The House of Commons has removed an amendment that would have given small charities an exemption to the planned rise in employer National Insurance Contributions. 

The House of Lords last month accepted an amendment to the National Insurance Contributions (Secondary Class 1 Contributions) Bill that would exempt charities with an annual revenue of less than £1m from the 1.2 percentage point increase, which is due to come into effect in April. 

But the amendment was taken out by MPs in the House of Commons yesterday, with James Murray, the Exchequer Secretary to the Treasury, saying supporting this and a collection of other amendments that came from the House of Lords would be “support for higher borrowing, lower spending or other tax rises”. 

Gareth Davies, the Conservative MP for Grantham and Bourne, said the NI increase would “force charity staff and volunteers across the sector to raise £1.4bn more to cover this tax rise next year alone”. 

He said: “Supporting this Lords amendment would prevent so many services provided by the third sector from being reduced, or even removed altogether.”

Luke Evans, the Conservative MP for Hinckley and Bosworth, told the house that charities faced having to reduce their services as a result of the NI increase. 

“After yesterday’s announcement about benefit changes and benefit cuts, the government has said that they want more people to go into work,” Evans said. 

“A lot of help to get people into work is delivered by charities, so we are expecting a greater need for such charities. How will they cope if they are being taxed through further National Insurance Contributions? 

“They will have to reduce their services and their ability to provide support, so there will be a gap in the market. Will the minister explain how the government intends to bridge that gap?”

Murray replied by saying that charities could provide the help that Evans mentioned, which was why “many of the elements of support for charities in the tax regime remain so generous”. 

He said: “There was £6bn for tax relief for charities and their donors in the tax year to April 2024 through features that will continue in the tax year that we are entering. 

“The employment allowance is more than doubling from £5,000 to £10,500, which will benefit all charities in this country. 

“Charities, particularly small charities, will benefit directly from changes that we have made to the employment allowance.”

MPs voted by 310 to 183 against keeping the small charities amendment. 

Richard Sagar, head of policy at the Charity Finance Group, said the membership body was disappointed the amendments were not accepted. 

“Peers set out a full and fair case for the exemption of charities under £1m and rightly expressed their concerns with the government’s rise in National Insurance Contributions,” he said. 

He said research conducted by the CFG showed that 41 per cent of charity leaders it polled in February said they had cancelled expansion plans, plans for new staff or new services that would otherwise have been expected to go ahead, with a further 23 per cent saying they were likely to do so.

“Many small charities deliver essential support for people across the country, and many of them will now be faced with a difficult decision regarding cuts to these services, which will in turn impact greatly on those who need them,” he said. 

“We hope that the Chancellor’s Spring Statement and Spending Review can provide better news for the sector which is much needed.”