Peers have set the stage for a showdown with the Government in demanding exemptions from a major tax hike for a range of groups, including GP practices, hospices, charities and small businesses.
The House of Lords inflicted a string of defeats against the Labour front bench in seeking carveouts from the employers’ national insurance increase set to come into force from April.
Measures contained in the National Insurance Contributions (Secondary Class 1 Contributions) Bill include increasing the rate of employers’ National Insurance Contributions (Nics) by 1.2 percentage points to 15%, with payments starting when an employee earns £5,000, down from the current £9,100.
Changes made in the Lords pave the way for a parliamentary tussle, known as “ping-pong”, where legislation is batted between the two Houses until agreement is reached.
The Treasury estimates the policy could raise £25.7 billion a year.
But the Office for Budget Responsibility (OBR) believes the actual amount of money generated for the Exchequer will be around £16.1 billion by 2029-30 as firms curb wage rises, cut hours and reduce profits while public sector employers get compensation for the change.
It has sparked wide-ranging concerns about the impact on jobs, economic growth, charities, nurseries, hospices and care homes.
Ministers argue difficult decisions have had to be taken to both repair the public finances and rebuild public services.
The heaviest defeat suffered by the Government was over a move to exempt the health and social care sector from the employers’ national insurance rise, including care homes.
Proposing the amendment Liberal Democrat peer Baroness Barker said: “In the health and social care sector, the sudden imposition of these changes to national insurance, along with the increases in the minimum wage, are going to threaten the existence of large numbers of providers.”
She was backed by fellow Liberal Democrat Baroness Kramer who warned: “We are trying to stop a disaster … The NHS does not work in isolation, it’s part of a much more holistic, complex landscape, and if you undermine the private elements of both social care and community healthcare, you undermine the NHS.”
The party was backed by the Conservatives, including former opposition leader Lord Howard of Lympne and former chancellor Lord Clarke of Nottingham.
Lord Howard, who is vice president of Hospice UK, highlighted the “devastating effect” the tax rise would have on hospice care.
He accused the Government of being “short-sighted”, because hospice care helps alleviate the problem of bed blocking in the NHS, and argued increasing employers’ national insurance would reduce their ability to help.
Tory shadow Treasury minister Baroness Neville-Rolfe said: “This Bill is the most important economic measure the Government have put forward since they took office and, as has become apparent from our debates … it is a misguided measure with numerous defects.”
Treasury minister Lord Livermore said: “This Bill is necessary to fund public services and the proposals contained in these amendments put much of this funding at risk.
“They would require either higher borrowing, lower spending or alternative revenue raising measures.”
Other changes backed by peers included an exemption for small charities and children’s special needs transport.
The upper chamber also supported steps to offset the burden of the national insurance hike on children’s nurseries and playgroups by increasing the amount they can reduce their bill by through the employment allowance.
In addition, a review has been demanded by the Lords on the impact of the employers’ Nics increase on a range of sectors from dentistry and farming through to hospitality and the creative industries.
