraordinary that we have a five-year forecast of which the first three years are irrelevant—they are zero—and then we have a 48% fall in the second year. This begs the question: where are the forecasts for years three, four and five? If we are following this trend, we have a fireworks display. As the noble Lord, Lord Altrinchan, said, the Government should not be indulging in short-term fiscal levers. Where are the forecasts for those years? These measures do not actually come into effect until the financial year 2030.

[Lord Livermore (Lab)]

My Lords, I will first address Amendment 31, tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham. I agree on the importance of transparency on the impact of this policy, including on employers. However, an additional publication is not necessary to achieve that objective. A number of documents have already been published in line with the usual practice for national insurance contribution changes, which comprehensively set out the impacts of this measure, including on employers.

The tax information and impact note was published alongside the introduction of the Bill. This sets out the number of employers expected to be impacted by this measure, the one-off costs—including familiarisation with the change, the training of staff and updating of software—and the 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. The Government also published a policy costing note, which includes detail on the costing of the measures, including the tax base, static costing and a summary of the behavioural responses expected by individuals and employers.

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

On Amendment 32, the OBR’s economic and fiscal outlook and its supplementary forecast—