National Insurance Contributions (Employer Pensions Contributions) Bill

Torsten Bell Excerpts

2nd reading
Wednesday 17th December 2025 Commons Chamber

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

I beg to move, That the Bill be now read a Second time.

This is a short and simple Bill. It is a stocking filler to yesterday’s Finance Bill. [Interruption.] There are just three clauses for the chuntering Opposition Members to enjoy. They focus on amending the Social Security Contributions and Benefits Act 1992, and they do so to create a power to apply national insurance contributions to salary sacrifice pension contributions above £2,000 a year from April 2029.

I will focus my remarks on three areas: first, why Government action in this regard was inevitable; secondly, the case for the pragmatic, balanced approach that we propose to take; and thirdly, how this sits with wider, crucial questions about pension savings on which the House rightly focuses.

[Jim Shannon (Strangford) (DUP)]

My intervention will be very brief. The Federation of Small Businesses in Northern Ireland has told me of its concerns about national insurance contributions, but it has also told me that utility prices are up by 52.7%, labour costs by 51.5%, and taxes by 47.2%. I ask the Minister respectfully how he and the Government can expect small businesses to survive increases at that level.

[Torsten Bell]

I will come to the exact point that the hon. Gentleman raises. The main answer to his question is that we are introducing this change with a very long implementation period—it will not come in until 2029—in order to give businesses and others time to adjust. Businesses have welcomed that across the board, but I will come on to it shortly.

It is always important to keep the effectiveness and value for money of tax reliefs under review; after all, their cost is estimated to be over £500 billion a year. That is always true, but it is especially true when we see the cost explode. That is why we acted in the Budget to reform employee ownership trust capital gains tax relief, because the cost was set to reach more than 20 times what was intended at its introduction.

That is what we see happening in the case of pension salary sacrifice: its cost is on course to almost treble between 2017 and the end of this decade. That would take it to £8 billion a year. For some context, that is the equivalent of the cost of the Royal Air Force. I will repeat that: the cost of pension salary sacrifice was due to rise to the equivalent of our spending, in real terms, on the Royal Air Force. The growth has been fastest among higher earners, with additional rate payers tripling their pension salary sacrifice contributions since 2017. While those on higher salaries are most likely to take part, many others are unable to do so at all.

[James Naish (Rushcliffe) (Lab)]

I understand the justification for making changes to the salary sacrifice arrangements. The Minister mentions higher earners. Can he explain a bit more about the breakdown of those who are benefiting under the current system as a percentage of the whole? I do not know whether he has that data with him.

[Torsten Bell]

I will come on to some statistics that might answer my hon. Friend’s question.

While those on the highest salaries are most likely to take part in salary sacrifice, others are completely excluded. This goes to the question from the hon. Member for Strangford (Jim Shannon).

[Dr Andrew Murrison (South West Wiltshire) (Con)]

Will the Minister give way?

[Torsten Bell]

I will make some progress before giving way again.

The majority of employers do not offer salary sacrifice at all, including many small businesses. Workers on the national living wage are excluded entirely, and so are the 4.4 million self-employed people across the UK. On grounds of cost and fairness, it is near impossible to defend the status quo.

Of course, a major part of the job of the Opposition is to oppose some things that the Government are doing. I do not want to prejudge the remarks that the shadow Minister, the hon. Member for Wyre Forest (Mark Garnier), will offer shortly, but I am confident that we will hear some opposition—maybe a word or two—to the Bill.

[Dr Murrison]

I am grateful to the Minister for arguing for more money for the Royal Air Force, and I very much hope that his colleagues in the Ministry of Defence and the Treasury are listening. We were told a little over a year ago that we had wiped the slate clean and that the Government would not be coming back to demand more money to fill various non-existent black holes. What has changed over the past several months that means he is now coming back to levy this very large sum of money?

[Torsten Bell]

I think I have already answered the right hon. Member’s question: it is important to keep tax reliefs under review. The cost of pension salary sacrifice is growing very fast indeed, so we have reviewed this tax relief and think it is important to bring in pragmatic changes, as I will come on to.

As I was saying, I am confidently looking forward—

[Lincoln Jopp (Spelthorne) (Con)]

Will the Minister give way?

[Torsten Bell]

I am going to make a bit of progress, and then I will give way to the hon. Member.

The truth is that reform was inevitable. Although Conservative Members are not saying it now, they know this is true, because it is what they said in government. In the 2015 summer Budget, they said:

“Salary sacrifice arrangements…are becoming increasingly popular and the cost to the taxpayer is rising”—

[Interruption.] I will come on to what the last Government wanted to do in the pensions space in a second. I am glad that the hon. Member for North Bedfordshire (Richard Fuller) is so keen to hear this; he is setting me up nicely for what is coming in a second.

The summer Budget of 2015 went on to say:

“The government will actively monitor the growth of these schemes and their effect on tax receipts”,

which is the same argument that I just made to the right hon. Member for South West Wiltshire (Dr Murrison). That monitoring led, a year later, to the then Chancellor—now Baron Hammond of Runnymede—announcing benefit-in-kind restrictions. He told this House:

“The majority of employees pay tax on a cash salary, but some are able to sacrifice salary…and pay much lower tax… That is unfair”.—[Official Report, 23 November 2016; Vol. 617, c. 907.]

He was right then, and the same argument holds today.

Former Conservative Ministers should certainly agree, because in government they were planning exactly the kind of change to pensions that we are now introducing. By way of proof, in 2023 the Conservatives commissioned research on restricting salary sacrifice arrangements for pensions, which is exactly the same measure they are opposing today. What was the proposed cap on pension salary sacrifice in that report? It was £2,000 a year, which is exactly the same cap they are opposing today.

[Lincoln Jopp]

The Minister seems to have co-opted the amount of money spent on the Royal Air Force into his argument. Is he aware that absent the defence investment plan—it was promised in the autumn, and the House rises tomorrow—we have no idea about the size, shape and cost of the Royal Air Force, because the Government are late with their homework?

[Torsten Bell]

I thank the hon. Gentleman, as I always do, because he always makes interesting points, but my larger point is this: if the Conservative party refuses ever to support any increases in taxation, increases in such spending—I think there is cross-party support for the Ministry of Defence, as the right hon. Member for South West Wiltshire mentioned—cannot be funded and cannot happen.

Almost every tax expert in the country has noted the need for change, and most have called for pension salary sacrifice to be ended entirely. However, we are taking a more pragmatic approach by recognising that change will affect many employers and employees. Our balanced approach has two key parts. The first is time. As I said to the hon. Member for Strangford, nothing will change overnight. We are providing over three years’ notice of the reform’s implementation. What did the previous Government provide to employers? One year’s notice of their reforms to salary sacrifice. This will give everybody involved time to prepare and adjust, which is widely welcomed by firms and business groups. Employers and payroll providers have already been working with His Majesty’s Revenue and Customs to ensure that this change operates in the most effective way, and that process will continue as we approach implementation.

The second key design choice is the cap of £2,000. This cap protects ordinary workers and limits the impact on employers, while ensuring that the system remains fiscally sustainable. The cap means that the majority of those currently using salary sacrifice will be unaffected. It means that almost all—95%—of those earning £30,000 or less, who work disproportionately for small businesses, will be entirely unaffected, and 87% of affected salary sacrifice contributions above the cap are forecast to be made by higher and additional rate taxpayers. This is a pragmatic and fair approach, as well as the fiscally responsible one.

Some will claim—I am sure we will hear this from the Opposition—that salary sacrifice arrangements drive aggregate levels of pension savings. That is simply wrong. After all, salary sacrifice arrangements existed through the 2000s and into the early 2010s, and what happened to pension savings during that period? There were not rises, but big falls in private sector participation in pension savings. The existence of salary sacrifice did nothing to prevent a situation in which, by 2012, only one in three private sector workers were saving into a pension.

What made the difference was not the complicated national insurance reliefs available to some employees, but automatic enrolment, the groundwork for which was laid under the last Labour Government and which was continued by Conservative and Liberal Democrat Ministers. That reversed the collapse in workplace pension saving, and it means that over 22 million workers are now saving each month.

We also see that contributions have risen in line with regulatory requirements, not with the growth of salary sacrifice. Pension salary sacrifice relief doubled between 2019 and 2023. Was that associated with a surge in average pension contribution levels? No, they have remained entirely stable as a proportion of pay, because all the evidence indicates that it is largely automatic enrolment that drives changes in pension savings. That should not surprise anybody, because the research commissioned by the Conservative party that I mentioned earlier pointed in the same direction. It found that the majority of employers reducing their tax bill by offering pension salary sacrifice did not use the savings to increase pension contributions.

More importantly for any member of the public listening—and it is important for all of us to be clear about this throughout this debate—pension saving will remain highly tax-advantaged after these changes. I have seen some deeply misleading comments in the media and otherwise on wider changes to pension tax relief, saying that people will not be saving as much as they previously were. The public should be clear that we are spending over £70 billion per year on pension tax relief, and that will be entirely unaffected by these changes. Employer contributions will continue to be the most tax-advantaged part of the pension tax system, being made entirely national insurance contribution-free.

These are necessary changes that everyone who has thought about this subject knew would be needed, and they are changes being implemented in a pragmatic and balanced way. They are also consistent with the longer-term approach to reforming the pension system that is now in train.

There is cross-party agreement that the work of the Pensions Commission is important as it examines questions of adequacy and fairness. We all know too many people are under-saving. Many commentators have called for higher minimum saving rates within automatic enrolment, including some on the Opposition Front Bench. The commission is crunching the numbers and talking to employers, trade unions and the pensions industry. We should not prejudge its work so I would now simply note that higher savings rates means pension tax relief costs rising further. If we combine that with the reality that if pension salary sacrifice remains unreformed, the end point could be all employee contributions being funnelled through this route, it implies costs at least doubling again to well over £15 billion a year, which means £15 billion in higher taxes elsewhere or cuts to public services. That is the logical conclusion of the arguments from those opposing today’s Bill.

Then we come to the real problem of some groups disproportionately under-saving, which, again, Members on both sides of this House have rightly raised in debates on pensions in recent months. The Pensions Commission is focused on groups we know are most exposed, including low earners, some ethnic minorities, women and the self-employed. This is a real challenge for our pension system but the data is entirely clear that today’s salary sacrifice is not the answer. That is true whichever group we look at. Let us take them in turn. The self-employed are a top concern, with only one in five saving into a pension, but they are entirely excluded from pension salary sacrifice. Low earners are most likely not to be saving, but it is higher earners who are most likely to be using salary sacrifice. And many more women are under-saving for retirement, but many more men use pension salary sacrifice.

These are fair and balanced reforms. They protect ordinary workers, they give employers many years to prepare, and they ensure both our pension system and the public finances are kept on a sustainable footing. Opposing them is not cost-free: the savings from this measure are equivalent to over 250,000 knee and hip operations every year. The truth is that they are inevitable, which is why at least one party opposite was planning to introduce them. I gently suggest to some Members that they can, of course, take the easy route of opposing this change, but the truth is that they will be doing so with their fingers crossed behind their backs, because many know this change needed to come one day, and I suspect not one of the parties opposite will promise to undo it in the years ahead—but we will see.

The Budget delivered badly needed tax reforms ducked for too long by previous Chancellors. Whether it is the pragmatic reform in front of us today or ensuring that everyone driving on the roads contributes to their upkeep, these reforms are what it takes to keep cutting waiting lists, cutting borrowing and cutting energy bills, and I commend them and this Bill to the House.

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[Torsten Bell]

Your report!

[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.

--- Later in debate ---

[Dr Neil Shastri-Hurst (Solihull West and Shirley) (Con)]

It strikes me that it should not be particularly controversial that a Government should be encouraging people to save for their retirement, to take responsibility for their future and to feel secure in later life. Therefore, although we are dealing with a short Bill that appears to be purely procedural in nature, its practical consequences are profound, because it takes us in precisely the wrong direction.

Beneath the layer of technical language lies a troubling choice. It is a choice to tax aspiration, penalise prudence and chip away at the very habits that ensure financial security in our later years. The Government have sought to assure us that this only affects high earners and that most will not be affected, but that is not how it will feel to the majority of people in the real world. One in five people—approximately 20%—rely on salary sacrifice. Those are people who are doing the right thing; they are choosing long-term security over short-term consumption. Yet under the Bill, to save means to pay more. That is not positive pension reform; it is a stealth national insurance rise, dressed up in the cloak of technicality.

At a time when businesses are struggling under huge wage bills, regulatory uncertainty and sluggish growth, the Bill quietly imposes on them yet another burden. I remind Government Members that fairness cuts both ways. It is not fair to tell people to save for their future and then tax them more for doing so, it is not fair to talk of fiscal responsibility when penalising prudence, and it is not fair to build long-term public finances on short-term revenue grabs.

There is a moral component to this, because women will be disproportionately affected. Many women, on returning from maternity leave, increase their contributions to cover for that career break. The proposals as drafted will result in those who plan responsibly being encumbered with higher additional national insurance charges.

[Torsten Bell]

I am reluctant to intervene, but I just want to pick up on two points that the hon. Member has just made. Men are much more likely to use salary sacrifice than women, so I offer him the chance to reconsider his last point about women being disproportionately affected. Before that, he said that the Bill meant that people were being encouraged to save but that they would be penalised if they did so. Given that there are members of the public listening who will make choices about their savings, I invite him to remind everyone that saving into their pension is still a very tax-advantaged thing to do. All Members on both sides of the House should encourage people to save into their pension, as the tax system will continue to do.

[Dr Shastri-Hurst]

The Minister is right that people should be putting into their pensions and we should encourage them to do so, but we should not put forward legislation that disincentivises that. In respect of women, it is a fact that they are more likely to take career breaks and, by virtue of that, they may want to make up their contributions. This legislation will disadvantage those individuals.

The salary sacrifice scheme has become the bedrock of the modern pension system in the workplace. By decreasing gross pay, it decreases employer national insurance contributions and allows firms to invest more in their people. That is a positive step. My fear is that, as a consequence of this piece of legislation, many employers may scale back those contributions, cut other benefits associated with work or even discontinue schemes entirely. If we want a country that values responsibility and rewards work, and in which people make long-term plans for their economic security, I am afraid that the Bill takes us in entirely the wrong direction.

National Insurance Contributions (Employer Pensions Contributions) Bill

Torsten Bell Excerpts

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

[Mark Garnier]

I completely agree. That is a fundamental problem. We are doing completely the wrong thing for people who want to do the right thing. We are disincentivising people taking responsibility for their future at a time when the state pension is coming under a lot of pressure. It is expected in 11 or 12 years, I think, that less money will be paid into the pension schemes pot than is withdrawn by those of us who are approaching retirement—I declare an interest, in my own case.

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

You have years to go.

[Mark Garnier]

I thank the Minister very much.

--- Later in debate ---

The Bill removes a helpful incentive for long-term financial planning and will place a costly additional burden on small businesses at a time when they can least afford it. I think it is an unwise, short-term move with no regard for the longer-term consequences that will cost the Treasury more than the Bill brings in, so I urge the Government to reconsider. For this reason, I will be pushing to a vote this afternoon the Liberal Democrats’ new clause 5, which would require the Government to calculate and publish the changes to lifetime pension values before and after the changes made in this Bill have taken effect, and we will be voting against the Bill.

[Torsten Bell]

I thank the hon. Member for Wyre Forest (Mark Garnier) for the reminder of the excellent debate we had before the Christmas break. I thank him and the hon. Member for Witney (Charlie Maynard) for their contributions. I will briefly reiterate the case for the three short and perfectly formed clauses of this Bill before focusing my remarks on the hon. Members’ amendments.

As hon. Members know, this reform was inevitable. We have had a detailed discussion of the last Government’s secret plan to implement a very similar proposal—the “secret plan” label came from the Conservative party, not Government Front Benchers—and the cost of pensions salary sacrifice was due to almost treble, from £2.8 billion in 2017 to £8 billion by 2030. That is the equivalent of the cost of the Royal Air Force. The status quo is also hard to defend when low earners and the 4.4 million self-employed people across the UK are entirely excluded, reinforcing the point made by my hon. Friend the Member for Harlow (Chris Vince).

[Steve Darling (Torbay) (LD)]

The Minister will recall our many happy hours together in Committee on the Pension Schemes Bill. One of the issues that the Liberal Democrats raised was the need for an MOT for people as they approach pension age, to see how their pension is going and test its adequacy. Does the Minister accept that putting these stark restrictions in place will significantly restrict the ability of somebody who realises that they are running out of time to make additional contributions to their pension to get to a better place? Would he consider extra flexibility, so that people could perhaps use 10-year allowances in three years?

[The Second Deputy Chairman]

Order. I remind Members that the scope of this Bill is very narrow indeed, and we really ought not to be bringing in new concepts.

[Torsten Bell]

Thank you, Ms Nokes. I will follow your advice, but will try to respond to some of the hon. Member’s points when I address the question of how we have gone about making the changes that this Bill introduces.

As I have said, change is inevitable, but it is important to take a pragmatic approach, which is my answer to the hon. Member for Torbay (Steve Darling). The Bill is pragmatic in that it continues to allow £2,000 to be salary sacrificed free of any NICs charge, ensuring that 95% of those earning £30,000 or less will be entirely unaffected. It is pragmatic in that it gives employers and the industry four years to prepare.

[Chris Vince]

The Minister has said that the cost to the Exchequer of the salary sacrifice scheme is going to triple by the end of this decade. Does he agree that that is unsustainable for the Treasury, and also that we in this Chamber have to get real? The reason why people in my constituency of Harlow cannot even begin to think about pensions or savings is that they are living day to day. What this Government need to do is tackle the cost of living crisis, and that is what they are doing.

[Torsten Bell]

In a shock move, I entirely agree with my hon. Friend. Members of those parties who have said that they intend to vote against this Bill today cannot keep coming to this Chamber, day after day, calling for additional spending in more areas, while opposing any means of raising taxes. [Interruption.] Well, you have raised the welfare budget, and without trying—

[The Second Deputy Chairman]

Order.

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[Torsten Bell]

No, I will not mention the welfare budget.

[The Second Deputy Chairman]

Order. First, I have not raised anything. Secondly, we are not here to debate the welfare budget. This is a very narrow Bill with limited scope. The Minister can listen to the same strictures I have given to other Members.

[Torsten Bell]

I am listening to every word of your strictures, Ms Nokes. This Bill is also pragmatic by providing time to adjust and by ensuring that saving into a pension remains hugely tax-advantaged. I say gently to Members who do not agree with the detail of this Bill that they should be careful not to give the impression to savers or those not saving that there is not already a strong financial incentive to continue pension saving in exactly the way people have been doing. Clause 1 provides for that pragmatic approach in Great Britain. Clause 2 does the same for Northern Ireland, and clause 3 provides for the territorial extent and start date of these measures.

I will turn more substantively to the amendments tabled by the shadow Minister and the hon. Member for Witney. At one level, I was glad to see amendments 5 and 6 tabled by the shadow Minister, which aim to exempt basic rate taxpayers. It shows the Opposition, as part of the secret plan that I mentioned earlier, accepting the inevitability of change and instead grappling with what the right pragmatic version of that looks like. In many ways, the amendments aim to deliver the same objective as the £2,000 cap, which, as I said, will mean that 95% of those earning less than £30,000 are unaffected, as are the vast majority of basic rate taxpayers.

[Sir Ashley Fox (Bridgwater) (Con)]

Can the Minister explain what is pragmatic about withdrawing a 2p in the pound tax relief from a higher rate taxpayer without a student loan, while withdrawing a 17p in the pound tax relief from a basic rate taxpayer who happens to have a student loan?

[Torsten Bell]

The pragmatic approach is to allow people to continue with salary sacrifice up to £2,000 and to not bring in the measure for four years, so that people have time to adjust. Opposition Members will need to justify wanting to spend more than is being spent on the Royal Air Force on that—I sat through Prime Minister’s questions today, and I heard people calling for more defence spending—while not being able to live up to what that requires, which is taking seriously that we spend tax reliefs effectively. For everybody, there will still be a strong tax incentive to save into their pension.

Taking the approach that the Opposition propose, rather than our proposed cap, would likely be impossible to implement in practice and add unnecessary complexity. That is not least because employers would in many cases not know which employees would end up being basic rate taxpayers. They certainly would not know for sure until the end of the financial year, or at least late on into it.

Amendments 7 and 8 would uprate the cap by inflation. The Government have set out our policy intent for a £2,000 cap to be introduced in April 2029, with the timing driven by the desire to give everyone time to adjust. In that context, it does not make sense to index that cap ahead of 2029. Our view is that the future level of the cap in the next decade and beyond is for Budgets in those decades—or at least significantly closer to them. I know that Members are keen to start debating the 2031 Budget, but having heard from Ms Nokes, I think we should leave that for another day.

Our approach is consistent with the one that this House has taken under Governments of all three main parties, which is to have key elements of the pension tax system that are not routinely indexed, including the annual allowance. It is of course right that this and all Governments will want to keep the cap under review to ensure that it continues to meet the objectives we have set out today.

Several of the new clauses probe at the impact of the changes. The Government have published a tax information and impact note alongside the Bill. It sets out the impact of the policy on the Exchequer, the economy and individuals and businesses. It also provides an overview of the equality impacts.

New clauses 1 and 2 focus on SMEs. I have heard suggestions—this has been gently hinted at today—that SMEs are more likely to be affected. The opposite is true. Only 39% of employers offer pension salary sacrifices, and small businesses are less likely to do so than larger businesses. Indeed, the status quo puts SMEs at a disadvantage relative to their larger competitors, which is the opposite of the point that the hon. Member for Witney wanted to make.

New clause 3 focuses on marginal tax rates, but the changes in the Bill do not directly affect a person’s marginal tax. Those wanting to make pension contributions to keep their taxable income below a certain level can continue to do so, and I have read much misleading commentary on that point.

New clause 4 proposes an impact assessment of the changes before they take effect and five years after. I again commend the hon. Member for Wyre Forest, who is showing admirable zeal for supporting the argument that I made on Second Reading that any responsible Government should keep the £500 billion of tax reliefs under review to ensure that they are delivering efficiently on their objectives. That is the exact thought pattern that identified this relief as needing reform. I look forward to the shadow Minister changing his mind and supporting our measures. The Government should and will continue to keep this and all taxes and tax reliefs under review, rather than singling this particular relief out via primary legislation.

I turn briefly to new clauses 5 and 6, which focus on the impact on pension savings. I can reassure the Committee that the Office for Budget Responsibility has set out that it does not expect any material impact on savings as a result of the Budget 2025 tax changes. I hope that these remarks reassure Members on the points that their amendments have raised. I commend the Bill to the Committee.

Question put, That the amendment be made.

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[Torsten Bell]

I beg to move, That the Bill be now read the Third time.

The Bill amends the Social Security Contributions and Benefits Act 1992, creating a power to apply employer and employee national insurance contributions on salary sacrifice pension contributions above £2,000 a year from April 2029. Reform of this type, as I have said, was inevitable. The cost to the Exchequer of salary sacrifice pension schemes was due to almost treble by 2030 without reform. The Government are taking a pragmatic and balanced approach to that reform: first, by introducing a cap so that ordinary workers are, in the vast majority of cases, unaffected; secondly, by giving employers, employees and providers a long lead-in time, so that everybody has plenty of time to prepare; and thirdly, by ensuring that saving into a pension, including via salary sacrifice, remains hugely tax-advantageous. The Government continue to provide over £70 billion of income tax and national insurance relief on pension contributions each year. Employer pension contributions will remain the most tax-advantaged part of the system.

In this debate and others on pensions, we have heard strong cross-party consensus that greater pension adequacy is important. We all look at the forecasts for private pension income and see that they show lower private pension income on average for those retiring in 2050 relative to those retiring today. That is not an acceptable place to be. Answering that question is the job of the Pensions Commission, which we have put in place with cross-party support. It is rightly examining the question of retirement income adequacy and fairness. I gently note that those groups that we all agree are under-saving for retirement, such as low earners and the self-employed, are precluded from using salary sacrifice or are much less likely to use it than other groups.

Part of what we are doing through the Bill is delivering badly needed reforms to the tax system alongside other measures from the Budget. These measures are what it takes to keep waiting lists falling, cut borrowing and cut energy bills in the years ahead. Those who do not wish to support changes like these cannot have it both ways and call for additional spending, additional support on energy bills and the rest.

More generally, it is important that we all consider the effectiveness of tax reliefs in the system, which cost a cumulative £500 billion a year. If we defend the status quo, even in the face of tax reliefs, which are hard to justify and whose costs are rising significantly, that means that higher taxes for everybody else. We are not prepared to see that happen.

Indeed, I am sure that in their hearts the Opposition parties also believe that these reforms are necessary. As a test of that, I invite the shadow Minister to stand up and commit to reversing the changes if—though it is very unlikely—the Conservatives ever happen to form a Government again. I am 100% sure that he will not do that, because he knows that these changes need to be made. On the basis of what should be cross-party support, I commend the Bill to the House.

[Madam Deputy Speaker (Caroline Nokes)]

I call the shadow Minister.

National Insurance Contributions (Employer Pensions Contributions) Bill

Torsten Bell Excerpts

Consideration of Lords amendments
Monday 23rd March 2026 Commons Chamber

[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.

[Jim Shannon (Strangford) (DUP)]

I thank the Minister for bringing this Bill forward. He brings a good story to the House, but sometimes these decisions give rise to questions. My constituents believe that the Bill creates a financial disincentive for middle-income earners to save for their retirement. Does he not agree that this risks creating a pensions gap, with individuals becoming more dependent on the state in later life, which will cost the taxpayer more in the long run than the tax relief costs today? My constituents feel that, and I am asking the Minister the question. How would he answer it?

[Torsten Bell]

The hon. Member always raises questions brought up by his constituents, which we know is a valuable part of the work he does in this place. The direct answer to his constituents is that all of them have a very strong tax incentive to save for their pension, without salary sacrifice. We spend £70 billion a year to provide that incentive, whether via the lump sum or the national insurance exemption for employer contributions. I hope the main thing he says to any of his constituents who come through the door is that they have a very strong incentive to save, whatever their circumstances. On the pension gap, that is why we have revived the Pensions Commission. Its work is ongoing, and I am sure he will read in detail its interim report, which will be coming out in the coming months.

[Chris Vince (Harlow) (Lab/Co-op)]

I like to think I represent my constituents as well as the hon. Member for Strangford (Jim Shannon) does his, if anyone could. My constituents are really concerned about the pension gap, because the reality for many of them is that they do not earn enough money to begin to think about saving for a pension. Those are actually the things this Government should focus on, not tax reliefs for higher earners who can afford an additional small bit of tax. Personally, as a resident of Harlow, where a number of young people are in poverty, I will not have sleepless nights over this tax change.

[Torsten Bell]

As always, I thank my hon. Friend for his remarks. He was pretending that the competition is about who is the better MP, but we know it is really about the volume of speaking in this Chamber. The two of them are running it close, but never testing the patience of this House. It is amazing that you have allowed them both in this early in the debate, Madam Deputy Speaker, because that is what the closing minutes of every debate in this House should be about. It is important to have traditions, and they both deliver admirably, but I will make some progress before we get sidetracked entirely.

I was talking about the pragmatic approach we are taking to this change. As I have said, there will be no change until 2029, and the £2,000 cap means that salary sacrifice contributions can continue. That recognises the fact that that has become an established process in several companies and for individuals, so we are giving people time to adjust. The hon. Member for Strangford (Jim Shannon) raised that, and I have responded by saying that this is pragmatic because pension tax relief continues in its entirety. It is important to remember that relief is available to all savers, not just to the minority who have salary sacrifice available to them.

With that in mind—and I am sure that the hon. Member for Wyre Forest (Mark Garnier) for the Conservatives will have decided to support the Bill in its entirety having listened to those powerful arguments—I turn first to Lords amendments 1 and 7, which would exempt basic rate taxpayers from the operation of the Bill, and Lords amendments 5 and 11, which would increase the contributions limit to £5,000. The Government’s balanced and pragmatic approach, with the £2,000 cap, means that 74% of basic taxpayers using salary sacrifice will be entirely unaffected. The small proportion of basic rate taxpayers with contributions above the cap will still be getting the national insurance contributions relief on the first £2,000 of contributions made via salary sacrifice, in addition to the full income tax relief that is available to all employee pension contributions.

Exempting basic rate taxpayers in the manner proposed would be incredibly difficult to operate. An individual’s tax band is not knowable until the end of the tax year, which means employers would be required to carry out complicated calculations at the end of the year to reconcile the figures, and they would need to know their employees’ other sources of income, which I do not think anyone would believe is a good idea.

[Sir Ashley Fox (Bridgwater) (Con)]

The Lords amendments might not be perfect, but do they not set out the principled objection to the Government taxing some basic rate taxpayers more for choosing to save for their pension and at the same time using that money to increase welfare spending?

[Torsten Bell]

No, that is not what is going on. What will happen is that everybody will still have a strong tax relief incentive to save for their pension, and by taking a sensible approach to reforming that, we will avoid seeing the cost of the tax relief rise to the same level as the cost of the RAF. I listen to Opposition Members day in, day out calling for more defence spending. There are consequences for that. One of them is that we have to do our job of looking carefully at the quality of our tax reliefs, and that is what we are doing today. Hon. Members should support us in doing that.

[Sir Ashley Fox]

Rather than raising taxes, could the Minister perhaps not send £36 billion to the Government of Mauritius to rent back an airbase that we already own?

[Torsten Bell]

That is a question the hon. Gentleman should put to his Front Benchers, who opened the negotiations with Mauritius in the first place. Opposition Members come to the House making cheap points, because they used to take seriously the job of government and they have given up entirely. I will make some progress now, having engaged with the hon. Member who obviously gave up on the job of serious government some time ago.

A world where 95% of those earning £30,000 or less and contributing via a salary sacrifice are unaffected makes the case for the £2,000 cap I have set out, but the Government agree with the sentiment raised in the Lords about keeping it under review. The Bill allows for that to take place in future.

That leads me to Lords amendments 2 and 8, which would exempt salary sacrifice pension contributions over the £2,000 cap from the calculation of student loan repayments. It is right that we focus on the outcomes for younger generations too often let down by the failures of the previous Government. I gently remind Conservative Members—there are only two of them here, but there are some Liberal Democrats who deserve some of the “credit” too—of their track record on this matter: trebling tuition fees, raising interest rates, scrapping maintenance grants and the rest. And that is before I get to not allowing anything to be built. That is what younger generations are being let down by.

On the specific proposal, it is worth noting that while salary sacrifice arrangements can reduce the student loan repayments made, they do not reduce the total amount due for repayment. Much more important is the fact that the £2,000 cap means that young graduates are broadly unaffected. In fact—these are new figures that were not available for the discussion in the Lords, but as this issue has been raised and brought to the Commons, I will provide them—the £2,000 cap means that 90% of graduates under the age of 30 repaying student loans who are saving into a pension will be unaffected, in the sense that 90% of them save less than £2,000 a year. I hope that provides some reassurance to Members who have raised that point.

Lords amendments 3, 4, 9 and 10 would make the regulation-making powers in the Bill subject to the affirmative procedure, except for those which solely increase the contributions limit. The Government agree on the importance of maintaining strong parliamentary scrutiny, particularly where changes could affect individuals’ national insurance liabilities. However, the Bill already contains a series of safeguards and the legislative approach taken follows long-standing precedence for national insurance legislation. In addition, the Delegated Powers and Regulatory Reform Committee has carefully scrutinised the powers in the Bill, including the proposed level of parliamentary scrutiny, and concluded that there is nothing in the Bill that it wishes to draw to the special attention of the House.

Lords amendments 6 and 12 seek to exempt small and medium-sized enterprises, alongside smaller charities and social enterprises, from the Bill’s provisions. Again, the Government agree on the importance of supporting small businesses—I am sure that that is a matter of cross-party support—but small businesses are much less likely to use salary sacrifice than larger businesses. Furthermore, the £2,000 cap means that 90% of employees in SMEs making pension contributions through salary sacrifice will be entirely unaffected. Indeed, the largest benefits from uncapped salary sacrifice accrue to larger businesses, not smaller ones. In practice, the changes in the Bill will help to level the playing field between small businesses and their larger competitors. Those wanting to see support for small businesses should support the measures in the Bill. The Government are engaging with employers, payroll professionals and software developers to ensure that the changes are implemented in the least burdensome way possible for employers of all sizes.

I hope that right hon. and hon. Members will understand why it would not be right to support the amendments from the other place, even though we recognise the valuable objectives that have in many cases motivated them. As I said, the Government spend over £500 billion each year on various tax reliefs within the tax system. That is more than double the entire annual NHS budget. The size of the spend means that the Government must always keep the effectiveness and the value for money of those reliefs under review. These are necessary, pragmatic and fair reforms that protect ordinary workers while ensuring that public finances are kept on a sustainable footing. I respectfully propose that this House disagrees with the amendments.

--- Later in debate ---

[Torsten Bell]

I am grateful to the shadow Minister, the hon. Member for Wyre Forest (Mark Garnier), and the Liberal Democrat spokesperson, the hon. Member for Witney (Charlie Maynard), for their contributions. I will not reiterate the arguments for the Bill as a whole, but I will try to respond directly to the points that they have made.

The hon. Member for Wyre Forest explained that the Conservatives are opposed entirely to these changes, but of course he did not explain at all which bits of the NHS services they would cut, since they obviously do not support the revenue being raised from this sensible—[Interruption.] Which bit of the benefits system would they like to change then?

[Sir Ashley Fox]

The two-child benefit cap. [Hon. Members: “Hear, hear.”]

[Torsten Bell]

Here we have it again: when the Conservatives are faced with any difficult choice, the answer is higher child poverty. It is the answer to every question they are ever faced with. They stand up day in, day out and say that what they want to see is higher child poverty—and they cheered enthusiastically for it just then.

I will move on. Not only can the hon. Member for Wyre Forest not say which bit of the NHS he would like to cut because he opposes these changes, but he cannot even explain why the Conservatives were planning to implement exactly these kinds of changes when they were in government—before their whole giving up on being serious people thing.

[Sammy Wilson (East Antrim) (DUP)]

Will the Minister accept that if these changes go through and people save less for their future, we will have pensioner poverty? That is the impact of these measures.

[Torsten Bell]

Absolute nonsense. Members of the House should be reminding everybody in this country that they have a strong incentive to save for their pension, not misleading them by implying that they will somehow lose out by saving for their pension. That is not the case, and it is really important that we are consistent in our messaging to the public about that. I will come back to the wider point about the levels of saving in society.

The hon. Member for Wyre Forest also asked questions about savings gaps, and he was right to do so. Unfortunately, however, he talked nonsense about that. He talked about the self-employed, low earners, women and those working for SMEs, all of whom do have lower pension savings rates, but all those groups who are under-saving are those least likely to use salary sacrifice. He talked about those on lower incomes, but as I said, 95% of those earning under £30,000 and contributing to a pension via salary sacrifice are completely unaffected. He claimed that the impact was largest on those on low earnings. That is nonsense, because 86% of contributions over £2,000 are from additional rate taxpayers. Those are the facts.

The hon. Member for Wyre Forest went on to invent a brilliant story of a young graduate struggling to get by who was somehow putting £5,000 into their pension every year. As I mentioned earlier, 90% of young graduates are saving £2,000 or less into their pensions. Why are they not saving more? Because their wages did not rise under the Conservative party. Why are they not saving more? Because that party did not build enough houses to help them get on to the property ladder. He asked—[Interruption.] I am glad to hear that all Conservative Members will stop opposing the building of homes in their constituencies in the years ahead.

The hon. Member asked about the implementation. As he mentioned, I have set out that it will operate on a per-job basis. He also asked about how it will operate over a pay period basis. As he knows, national insurance broadly operates on a pay period basis, but we are consulting with employers and payroll providers to ensure that we get that right. As is normal with national insurance legislation, we will set that out in the regulations.

I turn to the hon. Member for Witney (Charlie Maynard). It is not surprising that he, as a Liberal Democrat, opposes these measures but set out absolutely no ideas for how to pay for that. I look forward to him calling for more spending later this week—again with absolutely no idea how to pay for it. He raised timing. Directly to his two questions, we think it is pragmatic to give employers and individuals time to adjust—that is the basis for the pragmatic point that he raised. He also raised the scoring of that, which is a technical issue reflecting how the national accounts deal with the claiming back of tax relief for some pensions. He also mentioned the OBR. If he looks at its report, he will find that it set out that the Budget measures will have no material impact on savings levels.

To end on a point of wide cross-party consensus, both hon. Members raised the case that people do need to save more for their pensions—the right hon. Member for East Antrim (Sammy Wilson) just did so, too—and we all agree on that, and particularly those 45% of working-age adults who are currently saving nothing. As I said, that includes in particular groups such as low earners and the self-employed, for neither of whom is salary sacrifice available. The answer to that is the work of the pensions commission, which I hope will continue to operate on a cross-party basis. Its interim report will be coming forward soon, and I will commend its work to the House. For today, I am afraid that the Government will oppose the Lords amendments.

Question put, That this House disagrees with Lords amendment 1.