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Clause 4 — Holiday for new businesses

National Insurance Contributions Bill – in the House of Commons at 2:30 pm on 13th January 2011.

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Votes in this debate

Photo of David Hanson David Hanson Shadow Minister (Treasury) 2:30 pm, 13th January 2011

I beg to move amendment 1, page 2, line 9, leave out paragraph (b).

Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

With this we will discuss the following:

Amendment 2, page 2, line 21, leave out subsection (5).

Amendment 3 in clause 11, page 6, leave out lines 24 to 29.

Amendment 4, page 6, leave out lines 35 to 41.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

The purpose of the amendments is self-evident and clear. We discussed this issue at great length in Committee but it is worth revisiting today to see whether the Minister has reflected over Christmas and the new year on the views that we put forward in Committee. The amendments would do one simple thing: include the regions of London, the south-east and the east in the regional secondary contributions holiday in the Bill. As I have said in relation to earlier amendments and throughout the Bill's proceedings, we welcome the idea of a payment holiday but we do not believe that its implementation is fair or that it meets the objectives that the Minister has outlined of helping to tackle problems in areas with high public sector employment that will be disadvantaged by the pending public sector cuts, which will impact on both local government and central Government services throughout the country.

I accept, as my hon. Friend Kelvin Hopkins has said, that the Bill as a whole is not a panacea for tackling long-term unemployment or, indeed, the impact of public spending cuts and further potential unemployment across the board. What it does do, however, with its limited scope, is ensure that we provide an incentive over a short period-the next three years-for new businesses to be established. They will receive a payment holiday for national insurance contributions, which will be a small but a significant help towards the establishment of new businesses.

The Minister's logic is that the scheme will operate in the selected regions because it should be used to help businesses where there has been a major impact on public sector employment, and he has specifically excluded the whole of the London, south-east and east regions. Let me chide him slightly, because I think he has fallen into the trap of believing that the whole of the London, south-east and east regions are similar in characteristic, have low levels of unemployment, low levels of deprivation and a low level of public sector employment. If the Government did not believe those things, he would have included those three regions in the scheme.

There are certainly high levels of employment and great prosperity in the east and south-east regions and there are certainly constituencies and even sub-regions with low levels of public-sector employment. However, there are also areas, as I am sure my hon. Friends who represent those areas will testify today, with extremely high levels of deprivation, unemployment and dependency on public sector employment that will be excluded from the potential benefits of the secondary benefits holiday because the Minister has excluded those three regions from the scheme.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford

Perhaps my right hon. Friend is aware that the average level of public sector employment in the UK is 21.7%, but the figure in my constituency is 30%. Does he share my astonishment that my constituency and other parts of London with such a high level of public sector employment-leading, I am sorry to say, in these times, to high public sector unemployment-are being excluded?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My right hon. Friend makes that point in relation to Lewisham and her constituency, but as I shall discuss, it is not just her constituency and Lewisham borough that will be excluded and disadvantaged by the scheme. For example, the constituencies of Oxford East; Luton North; Lewisham East; Canterbury; Southampton, Test; Eltham; West Ham; North Thanet; Hackney North and Stoke Newington; Tooting; Islington North; Dulwich and West Norwood; and Brighton, Kemptown all fall, by the Minister's own criteria, in the top 60 constituencies for public sector employment, but they will not be eligible for the scheme because the Minister is excluding them from it.

If the Minister looks, as he has, at the House of Commons figures that I raised with him in Committee, he will see that 23 of the top 100 constituencies for public sector employment in England, Wales, Scotland and Northern Ireland fall within the three regions that are excluded from the scheme. So my right hon. Friend makes a clear and telling point on behalf of her constituents, but 23 of the top 100 constituencies fall into the same category.

Photo of Jonathan Edwards Jonathan Edwards Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Business, Innovation and Skills), Shadow PC Spokesperson (Transport), Shadow PC Spokesperson (Communities and Local Government), Shadow PC Spokesperson (Culture, Media and Sport), Shadow PC Spokesperson (Wales)

I accept the point made by the right hon. Gentleman, but does he not recognise the need to rebalance the economy on a geographical basis? If he does not support this measure, what measures would he like to introduce?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I certainly would not have abolished the regional development agencies or cut public spending with the speed and to the extent that the Government are doing. I certainly would not have cut the Welsh Assembly Government's budget in our own areas to the extent that the Government will do over the next two to three years. That would have helped to manage the necessary downturn in public spending that we needed to make to readjust the economy in a way that was proportionate, fair and met our constituents' needs for public services and for employment.

Photo of Mike Gapes Mike Gapes Labour, Ilford South

My right hon. Friend refers to 23 of the top 100 constituencies, but if he extends the list to 105 constituencies to include Ilford South-my constituency-all those next five constituencies are also in the relevant regions, so he could refer to 28 of 105, and there is 38% public sector employment in my constituency.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to my hon. Friend. Would I ever try to miss out the good constituency of Ilford South? My purpose was to indicate that the inclusion criterion that the Minister has selected is based on one simple issue: how to compensate for and deal with public sector job losses and provide a mechanism to help to support the creation of new jobs where public sector jobs are lost. On his criterion, 23 of the 100-or 28 of the 105, to take my hon. Friend's figures-show that those issues are not being dealt with in the way in which the Minister has said.

If I look at the impact of the possible 490,000 public sector job losses, I see that they will hit hardest those constituencies with public sector employees. If I add to that, as I have to do, the benefits of job creation and look at local authorities on the economic deprivation index, I see that no fewer than seven of the top 12 of those economically deprived boroughs fall within areas that are excluded from the scheme. The boroughs of Hackney, Newham, which is represented here today by my right hon. Friend Stephen Timms and my hon. Friend Lyn Brown, Tower Hamlets, Islington, Barking and Dagenham, Haringey and Lambeth are all in the top 12 economically deprived boroughs, yet they cannot avail themselves of the scheme.

Other constituencies throughout the country-again, I will alight on Tatton, because its is the Chancellor's constituency and one that I know well-where unemployment is low and there are many business start-ups and great pockets of wealth, will benefit from the scheme and can apply to include businesses in the scheme, while boroughs such as Newham, Tower Hamlets and others that I have mentioned will not be able to do so. If we look at the unemployment rate across the United Kingdom, which is 7.9% on the latest figures, we see that unemployment in London is 9.1%.

Photo of Henry Smith Henry Smith Conservative, Crawley

As an MP from the south-east, I resent being put into this invidious situation. But why does the right hon. Gentleman think that we are in this invidious situation, whereby we must make tough choices to re-stimulate the economy after the economic disaster in which the Labour party left the country?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am happy to discuss macro and micro-economic issues with the hon. Gentleman. There is a clear divide between the current Government and the previous Government. We had a deficit reduction plan over three years. We would have cut public expenditure and made savings. In the Department in which I was a Minister in the last Government, we had earmarked £1.5 billion of savings over the next three years. We would have done that.

There is a difference about the scale and depth of the cuts. The hon. Gentleman and I can argue about that, but he needs to recognise that, if he walks through the Lobby to vote against the amendment today, he will be denying new businesses in his constituency the ability to gain access to the scheme, while allowing areas with lower unemployment and lower deprivation, perhaps in parts of the north of England, which are not completely a desert, to benefit from the scheme. He has to wrestle with that issue. Let me advise him that however he deals with it, we have the ability to let the residents of Crawley know what he will do on the issue. He and others need to look at that. There is still time for him to vote with the Government today, but then to speak to the Minister privately, to get his colleagues from Kent, other parts of Sussex, Berkshire and Hampshire together, to get them to talk to the Minister, and to get the Minister to reflect on this in the other place, so that we can make the scheme much wider. Colleagues from London and I would give him credit for doing that.

I put this to the Minister: the unemployment rate in London is higher than in the south-west, in my region and in that of Jonathan Edwards, in Wales. It is higher than in Scotland, the east midlands and the north-west, and it is above the UK average. The unemployment rate in the constituency of my hon. Friend the Member for West Ham was 6.8% at the last count. The rate is 7.7% in Tottenham, and 6% in Camberwell and Peckham; in Tatton, Richmond and Derbyshire Dales, it is under 2%.

I have no objection to a scheme being developed to help create employment where employment is lost, but if the logic of the scheme is what the Minister has made it out to be-to deal with public sector employment -I should point out that at the moment 23 of the 100 constituencies with the highest levels of public sector employment are not included. It is to deal with unemployment, which is higher in the places that I have mentioned than in other parts of the country. The Minister needs to reflect on that in relation to what he has done today.

The Minister does not need to listen to me; John Walker, the national chairman of the Federation of Small Businesses, has said:

"With small firms in the South East most likely to be working below capacity, this shows how wrong the Government is to not include this vital region, as well as the East and London, in its proposals for a National Insurance holiday...With 600,000 public sector jobs expected to be lost, stimulating private sector job creation...in small firms, will be vital to rebalancing the economy."

The Thames Gateway London Partnership makes similar points:

"the data clearly shows that...the National Insurance Holiday is unfair as it excludes areas in the Thames Gateway which we believe would otherwise be targeted for government support."

The partnership has helpfully shown-this backs up what my right hon. Friend Joan Ruddock has said-that there are high levels of public sector employment in the London area, which would benefit from the scheme.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford

I am most grateful to my right hon. Friend for giving way yet again. He may be aware that of the 10 Thames Gateway London boroughs, seven are in the 40 boroughs with the highest levels of multiple deprivation. My borough is at No. 39. Surely we have to be included in the scheme.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My right hon. Friend makes an important point supporting my central argument. I am trying to argue on the Minister's own grounds. He argues that the scheme aims to help where there is loss of public sector employment. If 23 of the 100 constituencies with the highest levels of public sector employment do not benefit, the Minister's scheme is not meeting the needs that he has set it to meet.

Let us look at public sector employment in the London Thames Gateway region. Some 21% of people employed in Barking and Dagenham work in the public sector. The figure is as high as 31% in Greenwich, 30% in Lewisham, 33.6% in the borough of Newham, 28.4% in Redbridge, and 26.6% in Waltham Forest, in the constituency of my hon. Friend Dr Creasy. The Thames Gateway London partnership has helpfully provided me with information on the subject. Even boroughs represented by two Conservative Members of Parliament, such as Southend-on-Sea, will not benefit from the scheme, although it has 24.66% of people employed in the public sector. Let us look at authorities in Kent, represented not by Labour Members of Parliament, but by Conservatives. In Medway, nearly 24% of people are employed in the public sector. In Gravesham, it is 22.2%, and in Swale it is 19.7%. Those are areas with high public sector employment that will not benefit from the scheme.

If we look at business births, as we have in earlier discussions, we find that figures for the east and for the south-east are lower than the national average. The most recent figures of 9.9% in the east and 9.7% in the south-east reflect a lower number of business births than the north-east, the north-west, Yorkshire and Humberside, which will benefit from the scheme. So, the issue is about how we cut the cake accordingly to meet the needs of those areas, and I cannot see why the Minister wishes to do it his way.

Self-evidently, the scheme needs to be paid for and there is a cost to all its aspects to date. The Minister says that the scheme as a whole, over its three-year gestation, will lose the Treasury about £940 million in revenue, and he expects about 400,000 new businesses to commence. After six months of the scheme, 1,500 businesses have taken it up, and under the Bill there are two years and nine months left until its end date.

The Minister has the scope to extend the scheme to the three regions and to ensure that we retain the 400,000 potential businesses and the £940 million loss of income, but the take-up to date and the take-up in the near future mean that he can monitor the situation and look at including areas of high deprivation. The figures show that that is required.

In a parliamentary answer last year, the Minister gave me figures of about £250 million for the cost in London, £250 million in the south-east and £160 million in the east, a total of some £660 million. As of today, not one penny of that money has been allocated or spent, because the scheme is not applicable to those regions. By the time the Bill receives Royal Assent, the scheme as currently constituted may have been operational for almost a year and have two years left, but the cost of it will not have reached that level.

I shall therefore certainly keep a close eye on take-up, which I do not believe will meet the 400,000 target that the Minister has set for the regions outside London, the south-east and the east. He could extend the scheme to those regions, and if he believes there to be too great a cost or subscription, he could terminate it early. He could also agree to extend the scheme with the appropriate resources. There are many ways in which he could look at the issue, and earlier amendments were designed to give him the flexibility to do so, but my main contention is that there happen to be public sector workers, deprived communities and people with long-term social and unemployment problems in areas that are traditionally seen to be well-off, such as London and the south-east. If the scheme, which the Minister designed, excludes in those areas not only the constituencies of my right hon. and hon. Friends, but the majority of constituencies, represented by Government Members, its purpose will be decried.

I say to the Minister once again that we support the scheme. It is a small but positive benefit that compensates for massive public spending cuts, which we would not have made on that scale. If he maintains the scheme in its current format, however, he will end up creating jobs in areas of the north where there is wealth and prosperity, as well as areas of the north where there is not, and ensure that areas of great deprivation in the south and, particularly, in London cannot access it.

I commend the amendment to the House. I hope that the Minister has reflected over Christmas and new year on the arguments that we made in Committee, reflects on those that we have made today and either responds positively to them or at least explains why my right hon. and hon. Friends and their constituents should lose out on the scheme.

Photo of Andrew Bingham Andrew Bingham Conservative, High Peak 2:45 pm, 13th January 2011

I support the general idea and hear the points that Opposition Members make, but we have to remember that in High Peak setting up a business is not easy. It is not easy anywhere in the country, but we need to look at rebalancing the economy, and in the north-west, or in the east midlands where High Peak is, we have to contend with such issues as rurality and communication links that are not of the same gravity in the south-east. Members might recall how I went on about the Mottram-Tintwistle bypass, but that road link in and out of High Peak makes it difficult for businesses to get going and to survive.

I remember setting up a business years ago and how difficult it is. On transport costs, we used to deal predominantly with south-east companies. We had to get goods up from the south-east and deliver them around the country, which created extra costs. Hon. Members might smile, but one of the things I have noticed since being elected to the House is that it is so much warmer in the south. I can assure hon. Members that it is cold in High Peak and that there are extra heating costs and numerous other extra costs and overheads. The measure is an incentive to business men and, importantly, new business men to start their businesses in the north.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

I draw the hon. Gentleman's attention to the fact that business men and women in the south-east may well be familiar with a concept called the living wage, which reflects the high cost of living in London and therefore some of the difficulties that new employers might face in attracting staff because they have to pay a higher wage in the south-east. It is not all grim up north.

Photo of Andrew Bingham Andrew Bingham Conservative, High Peak

We have expensive houses in High Peak-I have seen something on my BlackBerry today about house prices being expensive. We have issues, but it is not grim up north. Speaking as someone who is technically the Member for Royston Vasey, as the programme concerned was filmed in my constituency, I implore all southern MPs to come to High Peak. It is not grim. [ Interruption. ] It is beautiful. Thank you; we agree on something.

I reiterate the point that there are challenges to setting up businesses outside the south-east-for example, slower broadband. That is another hobby-horse of mine. The measure is an incentive. It will get local people setting up local businesses in the north and outside the south-east, which will rebalance the economy. I hope that more businesses will flow up north to High Peak and other constituencies. The measure is an excellent policy. We hear all about the cuts, but they are having to be made because of the economic carnage left by the Labour party. If we acknowledge that, we might get somewhere.

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

I am very grateful to my right hon. Friend Mr Hanson for tabling the amendment and for the fact that he has already referred to the Thames Gateway. I want to refer to issues associated with the Thames Gateway area and the borough I represent, Newham, together with my hon. Friend Lyn Brown who is in her place.

It is clear that the Government have simply got this wrong. If we consider the criteria that the Government have said should be applied to choosing where this incentive is available, as my right hon. Friend has said it is in those parts of the country where the proportion of public sector dependence is high that we need to encourage new businesses to start up and take on employees. Of course that is exactly the situation and is what is required in the Thames Gateway area on the east side of London. It is absurd to omit from the scope of this initiative areas that the Government have themselves identified for the promotion of new business growth.

I put it to the Minister that he is not being invited to support the policies of the Labour party or, indeed, any other institution; he is being invited to support the policies of the Prime Minister. It is extraordinary that the one area of the country where the Prime Minister has called explicitly for the creation of Silicon Valley-style economic regeneration based on high-tech start-ups is being missed out from the initiative. Let me refer the Minister to the speech that the Prime Minister gave in east London on 4 November-his east end Tech City speech-and point out some of the comments he made. The Prime Minister said:

"Only three years ago, there were just fifteen technology start-ups around Old Street and Shoreditch...it's clear that in East London, we have the potential to create one of the most dynamic working environments in the world. And I believe we can really turn this vision into a reality."

I agree with the Prime Minister. I am baffled by the fact that in this Bill the Prime Minister's initiative is being undermined, and I want to find out from the Minister why that is so. I hope he will accept the case that my right hon. Friend the Member for Delyn has made and, even at this late stage, accept the amendment.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford

I think my right hon. Friend is providing the answer to Andrew Bingham. This is not about rebalancing between the south and the north; it is about rebalancing within London and the south-east where people are put out of public sector jobs and we hope that they might go into new businesses.

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

My right hon. Friend is absolutely right. I also agree with Andrew Bingham about the importance of high-speed broadband for bringing about this kind of change. Of course, at the moment we do not know which Department in Government is responsible for broadband-we were attempting to clarify that earlier.

In his speech on 4 November, the Prime Minister went on to spell out how his vision could be achieved. He said that experience

"teaches government some simple things. Go with the grain of what is already there. Don't interfere so much that you smother. But do help out wherever you can. Help to create the right framework, so it's easier for new companies to start up, for venture capital firms to invest, for innovations to flourish, for businesses to grow."

That is what the Prime Minister has said he wants to happen in the east end Tech City initiative.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

Does the right hon. Gentleman feel a sense of responsibility, as a former Minister, for the 11,000 pages of tax code which, every single day and every single year, stifles new businesses in setting up? Does he accept a responsibility for that stifling of innovation and industry?

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

I take a good deal of satisfaction from the progress that we saw with the development of high-tech business spin-outs from universities under the aegis of the previous Government. That was one of their very significant achievements.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

Do you not accept that the 11,000 pages of tax code, which doubled under the last Labour Government, is stifling British industry, and that that is partly your responsibility and your party's responsibility?

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

I do not think that it is the Deputy Speaker's responsibility.

Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

In fairness, some may hold me responsible, but I can assure the hon. Gentleman that I am not.

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

This is what the Prime Minister called for in November:

"The right framework, so it's easier for new companies to start up".

That is what he wants to happen in the east London Tech City initiative. My question to the Minister is why is the Bill not doing that which the Prime Minister has so clearly called for? If it were my right hon. Friend the Member for Delyn appealing to the Minister to do that, I could understand why he would not be willing to do it, but it is the Prime Minister, who appointed the Minister to his job. Why is the Minister not doing what the Prime Minister said?

I commend to the Minister the Prime Minister's speech of 4 November, in which he went on to describe what different parties are doing to help to secure this vision of a new high-tech city in east London:

"But what about here-in the heart of east London where there's already so much to work with? We're working with business to make sure the infrastructure and advice you need is in place. Imperial Innovations, the venture capital arm of Imperial College London"-

Photo of Andrew Bridgen Andrew Bridgen Conservative, North West Leicestershire

Does the right hon. Gentleman welcome the coalition Government's reintroduction of the enterprise allowance scheme, which we have opened to people the length and breadth of the UK who have been unemployed for six months or more to help them get into self-employment?

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

I have always taken the view that self-employment is a very important vehicle for helping people not in work to get into work. That is why the new deal for self-employment, as an element of the new deal in the past, was so valuable, and I welcome other initiatives to achieve the same thing.

The Prime Minister went on to say that Imperial Innovations

"is going to advise on making sure this accelerator space is attractive to spinout companies from academia and beyond. Indeed, they will be encouraging some of their own brilliant companies to be based here."

I very much welcome that. I look forward to those start-up companies being established.

What is the Exchequer Secretary doing about that? With the Bill, he is encouraging those companies to go elsewhere. Why is he not getting behind the Prime Minister's vision? The Prime Minister made it clear that it is not just Imperial college that is supporting it: McKinsey & Company is supporting it, and British Telecom has agreed to bring forward the roll-out of super-fast broadband so that we have the fastest internet speeds, as was rightly raised by the hon. Member for High Peak. The Prime Minister talked about Qualcomm providing expert advice, Vodafone's commitment to bring the Vodafone Ventures investment fund to the capital, and so on.

My question to the Exchequer Secretary is why the Treasury was not on that list of partners that support the initiative. Why is everyone getting behind the Prime Minister's vision, except him and his Department? The Prime Minister said:

"I want to thank each and every one of the companies and investors that has come together to do this. It's like nothing that has happened in our country before. It is a genuine innovation network-bringing together high growth start-ups, universities, investors and global companies.

And thanks to these efforts, we can help make East London one of the world's great technology centres".

The Prime Minister explained the contribution that the Government would make, including what UK Trade & Investment would do to support the vision. It is striking that in that speech he was not able to identify any help that the Treasury would provide for the initiative.

The Prime Minister made another excellent point in the speech:

"Of course, we will change laws where necessary so we break down the barriers to innovation."

Well, let us change this law. This is the opportunity to do so.

Photo of Harriett Baldwin Harriett Baldwin Conservative, West Worcestershire

I am fascinated to hear the right hon. Gentleman make these points, because I do not remember you proposing a national insurance cut. Indeed, you went to the polls with a national insurance increase.

Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

Order. I was not in the Treasury. I am getting a lot of your blame, and I do not like it.

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

I reassure the hon. Lady that when I was in the Treasury, I put an enormous amount of effort into supporting exactly this kind of initiative. I supported the Thames Gateway initiative specifically, as well as other regeneration initiatives.

The Government are now saying that they will not give grant funding, but instead will provide incentives. This is our one opportunity to boost the incentives for establishing the kind of business that the Prime Minister wants in east London, and it will be forgone unless the amendment is agreed by the House this afternoon.

I do not know exactly how things work in the Conservative party. Who speaks to whom, and who is on whose side is all closed to me. It may be that the Exchequer Secretary feels that he does not need to take much notice of what the Prime Minister says. Perhaps he speaks to other people in his party. Let me therefore point out that it is not just the Prime Minister who wants the initiative to go forward. I point him to what the Mayor of London said-perhaps he takes more notice of him that the Prime Minister, I do not know. The Mayor said:

"we can and must do more to cement our position as a global magnet".

He went on:

"the Olympic and Paralympic Games will bequeath to London a vibrant new business quarter in the east of our city. We must do everything we can to support its development".

This afternoon, we have the opportunity to do something to support the Mayor of London's call to develop the vision set out by the Prime Minister. We must not let this opportunity pass us by.

Perhaps the Exchequer Secretary does not take much notice of what the Mayor of London says, either-again, I do not know about that. If that is the case, let me point out to him the position of the Department for Communities and Local Government. Its website states:

"The Government is committed to making a success of the Thames Gateway...we will promote incentives to invest and develop in the area, instead of grant funding specific projects."

That returns me to the point that I made a moment ago in response to Harriett Baldwin. We understand that the Government are not now willing to contribute grant funding. We disagree with them about that, but are told that there will instead be incentives to invest and develop. Here we have an opportunity to provide just such an incentive. As far as I am aware, the Government have not come forward with any other incentive, and we can provide one along the lines of the policy that the DCLG has set out. We should take that opportunity, and I hope that the Exchequer Secretary will do so this afternoon by accepting the amendment, so that we can provide an incentive in an area that has been so specifically identified by the Prime Minister, the Mayor of London and the DCLG.

The DCLG website also states that the Government will

"work with other departments to identify how their programmes bear on the Thames Gateway and need to be adapted".

The initiative in the Bill clearly needs to be adapted to fulfil the Government's policy for the Thames Gateway. I hope that the Minister will tell us what representations he has received from the DCLG, because it is an extraordinarily disjointed approach for one Department to say that it will introduce incentives and initiatives in one area and for the Treasury to take not a blind bit of notice and send all the incentives somewhere completely different.

The previous Government used to talk about "joined-up government", and indeed we made important progress towards achieving it, so that all the different parts of Government were pushing in the same direction towards the same goal. Here we have a case in which the Prime Minister, the Secretary of State for Communities and Local Government and the Mayor of London are on one side, and the Exchequer Secretary and his colleagues are on the other. I invite him to support what his right hon. and hon. Friends are saying, and not to stand aloof from the policies of the Government of whom he is a member. The Treasury should not be an island, cut off from everybody else and doing its own thing without talking to others or supporting what they are doing, but that seems to be the position with this Bill.

I invite the Exchequer Secretary to accept the amendment and agree that the incentive should be applied in places in which the Prime Minister has so clearly identified its importance.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

As a Member from Scotland, I might be expected to give the Scottish whinge about how everything goes to the south-east and nothing comes to Scotland. I am not going to do that, because the way in which the Bill has been constructed has not been well thought through. It is not clear, at least to me, what are the intentions behind parts of it and what set of policies it is meant to fulfil.

Is the Bill about helping areas with high levels of unemployment, some of which have never fully recovered from previous recessions, or helping areas with high levels of public sector employment, which we anticipate will suffer greatly from what will happen over the next couple of years? They are not necessarily the same places. The constituency of my hon. Friend and neighbour Ian Murray is at the top of the list provided by the Library of areas with the highest public employment. Most people would think that large parts of that constituency are fairly affluent, because the public employment is, I suspect, largely at the university. It is perhaps not perceived, certainly in Edinburgh or even in Scottish terms, as in particular need of employment support. My hon. Friend, who is sitting on my right, probably disagrees.

We must decide what we are trying to achieve. I am very persuaded by what I have heard from many colleagues, particularly in London but also in other parts of the south-east, which has a long history of difficulty. The south-east is by no means all affluent. It is important to create employment in the parts of London and the south-east where unemployment is high. Those places are suffering many problems and are now affected by the cuts in public expenditure. People there are being told that they may have to move because their homes are too expensive for them. Many things are coming at those areas, and I am persuaded by my colleagues' words and by what I have seen in London that there is a need to boost employment in many places.

I am not convinced that the particular cut of the cake for which the Bill provides is the best. I am not clear about the reasons for it. On Second Reading and in Committee, it was suggested that it was done to target places that need help most. I do not think that that is necessarily the case. At other times, it was suggested that we have to do what the Bill proposes because we cannot act everywhere-that would cost too much. We are then back to the arguments about the need to reduce the deficit and the speed at which that has to happen.

However, the best way in which to get out of recession is to grow the economy and create jobs, and it is important to do that everywhere. I appreciate that, in terms of the amendment, we cannot ask for further expenditure at this stage, although we could review the position in later years. However, tax loss could be recouped quickly if new businesses grow and employment increases. It is important to build employment throughout the country. There is no particular reason for taking the route that has been suggested.

We are constantly told that we have to act in this way because the country is in such a mess and we must reduce the deficit more quickly. Labour Members do not accept either the Government's description of how and in what circumstances the deficit arose, or their prescription. We must build employment and provide the economic stimulus that we need in various ways-the scheme is only one method; there are many others. National insurance contribution relief is only one small, albeit important part of a bigger picture.

We need a continuation of the policies that, in early 2010, meant that unemployment did not rise as high as had been predicted and that the deficit was falling more than had been predicted before the election. It is not true to say that the deficit was increasing-it was falling under our policies. The growth in various quarters of 2010 was the result of the economic stimulus package that we put in place. We should continue the economic stimulus. National insurance contribution relief is one small way of doing that and, in my view, it should be country-wide.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 3:15 pm, 13th January 2011

I strongly support the amendments, which my right hon. Friend Mr Hanson moved so ably. As it stands, the Bill has crude, arbitrary and unfair discrimination built into it. The amendments would remove the unfairness and discrimination at a stroke and turn the measure into something that we could all happily accept.

I have to declare an interest: my constituency is in one of the excluded areas. The proportion of public sector employment in Luton North puts it at the top end of the table-number 48 out of 650 constituencies. Some 41.2% of employment in my constituency is in the public sector, so it will suffer substantially as a result of the Government's cuts in public spending. If 450,000 jobs go nationally, we could be talking about 1,000 jobs in my constituency at the very least. Already it is suggested that 500 jobs might be going in Luton as a result of the cuts, and a higher proportion of those will be in Luton North because of the degree of public sector employment there. I therefore have a vested concern and a constituency interest.

I am more concerned, however, about the overall principle, which will affect so many other people unfairly. My right hon. Friend the Member for Delyn suggested that because of the likely decline-certain decline, I think-in economic activity and rising unemployment, take-up will be much lower, owing to the fact that far fewer businesses will be formed in an atmosphere of the economy entering recession, with jobs being lost in both the public and private sectors. If the economy were expanding, of course, we would expect many more small businesses to be created, and therefore a much higher take-up. The take-up will probably be well below anything that the Government anticipate, simply because the economy is going to enter-I believe-serious recession as a result of their policies.

It is strange that the Government have chosen the British standard regions to discriminate in this way. They have actually played down regionalism-they are abolishing the regional development agencies-and are diminishing the regions as a basis for policy in other areas, but they are using the standard regions as a basis of policy in this area. That seems to be contradictory. If we are to provide assistance to industry and employment, it would be preferable to target it much better and in other ways. Given that the Bill will work in such a way, however, the only fair approach is to apply it across the country as a whole. As my right hon. Friend the Member for Delyn said, the costs would not be so great of including the three regions excluded in the Bill and ensuring that every small business across the country has the advantage of the subsidy.

Photo of Neil Carmichael Neil Carmichael Conservative, Stroud

Surely the whole point of the regional argument is that we should be focusing on the regions that need extra help to encourage the development of smaller business. On the hon. Gentleman's point about the state of the economy, it is the growth of new small and medium-sized businesses that will boost the economy. That is what we want to encourage through this legislation.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I thank the hon. Gentleman for his intervention, but the Government have chosen to play down regionalism by getting rid of RDAs, yet have chosen regions as a crude way of excluding certain areas from the policy in the Bill. Within those regions, of course, some areas really require assistance, and by any standards, Luton is one of those. We have seen a massive loss of jobs there as a result of the decline in manufacturing industry. Fortunately, we have an airport, public sector employment and so on, which has helped, but we have also lost a lot of jobs and need assistance more than most other areas not just in the south-east, but elsewhere in the country.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

The hon. Gentleman said that the Government have abandoned regionalism. It is true that RDAs are going, but they have been replaced on a more localised basis by local enterprise partnerships. If he and his colleagues have a really compelling case for investment in the Luton or greater Bedfordshire area, surely a bid to the LEP would benefit his town, even though it cannot benefit from the scheme in the Bill.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I am strongly in favour of proper targeting, but the RDAs could do that: they could look at their regions, advise on which areas needed the most support and provide assistance in that way. I am in favour of targeting, but if we are to exclude areas, it should not be done regionally, because within regions there are areas that need strong support and other areas that need less support. As I said in earlier debates in the Chamber today, I would use that £1 billion in other ways and target it rather better. We in Luton feel unfairly discriminated against for the reasons that I have set out.

There is also a problem with regional boundaries, which have been mentioned before. In Committee I mentioned a regional boundary that goes right through a small conurbation not far from me, Leighton-Linslade. Linslade is to the south, in Buckinghamshire, and Leighton Buzzard is in Bedfordshire. We therefore have a conurbation that is split by the regional boundary. How will people in that small conurbation feel about one side of the town getting a benefit and the other side not getting it?

I think I have probably made my point, and others wish to speak. The Government have got this wrong. I hope that they will accept the reasonable amendments tabled by my right hon. Friend the Member for Delyn and make this a fair Bill that we can all support.

Photo of Mike Gapes Mike Gapes Labour, Ilford South

Allegedly, we are all in this together. If so, why is it that those of us in east London, along with people in the 21 authorities in the Thames Gateway, which include authorities in Kent, where there is not a single Labour Member of Parliament-they are only Conservatives-and those in Essex, are excluded from the package that we are discussing? We heard earlier today about the Maoist chaos of the Government's regional policy. That is not the responsibility of the Treasury; it is the responsibility of its close allies and partners, and the Business Secretary. However, as we are all in this together, presumably the Treasury is also involved up to its neck.

We have also heard that, apparently, the Government are refocusing regional policy. Well, that regional policy refocus includes, in today's measures, discrimination against poor people in poor communities. My right hon. Friend Mr Hanson spoke from the Front Bench about a number of boroughs and constituencies that have high unemployment-higher than the national average-and where, at the moment, there are also high levels of public sector employment. Those areas will take a disproportionate hit because of the measures announced in the comprehensive spending review and the Government's policy to reduce, for ideological reasons, the size of the public sector so drastically and quickly.

So, we are not all in this together: some of us are in it much deeper than others. I suppose that we are a bit like the residents of Brisbane, Australia. When the tsunami or flood comes in, we hope that it will meet a certain ceiling point before going back down, and that the next day it will go no higher. Some people have a little footbridge or step to get them above the water, but others are pushed down below it. People in the small-business sector in my community-in Ilford and Redbridge, which is a Conservative-Liberal Democrat borough-will not benefit from these measures. When it comes to benefits, we are not in this together with those in Tatton or elsewhere. We will lose out.

Other Members represent poorer communities than mine, but I have wards in my constituency with very high unemployment. I also have a very diverse community. One of the interesting features of excluding London from the proposals is that it is not only discriminatory geographically; it could also be discriminatory ethnically. That needs to be taken into consideration, given the way in which the measures disproportionately affect different communities in different parts of the country.

I do not want to delay the House for long. I spoke on Second Reading in November. I hoped at that time that the Government would come forward with some changes to their proposals. I hoped that they would listen to the logic, but they did not. We have already had Committee stage and Report brings us to today.

The Thames Gateway Partnership for London, Kent and South Essex recently wrote to Members, urging us to make representations to the Minister- [Interruption.] He might wish to listen to this. It wanted us to write to him to point out the discriminatory nature of the proposals and to urge the Government, even at this stage-I say again, even at this stage-to see what they can do to help the Thames Gateway authorities. The partnership pointed out that there are 3.5 million residents in the Thames Gateway local authorities area and that it believes that in

"excluding London and the South East from the regional freeze on National Insurance contributions the government is failing to take proper account of local economies, particularly the challenges faced by the Thames Gateway growth corridor."

My right hon. Friend Stephen Timms has already referred to that.

The Bill is damaging to a potential growth sector of our economy. The Thames Gateway is part of the future of London as a global city. It is vital to the prosperity of our nation, yet this short-sighted, quasi-Maoist Government are operating in such a chaotic way that they cannot see the damaging consequences of what they are proposing. Next year, I hope, they will come seriously to regret what they are doing. I urge all local authorities in the Thames Gateway area to look very closely at the Division lists for today and to register which Members from Essex, Kent and London went through the Lobby in favour of such discrimination against London, Kent and Essex and which Members voted against it. Then, hopefully, those local authorities, councillors and communities will hold those Members to account.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

I want to talk about three things in my comments on the amendment, the first of which is the test set by the Opposition about what this policy is designed to achieve. Secondly, I shall explain why the amendment is needed to ensure that the policy achieves what is intended. Thirdly, I shall say a little about the evidence base for the policy, which was a matter of great concern to me in Committee-and the Bill is still found wanting in that respect. I shall show how the amendment addresses some of those challenges.

The test we set for this policy and, indeed, for this Government, given our concerns about their economic approach, relates to jobs. At the heart of what we do as a Parliament must be the concerns of our constituents, and I know that one of the main concerns of my Walthamstow constituents and those of many other Members is jobs. How are people going to keep a roof over their heads, keep their families fed and ensure that their families stay together? Those concerns relate to the jobs people have and the support we can give to them in their jobs. Job creation is, as my hon. Friend Sheila Gilmore ably set out, absolutely key to how we judge this policy.

In that context, the symptoms are not good. We know that unemployment is rising and that it has hit 2.5 million-it has been suggested that it is likely to increase further, especially in areas currently excluded from this policy-so job creation is a critical aspect of what the Government can and should be doing. Six people are chasing every vacancy in this country; if there were ever a time when we needed to create more jobs for which people can apply, it is now. We cannot have a jobless recovery; that is not sustainable. Indeed, the cost to the public purse of doing so would be tremendous. It is worth noting that every extra 100,000 people on the unemployment register is half a billion pounds of welfare expenditure that has to be found. There is a great cost to us of not doing something about rising joblessness.

We therefore look at this policy and ask how it will meet the test that the Minister set. In Committee, he said that the purpose of the policy was specifically "the creation of jobs". It was to

"help the wealth-creation sector in regions currently reliant on the public sector". --[ Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 47, Q167.]

That is the second test that we put: does this policy affect not the regions but the people it is designed to help? If we look at the people test, we see that, as currently constructed, the policy does not meet it; it fails on that basis.

Many Members have named areas in which some of the public sector workers most affected by the Government's cuts are living. My constituency is already among the top 100 in the unemployment league. Our current unemployment rate is 8.5%, and it is rising as we speak. About 24% of people living in Walthamstow work in the public sector. They are losing colleagues, and they are worried about themselves. My surgeries are full of people asking for help after receiving redundancy notices. I ask the Minister what I should tell those people. What will this policy offer them? The task of Government is supposedly to support people and create jobs in the economy. What can I tell those people in Walthamstow who work in the public sector and risk losing their jobs, or have already received redundancy notices?

Photo of Ian Murray Ian Murray Labour, Edinburgh South 3:30 pm, 13th January 2011

As was pointed out by my hon. Friend Sheila Gilmore, my constituency is at the top of the league in terms of public sector jobs, yet unemployment is less than half that in the constituency of my hon. Friend Dr Creasy. Does that not highlight the discriminatory nature of the Government's policy?

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

That is a very good point. I am talking about the public sector workers who are most at risk of redundancy. The people who live in my constituency may not do the same jobs as those who work in the public sector in Edinburgh. They are teaching assistants, nurses, and people working in inclusion units and Sure Start. They are losing their jobs because of the cuts that are being made in local and national Government. People such as civil servants-who knows, perhaps they include the admin assistants in the Minister's offices-fear for their jobs. They are looking to the Government, who say that the private sector will pick up the pieces following the cuts in the public sector, and they are asking how that will happen. In my region, the answer is very unclear.

This policy could be part of the remedy, and that is the aim of the amendment. It asks, "How can we generate jobs? What are the motives that lead people to set up businesses and industries that generate jobs in the private sector?" Many of us share an interest in whether the private sector could generate jobs as part of the recovery. We think that the policy has failed that test, and needs to be amended. Excluding London and the south-east means excluding a key wealth-creating element of our national economy, and we feel that that is remiss.

I also think that the Government have been remiss in excluding the voluntary sector and charities, and in Committee I supported amendments seeking their inclusion. According to the National Council for Voluntary Organisations, if the voluntary sector could benefit from the change of policy on national insurance holidays, an extra 2,500 charities could be created. Perhaps even more could be created through the big society, given the interest in how the voluntary sector could work in public sector commissioning. Cruelly, however, they have been excluded. The questions "Who are the people who are generating jobs?" and "Where are the places where people who are losing their jobs in the public sector can best find employment in future years?" have not been answered; the test has not been passed.

I ask the Minister to consider amending the policy in the way we have suggested, not least on the basis of his own evidence. He will recall that, in Committee, I was particularly concerned about the way in which the Government had constructed the policy, and the evidence on which it was based. He himself has described it as an uncertain benefit, and his officials have admitted that they did not have much evidence on which to assess whether they could reach all the people whom they wanted to reach, or involve all the businesses that the Minister had hoped to involve. In the impact assessment, the Minister said that he hoped that the policy would help 400,000 businesses, but he has admitted today that only 1,500 have applied so far. In Committee, one of the officials suggested that the number of applications would increase at the remittance stage, but that is not job creation. The jobs would have already been created, and people would be applying retrospectively for remittances. That suggests a challenge to the status of the policy as a job creation measure.

According to the Minister's own analysis, the inclusion of London and the south-east might well make possible the creation of an extra 300,000 businesses. Before he says that there is no extra money, let me suggest to him that the creation of those extra businesses might enable him to meet his target of 400,000 over the three years. He could then return to the House and reassure all of us who are concerned about the efficacy of the policy that it had succeeded in generating new business in the United Kingdom and forming a key part of our recovery. Let me also encourage him to consider the extra tax take that the Treasury would gain as a result of the creation of all those new businesses, as well as the fact that all the extra national insurance funds could be spent on the national health service or on pensions, as he desired. There are many benefits in considering how the Bill could be amended to include London and the south-east. Let us think about all the people who would be affected by the jobs that this would create, the money it would bring into our national Exchequer and, above all, the economic recovery it could help drive.

I therefore hope the Minister will accept the amendments and acknowledge that they have been tabled in good faith. They are motivated by a genuine desire to make sure this policy is effective. Whether or not we agree with the Government-and we certainly disagree with many of the changes they want to make-I hope the Minister will understand and share our concern that jobs must be the first priority of any British Government in the current economic climate.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South

I believe these amendments would make a real and fundamental difference to people in my constituency who wish to start their own businesses-to people who are creative and dynamic, and who want to have the opportunities that come from not being at a disadvantage to those running businesses in other parts of the country.

This Bill seeks to bring about a social benefit. There is a reason why national insurance contributions are going up. They are going up to help bring down the deficit, which is important. The structural deficit needs to be tackled over time. There is a further aspect to the Bill, however: it is also about trying to rebalance the economy.

The Minister has been very clear about his desire to see public and private sector employment rebalanced in various regions, but I personally do not have a problem in this regard, because for me a job is a job. I do not think people in the public sector should be in any way disadvantaged or looked down upon because they work in the public sector rather than the private sector. We accept that private sector jobs should be generated, however, because Opposition Members believe that economic growth is the way to tackle the deficit, not slash-and-burn economics.

We accept that under the Government's plans to reduce the number of public sector workers by about 500,000, those of us in areas with high public sector employment will need more businesses coming up and through. My point is simple, therefore. Across wide swathes of the greater south-east, including the Luton seat I represent, there are areas of very high public sector employment and high unemployment, and the Minister would do well to accept these amendments in order to ensure that we are not disadvantaged, which we are. That would be a positive step.

I agree that legislation has a role to play in helping to moderate behaviour. We want more businesses coming up and through. In Committee, the Minister made a number of salient points about the complexity that might be added by including regions such as the greater south-east, but we are not just in politics to administrate. We are in politics to make a difference. We are in politics to ensure that everyone in this country has a job they enjoy and through which they can generate both wealth for their family and self-worth, and it is unfair to the people in my constituency, and to others in the east, the south-east and London, that they should be exposed to this great disparity.

We in Luton have a number of particular issues with this proposed legislation. First, we have great transport links, which is a positive. It is why businesses like to locate in Luton. However, those same transport links also allow people to travel outside Luton to set up their new businesses, meaning that people in Luton who need a job cannot find employment. We have a young and creative work force; they are the kind of people who want to get stuck into building new businesses, and I am constantly amazed by the range of new businesses I see in my constituency. They are innovative, professional young people who want to establish businesses and set out on their own path, but they are going to be disadvantaged by these measures.

Luton has areas of deprivation, and we also have high public sector employment; that is certainly the case in the constituency of my hon. Friend Kelvin Hopkins, as well as in Luton South. It would be deplorable to say to the people in my constituency that if they move 15 or 20 minutes up the train line or on the roads they will get a £50,000 golden hello, which they would not get if they set up their business in Luton.

Labour Members who represent seats in the greater south-east are willing to make a stand. We want to stand up for our constituents and constituencies, and to talk about our creative people. I hope that the Government will support these amendments, and that Conservative Members will want to stand up for their constituents as well, and say that this disparity is wrong.

In Committee, the Minister discussed why this exemption is being applied and spoke of a constrained budget. We could tackle that in a number of ways, and the amendments take account of them. Obviously, we could address the amount of time on the scheme, the number of businesses that engage in it, the percentage rate of take-up and the number of employees that the businesses take on. I urge the Government to re-examine the matter and find a way to bring include the greater south-east in this arrangement.

I make my final point to ensure that we are not in any doubt. The Committee took evidence from the assistant director of Her Majesty's Revenue and Customs, who made it clear that it is possible to check where people are in the scheme. There was a high level of postcode accuracy about businesses, so it would be possible to re-examine this. As his first point in thinking again, I urge the Minister to consider the greater south-east as a region. It has great disparity between parts and constituencies, containing areas of deprivation, areas with high public sector employment and areas with high unemployment. He should say that those areas are just as deserving as the others represented here today.

Photo of David Gauke David Gauke The Exchequer Secretary

In this group of amendments, Mr Hanson has returned to a matter that was debated extensively on Second Reading and in the Public Bill Committee. I commend him on his persistence, but I expect that he will not be surprised with my response, given the Government's position, which I have set out in the earlier debates.

The amendments relate to the regional nature of the national insurance contributions holiday, a matter that was raised during all the earlier stages of our consideration of this Bill. Amendments 1, 2, 3 and 4, if taken together, would make the holiday a UK-wide scheme. The NICs holiday is aimed at helping the formation of new businesses employing staff in those countries and regions most reliant on public sector employment. The reason why the Greater London, east and south-eastern regions are excluded is that the proportion of the population in public sector employment is lower in those regions as a whole than in any other part of the UK. We also estimate that a national scheme would increase the costs by about 70%.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford

Before the Minister goes into more detail-I warn him that I might seek to intervene again then-can he tell us whether any assessment was made of the impact of this on ethnic minority communities? The real observation has been made that the proportion of ethnic minority people who are great entrepreneurs and who wish to set up a business may well be greater in London and parts of the south-east than in some other regions.

Photo of David Gauke David Gauke The Exchequer Secretary

Of course the Treasury examined all these matters in respect of its policies as a whole, its budget announcements and so on. I must point out that although the excluded region as a whole is diverse, the areas that will be included are equally so. I am not strongly persuaded by the arguments that have been made about this being discriminatory. When listening to these arguments, I was struck by the fact that it is worth reminding the House of what we are seeking to do. We are seeking to reduce the amount of NICs that will be collected, because we believe that in the way that we are doing so, we will be able to help to encourage business-

Photo of David Gauke David Gauke The Exchequer Secretary

I want to develop this point, but I shall give way after I have done so. We want to encourage the creation of new businesses and more jobs. That issue has been raised in some of the earlier remarks. The hon. Lady discussed the importance of jobs and Mike Gapes discussed the impact that failing to reduce NICs might have on the Thames Gateway. The conceit of the speech made by Stephen Timms was that there was some division between the Treasury and No. 10. I do not know whether he was thinking of his own lengthy period in the Treasury rather than of the current circumstances, but let me assure him that there is no great tension between the Treasury and No. 10. I know that that has not always been the case in recent years.

Photo of David Gauke David Gauke The Exchequer Secretary

I will give way on that point, but the central point I want to make is that all Labour Members fought the last election-indeed, the right hon. Gentleman was the Minister responsible-on a policy of increasing national insurance contributions throughout the entire country, which would have done harm not just to the Thames Gateway, east London and Walthamstow, but across the country.

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

I am grateful to the Minister for giving way. On 6 January, the Prime Minister spoke-I think at No. 10-about

"nurturing small clusters of innovative companies and web start-ups, as we are in the new Tech City-our own Silicon Valley-in East London."

Why is the Minister not contributing to this nurturing of start-ups in east London? This is his one opportunity.

Photo of David Gauke David Gauke The Exchequer Secretary

The Government are doing a great deal to help London. We need only consider the transport infrastructure as well as the fact that we are protecting investment in Crossrail, in upgrading the tube and in Thameslink. We are taking a number of steps. I think it is astonishing that Labour is complaining about the fact that some businesses will not receive a reduction in their national insurance contributions when its policy at the last general election was that businesses should be paying more.

It is very helpful to look at the well-remembered interview with the shadow Chancellor on the "Today" programme on 4 January, when he said that we need to get the structural deficit eradicated and that there was no argument about that. He recognised the existence of a structural deficit and did not particularly differ from the Government's position on the size of the structural deficit. There was a disagreement on timing-I think he disagreed with his own policy on timing, but he disagreed with the Government's, too. He said that the balance between public spending cuts-we do not know which of our proposed public spending cuts the Opposition support-and tax rises should be 60:40. I think that the proportion for tax rises was 40%, although it was not entirely clear.

The shadow Chancellor was asked by Evan Davis:

"In principle you would like VAT not to go up and instead, at some point, not now, National Insurance to go up by more?"

The shadow Chancellor's response was, "Yes." He said that that was the Labour party's argument at the general election and that it was still its argument now, because national insurance is a better tax. That is the Opposition's position-they want to increase employers' national insurance contributions. They oppose all the cuts and they oppose our VAT increase, but they want to increase national insurance contributions. Yet when we have a Bill in this House that provides a reduction in national insurance in some areas, their biggest complaint is that they want to do it in more areas. How incredible is that? How lacking in coherence is that policy?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Will the hon. Gentleman tell the House why the net benefit of this Bill as a whole is a £1.42 billion increase in national insurance for employers, even after the thresholds he has introduced?

Photo of David Gauke David Gauke The Exchequer Secretary

The right hon. Gentleman knows the state of the public finances that we have inherited. We have pursued the policy that we set out in our party manifesto before the general election and have reversed the most serious effect of Labour's jobs tax. The Opposition's policy is to go further-they want a bigger jobs tax. The increase in the rate for employers' national insurance contributions, which is mitigated by the increase in the threshold, involves the rate going up from 12.8% to 13.8%-I say that for the benefit of any Labour Members, including the shadow Chancellor, who are not quite aware of that. To raise the same amount of tax as the VAT increase would have done, Labour would have had to increase that rate not just to 13.8% but to 16.7%. What do hon. Members think that the impact on the Thames Gateway, east London and jobs in Walthamstow would have been if we had pursued that policy, which the Labour party believes in? It does not have much by way of economic policy, but that is one of them.

Photo of Ian Murray Ian Murray Labour, Edinburgh South

Let me give the Minister a little of my experience as a business owner with up to 12 staff. Small entrepreneurs and people who run small businesses in Edinburgh are, like me, far more concerned about the impact on our businesses of the number of customers not coming through our doors because of the VAT rise than they were about any increase in national insurance that the Labour party proposed before the election. I would gladly pay £30 a week more for each member of my staff than have no customers left.

Photo of David Gauke David Gauke The Exchequer Secretary

I do not want to reopen the whole argument on everything that should be done to reduce the deficit, but we have to get it down. I am not sure whether the Labour party grasps the need to get the deficit down, but there is no doubt that it has to be eradicated at some point-even the shadow Chancellor agrees with that. The Labour party believes that national insurance contributions are the best tax by which to do that, but all we have heard from Labour Members this afternoon is why they want a cut-and they want a bigger cut than we are offering.

Several hon. Members:

rose -

Photo of David Gauke David Gauke The Exchequer Secretary

I shall give way to someone who has not been advocating cuts in national insurance contributions.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

The chief economic adviser for the Chartered Institute of Personnel and Development has said that

"the VAT hike will prove a far more significant 'tax on jobs'"- to use the Government's term-

"than the hike in...National Insurance contributions".

That outside organisation estimates that 250,000 jobs will be lost because of the VAT rise.

Photo of David Gauke David Gauke The Exchequer Secretary

I recommend to the hon. Gentleman the radio programme "More or Less", which recently pointed out that the national insurance contributions increase would have raised only a quarter of the tax revenue that the VAT increase will raise.

Photo of Stephen Timms Stephen Timms Shadow Minister (Work and Pensions)

Has the Minister received representations from the Department for Communities and Local Government about the inclusion of the Thames Gateway area in this incentive?

Photo of David Gauke David Gauke The Exchequer Secretary

Not that I am aware of, but as the right hon. Gentleman knows, tax is a matter for the Treasury. I must say that the Thames Gateway would have been hit by a much greater jobs tax if the Labour party were in power.

Both today and in earlier debates, I have understandably been asked about take-up and whether there is a plan, if take-up is lower than expected, to expand the holiday to cover the whole of the UK. Let me reiterate to the House and Opposition Members that this is not just about cost; it is also about the policy rationale for the holiday, which is to target incentives on new businesses in regions with high levels of public sector employment. In their evidence to the Committee, representatives of the Federation of Small Business and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and that new business formation would not be harmed significantly because the holiday would not be available there. I should also mention to the House, and particularly to the right hon. Member for Delyn that all new and existing businesses in the south-east will benefit from the increase in the employers' national insurance contributions threshold, which I assume the Labour party will oppose when we bring it forward, and from the reduction in corporation tax rates, as compared with the increase that Labour was going to bring in for small businesses.

Photo of Mike Gapes Mike Gapes Labour, Ilford South

The Minister refers to the FSB. Will he confirm that it wrote before Christmas saying that his proposal is

"a crude assessment as it does not account for areas within these regions that would really benefit from policies that would help bolster employment"?

That remains the position of the FSB.

Photo of David Gauke David Gauke The Exchequer Secretary

That is the same Federation of Small Businesses that said that the Labour party's policy to increase national insurance contributions would cost about 52,000 jobs just among its own members.

We have touched on the fact that labour markets are much bigger than ward, borough or constituency boundaries. It is not quite clear what the Labour party would do if it were to extend the scheme. Its policy seems to be that it would remove the scheme from some parts of the regions that would currently benefit. It is not quite clear how the Labour party would do that. I do not know-perhaps the right hon. Member for Delyn could explain-whether the plan is that the scheme would be available in Flint but not in Prestatyn. I am not quite sure what the Labour party has in mind. Perhaps it thinks that the scheme should be available in Oldham but not in Saddleworth. I really do not know what the Labour party wants to do with the scheme, but it clearly wants to increase national insurance contributions, not to reduce them, despite what we have heard this afternoon.

The NICs holiday is targeted at regions and countries with the highest proportion of public sector dependence, to encourage new businesses to start up and take on employees. Expanding the holiday to the whole economy would undermine the policy rationale. I therefore ask the right hon. Member for Delyn to withdraw the amendment.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

We have had a very good debate, and my right hon. Friend Stephen Timms and my hon. Friends the Members for Walthamstow (Dr Creasy), for Luton South (Gavin Shuker), for Ilford South (Mike Gapes) and for Luton North (Kelvin Hopkins) have put the case strongly for their constituents to be included in the scheme.

The scheme does not do what is says on the tin. It will not fulfil the Minister's objectives. It will not help regions and areas with the highest public sector employment. I reiterate for the House's benefit that 23 of the top 100 constituencies in the country for public sector employment will not benefit from the scheme. The Minister knows that we have suggested alternatives, and my hon. Friend the Member for Luton South mentioned in his contribution a range of ways that we could cut the cake to include London, the south-east and east, so that those areas of high deprivation with high public sector employment could benefit from the scheme. I am not satisfied with the Minister's response. We need to ensure that the scheme is fair and equitable. I therefore intend to press the amendment to a Division.

Question put, That the amendment be made.

The House divided: Ayes 92, Noes 271.

Division number 168 National Insurance Contributions Bill — Clause 4 — Holiday for new businesses

Aye: 92 MPs

No: 271 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Third Reading

Photo of David Gauke David Gauke The Exchequer Secretary 4:09 pm, 13th January 2011

I beg to move, That the Bill be now read the Third time.

We have reached the final stage of the House's deliberations on the National Insurance Contributions Bill. The first part of the Bill, on which we perhaps spent less time, introduces a 1% increase in the class 1 employee and employer and class 4 self-employed rates of national insurance contributions from April this year. As some hon. Members will remember, that was announced by the previous Government in the 2009 pre-Budget report. Although not part of the Bill, we intend to reverse the impact of the previous Government's tax on jobs by increasing the employer national insurance threshold and income tax personal allowance. Those changes are part of a progressive package of measures that shifts the burden of Labour's taxation away from lower earners and lower-paid jobs.

First, I remind the House that the provisions will increase the employer rate from 12.8% to 13.8%. That is a fact I am sure we should all get right. That 1% increase will also apply to class 1A and 1B contributions that are paid by employers on benefits in kind and pay-as-you-earn settlement agreements. Secondly, the Bill will increase the employee main rate from 11% to 12%. The same 1% rise will also apply to class 4 contributions paid by the self-employed, which will rise from 8% to 9%. Thirdly, the additional rates of employee class 1 and self-employed class 4, payable on earnings or profits above the upper earnings limit and the upper profits limit respectively, will rise from 1% to 2%. Compared with the plans that the Government inherited, more than £3 billion a year is being returned to employers through the threshold rise, and even more to individuals through the increase in the personal allowance.

Our actions will mean that some 880,000 low earners in the UK will be taken out of income tax altogether. Around 950,000 low earners will no longer pay national insurance contributions, although their benefit rights will be protected. Employees earning under £35,000 a year will pay less income tax and national insurance contributions and employers will pay less national insurance contributions on all workers earning less than £20,000 a year. We are keen to reduce the burden in this area although, as I set out earlier, it appears the shadow Chancellor wants substantially OT increase that burden.

I turn now to the regional employer national insurance contributions holiday for new businesses, which is contained in the second part of the Bill. That provision encourages employment and enterprise in the areas of the UK that are most dependent on public sector employment. Our aim is to help those regions in the transition to a more sustainable economic model based on private sector growth and investment. That is why we are introducing a holiday from employer national insurance contributions for qualifying new businesses in targeted countries and regions. The measure will reduce the costs of taking on staff and provide support in the vital early stages of business development. In order to ensure affordability, the holiday is limited to the first 10 employees taken on in the first year of business. For each of those workers, the holiday will last for 12 months, unless the closing date for the scheme-5 September 2013-is reached before the 12 months have elapsed.

In the Budget, we estimated that new businesses would save around £940 million of national insurance contributions over the next three years, giving them the ability to hire more staff, expand their business and invest in the recovery.

Photo of Nick de Bois Nick de Bois Conservative, Enfield North

Will the Minister advise whether he envisages any problems from perhaps less than scrupulous companies that might go into pre-pack administration? Would they be able to claim the benefit if their new business started after a pre-pack administration, for example? If that is the case, will he take some measures to consider what can be done about this?

Photo of David Gauke David Gauke The Exchequer Secretary

As we discussed in earlier stages of the debate, it is right that we look at this closely to see that the scheme applies where we believe it should, that we do not have artificial creations, that there is a proper need for this, and that the compliance capability of HRMC to address the matter is adequate, and we are ensuring that that happens.

I thank the many right hon. and hon. Members who have participated in the debates on the Floor of the House and in Committee. We have had a thorough examination of many of the arguments, perhaps occasionally at the risk of repetition, and we may have another opportunity for that later-who knows? I am grateful for the constructive way in which the Bill has been scrutinised by Members from all parties.

The Bill enables the reduction of taxation of labour nationally, and it provides extra support in targeted areas. It is good for growth and good for jobs, and I commend it to the House.

Photo of David Hanson David Hanson Shadow Minister (Treasury) 4:15 pm, 13th January 2011

This is the fourth Treasury Bill that I have dealt with as Opposition Treasury spokesman in four months, and it is the fourth Bill that has reached this stage without a single amendment being passed, so I am continuing with my fine record of scrutiny but little success in making changes.

I want to be clear at the start that despite concerns about some aspects of the Bill, we support the broad thrust of the measures before us. I note, however, that despite the rhetoric about national insurance that occurred at the general election, the Bill takes through the national insurance contribution increase of 1%. I accept that the Minister has included in the Bill changes to the employers' threshold, which will make a contribution towards those costs. However, even after that has taken place, the Bill still brings in a rise that will cost businesses about £1.4 billion a year. I make no complaint about that, because we proposed to do it at the election; my complaint is that there has been a lot of smoke and mirrors from the Government in their approach to national insurance.

Photo of David Gauke David Gauke The Exchequer Secretary

As the right hon. Gentleman will know, the policy that we are pursuing is entirely consistent with what we set out in our manifesto. Given the position of his party and the shadow Chancellor on this, presumably they will be opposing the increase in the threshold for national insurance contributions that will be introduced very shortly.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

The electoral rhetoric does not match the actuality of this Bill. The Minister has rightly said that threshold increases were trailed in the election manifesto, but £1.4 billion of extra expenditure on businesses is still being put forward in the Bill. I make no complaint about that, as it formed part of our manifesto commitments. However, we should examine the electoral rhetoric. During the election the Conservatives said, "Let's Stop Labour's Jobs Tax", but they are still executing, through this Bill, some £1.4 billion-worth of extra costs on employers; again, we have no objection to that. We will look at all these matters in due course and make our judgments when we see the proposals that the Government bring forward. However, given what was said at the election, there is still a sting in the tail for employers in the small print of what the Minister has brought forward today.

My right hon. Friend Mr Darling announced in the pre-Budget statement on 9 December 2009 that we would increase national insurance contributions by 1%. However, in this Bill there is not only that increase but, side by side with it, the 2.5% increase in VAT that the Government have introduced. The Minister has put an extra £1.4 billion on national insurance and, at the same time, increased VAT. At least we were clear about our objectives in the election. However, we will support the Bill today.

We support the national insurance holiday, which engendered most debate in Committee and on the Floor of the House. We think it is important to consider measures that encourage business, but we disagree with the exclusion of London and the south-east and eastern regions. We have made the case on that issue and I hope that the Exchequer Secretary will reflect on it.

This debate has been very positive. I thank my right hon. and hon. Friends who have contributed, particularly those from London and the south-east and eastern regions. I thank my hon. Friend Chris Leslie and the Whip, my hon. Friend Lyn Brown, for their help and support during the course of the Bill. We will not vote against the Bill this evening, but we will undoubtedly return to the scrutiny of it in another place shortly. Some of the arguments bear further repetition in Committee and on the Floor of the House in another place. Finally, I thank the Minister for his patience and co-operation. I look forward to seeing him on numerous occasions in the future.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South 4:20 pm, 13th January 2011

I, like many hon. Members, have followed the debate extremely closely. When the changes were first announced in June, I authored an early-day motion that stated the inadequacies of the Bill for the greater south-east-the south-east, the east and London. On Second Reading, I flagged up my concerns and in Committee we looked at the evidence in greater detail. The Bill will have a real impact on my constituents, and on those of hon. Members from across the House. In particular, it will impact on people in the greater south-east.

Obviously, we accept the Treasury's need for more national insurance income to sort out the structural deficit. Although we are not opposed to the legislation and will not press for a Division, I still have a number of concerns that it is important to place on the record.

First, I believe that the Exchequer Secretary's motivation is confused. We have heard contradictory statements. We have head that it is about rebalancing the economy; we have heard that it was decided which areas should receive a holiday to match the price tag that was set for the policy; and we have heard that it is about simplicity. Clearly, it would be simplest to implement the scheme for all new businesses across the country, yet that is not the scheme we are looking at.

Secondly, I believe that the implementation of the scheme is flawed. So far, just 1,500 applications have been received. We all hope that every eligible new business will take up the scheme, but the target of 400,000 for the next three years seems a long way off, given the current trajectory. The simplest approach would have been a blanket scheme, and that would have been simple to communicate to new businesses. Certain groups will be disadvantaged by the holiday: the east, south-east and London will be disadvantaged, and, as was discussed in Committee, charities who employ people will miss out compared with businesses. Also, as we discussed earlier, the NHS, for which some of the money is hypothecated, will not benefit to the extent we believe it should.

Thirdly, I believe that the spin relating to the Bill has been conflated. The Exchequer Secretary said that he is not implementing Labour's jobs tax. However, there is a 1% increase, and it is important for this place to acknowledge that. The scheme will have an effect on businesses in certain areas. Although we accept the need to find fair and just ways to reduce the deficit, I am worried about some of the rhetoric about public sector jobs. Public sector workers not only support their families but serve us. Whether a job is in the public or private sector, people should be able to have pride in it.

Finally, I believe that the analysis that comes out of the legislation will be flawed in a number of ways. We tabled amendments calling for a report and more information on the effectiveness of the scheme, but we will not receive the constituency-level data we would like. They would enable us to compare data for future reference, so that after, say, three years, we could consider how we might wish to implement the scheme again, whether it was worth extending or whether the time for which it was in place should be reduced. Instead, we will have to go through a laborious process of tabling parliamentary questions and will not be able to examine constituency-level data as a whole. That is a real shame.

The Exchequer Secretary says that in this case simplicity should outweigh justice and that the simplest way to balance the scheme is to exclude certain groups. I do not believe that that is the case, but we accept that there is a need for the scheme, and for that reason the Bill will go forward tonight.

I have one question for the House, though: what is just about business men and women in my constituency, an area with deprivation, losing out compared with those setting up businesses in other constituencies just 20 minutes away up the train line? I do not believe that there is a whole load of justice in that. I ask the Minister to think again as the Bill proceeds, and I know that if he does, living where he does, he will receive the thanks of a grateful constituency.

Photo of Jonathan Edwards Jonathan Edwards Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Business, Innovation and Skills), Shadow PC Spokesperson (Transport), Shadow PC Spokesperson (Communities and Local Government), Shadow PC Spokesperson (Culture, Media and Sport), Shadow PC Spokesperson (Wales) 4:25 pm, 13th January 2011

In general we support the Bill, not because we think it will make much of a difference-as we have heard, the take-up has been far from promising so far-but because it is recognition by the UK Government that the UK's economy is geographically unbalanced and that action needs to be taken to address the problem.

The gross value added of the communities that I represent is 20% of that of inner London, something that clearly has to be addressed. Under the last Government, 10 jobs were created in the south-east of England for every job created in the north and the midlands, and I fear that Wales fared even worst. One of the great themes of the last Government was the concentration of jobs and money in the south-east and London, with massive growth in the financial sector and the destruction of other sectors of the economy, particularly manufacturing. That led to huge wealth polarisation on both a regional and an individual basis, and it was refreshing to read today in The Independent that the Leader of the Opposition at least recognises that damaging legacy.

We should also consider other areas that need action. The UK Government have been talking about the creation of enterprise zones in Northern Ireland and the use of different levels of corporation tax to stimulate private enterprise in areas of the state that are lagging behind. We will therefore support the Bill.

Question put and agreed to .

Bill accordingly read the Third time and passed.