National Insurance Contributions (Secondary Class 1 Contributions) Bill
The National Insurance Contributions (Secondary Class 1 Contributions) Bill looks to change the national insurance rules for employers by increasing the rate of Secondary Class 1 Contributions from 13.8% to 15%, reducing the secondary threshold for when employers must pay these contributions, and increasing the maximum employment allowance from £5,000 to £10,500 while removing the £100,000 cap on eligibility.
Stages
House of Commons Third Reading - 17 December 2024
This parliamentary briefing was published on 10 December 2024.
Background
This briefing has been prepared for Members of Parliament ahead of the Third Reading of the National Insurance Contributions (Secondary Class 1 Contributions) Bill, taking place on 17 December 2024.
Working together to build stronger communities
NALC is committed to working positively and constructively with the government and Members of Parliament to build stronger, more resilient communities.
Our country faces challenges that national government alone cannot solve. It is local government, at all levels, which provides the key to solving many of these issues. This includes our most local level of government – parish and town councils – who are local leaders with skin in the game, who know their places best and what they need. Every day, local leaders are taking action on issues such as climate change, the cost of living, health and well-being, high streets and town centres, community safety, and services for younger and older people – some of the most profound issues we face, which parish and town councils are stepping up to address.
We outline issues from the Budget of pressing importance to our members.
National insurance contribution increase
The OBR’s Economic and Fiscal Outlook, published alongside the Budget, stated that public sector bodies including the NHS would be compensated for employer NICs increased via RDEL budgets.
However, following conversation with the Ministry for Housing, Communities and Local Government (MHCLG), NALC has been informed that parish and town councils will not be compensated alongside other public sector bodies.
We calculate that these changes will cost English parish and town councils approximately £10 million each year. As a result, council taxes would require a 1.5% to 3% increase to cover the additional cost.
At present, the stated cost of compensating public bodies included within the government’s scope is calculated at almost £25 billion over the next five years. As stated above, the cost of compensating parish and town councils over the next five years would cost around £50 million.
Policy ask
Many parish and town councils are already well into their budget-setting process for the next financial year. At a time of considerable financial strain, this additional cost would make the process even more challenging and risk tax rises for local residents.
In addition to the fiscal context, this is a question of basic fairness. Parish and town councils are public sector bodies. The government has outlined a public sector compensation scheme for NICs increases. Parish and town councils are not currently included within that scheme.
In addition, the government’s Net Burden Doctrine states that: "the net additional cost of all New Burdens placed on local authorities (including parishes, police and fire and rescue authorities) by central government must be assessed and fully and properly funded".
As such, it is vital that parish and town councils are fairly compensated for the NICs increase, alongside other public sector bodies.
Key questions
- Does MHCLG intend to compensate local government for the employer NICS increase? If not, why not? If so, what mechanism will be used to compensate parish and town councils?
- Has the government conducted any analysis regarding the need for potential council tax increases if local authorities are not compensated?
- Is the New Burdens Doctrine still in force? If not, when was it removed, and why?
