MPs have voted against amendments to a bill that would have exempted smaller charities and social enterprises from upcoming changes to salary sacrifice for pension contributions.
At the November autumn budget, chancellor Rachel Reeves announced that the government would introduce a £2,000 cap on salary sacrifice into a pension from April 2029.
In a House of Commons debate this week, shadow economic secretary Mark Garnier said the changes would add “even more cost to the 290,000 businesses and charities that use it”.
Garnier said a “cumulative burden” would be placed on smaller employers when considering other recent employment law changes including last April’s 15% increase in employer national insurance contributions (NICs) and “uncertainty” around national minimum wage rises.
“Altogether, this is making it incredibly difficult for small and medium-sized enterprises (SMEs) and charities to thrive,” he said.
“I think about the many businesses on my high streets in Kidderminster, Stourport and Bewdley and the charities that support people across the whole of Wyre Forest.
“They all work hard, as businesses and charities do in all our constituencies, in bringing our communities together. The last thing they need is another under-the-radar tax increase.”
He voiced support for two amendments tabled in the House of Lords to exempt charities and SMEs from the pension salary sacrifice changes.
However, the amendments were not supported by MPs in a vote following the debate.
Changes intended to level playing field
The changes form part of the NICs (employer pensions contributions) bill, which is in its final stages but yet to receive royal assent.
In the debate, Garnier said that while the government’s impact assessment suggests that 290,000 employers will be affected, the impact could be wider as up to one in three small businesses offer salary sacrifice arrangements.
“These businesses are already struggling to stay afloat – they cannot afford much more. At the same time, the government cannot afford to keep sending the same message,” he said.
“These amendments give them the chance to change that messaging and to back our small businesses and charities.”
Liberal Democrat MP Charlie Maynard also voiced support for an exemption for SMEs and charities.
“While it may raise some tax revenue in the medium term, in the longer term it discourages pension saving,” Maynard said.
“It also puts an extra cost and admin burden on small businesses at the worst possible time.”
Pensions minister Torsten Bell told MPs that “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,” Bell said.
“Indeed, the largest benefits from uncapped salary sacrifice accrue to larger businesses, not smaller ones.”
Bell said the changes in the bill would effectively help level the playing field between small businesses and their larger competitors.
