Baroness Neville-Rolfe (Con)

My Lords, my amendment in this group seeks to make the commencement of this Act conditional upon the publication of an independent review of its impact on employers. The Government’s decision to cap national insurance relief on salary sacrifice pension contributions at £2,000 per year has been presented as a measure targeted at higher earners, but the reality, as those of us who have spoken to businesses up and down the country know, is rather more complicated than that. This is not simply a matter of adjusting the tax affairs of a few well-paid executives. This measure hits employers directly and in ways that Ministers have not thus far adequately costed or explained. For small and medium-sized enterprises in particular, the costs are not trivial. Many have structured their entire remuneration and pensions offerings around salary sacrifice arrangements. They have done so because it is administratively straightforward, it benefits their staff, and it has had the backing of the previous Government as a sensible way to encourage workplace pension saving. Those businesses now face not only higher employer national insurance costs but also the compliance burden of unpicking arrangements that may have been in place for years. Let us be plain about what this means for a small business. We are talking about firms with perhaps 20 or 30 staff, businesses that do not have large HR departments or in-house tax teams. They will need to review every employment contract, revisit their payroll systems and, in many cases, seek professional advice to understand their new obligations. What is particularly troubling is that we have not seen from the Government anything approaching a comprehensive assessment of these impacts. We know that HMRC consulted last year, but it got a dusty answer. The OBR has produced some high-level revenue estimates, which do not reassure us, and we know from the Treasury note that it expects this measure to raise several billion pounds by the end of the Parliament. But what we have not seen, and what employers and employees alike are entitled to expect, is a proper independent analysis of what this means in practice, especially for SMEs and middle-income employees. There has been no serious attempt to model the indirect costs, the effect on employer pension contributions, the likelihood that firms will scale back their own contributions to compensate for higher tax costs, or the impact on workforce retention where salary sacrifice has been used as a recruitment and benefits tool. The OBR itself has acknowledged significant uncertainty in its projections, noting that revenue yields are highly sensitive to behavioural change—a very important point—and yet the Government press ahead without the evidence base one would expect for a measure of this scale. My concern—which is shared by a range of voices in the pensions industry and in business groups and among those who have looked carefully at the measure— is that, in restricting salary sacrifice without proper analysis, the Government risk undermining the very pension-saving behaviours they claim in other contexts to support. As the ABI has put it, savers and the pension system need stability. What we should not be doing is swapping pension stability for short-term revenue raisers. The Minister has cited a number of statistics on the numbers whom HMT anticipates will be affected, but these fail to recognise that the Government have almost no idea of how employers and, therefore, employees would respond and be affected by those changes. As I have already mentioned, the OBR has said that there is a high level of uncertainty over the size of the behavioural response. If an employer stops offering a salary sacrifice because of the compliance costs and complexity, as many of them have warned they will, then every one of their employees will be affected. So how can the Minister say that 74% of basic rate taxpayers will be left unaffected when HMT has no idea how the organisations employing them will react to the Bill? Indeed, the detail is still unclear. The point many noble Lords have raised stands: the Bill brings a great deal of uncertainty, and the Treasury does not understand the wider effects of what it is proposing—thus my wish to delay commencement until we have a clearer view. I welcome Amendment 32 in the name of the noble Baroness, Lady Kramer, which references the OBR’s supplementary forecasts. I do not want to steal her thunder, but the issues this forecast raises are numerous. Of particular concern are the behavioural changes that it anticipates. The OBR estimates that behaviour reduces the 2030-31 yield by around 48% compared with the static figure. Employers are assumed to redirect pay growth into employer contributions, employees are assumed to shift into relief at source or net pay arrangements, and there are additional pass-through effects into wages and profits. In other words, nearly half the static yield depends on assumptions about how employers and employees respond. The options open to employees and employers are numerous, and they have three years to think about it. Another serious concern highlighted is that HMRC does not hold comprehensive data on salary sacrifice usage. As we understand it, the modelling used by the OBR relies heavily on ASHE survey data and historic APSS 107 returns to estimate bonus sacrifice behaviour. The OBR therefore assigns this measure a medium-high uncertainty rating with particular uncertainty around behavioural responses and the size of the bonus sacrifice base. This policy is uncertain. How will it affect savings, how will it affect behaviour and, significantly, how much will it raise and for how long? I know others may have questions for the Minister, but the new arrangements come into operation in 2029-30 and, as we have all been saying, there is time for more questions to be asked and answered and for more work to be done. I hope the Minister will look at these various amendments positively. I thank the Deputy Chairman for his clarification on timing, and I beg to move.