NICs Bill passes third reading

Several amendments and new clauses were put forward by the opposition. The Conservatives tabled amendments 5, 6, 6, 8, as well as new clause 4, while the Liberal Democrats proposed new clauses 1, 2, 3,5 and 6.

Amendment 5 (a Conservative proposal to exempt basic rate taxpayers from the £2,000 cap) and new clause 5 (a Lib Dem proposal to require the Treasury to Treasury calculate and publish the  projected lifetime value of an individual’s pension before and after the changes) were put to a vote, and both were rejected.

Purpose of the Bill and the government's argument

The Parliamentary Secretary, Torsten Bell, explained that the Bill creates a “power to apply employer and employee national insurance contributions on salary sacrifice pension contributions above £2,000 a year from April 2029.” He argued that reform was “inevitable”, noting that “the cost… of salary sacrifice pension schemes was due to almost treble by 2030 without reform”.

The minister described the government's approach as “pragmatic”. He added that the government continue to provide over £70 billion of income tax and national insurance relief on pension contributions each year, and that employer contributions will remain the “most tax-advantaged” part of the system.

Sir Ashley Fox (Con) challenged the minister, asking: “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?”.

Bell responded that the “pragmatic approach” was to retain salary sacrifice up to £2,000 and delay implementation for four years to allow people time to adjust. He added that the Bill forms part of “badly needed reforms to the tax system”.

The minister concluded by stressing the need to consider the effectiveness of tax reliefs, which “cost a cumulative £500 billion a year”. He argued that defending the status quo would mean “higher taxes for everybody else”.

Basic rate taxpayers: distributional concerns and cap indexation

The Shadow Economic Secretary, Mark Garnier, discussing Conservative amendments 5 and 6, said the party felt “particularly strongly” about these proposals. He argued that the amendments would support groups in the UK that under‑save and are least prepared for retirement.

Garnier warned that around 850,000 basic‑rate taxpayers would be affected by the cap, citing the Chartered Institute of Taxation’s view that: “The change will disproportionately affect basic rate taxpayers because they will pay at 8% NIC on contributions over the £2,000 cap, compared with a 2% charge on higher earners. It will also disproportionately impact those with student loans who earn above the repayment threshold, as they will have incurred an extra 9% student loan deduction from their pay.”

A DUP MP, Jim Shannon, added that the measure affects not just those on lower incomes but also “younger people who have aspirations and hopes for the future”.

In response, Bell suggested that these amendments would be “impossible” to implement in practice and would add “unnecessary complexity”. Employers, he argued, often would not know which employees would end up being basic rate taxpayers until the end of the financial year.

Explaining amendments 7 and 8, which sought to uprate the £2,000 cap in line with CPI inflation, Garnier warned that “if the cap remains static, it will become increasingly meaningless”, referencing the recent above‑expectation inflation rise of 3.4%.

Bell rejected indexation for the current Parliament, saying “it does not make sense to index that cap ahead of 2029”. He added that the future level of the cap “is for Budgets in those decades.” He also briefly addressed new clause 3, on marginal tax rates, arguing  that the Bill does not “directly affect a person’s marginal tax,” and that those making pension contributions to keep their taxable income below a certain level “can continue to do so”.

Small business impacts and SME assessments

Charlie Maynard, a Liberal Democrat Treasury spokesperson, warned that the changes would “increase costs for businesses that rely on salary sacrifice to support staff retention and reward”. Stressing the pressure that small businesses face, he suggested that the Bill is “a double whammy on last year’s national insurance hikes.”

Maynard introduced new clause 1, which would require the government to publish full assessments of the impact of the Bill on recruitment, retention and the tax liabilities of businesses.

The minister disputed that SMEs are more likely to be affected, arguing that only 39% of employers offer pension salary sacrifices and that small businesses are less likely to do so than larger firms. Said the current system puts SMEs at a disadvantage relative to their larger competitors.

Impact on pension savings

Maynard said 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.” He called it “an unwise, short-term move with no regard for the longer-term consequences that will cost the Treasury more than the Bill brings in”.

Maynard cited research by Scottish Widows that found that “39% of people in the UK are not on track for a minimum lifestyle in retirement” (A point that was also raised by a Labour MP, Chris Vince). He also highlighted the impact assessment by HMRC that found about 7.7 million employees - roughly 25% - use salary sacrifice for pension contributions. The Lib Dem said that many middle earners already face cost-of-living pressures and higher taxes, and now face “an even greater hit due to this government’s jobs tax and the extension of frozen income tax thresholds”.

For these reasons he put forward new clause 5, which would provide that the Treasury must calculate and publish the projected lifetime value of an individual’s pension before and after the changes made by under this Bill.

Garnier support the Lib Dem new clause, saying the Bill will “do nothing to enhance pension savings”.

The minister replied that saving into a pension “remains hugely tax-advantageous”, citing the Office for Budget Responsibility’s judgement that it does not expect “any material impact on savings as a result of the Budget 2025 tax changes.”

Votes

Amendment 5 was defeated, with 191 votes in favour and 326 against. New clause 5 was defeated, with 195 votes in favour and 317 against.

The Bill passed its third reading by 316 votes to 194.

Read the full debate.