I beg to move, That the Bill be now read a Second time.
The Bill underlines this Government’s belief that pro-business policies help growth and job creation. For too long, our economy has been dependent on a booming financial services sector, on the one hand, and unsustainable levels of public spending, on the other. That made us particularly vulnerable to the crisis of 2007-08, the consequences of which continue to be felt today.
The challenge the Government faced in 2010 was how to begin the process of getting our public finances in order and to put in place the conditions for growth. Some believed that it was not possible to do both and some argued that measures to reduce the deficit would result in higher levels of unemployment. It was the Leader of the Opposition, no less, who said that the Government clearly had
“a programme that will lead to the disappearance of one million jobs”.
That was just over three years ago and there are now more people in work than ever before.
Since the coalition came to power, employment has increased by more than 1 million and there are 1.4 million private sector jobs, more than there were at the time of the last election. Employment in the three months until August 2013 was at its highest ever level, at 29.87 million. Those predicting disaster massively underestimated the capability of businesses up and down the country to adapt, innovate and expand, but they also failed to appreciate that we now had in place a Government on the side of businesses who were willing to put in place the conditions that help them to invest and expand, whether by addressing burdensome regulations or reforming our tax system.
In case we forget, such action included reversing the worst effects of the previous Government’s jobs tax. Yes, at a time when we needed businesses more than ever to take on more staff, Labour’s contribution to deficit reduction consisted of increasing the tax on jobs.
Does my hon. Friend think that it is possibly because they are embarrassed by that record that there are only two Labour Back Benchers in the whole Chamber and nobody from the other Opposition parties? How many extra jobs does he think his excellent Bill might help to create?
My right hon. Friend makes a very good observation. I can rarely remember so few Labour Members being present for the opening of a Second Reading debate. I was beginning to take it personally, but he has reassured me that this issue does not attract the interest of the Opposition. Labour is the party that intended to increase the jobs tax. Pretty much the only measure that they had for deficit reduction was to increase employers’ national insurance contributions, which was not a sensible approach at all.
We are not predicting how many jobs the Bill might create because a number of factors apply. It is interesting to note, however, that the Federation of Small Businesses believes that the measure is better than the one that it had advocated, which it anticipated would have created 45,000 new jobs. It has carried out a survey of its members and 28% of respondents believed that this measure would help them to increase the number of people they employ. That is a very encouraging step.
That is a similar point, and, as I say, I am nervous about giving precise numbers. Of the FSB respondents, 28% believed that this would help them. We believe that we have to consider a range of measures, but clearly measures that reduce the cost of taking on staff must help in increasing employment. For example, the Bill would enable a business to take on four people on the national minimum wage and not pay any employers’ national insurance contributions at all. That will clearly help.
My hon. Friend mentions the welcome for this Bill from the FSB. Is he aware that charities and social enterprises will also benefit from it? Alex Swallow, chief executive of the Small Charities Coalition, said:
“For a lot of the smallest charities, having one paid member of staff is a big step forward…having this allowance now helps them to do that, so it is a very positive thing.”
I am very grateful to my hon. Friend for that intervention. She makes an important point that applies to both businesses and charities. Taking on the first member of staff can be the most difficult step, as it is a big event for a business. If we are able to help and to reform our tax system to enable businesses or charities to take that member of staff on without paying the jobs tax—employer’s national insurance contributions—that will clearly encourage those businesses, which, I hope, will then take on further staff and expand.
Will my hon. Friend confirm that the measure was the largest tax cut in the Budget? Does he therefore not think it is all the more surprising that there are no Labour Members here to scrutinise a major plank of that Budget?
Another observation one could make is that there are no Labour Members of Parliament here because they are—[Interruption.] I apologise. That remark is unfair and I withdraw it. There are the Labour Front Benchers and now three Back Benchers. Who knows? We might reach five or six by the end of the debate. Perhaps Labour Members have confidence in, and enthusiasm for, the Bill and can find nothing to criticise. However, we look forward to the speeches to come later. On that note, as Julie Hilling has waited so patiently, and as it is about time that we heard from a Labour Member, I give way to her.
I thank the Minister for giving way. Has he considered the fact that there are only a few Labour Members here because, to our relief, he has, in the end, listened to what we have been asking for and included a great deal of it in the Bill? I congratulate him on listening to us, and therefore on introducing the Bill.
That, too, is a theory, but I am not sure that it is necessarily persuasive. When we fought the previous general election, the Labour Government’s big policy for deficit reduction, among a pretty thin set of policies, was a big increase in national insurance contributions. We have already reversed the worst effects of that, and the Bill is a further measure that will help businesses up and down the country to create jobs.
The hon. Member for Bolton West is referring to one element of Labour’s five-point plan, which we do not hear much about any more, but there were serious problems with Labour’s proposal; this one is very different from that. It was a much more targeted scheme aimed at smaller employers taking on new employees, which raised all sorts of practical questions about how to define a new employee and how to prevent there being perverse incentives. I put it to the House that that scheme was neither workable nor likely to achieve its objectives. I suspect that we shall return to that issue.
No, I am definitely Bashful. Cheeky is probably on the other side of the House.
Does my hon. Friend the Minister agree that the key component—the most important innovation in the proposal—is the fact that it encourages confidence among businesses, particularly small businesses? I held a jobs fair a couple of weeks ago and 500 jobs, part-time and full-time, were available. Many small businesses at the fair thought that cutting their tax through this measure was the right thing to do.
I am grateful to hear of the experience in Tamworth, and my hon. Friend is right to raise that point. Particularly for those small employers taking on their first person, the fact that they do not have to pay employer’s national insurance contributions at 13.8% will help them. In many cases, the Bill will have exactly that effect. I welcome what appears to be broad support for the measure.
Following on from the earlier point about confidence, does the Minister agree that, although all the surveys indicate that confidence is at an all-time high, the challenge is investment? A Federation of Small Businesses survey has said that the measure will enable 28% of businesses to take on additional staff; that is what businesses want to do. Some 25% of those surveyed would invest in new machinery and equipment, and 21% in new staff training. That is exactly what we need; we need to turn confidence into a deliverable result.
My hon. Friend raises an important point. I pay tribute to the work that she does on the all-party parliamentary group on micro-businesses. She provides a very strong voice in the House for smaller businesses, and she is absolutely right to do so. She is right to draw the House’s attention to the FSB survey. We have already talked about the contribution that the measure will make to the taking on of more staff, but where more staff are not taken on, there will very often be investment in the business, which will clearly help it to expand.
The Bill cuts the jobs tax for 1.25 million employers and takes 450,000 of them out of employers’ national insurance contributions altogether, making it less expensive for businesses to take on new staff, so the Bill will help job creation. It contains four main measures. We have touched on the employment allowance. I will also say something this afternoon about the fact that the Bill gives effect to the general anti-abuse rule on national insurance contributions. It also amends the Social Security Contributions and Benefits Act 1992 to allow regulations to be made on the certification of non-UK employers of oil and gas workers, and makes changes in connection with two elements of the partnerships review carried out by Her Majesty’s Revenue and Customs. The Bill also makes a small number of technical corrections that I am happy to take the House through, should there be demand for that; if there is not, I am sure that we can cover them in some depth in Committee.
Returning to the employment allowance, as part of our efforts to remove barriers to growth for businesses and to equip the UK economy to compete in the global race, the Chancellor announced in this year’s Budget the creation of a new employment allowance, as my hon. Friend Charlie Elphicke pointed out. It will take effect from
The employment allowance builds on action that the Government have taken to make the tax system more competitive, and to encourage growth. That includes cutting corporation tax, increasing the rate of the research and development tax credit for small and medium-sized enterprises, increasing the annual investment allowance to £250,000, and giving a cash-flow benefit to those who invest in plant and machinery.
The objective of the employment allowance is to help businesses with the cost of employing their staff by reducing their employer class 1 national insurance contributions bill each year. It will support thousands of small businesses that aspire to grow, perhaps by hiring their first employee or expanding their work force, as well as those already employing others, or facing temporary cash-flow problems.
In the emergency Budget that followed the last Westminster election, the Treasury said that it wanted to rebalance the economy geographically, but the only measure that we have seen to date is the reduction in employers’ national insurance contributions for companies outside London and the south-east. The employment allowance is a UK-wide measure. Does that indicate that the Treasury has given up on its ambitions geographically to rebalance the UK economy?
No, not at all. There is a whole host of measures, including the regional growth fund, and there is some really good news; exports are up significantly in the west midlands and the north-east in particular. We are taking steps to strengthen industries up and down the country. The hon. Gentleman touches on the regional employers’ NICs holiday; let me turn to that, because I suspect that the policy will feature heavily in the arguments that we hear from Opposition Front Benchers.
Jonathan Edwards made a good point about rebalancing the country’s economy. Is my hon. Friend the Minister aware that we have had the biggest growth in construction in six years? The Chancellor and the Treasury should be congratulated on ensuring that the Government are rebalancing financial services and manufacturing in the economy.
The striking point about the most recent growth numbers is that they demonstrate growth in every sector, and that is very encouraging. I began by saying that the economy in the mid-2000s, say, was very dependent on financial services and on London and the south-east. Of course we want a successful financial services sector and we want London and the south-east to do well, but it is also important that growth is better balanced throughout the United Kingdom, and the Government continue that commitment.
While hesitating to introduce any controversy into the debate, does my hon. Friend agree that the hikes in the jobs tax under the previous Government destroyed jobs, and that this Government’s policy of reducing the jobs tax, particularly in this Bill, will enhance job creation and aid the recovery?
I do agree. Given that we want to increase employment, it would not have been sensible to undertake the increase in national insurance contributions that the previous Government intended. That was clearly a mistake. I am sure that my hon. Friend will be delighted to know that not only are he and I in agreement but Tony Blair said last week that he thought it was a mistake.
To have implemented the policy we inherited would have destroyed jobs. It did not do businesses in the United Kingdom any good to have the prospect of an increase, sending the wrong message that we were going in the wrong direction. I am pleased to say that we have reversed that direction of travel by not implementing the previous Government’s policy in full. We have increased thresholds for national insurance contributions, which has clearly helped. Now, through this Bill, we are providing an employment allowance of £2,000.
Does my hon. Friend agree that the reason the previous Government proposed the ridiculous increase in the jobs tax was testimony to the fact that they could not countenance cutting public expenditure? That was their downfall. They were content to continue to borrow £1 for every £4 this country was spending, and their proposal was evidence of a wholesale mismanagement of the economy.
My hon. Friend makes a valuable point that is well worth highlighting. When running a deficit of the size that we were running, we face some tough decisions. We have taken a range of measures to reduce the deficit, and it has reduced by a third.
Ultimately, though, whoever was in government was going to have to take these difficult decisions. If we are not prepared to take difficult decisions on spending—there is no evidence that Labour Members would do so—the answer is that we have to increase taxes. When we look around to see what taxes are available, it is clear that some very difficult decisions have to be made. Labour Members chose to go for employers’ national insurance contributions; perhaps they considered that that option was less visible to the general public than some of the others. However, the consequences would have been higher unemployment, and this Government were not prepared to face that.
What business hates more than anything else is the complexity of the tax system. We still have one of the longest tax codes and one of the most complex tax systems in the world. Will the Minister explain how we are still setting about our long-term objective of simplifying the tax system and achieving a much flatter rate of tax for the sake of business?
The Bill will result in a big simplification for 450,000 businesses, because they will no longer have to pay any employers’ national insurance contributions. That is significant progress. We have established the Office of Tax Simplification, which has produced a number of reports. Anyone who has studied recent Finance Acts closely will have seen that a whole range of measures have been introduced as a consequence of the OTS’s recommendations. Of course, there is more work to be done and we as a Government remain committed to that, but there have been a whole range of measures. The OTS is looking at employee benefits at the moment, and that is significant.
One of the concerns that small businesses had about the national insurance holiday—which was an excellent policy, despite the Opposition’s comments—was about the forms that had to be filled in to qualify. Will the Minister clarify how easy it will be for businesses to take advantage of the new proposal?
My hon. Friend makes a good point. I want to turn to the employers’ national insurance contributions holiday, because I suspect it will feature in the speeches of Opposition Members. They will make the point that take-up was not as high as we had anticipated. [Interruption.] Let me give the numbers: 26,000 employers and 90,000 employees have benefited from it. Our expectation was that take-up would be much higher. [Hon. Members: “How much?”] Don’t worry; I am going to set it out.
We said that 400,000 businesses and 800,000 employees would benefit from the scheme. I think that the reason why that did not happen is closely aligned to what my hon. Friend has just pointed out: a scheme that was, essentially, quite targeted and required businesses to apply—even though we worked hard to try to make the application process as simple as possible—simply meant that fewer businesses applied for it than we had anticipated. Take-up was lower than expected and there are lessons to be learned from that. We should be open about that.
We need a system that is simple and that can be applied easily. Under the new proposal, no application process is needed as such. Businesses will receive the benefit of the employment allowance simply by using up-to-date payroll, and the introduction of real-time information makes that much easier to apply. We believe that this is a much-improved policy. It contrasts with the employers’ NICs holiday, because that was a targeted regime. It also contrasts both with the policy advocated by Labour in its five-point plan, which was even more targeted, and with the policy we heard about yesterday on the living wage. Complicated, temporary schemes requiring applications are likely to have disappointing levels of take-up, whereas permanent schemes automated through the payroll system will, we believe, apply much better.
I am grateful to the Exchequer Secretary and I also welcome the new additions to the Government Front Bench. He will remember that we both sat on the National Insurance Contributions Bill Committee—I think it was one of his first Bills as a brand new Treasury Minister—and Labour said at the time that the proposal was very complicated. We said that he needed to be very careful with the convoluted regional design that he put in place and that the scheme would not get the anticipated take-up, which evidently it did not. It is sometimes invidious to say these things, but we told you so. Will the Exchequer Secretary go a little bit further, accept that we were right and he was wrong, and be big enough to say sorry?
If I remember correctly, that was in autumn 2010, when the next leader of the Labour party was saying that 1 million jobs would go missing. The hon. Gentleman says that the NICs holiday was too complicated. One of the lessons that can be learned from the NICs holiday is that the simpler the scheme, the better. Perhaps the Labour party has not been listening to him because since that debate, it has proposed two NICs schemes, both of which are more complicated than the one that we had in place. If he is making the case for keeping NICs schemes simple, perhaps he ought to have a word with his party leader.
My hon. Friend is being exceedingly generous in giving way. Does he agree that the Opposition’s latest wheeze of giving a subsidy to employers who take on employees at the living wage will have a huge dead-weight cost, because 12 months before the appalling prospect of the return of a Labour Government, employers are likely to stop giving salary increases to workers who are on the minimum wage, mindful of the fact that if they give it another year, they might get it all rebated by the taxpayer?
The Minister has talked about wages. Interestingly, the Federation of Small Businesses has said that about 29% of its members will use the employment allowance to give a pay rise to some of their employees, which they have been unable to do because of the economic circumstances. Does that not show that this policy is a way of delivering sustainable growth and sustainable wages, and not just a gimmick that will do more harm than good?
My hon. Friend is absolutely right. It is worth bearing it in mind that tax plays an important role in the cost of living. If taxes are put up, it increases the pressure on the cost of living. Ultimately, that is where the policies of the Labour party would lead.
My hon. Friend is right. The policy of providing a NICs break only for new employees raised all sorts of practical questions such as who constituted a new employee and what perverse incentives might have been created. That is not dissimilar to the point that my hon. Friend Margot James has made about Labour’s current policy.
I will turn to the other elements of the Bill. Clauses 9 and 10 relate to the general anti-abuse rule. The Government announced at last year’s Budget that they accepted the recommendation of the Aaronson report to introduce a GAAR targeted at abusive tax avoidance schemes. The GAAR was introduced in part 5 of the Finance Act 2013 and has been in force since July. This Bill will apply the GAAR to national insurance contributions.
Clause 11 relates to oil and gas workers. In this year’s Budget, the Chancellor announced that the Government would strengthen the legislation on offshore employment intermediaries. The Bill will address the non-payment of employer’s national insurance contributions in the oil and gas industry through the placement of the employer of oil and gas workers who are working on the UK continental shelf outside the UK. The measure has been subject to consultation. The consultation document, “Offshore employment intermediaries”, was published on
The Government intend to address those offshore employment schemes largely by using existing powers contained in social security legislation. The Bill supplements those with a new certification provision for the oil and gas industry. That provision will apply where the national insurance obligations are fulfilled by someone on behalf of the person deemed to be the employer for national insurance purposes.
Clause 11 is part of a measure that, as a whole, is expected to bring in the region of £100 million per year to the Exchequer, without having a significant economic impact on the oil and gas industry. Staff costs for some businesses may increase if they had not previously been accounting properly for all tax and NICs. There will be little cost to the Government through additional administration, other than HMRC implementing the new certification system, and I hope hon. Members will agree that this is a straightforward and uncontroversial provision.
Finally, I wish to refer to provisions in the Bill concerning HMRC’s partnership review, which are contained in clauses 12 and 13. Following the Chancellor’s Budget announcement, HMRC carried out a consultation on two aspects of the partnership rules between May and August this year, and the Government are bringing forward measures in the Bill as a result of that review. The Government are proposing two sets of changes, the first of which was not part of the consultation proposals but resulted directly from information received during that consultation. It concerns a tax issue that can arise from the interaction of the alternative investment fund managers directive—AIFMD—and existing partnership tax rules. Only those alternative investment fund managers who operate as a partnership will be affected by the proposed changes in the Bill.
A provision in the Bill will allow regulations to be made to modify the class 4 NICS liability of partners whose profits will be deferred under AIFMD, which aims to improve investor protection and reduce risk. The regulations will be based on new tax legislation that will be included in the forthcoming finance Bill. Measures will be included in the NICs Bill, the forthcoming finance Bill and secondary legislation to reclassify certain limited liability partnership—or LLP—members as employed earners for tax and national insurance purposes, to tackle the disguising of employment relationships through LLPs.
The tax and NICs changes are expected to bring in approximately £125 million to the Exchequer in the first year, while the broader economic impact is expected to be negligible. There will be changes to the NICs liability for certain partnerships and individual partners in the alternative investment fund sector. The Bill will also result in some LLPs in certain industry sectors where disguised employment has been most prevalent paying increased amounts of NICs.
I greatly appreciate the Minister giving way. Before he sits down, will he or one of his colleagues answer on the financial costs of the employment allowance contained in the Treasury documents? What impact on the take-up of tax credits were included in the estimate of £1.25 billion impact on the Exchequer in 2014 through to £1.7 billion in 2017-18? I do not expect the Minister to have those numbers to hand, but if his colleagues could reply to that later, or send me a note, I would appreciate it.
I am grateful to my hon. Friend for that observation, and we will of course take a cautious estimate on the impact on tax credit take-up. Those numbers were signed off by the Office for Budget Responsibility, but I will ensure that my hon. Friend receives an answer on the detailed technical point before long.
This is an important and necessary Bill. Through the employment allowance it will allow us to support businesses with the cost of employing their staff, as well as small businesses that are aspiring to grow. The Bill also includes a package of measures aimed at activity that attempts to reduce the national insurance contributions payable to the Exchequer—an issue we are seeking to address.
This is another Bill that will help create a system of low taxation that is properly enforced. It will continue to help businesses help our economic recovery, and it will help jobs and job creation. I commend the Bill wholeheartedly to the House.
I salute the Minister’s valiant effort to gloss over recent history and his record. I can tell Government Members that the reason their Minister was not making any predictions about the impact of the policy in the Bill was that he got all his previous ones wrong.
That was a valiant effort to change the subject, but today we are talking about this Minister’s record and the regional national insurance holiday plan. I note that the Minister could not bring himself to admit that the Opposition were right and that he was wrong about that. Perhaps we can return to that point later.
The Minister sought to focus as much as he could on the employment allowance and desperately tried to forget its predecessor scheme that the Government introduced in their 2010 emergency Budget—the regional national insurance holiday, which was enacted in the National Insurance Contributions Act 2011. The national insurance holiday was an abject failure, so I am not surprised that he wants to pretend it never happened, but it did, and it failed utterly. He has wasted three years clinging to that policy rather than doing what Opposition Members told him to do, which was to rip it up and design a new scheme that took account of the criticisms made by us and others.
The Bill introduces the employment allowance, which we support, so perhaps we should give the Minister credit for getting there in the end, but it is somewhat difficult to do so, because it has taken him far too long to rectify the flaws of the previous scheme, which we warned him about from the beginning, as my hon. Friend Chris Leslie has reminded him. As a result, businesses desperate for help have struggled in the meantime.
Those businesses, particularly small and medium-sized enterprises, which are the engine of our economy, have continued to suffer. Bank lending to SMEs is still contracting, and analysis published by the Department for Business, Innovation and Skills shows that tightening credit has disproportionately affected low and average-risk SMEs. Last year, Project Merlin missed its target for lending to SMEs by more than £1 billion. In 2010, the Office for Budget Responsibility predicted that lending to businesses would have risen 34% by now, but in fact it has fallen by 10%.
Given this climate of the past three years, action has been necessary to support business, but, on national insurance, it has taken the Government too long to get there.
The hon. Lady is making some fair criticism of the national insurance holiday, but does she agree that one problem with the holiday was that it was a one-off, and that businesses are so smart in their planning that they ignore one-off schemes and go on previous predictions? Does she agree that a steady basis for policy is better than one-off, one-year schemes?
As we are having a national insurance history lesson, what does the hon. Lady think the impact would have been of a 1% increase for employers and employees in April 2011?
I thank the hon. Gentleman for that intervention, but I prefer to look at the record. When the Government came to power, they inherited a growing economy. They choked off the recovery, resulting in three years of flatlining and stagnation, and the current cost-of-living crisis that affects businesses and people up and down the country.
The new version of events on the Government’s legacy is interesting. We received a dismal legacy. We had a huge deficit, but Opposition Members—deficit deniers—cannot recognise that. They should apologise for proposing the jobs tax. Will the hon. Lady apologise for putting that on their policy platform? It was a complete disaster.
I do not think that an economy that was growing was a bad legacy to leave. The legacy of three wasted years, caused by the Government pursuing a failed economic plan that has delivered a cost-of-living crisis for millions of people, is not one to write home about.
The key point about the national insurance measure in the emergency Budget was that it was a statement of intent that the UK Government wanted to rebalance the economy geographically. Under the last Labour Government, wealth polarised geographically at an incredible rate. If the hon. Lady is in the Treasury after the next election, what will she and her colleagues do to rebalance the UK economy geographically?
We have been speaking a great deal about rebalancing the economy and our proposals on regional banking, for example, are proof that we take the issue seriously. The hon. Gentleman described this Government’s policy as a statement of intent, but it was an absolute failure, and that is the subject of the debate today.
The national insurance holiday was a flagship policy of the Government’s first Budget, which is why they are so desperate to forget that it happened. They created a scheme that ran from
In the end, only 25,000 businesses received NICS relief—that is 375,000 fewer businesses being helped than the Government originally claimed. It was always highly unlikely to have ever been worth the maximum £50,000 to a new start-up business. To get the maximum relief available, the new businesses would have had to take on 10 people with salaries of up to £40,000, which does not exactly fit the pattern of how new start-ups behave and the sorts of choices that they make in their first year of business.
Of the £940 million set aside to pay for the scheme, only £60 million was ultimately paid out, a paltry 6% of the amount originally intended. To put that in context, the Government spent £12 million on the administration of the scheme. We repeatedly warned that the scheme was not working, that it was not helping businesses as intended and that the Government should reform it, expand it, review it or bring forward a new one, but they refused to listen.
It is not as though the Minister could not see the failure unfolding before his eyes. Take-up of the national insurance holiday was never anything other than dismal. In the first year of the scheme, there was not one month in which HMRC received more than 850 applications. In 2012, there was only one month when the total number of successful applications was more than 1,000—that was in May 2012, when there were 1,130 successful applications. For the Government’s scheme to succeed, they would have needed to hit that number every month for three years, and they got nowhere near that.
When the Treasury Committee conducted its inquiry into the June 2010 Budget, the Chair of the Committee said:
“For those of us who have been on the circuit a while it sounds like another case of the triumph of hope over experience.”
How right he was.
The hon. Gentleman is somewhat confused. As was pointed out earlier, we always said that one of the problems with the scheme was the regional element, and I am coming to that point.
During the passage of the National Insurance Contributions Act 2011, we told the Minister that he should drop the regional condition attached to the national insurance holiday and expand it to areas of the UK that had been excluded. Today, he brings to the House the employment allowance, which does exactly that. In fact, the Government’s analysis, published this morning, shows that more than 40% of the expected total number of employers who will not pay any NICs under the employment allowance are based in regions excluded from the previous scheme. At the time, the Minister said that extending the national insurance holiday across the UK would increase the cost by approximately £600 million to a total of £1.6 billion over three years. Today, his employment allowance is predicted to cost £1.3 billion in the first year, rising to £1.7 billion by 2017-18. We said that the national insurance holiday should be extended to cover all businesses, rather than simply new ones. Today, the Minister is introducing an employment allowance that covers all businesses, not just new businesses.
I am delighted to hear the hon. Lady talk about the virtues of expanding reductions in national insurance across the country and extending it in terms of time. Does she therefore think it was wrong for her, in the previous election, to stand on a manifesto that advocated an increase in national insurance?
I was proud to stand as a Labour candidate at the general election when the economy was starting to grow, but that recovery was choked off by the hon. Gentleman’s Government.
During the Committee stage of the National Insurance Contributions Act 2011, we tabled amendments to extend the national insurance holiday to charities. The employment allowance will do just that. This is effectively our policy, so we are of course delighted to support the Bill. Since the policy was announced in the Budget, we have been calling for it to be enacted immediately, rather than waiting until April 2014.
I note that the hon. Lady did not respond to the question from my hon. Friend Richard Fuller on whether she supported the Labour party’s policy of increasing employers’ national insurance contributions. Does she recognise that the Labour party’s policy has been to target the NICs scheme at small businesses—not all businesses, as she said—and only for new employees, not all employees? That substantially complicates the scheme, requires applications and shares many of the complexities of the NICs holiday.
I thank the Minister for that intervention. I am not surprised he wants to turn the attention away from his own U-turn. I remind him that our proposal was a refinement and an extension of his failed policy. We could see it was failing and, doing our job as a responsible Opposition, we were suggesting ways in which the Minister might be able to rescue his failed national insurance holiday. I must correct him: the scheme was not for small businesses only, but all existing businesses.
This is a highly depressing speech. Should we not all be celebrating the fact that the economy is turning a corner and celebrating this policy, which will encourage the risk-takers, who are pushing the recovery on, to go further and faster and take on more people? This is a depressing speech. Let us get on with the opportunity that this policy brings.
I am sorry that the hon. Gentleman is so depressed that his Government’s policy has failed, but that is not a matter for me.
We will seek reassurance from the Government and test the Bill’s provisions to ensure that the new scheme does not suffer from the problems associated with the previous scheme. In particular, we will scrutinise its administration. The national insurance holiday was too complicated and the employment allowance should not suffer from the same problems. One problem affecting take-up of the previous scheme, in addition to its complexity, was the lack of publicity. Many businesses simply did not know what was available. This problem must not be repeated. This is particularly important when it comes to publicising the scheme to charities and amateur sports clubs, to which it now also applies. They are more likely to be unaware of what is available, and the Government should have a clear publicity strategy, subject to review, if take-up is, for whatever reason, lower than expected.
Clauses 9 and 10 apply the general anti-abuse rule to national insurance contributions, and enable the Treasury to ensure that the GAAR, as it applies to national insurance and to tax, is kept in line.
We support the application of the GAR to national insurance, but we remain unconvinced that the current version is up to the job. It is the Government’s flagship policy for tackling tax avoidance, and their figures show that it will result in annual revenue of £60 million in 2014-15, which they expect to rise to £85 million by 2017-18, but that compares with a tax gap that was estimated, when the GAR was introduced, to be £32.2 billion but which has now risen to £35 billion. Have the Government thought about reassessing their figures in the light of the slightly over-enthusiastic estimates made for the UK-Swiss tax agreement? Anyway, a dent of £85 million in a tax gap of £35 billion is nothing to write home about.
The House will recall that two months ago, a member of the GAR independent advisory panel, which decides whether people have broken the rule, was forced to resign, shortly after the GAR came into operation, having been caught advising people at a tax-planning conference how to keep their money
“out of the Chancellor’s grubby mitts”.
This was someone who was hand-picked to advise Ministers on the avoidance schemes the GAR should catch. We remain concerned, therefore, that the GAR is far too narrow, that there is no specific penalty regime, that no arrangements are in place to monitor its effectiveness and that, as a result, it has little credibility. We will continue to press these arguments when the Bill reaches Committee.
We welcome the introduction of a certification scheme for offshore employers of oil and gas workers. The extent of this problem is significant, with at least 100,000 individuals having been found to be employed through an intermediary company with no presence, residence or place of business in the UK. I note that this is the first of three measures aimed at tackling this issue. We await the introduction of the other two by way of secondary legislation and provisions to be included in the Finance Bill. We know from analysis published alongside the Bill, that the changes, as a whole, are expected to result in Exchequer savings of £80 million to £100 million a year, and we will wish to review the effectiveness of these provisions as and when they come into force.
I absolutely reject the hon. Gentleman’s point. We have a very good record on tackling tax avoidance, and as I said, at the moment I do not think that the GAR is anything to write home about. We have significant issues with it, but we will return to those points in Committee.
Clauses 12 and 13 make provisions for partnership arrangements, which we support. We welcome the regulations that will prevent the misuse of partnerships for the purpose of tax avoidance by focusing specifically on two issues. The first concerns partnerships and the tax-motivated allocation of profits and losses relating to the alternative investment fund managers directive, and the second concerns limited liability partnerships and the nature of the relationship between partners and the LLP.
Focusing on the second issue, the current HMRC interpretation of the existing tax rules has meant that individuals who are members of an LLP are taxed as though they are partners in a partnership, meaning that low-paid workers taken on as LLP members have lost employment benefits and protections, while, at the other end of the scale, high-paid workers have benefited from a self-employed status and the resulting loss of employment taxes payable. It is time for the use of LLPs as a way to disguise employment status and avoid employment taxes to stop. We note that the Budget report estimated that the Exchequer gains would be £125 million in 2014-15, rising to £365 million in 2015-16, and we support action in this area.
In conclusion, key aspects of the Bill began life as Labour party policy, so I suppose I should thank the Exchequer Secretary for giving us the rare pleasure of enacting legislation from opposition. It is a first for me, but one that I hope will happen many more times. The national insurance holiday scheme was a complete failure, and it is vital that the employment allowance gives businesses the support they need, but it is unacceptable that they will have been waiting four years for this support. Three of those years were wasted while he and the Government clung to the national insurance holiday scheme, and almost another year has been wasted as they have failed to take immediate action, instead introducing the employment allowance only from next
April. Even when forced to change course and do the right thing, they are still failing to go far enough and act quickly enough. Businesses up and down the country deserve better.
I warmly welcome the proposals in the Bill. We have already heard the statistics on its impact, including that 90% of the money involved will go to companies with fewer than 50 employees. That represents real help for small businesses up and down the country. I also welcome the fact that it will be much simpler to apply for the allowance, and that businesses will no longer have the kind of issues they are experiencing with the present scheme.
It is certainly true that people and businesses respond to financial incentives, and it is no wonder that national insurance is sometimes called a jobs tax, because it can be a disincentive to employing people. It raises the bar to employing people and, given the importance of creating jobs in our economy, it is great to see that bar coming down. The Federation of Small Businesses has stated that the Bill will affect not only jobs; investment will also increase, as will the pay of the staff. I warmly welcome the FSB’s conclusion. Let us contrast these measures with the previous Government’s proposed 1% increase for employers and employees in April 2011. The independent Centre for Economics and Business Research said that that measure would have taken 57,000 jobs out of our economy—proving the point that national insurance can indeed be a big incentive either to employ people or fire them.
I welcome the proposals relating to offshore oil and gas employees. Quite a number of them live in my constituency, and many have had great difficulty with the intermediary companies that employ them. The confused nature of the national insurance arrangements can cause them personal issues when they start to claim pensions, for example, so I welcome the simplifying measures and look forward to the remaining measures required to give offshore oil and gas workers the right status in our economy.
The tax avoidance measures are also welcome. They are part of an ongoing campaign by the Government, who have already increased by 2,500 the number of staff employed to deal with tax avoidance and evasion. There is a lot more to be done, but we should all warmly welcome clauses 9 and 10, which will apply the general anti-abuse rule. This will prevent offshore payroll companies from avoiding national insurance.
How much of the annual tax gap does the hon. Gentleman think this measure will tackle?
Very little. We heard from Shabana Mahmood that the measure will not bring in an enormous amount. It will, however, remove the loophole that has been used by many companies, including some of our merchant banks, to pay their staff offshore as a technique for avoiding national insurance. We have to welcome any measures that will improve that situation.
I want to ask the Minister for clarification following the 2011 Budget announcement that tax and national insurance would be simplified and that work would be done to bring them together. We have long since lost the hypothecation of national insurance, and I wonder whether we could simplify the arrangements a lot more than we are doing at the moment. I hope he will respond to that point.
The Bill is part of a big package aimed at supporting small and medium-sized businesses. Corporation tax is down from 28% to 23%, and it is heading for a rate of 20% by 2015. A new business bank has been proposed, along with other lending schemes. There has been a response to the Lib Dem campaign to increase capital allowances, which went up tenfold in the last Budget. That is particularly helping small manufacturing companies to increase their investment in equipment. The one in, two out policy on regulation is also a great help, as is the setting of small business rate relief at 100% for two and a half years. Those measures and more are driving the economy forward, and have now created 1.4 million jobs.
Last week, a shadow Minister described his party as the party of small businesses. The laughter that greeted his statement almost brought the house down. If we look at what could have been done in 13 years and what this Government have done in three short years, it is quite clear to see who is out there supporting small businesses.
The Opposition propose a business rate freeze, which would give small businesses about £450 over two years. These measures give businesses £4,000 over two years—almost 10 times as much. They are certainly a great help to small businesses. We have heard about the FSB supporting them, and about the Small Charities Coalition doing the same, while the CBI has also welcomed them. If there is a coalition of those organisations, we know we are doing something right.
This Government are continuing to sort out the mess left by the Opposition, and the Bill will help to create jobs in our economy, will strengthen it and will make the national insurance system fairer.
It is a pleasure to follow Ian Swales. As so often when members of his party speak in these debates, they talk about what was happening to the economy in the period before the general election and after it as if they were two completely different things. Many of the views the hon. Gentleman has just expressed were certainly not those on which he and his party leader stood, so far as the manifesto is concerned, in the period leading up to the election.
Anyone walking into this debate would think that it was yet another general debate on the economy—and, indeed, on the record of the last Government. Now that we are three and a half years into this Government, that seems somewhat strange. To me, it looks like diversionary tactics. Government Members are saying, “Let’s not talk about what we’ve done; let’s hark back yet again not just to the previous Government, but to proposals that never even came into effect”, suggesting that those proposals were somehow the cause of our economic difficulties. That clearly could not be the case.
I am grateful to the hon. Lady for giving way. I can understand why she would not want anybody to hark back to the 13 years of the Labour Government, when anyone who ran a business saw it become more and more uncompetitive, when our country slipped down the league for international and global competitiveness and when our businesses were shackled by endless amounts of red tape and bureaucracy. Has she had the chance to speak to any businesses at all about that record and how things have significantly improved over the last three years?
I thank the hon. Lady for her intervention, but I am certainly not going to say that many of my constituents did not benefit from the record of the last Government, and I am not going to accept her characterisation of that Government as not having helped the majority of people in this country. Yes, I have spoken to local businesses, and many of them have been struggling, particularly over the last three and a half years, to get loan finance to get their businesses functioning. Many have found it extremely difficult to operate in an economy that has been sent into decline by many of the measures that the incoming Government imposed. The picture presented by the hon. Lady is wrong.
As I was saying, the concentration on what happened during the last Labour Government is a reflection of the fact that this Government know that their previous proposals on national insurance contributions simply did not work. We have heard a lot about predictions, and some people have suggested that the Opposition’s predictions about the economy were wrong, so the Government’s predictions, presumably by extension, must be right.
However, what the Government told us in 2010 and 2011 was that they were going to eliminate, not just reduce, the deficit over the course of one Parliament. What we now hear over and over again is that the deficit has been reduced by one third, but it seems to have reached a plateau. That figure of one third has been invoked for a very long time now, which suggests that the Government’s original intentions and purposes have not been achieved. They have clearly accepted not only that they will not eliminate the deficit by 2015, but that everything has stalled and that deficit reduction has, as I say, reached a plateau. In 2010-11, it was predicted that we would see economic growth in 2010-12, not that we would be still waiting for it in 2013. Even now, the amount of growth we are seeing is very limited.
Is the hon. Lady happy about the fact that she stood on a manifesto which included a national insurance policy that independent observers said would take 57,000 jobs out of our economy?
We do not know that that policy would have taken jobs out of the economy, because we did not have the opportunity to implement it.
Another issue that is subject to repeated predictions is jobs. The number of new private sector jobs is constantly being put at about 1.4 million, but, interestingly, in January 2011 the Government were already saying that 500,000 jobs had been created. It is clear to anyone that even if those figures are accurate, and even if factors such as the re-categorisation of jobs into different sectors are taken into account, the pace of job creation is not quite as dramatic or as effective as we might think.
We were told that the earlier proposal for a national insurance holiday was intended to create jobs. The fascinating aspect of that was the very low take-up. If all those new employers had set up new companies and provided new jobs, why did they not want to take advantage of it? Why did so few come forward? That surely casts doubt on the notion that numerous people were desperate to start up new businesses and to take on employees. In December 2012, there were only 20,365 applicants for the scheme. The Minister has told us that eventually there were 26,000, but the initial prediction was 400,000. There is a considerable difference between those figures.
It is not surprising that the Minister was reluctant to respond to interventions from his own Back Benchers and to say what he thought might be the outcome of his current proposals, because he knows how poor earlier predictions have been. It is not just in respect of the national insurance holiday that predictions have been wildly at odds with the reality. For example, the youth contract, which involved offering money to employers to take on people aged between 18 and 25, was apparently going to be one of the major answers to youth unemployment. It was designed, we were told, to help 53,000 young people per year. However, in the first year of its operation it helped only 4,690. That was another not very successful policy that we had been asked to believe would help people in an important way. In that context, I think it significant that only last week the Work and Pensions Committee heard from the CBI that it would have liked to see extra money for training, rather than cash incentives for employers to take on young people. Perhaps the Government should listen to what people think would help create jobs.
The Institute for Fiscal Studies has pointed out that the current proposals do not guarantee any additional jobs and that this is simply a tax cut. A tax cut may be beneficial and may bring about more jobs, but in itself it will not necessarily do so. Again, I would point to the previous record. The IFS says we do not know whether this proposal will have any effect on job creation as it will not be piloted and will be almost impossible to evaluate, and that we will therefore be unlikely to know whether it will be money well spent. We must bear in mind the previous history, which I have mentioned, of two schemes that both failed to help create employment, and we must ask the Government to monitor and evaluate this new proposal as much as they can if they are going to introduce it.
The Government must realise that the creation of jobs is extremely important for many parts of this country. Many Government members and Back Benchers have expressed pleasure at the reductions in unemployment in their own constituencies, which is all very well, but unemployment levels in many parts of the country are still extremely high. What is even more important for many people is the lack of quality jobs and the fact that they often cannot work the number of hours they want to. We currently have the highest recorded level of people working part time who want to work more hours. That means people have low incomes and are often dependent on top-ups from Government benefits.
The Government sometimes wonder why things like housing benefit keep going up rather than down, despite the reforms they put in place. The main reason is that people in part-time, low-income jobs on zero-hour contracts have no choice but to apply for such benefits, so even the jobs that are out there are often ones that leave people with a cost-of-living crisis. That causes real suffering, and there is no point in pretending otherwise.
I ask the Government to indicate the likely take-up of this scheme—reluctant though they are to do—and to accept that their previous measures in this field have not been successful. Three years on, their initiatives have simply not been successful, and we see the results in the state of our economy today. Of course it is good that growth is beginning to return, but such low-level growth after such a long time can hardly be hailed as a success. If we want to argue about whose predictions were right, perhaps, at best, we have to say that nobody’s were. The Government’s predictions on coming to power in 2010 were certainly not borne out, and people have been suffering the results of that in the past three years.
Before I come to my main points about this Bill, which I support, I would just like to follow on from the speech of Sheila Gilmore and talk about the big picture for a few minutes. One can quibble about the benefits or otherwise of this scheme or that one, but the Government’s economic policies and interventions have contributed to Britain becoming the fastest-growing country in the western world. Survey after survey confirms the figures, which are extremely optimistic about this economy. I sometimes think the Treasury team is, with characteristic self-effacement, almost cautious in putting forward the record of this Government in full technicolour, so I would like to take up that role this afternoon.
The Bill is a straightforward and simple measure, top-slicing £2,000 off every company’s employer national insurance bill. As such, it will provide significant help to small businesses. I have 5,200 small and medium-sized enterprises in my constituency, and I welcome this measure on behalf of them all. We have heard the quotes from various organisations representing small businesses, social enterprises and so on welcoming the measure. The fact that it has such independent support ought to speak for itself.
I also wish to draw attention to the ambitious sole trader. The SMEs will have their employer insurance bills cut, but we also need to consider the small sole trader who is ambitious and wants one day to grow his or her business, just as I did. When I started my business in the 1980s, it consisted just of my business partner and me—everyone else who helped was begged, stolen or borrowed. I well remember the agony of the decision to appoint the first paid member of staff. One knows that one has to do it at some point if one wants to grow the business, but the responsibility that comes from knowing that someone walking through the door is then dependent for their livelihood on the success of one’s business really makes one stop and think. Anything that makes that decision easier, as this Bill does, has to be welcomed.
I wish to talk about a young woman in my constituency, Amy Fairley, who has a passion for flowers. She worked in a florist’s shop until about six month ago, when she was made redundant. She decided to follow her passion and dream by setting up her own florist’s shop. She did that with help from the new enterprise allowance scheme—another good scheme—and a Prince’s Trust grant and the mentorship that the Prince’s Trust also provides. I helped her to open her wonderful florist’s shop on Coventry street in Stourbridge three weeks ago. As a Prince’s Trust mentor for four years before I was elected, I have had similar experience and I was always reluctant to advise on taking on that first member of staff, because of the cost and the risk. One wonders whether the member of staff will be needed all the time, although, of course, they could be taken on part-time. The Bill will mitigate that caution.
I also wish to make the point that the Bill is part of a package of measures designed to help employment and small businesses. The reforms to employment law are also crucial, because this is not just about the cost of taking someone on; it is also about the fear that if the wrong person is appointed, the business is in for a huge headache. The Government’s doubling of the qualifying period before people can make unfair dismissal claims to two years is a huge advantage, as is the fact that they are making settlement agreements easier, obviating the need for employment tribunals, which are expensive in many cases. I know from my work as a Parliamentary Private Secretary to Lord Green that the Government have invested hugely in UK Trade & Investment and UK Export Finance, again for the development of specific programmes to support small businesses with their exports.
I thank my hon. Friend for that intervention. Indeed, what he has observed might explain why British exports to China have risen at a record rate in the past 12 months.
Another aspect of Government support for the small businesses that are crucial to employment and many of the new jobs that have been created has been the reduction in the small companies tax rate to 20%. The small business rate relief scheme was doubled until
Of course, not just employers have benefited from such measures. Employees have benefited too. In my constituency, 3,794 people have been removed from income tax altogether. A vast number of people in my constituency—33,000—are now paying less tax and that is an important development, freeing people to spend more money on the high street, which is where the economy is starting to grow again.
It is instructive to recall the Opposition’s record. The shadow Business Secretary makes the laughable claim that Labour is now the party of small business, but I think that small business people judge Governments, Oppositions and former Governments on their actions, not their words. The Opposition have a long way to go before they can put themselves up as people who understand the needs of businesses. As I said earlier, I think that it was indicative of their deeply flawed management of our economy that they felt in 2011 that they needed to put up taxes by putting up national insurance, rather than cutting public spending, which, of course, is what—only the other day—Tony Blair said they should have done. We all know how the economy ended up.
I would apologise if I felt that I had said that no taxes had gone up. Let me clarify in response to that intervention. I was making the point that the previous Government proposed to increase national insurance, presumably because they could not face the public expenditure cuts that this country really needed. The hon. Lady is quite right that the Government were driven to put up VAT, but the important point is that in getting a grip on the public finances we had a rough ratio. Spending cuts delivered approximately two thirds of what was required and the tax increases, regrettable though they were, were necessary and delivered the other third. I fear I digress somewhat, Madam Deputy Speaker, and I feel your watchful gaze so I shall return to the subject of the Bill.
I congratulate the Government on introducing this important measure. I would have benefited hugely from it when I was in business and I welcome it on behalf of the many small businesses and sole traders in my constituency.
It is truly a great pleasure to follow my hon. Friend Margot James, who is a mighty champion for our small businesses that are trying to access international markets. It is no wonder that her region leads the country in increasing exports to developing and developed nations around the world. She spoke most eloquently about the benefits for small businesses and echoed some of the points made by my hon. Friend the Minister about the impact of the Bill on the willingness of employers to add to their labour force.
I want to focus on the Bill’s impact not on the quantity of people who will be employed but on the price of labour, and on how the Bill might be used to implement some of the efforts to create a living wage across the United Kingdom. The Treasury team have come across a useful tool in implementing that change, and it is up to them to see how much courage they might have to move forward with this initiative to achieve it. That marks the difference between those on the Opposition Benches, who wish to posture over changes in the economy on employment and wages, and Government Members, who are interested in taking action to achieve change.
If I may, I shall consider the record of the previous Labour Government. As we have heard often today, the Labour Government were interested in increasing the tax on employment, and indeed went into the general election calling for increases in the jobs tax. Despite the words we have heard today, we have not heard one word of apology from the Labour party for saying at the last election that the right way to increase employment was to increase the tax on jobs. Still no apology on that, but it was part of a pattern that impacted negatively on the price of employment.
Labour abolished the 10p tax rate. It created a tax credits system that was an incredibly complex way to give people a post-tax income on which they could live. Any of us with constituents who have been caught up with tax credits when they went wrong knows how hard it is for families when the tax credits office claws those tax credits back and savings have to be found. Why on earth was that system a good system? Underpinning it—
I will give way in a second; I would love to hear from the hon. Lady.
Underpinning that system was Labour’s creation of a benefits system that discouraged work. We had hundreds of thousands of workers in our country going out to work on the minimum wage or a little more and seeing people living on benefits when they could have worked and ending up with a lifestyle that those people in work could not afford. Labour has not apologised for that policy and has opposed even the benefits cap.
Does the hon. Gentleman accept that the intention behind tax credits was indeed to encourage people to enter employment and that 350,000 single parents entered employment as a direct result of the introduction of the tax credits system?
The hon. Lady makes a point, but not a particularly good one. If the economy was borrowing so much money to stimulate employment, it was not a particularly outstanding outcome to achieve an increase in one part of the labour force of 350,000, especially when we consider the fact that every Labour Government have left office with unemployment higher than when they came to office.
I thank the hon. Gentleman for giving way again and being so generous with his time. That myth about every Labour Government leaving office with unemployment higher than when it came to office is not entirely accurate. For example, unemployment was extremely low at the end of the period in office of the 1945-51 Labour Government. Under the Tory Governments of 1979 to 1997, unemployment was more than 10% in the majority of those years.
The hon. Lady is digressing significantly from the Bill to talk about 1945, but in any debate I am more than happy— [Interruption.] Labour Front Benchers want to make an argument about how good the Labour party is in office at reducing unemployment. The facts are the facts: Labour comes to office and when it leaves, unemployment is higher.
To return to the impact of the Bill on improving wage rates, let us consider the record of the coalition in government. We are in the process of raising the personal allowance to £10,000. I shall return to that point. We are targeting and simplifying tax credits and other benefits. We have introduced a benefit cap, making work pay. With this Bill, we are introducing an employment allowance, which will provide greater opportunity for us to improve wage rates. The living wage is a crucial issue that Members on both sides of the House should embrace. We should all endeavour to find ways to improve wages for those who are unskilled or on low pay. For many decades, real wages for people who are unskilled have been stagnant, or rising at a very low rate. One benefit of the introduction of higher wages is the potential that many businesses will see for higher productivity. Most importantly, if very small businesses are able to pay higher wages, there is reduced staff turnover. That is particularly important where there is low pay across a profession.
I looked at the Bill with great interest to see how it could provide a solid basis for an answer to the question, “How do we implement the living wage in practice?”. Tomorrow, we will hear from the Leader of the Opposition about his approach. It was interesting that the shadow Minister, Shabana Mahmood, said that one-off policies were a bad idea when it came to persuading businesses to take up a new Government scheme, but a one-off policy is precisely what the Leader of the Opposition will propose tomorrow as his approach to the living wage. If it does not work for national insurance contributions, how on earth will it work for substantial wage changes by employers? The problem with the Leader of the Opposition is that he just does not understand business.
Order. I have allowed the hon. Gentleman to range quite widely, but his comments must relate not to what might happen tomorrow, but to the Bill and its contribution or otherwise to the living wage; I think was the point that he wanted to develop. I would be grateful if he stuck to that.
You read my mind, Madam Deputy Speaker. I shall return directly to the implications of the measure for the living wage and wage rates. Let me give some numbers showing the impact of a change from the minimum wage to the living wage, and say how the Bill can help to achieve that change for the long term.
Let us consider what happens when a married person who works 40 hours a week, has two teenage children, and earns the minimum wage, which is £6.31, moves to the living wage, which today went up to £7.65. I am using the numbers for outside London, because I represent Bedford, which is outside London. The employee’s gross pay would increase from £13,125 to £15,912—an increase of 21%. After the changes to their tax, national insurance and tax credits, their net take-home pay, which is what matters to them, increases from £15,067 to £16,483—a welcome increase, but an increase of only 9%. That is the impact on the family of the change from the minimum wage to the living wage.
Looking at the cost to the employer, there is an increase in salary of £2,787, and an increase in the employer’s national insurance contributions of £385; that is essentially a 23% increase in the cost of employing that person. Then there is the impact on the Exchequer. It benefits from an increase in income tax of £557, and an increase in the employee national insurance contribution of £335. The reduction in the payment of tax credits benefits the Exchequer by £479, and the increase in employer national insurance benefits it by £385. The Exchequer ends up increasing its tax take by 32%. The change from the minimum wage to the living wage means a modest but welcome increase for the employee, has a high cost for the employer, and brings a substantial benefit, on my calculations, for the Exchequer.
In that context, let me say this about the Government’s use of the employment allowance to give something back to our hard-pressed employers and small businesses: £2,000 is a start, but we have found a tool here, if we have the courage to use it, that we can use to encourage—not compel—our private sector employers to accept a living wage. Her Majesty’s Revenue and Customs could act as a compliance officer for those who seek to pay the living wage, as it does for the minimum wage. We could pay back some of the significant gain to the Exchequer that my simple calculation has brought up, though I am sure that there are more complicated numbers out there. There is a useful tool here, and this is a small start. Let us have the courage to see how we can improve living conditions and wages for our low-paid workers, and use the Bill as the start of a better future for all of us.
I am grateful for the opportunity to speak in this important debate, and to follow such an array of wide-ranging, informative, quality contributions from my hon. Friends and colleagues. The Bill is a key part of a wider programme that the Government have undertaken to support aspiration, encourage job creation, and boost growth. As a small business owner, I am proud to speak in support of a policy that will help firms around the country to expand, innovate and, crucially, create jobs. To put it simply, the Bill is great for small businesses, great for charities, and great for Britain.
As we have heard, the key part of the Bill will save all businesses in the country up to £2,000 in class 1 national insurance contributions. Taking a tax off jobs will make it much easier for millions of people who have set up firms to take on new employees. Do not take my word for it; Anne Redston, professor of law at King’s College London, says:
“At a stroke, this new relief…removes the ‘jobs tax’ on millions of small businesses, and is likely to encourage one-man businesses to take on their first employee.”
What is more, 98% of the benefits of the change will go to small and medium-sized enterprises. As we have heard, 450,000 small businesses—one third of all the employers in the country—will pay no jobs tax at all.
My hon. Friend makes a key point. The fact that the measure is open to charities and social enterprises, as well as businesses, is really important. That is another step in the right direction by the Government to make it easier for small firms and charities to take on new employees. This is not just about business; the head of policy and research at the National Council for Voluntary Organisations, Karl Wilding, says that the idea is
“a very positive thing…To a small organisation, £2,000 is a lot of money.”
He is absolutely right. When I set up my business at the age of 19, £2,000 would have been a massive incentive to take the big step of hiring my first member of staff.
My hon. Friend Margot James spoke powerfully about her experiences of starting up a business. As she said, taking on that first member of staff is a really big moment—a huge decision. It is a massive responsibility; the person hiring becomes responsible for someone’s income, livelihood and wages.
And their family. I am pleased that the Bill makes that moment so much more likely. There are many statistics that show how great an impact the change will have. We have heard some amazingly powerful statistics this afternoon; for example, over a year, employers with fewer than 10 employees will have their national insurance contribution bill cut by 80%. However, it is easy to get bogged down in figures. What does the Bill mean for charities and small businesses up and down the country? It means that the small-time cupcake seller who works out of their kitchen and wants to expand, but is not sure that they can afford to, is now £2,000 more likely to give a young person their first foot on the jobs ladder. It means that the mechanic who needs another pair of hands to deal with a recent increase in demand can take someone on and pay them up to £22,000 without having to pay any jobs tax. It means that the Government are continuing to deliver exactly the kind of policies that have, so far, created 1.4 million private sector jobs and put the country on the path to prosperity.
There are so many ways in which the Government have helped small businesses to flourish. Locally, I have been involved in a really successful regional growth fund bid—a partnership between The News, which is our local newspaper, and the Solent local enterprise partnership. The Bridging the Gap scheme is a pot of money that new start-ups and small firms can bid for to help grow their business and create jobs. I recently visited three of the Bridging the Gap success stories in my constituency, including Kev Jones and Son, an independent convenience store at the heart of the community, which is, you will be interested to hear, Madam Deputy Speaker, the go-to shop for your Christmas meat hamper. The people there had very ambitious plans to expand. With a little bit of extra money, they were able to bring those plans forward, and they have now doubled their floor space and created some of the new jobs the area so desperately needs. These are exactly the kinds of businesses that we will be supporting through this Bill. That is absolutely the right thing to do, because they are not just the backbone of our economy but the lifeblood of our communities. The Bill is a key part of the wider programme to make Britain the most small-business-friendly environment in Europe.
By cutting Labour’s deficit, the Government have secured record low interest rates for hard-working families and small businesses across the country. From April 2015, corporation tax will be cut to 20%—the lowest in the G20. As a result of the Government’s policies, the UK recently topped KPMG’s list of the most competitive countries in which to do business, beating Switzerland, the USA and France for the first time ever. This hard work is getting results. The latest figures from the Office for National Statistics showed strong growth of 0.8% for the third quarter of 2013. That proves that the only way to create real prosperity and to raise living standards is not through quick-fix gimmicks but through straightforward solutions: backing businesses to create growth, cutting taxes to boost growth, and supporting hard-working people.
Labour Members have presented this as being somehow their idea. That appears to show brass neck of almost biblical proportions. Anyone who ran a business under the previous Labour Government, as I did for 13 years, will know that we were shackled by endless amounts of bureaucracy as the country fell deeper into debt and slipped down the international competitive league tables. We cannot escape the fact that they got it very badly wrong on the economy as well. They said we would lose 1 million jobs. Instead, we have seen the creation of 1 million net jobs—three in the private sector for every one lost in the public sector. Because this Government have cut taxes, slashed red tape and unleashed innovation, we have seen record levels of small business creation and employment. I am confident that the Government will continue to deliver the right policies.
Does the hon. Lady accept that the rate of employment has not yet reached the level it had reached prior to the recession, even if some numbers, many relating to part-time work, have gone up?
The hon. Lady can throw facts and figures around as much as she likes, but unemployment was so high when we came into government purely as a result of the Labour party’s economic policies over 13 years. Everything we have done until now has been to try to put the brakes on and reverse that, bringing employment back to households that may not have had it for over a decade.
I am confident that the Government will continue to deliver jobs and deliver the right policies, such as this Bill, backing small businesses to create the jobs we need and keeping us on the path to prosperity.
Because I lost a contact lens on the tube, Madam Deputy Speaker, I can see you but unfortunately cannot see the Minister. I apologise in advance for the fact that my myopia means that I will be slightly less coherent than usual.
This Bill is a fantastic boost to all British business. In a constituency such as Skipton and Ripon, it is a particularly good shot in the arm for an area of Britain where employment is on the up and unemployment is going down. In my constituency, unemployment is down by about 30% and youth unemployment is down by about 35%, and more new businesses are being created. This is a big opportunity to give those entrepreneurs the backing they require to take on more jobs. The businesses in my constituency are largely based around tourism, agriculture, farming and small manufacturing. Many of the businesses in the 900 square miles that I represent are working under tough conditions, isolated and very vulnerable to the weather, and every bit of help they can get is a major boost.
We are very excited in the Yorkshire dales and in all parts of my constituency because in less than a year the Government-backed Tour de France will be on its way. I hope that the Minister may come and participate; I know that she is very into her sport. That event, which this Westminster-based, Conservative-led Government have backed, will be a major boost for Yorkshire—one of the most rural parts of our country. This policy will help businesses to try to make sure that they are taking advantage of this great sporting event.
We have talked about how this policy contrasts with the policies of the Labour party. Most of my colleagues in the Chamber have set up and run businesses, and we probably all agree that at the start of the previous Government’s time in office the messages were quite good. There were things such as taper relief to encourage entrepreneurs and talk of deregulation tsars, and it all looked as though it was moving in the right direction, but it tailed off pretty quickly. As well as pledging at the last election to raise the jobs tax, which the Federation of Small Businesses said would cost about 57,000 jobs in the UK, they raised the 50p tax rate—one of the so-called elephant traps set by Mr Brown to try to trap the next Government. Six regulations were added to the statute book per week. There were regular, astronomical rises in fuel duty, which in a constituency such as Skipton and Ripon had a major impact on businesses and families. Somebody may correct me, but I understand that not one debate about exports took place in this House under the previous Labour Government.
My hon. Friend is making a characteristically impassioned speech on behalf of small businesses and enterprises, which will thrive on the back of this Bill not only in North Yorkshire but in Cheshire and across the country. Will he remind the House of what steps the previous Government took to tackle the amount of regulation that was coming in from the EU at the time? I cannot remember too much that they were doing in that direction either.
My hon. Friend makes a characteristically good point. I seem to remember that they signed up to more treaties and more red tape from Brussels. Only now have the Prime Minister and members of the current Government set up a deregulation unit to look at EU regulation, and I hope that we will all encourage them to do more. Any claim that Labour is the party of small business is a very hollow one.
The reason for my excitement about this policy is that it is one of a very large number of policies to back the risk-taker and the entrepreneur—the person who is ready to spend all night worrying about the new employee and ready to risk their capital. A few weeks ago, I went to Downing street with a number of right hon. and hon. Friends, and I met the most inspiring young people who were beneficiaries of the start-up loan scheme and the new enterprise allowance scheme. Downing street was packed with budding entrepreneurs who were benefiting from this Government’s policy. That policy is one of many, including taking out two regulations before one regulation is brought in; ensuring that 25% of all procurement goes to small businesses; taking away pre-qualification questionnaires; increasing the annual investment allowance from £25,000 to £250,000; cutting corporation tax; investing in apprenticeships; creating 27,000 business mentors; and introducing the regional growth fund and the local enterprise partnerships. There is an endless list of policies that this Government have put in place to back the entrepreneur.
That is not to say that we are perfect. The Government have a very strong record, but I would pose them a few questions. We are doing so many good things that we often fail to communicate them in as coherent and focused a way as possible and in a way that is easiest for small businesses. I encourage the Minister, who is coming turbo-charged into her new job, to consider the role of HMRC. The Government communicate more through HMRC than any other arm of Government. How can we use it better to signpost, particularly to small businesses and micro-businesses, the good things that this Government are doing?
How can we cut bureaucracy? We have heard about the bureaucracy involved in the national insurance holiday. How can we make sure that any red tape involved in this new policy is reduced as much as possible?
I urge the Government and my party to start differentiating ourselves not just from the Labour party, but from our coalition partners, with a small business Bill to show that we need to do even more to take small businesses out of the regulation quagmire they find themselves in. I remember sitting through the debate on the Government’s employment changes—colleagues have already discussed them—which were very simple and straightforward. Employers will have two years before they have to decide whether they want to keep an employee. Settlement agreements will at least allow an employer to offer an employee a deal when things are not working out. There will also be tribunal charges, not for people who cannot afford it—before Opposition Members intervene—but for most employees, who will have to pay a fee before taking an employer to tribunal. All of those really good changes—every single one of them—were opposed by the Labour party. It is heartening that, despite Labour’s rhetoric, it looks as though its Members are going to back this Bill, not by voting in favour of it, but by not opposing it.
I pay tribute to the Treasury, the Exchequer Secretary, who started this debate, the Chancellor and the Conservative Ministers at the Department for Business, Innovation and Skills, who are pushing ahead with enterprise reform. This Bill is a major step towards sealing the Conservative party’s record on backing those people in our society who want to take a risk and run a business.
It is an honour and a privilege to follow the impassioned speech of my hon. Friend Julian Smith.
I was fortunate enough to secure an Adjournment debate last week. The good news was that it was on the subject of supporting first-time employers, but the bad news was that I secured the 2.30 pm on a Friday afternoon slot, which is not always prime time in Parliament. I am therefore pleased to be able to return to the subject and debate it further in the presence of a few other colleagues.
The good news is that over the past decade the number of people who work for themselves has increased to 4.2 million, or 14% of all those in employment—up from 12% at the start of the century. They are taking the chance to be their own boss and often embracing new technologies to enable that. Record numbers of people are working for themselves. As I have said, that is good news, but it would be even better if more of the self-employed, one-person businesses and sole traders took the step from being first-time entrepreneurs to being first-time employers. That is why I support the new employment allowance: it is a huge step forward.
Entrepreneurialism is a culture that spreads. Once a person is in it, they live it. They go native, as they say, and embrace risk-taking. Significantly, entrepreneurs are more likely than established businesses to take on workers from the ranks of the unemployed or the non-active, who often find the formalised application processes, let alone the working practices, of large firms restrictive. Established companies may tend to value the ability to adhere to existing processes and systems above the creativity, dynamism and individual flair that smaller businesses help to stimulate. Doing more to encourage the smallest firms to take on staff, particularly a first member of staff, has to be a step in the right direction.
Despite siren warnings from the unions and others that self-employed jobs are not proper jobs, there is clear evidence that the self-employed and those employed by them in the smallest companies enjoy better industrial relations. Data from the most recent workplace employment relations survey suggest that 67% of employees in the small and medium-sized enterprise sector strongly agree that managers treat them fairly, compared with 53% of those who work in large firms.
Furthermore, a survey by the TUC, no less, and YouGov has shown that a greater proportion of employees in small firms report the highest levels of job satisfaction, compared with employees in larger firms. However, as my hon. Friend the Member for Skipton and Ripon has said, there is still a tendency in Whitehall to prefer to deal with larger companies and to underestimate the burdens on the smallest businesses when introducing uniform regulations. The new employment allowance, however, shows that this Government understand the importance of measures that, though uniform, are of greatest benefit to the smallest operators, and that is why they should be commended.
I endorse my hon. Friend’s last point. It is clear that if the boss of a business works closely with his first employee, industrial relations should be excellent and there should be no problems. That is the reason for the 67% satisfaction rate.
My hon. Friend makes an important point. That is absolutely the case. This is about how we build good working relationships and a strong economic base through SMEs. That is far more sustainable than the approach adopted by the previous Government, which seemed to be underpinned by more and more public spending. That is completely unsustainable.
What a boost it will be for more of the growing army of the self-employed to become small employers. Indeed, if they all, or a vast proportion of them, took on one employee, that would make a huge dent—even bigger than the current one—in the unemployment figures. The number of self-employed people with no employees has increased, but the number of self-employed people with a small number of employees has not kept pace, and that is what the Bill seeks to address. In the past, the focus has been more on encouraging people to start up a business and less on taking the next step to becoming micro-employers. The Bill is an opportunity to further liberate the self-employed from barriers to growth and to nudge first-time entrepreneurs into becoming first-time employers. The prize is stronger, more sustainable economic growth.
Micro-businesses play an important role in Macclesfield, working in forums like Make it Macclesfield and the Poynton business forum. They make a huge contribution to strengthening the community and, at the same time, moving our economy forward by creating jobs.
Surveys and statistics abound to show that small businesses can be, and often are, job-creation machines. They also show that small businesses are more likely to employ the longer-term unemployed and those who may struggle to enter the job market as a result of a lack of formal qualifications or, indeed, their ethnic background. This is what the Federation of Small Businesses calls the “entrepreneurial pipeline” to what Professor Mark Hart calls “growth gazelles”. We need to encourage more growth gazelles. Essentially, this is about everyday entrepreneurs, street-level small businesses and office-share operators giving people a chance to work. Analysis by the FSB suggests that 74% of those who become self-employed and who have employees come from the self-employed who had no employee, and that a further 13% come from employees who had been working in micro-businesses. Clearly, there will be a multiplier effect once we get this right and start moving in the right direction.
The Government are absolutely right to introduce the new employment allowance. Slashing the cost of national insurance and taking many employees out of it completely will encourage more of the self-employed to become employers. However, this is not—and nor should it be—the only measure to increase the number of first-time employers. The Bill must be viewed in concert with the new enterprise allowance—for which Levi Roots is an ambassador for the Government—which seeks to encourage the longer-term unemployed into self-employment. The three-year moratorium on new regulations for small businesses is another important step in the right direction. I encourage Ministers at the Department for Business, Innovation and Skills to view it as a rolling moratorium.
I thank my hon. Friend for giving way in his excellent speech. Does he agree that one of the most depressing things about the lack of Labour Members present is that, to make those schemes truly work, we all need to push them, whatever our political viewpoint, in order to ensure that those who are taking the risks hear about them and understand them?
Absolutely; there is a responsibility on all Members to do that. It is disappointing how few Opposition Members are present, and what they have said has been negative, rather than focused on the opportunities that are available.
As Lord Young of Graffham has rightly argued, there are regulatory issues that we must deal with. The employment allowance will simplify the system for small businesses. We must also tackle the problems with culture and communication. Through careers advice in schools, we must help young people to realise that there are huge opportunities in small businesses. If people are familiar with SMEs and particularly micro-businesses early in their careers, they are more likely to stick with them and to take the step of setting up small businesses themselves.
There is certainly no lack of ambition. The Prince’s Trust has found that up to 30% of young people expect to be self-employed, and a YouGov poll has found that 43% of young people have made money through entrepreneurial activities, like selling their own products or working on a freelance basis. We must help them to achieve their ambitions. The Bill means that their aspirations will not just be pipe dreams. It is a can-do Bill for a can-do generation and it deserves our support.
Those who seek to regulate businesses or to complicate the tax system should recognise the consequences of doing so. Whitehall communications must take notice of business-to-business communications so that those communications can be strengthened. My hon. Friend the Member for Skipton and Ripon highlighted the importance of the work of HMRC on communicating more effectively. I would add to that the work of Directgov.
As Lord Young says, it is vital that the psychological barriers are broken down so that they do not stifle the ambition that is latent in the marketplace. If we are to create an aspiration nation, the road to running one’s own business must be a clearly signposted fast lane, not the last Labour Government’s minefield of forms, box ticking and regulations. Their approach reminded me of a sign that I saw once to a business park, which said, “Enterprise Way—Cul-de-sac”. We have to have a different perspective and that is what this Government are seeking to achieve.
In small firms, there is often less formality, more fluidity and greater flexibility. What we need, and what we now have, is a simple tax allowance that everybody can understand. That will create more jobs and more first-time employers. It is vital that the Government communicate the scheme creatively. I also say to the Minister that we must not listen to what is said by the Opposition. The idea that we have listened to them in designing the scheme is fanciful. After the deficit and flawed forecasts that they gave us, the chances of our listening to them are somewhere between no hope and Bob Hope. Their jobs tax, on top of the record deficit, would have been devastating for the economy.
In conclusion, I am delighted that the Government are champions of first-time entrepreneurs. I believe that the Bill will help us to encourage more of them to become first-time employers. I give the Bill my full support.
I will say a few words in support of the Bill. Like all Government Members, I believe that this is an excellent measure that recognises that it is businesses of all sizes that create jobs in this country. People are now finding jobs in growing numbers. By reducing taxes on employment, we will make it more likely that businesses will employ more people. The strength of the recovery in the private sector underlines the growth in the economy as a whole. The Labour party predicted that growth would not come and that jobs would not be created. By reducing the cost of national insurance to employers, the Government are in this Bill taking another excellent step in the right direction.
I agree with the Exchequer Secretary that we should look at the Bill as one of a range of important measures that the Government are introducing to support the business community, and all those measures support each other. My hon. Friend Julian Smith spoke of meeting young people under the age of 30 who had received StartUp loans from the Government to invest in starting their own businesses, which have had a great deal of success. The Bill will help businesses like those to get to the next stage on the path to growth and to go from being a start-up to employing a small number of people. There is an enormous appetite among people in this country to have a go at starting their own business. That is one of the most positive things to come out of the recession. We need policies that work with the grain of people’s entrepreneurial instincts and back them as they back themselves.
I have listened carefully to this debate. I have never run a small business; I have run a medium-sized business, but it was not my own. Would it not be a tremendous fillip to small businesses if HMRC was slightly more proactive when it saw a business making a clear mistake, and wrote to it saying, “It would be better if you did it this way”?
My hon. Friend makes an important point. The quality of the advice to businesses from all quarters is important. That echoes a point made by my hon. Friend the Member for Skipton and Ripon, who said that we all need to advocate the Government’s policies to ensure that businesses benefit from them.
I pay tribute to the work that my hon. Friend has done within our party for a number of years to encourage entrepreneurs. It has been a most successful scheme. May I ask him for his reflections on that scheme? We have talked about the StartUp loans scheme and the new enterprise allowance, but he probably has the most experience of any Conservative Member of the competitive encouragement of small businesses.
It is very kind of my hon. Friend to make those remarks. The start-up hub competition at the Conservative party conference has given small businesses an opportunity. That has been a good way to ensure that those businesses are plugged into the decision makers and people with influence in their local communities, and to ensure that they are benefiting from the breadth of schemes that the Government have to offer. We have run the competition for three years.
At this year’s party conference, I was pleased to meet Neill Ricketts of Versarien, which employs groundbreaking technology to improve the cooling systems that are used in the mainframes of computers and data storage systems. That business, which started within the lifetime of this Parliament, is going from strength to strength. It was floated on the alternative investment market this year, employs a large number of people and is growing fast.
There is a business in my constituency that was started by a group of young men. The managing director is only just 30 years old. The business specialises in search engine optimisation and social marketing campaigns. It employs more than 20 people and is growing rapidly. It has developed a way of specialising its techniques for small local businesses so that it can design social media and search engine optimisation campaigns to help businesses on the high street to grow.
People are using their knowledge and expertise to develop innovative businesses and to demonstrate that there is a market for them that has not been realised. People are developing cutting-edge technologies and products that will be exportable and that will help businesses to develop and grow.
One business that succeeded through the start-up hub competition was started by Julian Hakes, who redesigned the high-heeled shoe. He is an architect and he applied the principles of architecture to a fashion item. This year, his product was given the accessory of the year award by Vogue. It went viral on the internet and he has export orders from around the world. That was all based on a good idea that he was able to take to market. Credit is also due to two good trade bodies, the British Fashion Council and the UK Fashion and Textile Association, which supported him in the development of his business.
There are some brilliant people who are doing great things. We need to get behind them and support them. We have good schemes that can do that. My hon. Friend the Member for Skipton and Ripon made a good point about our advocating those schemes and ensuring that people are aware of them. At Tech City in east London, one hears people talking enthusiastically about the enterprise investment schemes that are available. When we meet politicians from Germany, as my hon. Friend has done, we find that they are interested in the way that we use enterprise investment schemes to encourage private investors to invest in start-up businesses. However, I wonder whether our own chambers of commerce and people around the country know enough about the schemes that are available and that they could benefit from. We all have an important role to play in advocating the Government schemes that are there to help people get their businesses to the next stage.
That support sits alongside a strong regional growth policy that is being delivered through the regional growth fund. In east Kent in my constituency, the regional growth fund has granted a third of the money that has been awarded. Tens of millions of pounds are being spent and invested by businesses. People are being employed on the back of that investment.
H. V. Wooding in Hythe, which was visited by the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend Michael Fallon, is investing in a new plant and machinery to expand its production capabilities. It is a precision engineering company that makes parts for the Hadron Collider at CERN, and it makes busbars that are used across a wide range of industry and machine parts for Formula 1 engines. It is bidding for contracts that have gone overseas in the past decade, to bring them back to this country because it can compete in that sector. It is benefiting from regional growth fund money, which is helping it take its business to the next level, and it is employing people now.
One reason why unemployment is falling much faster than predicted is that the schemes to benefit smaller businesses are helping them grow and employ more people, and we are seeing the knock-on effect. It is not only bigger businesses that are doing well and competing, but smaller ones too. The challenge we should set ourselves is: “Do we have a strong and robust investment culture? Is this a country that people around the world want to invest in?” Increasingly, we are seeing that it is. People are investing in this country because of low levels of corporation tax compared with our competitors in Europe and America. That is why people are bringing investment from all over the world to this country.
Not only are smaller businesses investing in themselves, but the investment community is investing in them through crowdsource funding and companies like Funding Circle. People can match fund some of the Government schemes to help businesses get the finance they need, and that is an important part of the growth of our economy. In the ’80s, thanks to privatisation we were seen as a nation of shareholders. In the next decade, could we be a nation of shareholder and start-up businesses where people take advantage of available schemes to invest in start-up and smaller businesses in their areas? We should set ourselves that challenge.
Finally, we should not lose sight of the big projects that the Government must back, including those that will not benefit us directly in this Parliament but are important for the next 10 to 20 years—major infrastructure projects like high-speed rail or investment in electricity power generation. Such projects are vital for our future competitiveness. We have sometimes looked at other countries and seen how their infrastructure has helped them to compete. We have the tax and investment policies, ideas and people to compete, but we must ensure that we invest now in the big infrastructure projects we need to help those people grow in future. I commend those projects that I have touched on in my remarks, as well as the Bill which, as my hon. Friend the Exchequer Secretary said, is an important part of the range of measures that the Government have put in place to support entrepreneurship in this country.
I believe this is my first opportunity to congratulate you, Madam Deputy Speaker, on your new role. We have had a good and wide-ranging Second Reading debate on the Bill, and my hon. Friend Shabana Mahmood, my new colleague in the shadow Treasury team, made an excellent opening contribution from the Opposition Front Bench. I extend my welcome to the Minister. We have already exchanged pleasantries in a Committee, but I reiterate them now in the Chamber.
It is interesting that the hon. Gentleman raises that point, because the Opposition will set out clearly that we very much support and welcome this measure. It is something we have been proposing for the past three years, so we greatly welcome its introduction through the Bill.
We have had a wide-ranging debate. We have touched on the living wage, the economy, employment, unemployment self-employment—many forms of employment. We have strayed far from the core subject and, I think, strained the patience of the Deputy Speakers in the Chair today. At times, we have been on a magical history tour in which the history of this country and its economy has not only been airbrushed, but at times rewritten. In my concluding remarks, I hope to bring back a bit of realism to the discussion. I know that Julian Smith finds that somewhat depressing, but I am going to do it anyway.
I am disappointed that the Exchequer Secretary is not in his place for the winding-up speeches, as it is important to take a little step back in time and recall how the Bill was introduced. Until recently he was my opposite number, and it would have been good to have him in his usual place. The hon. Gentleman has the dubious privilege of being one of an ever-diminishing number of junior coalition Ministers who have been in the same job since 2010. He therefore finds himself in an unfortunate position because we can measure the ambitions that he set out for supporting small businesses and job creation against his actual record of delivery in government.
As we have heard, although this was not included in the draft Bill published on
As my hon. Friend the Member for Birmingham, Ladywood made clear in her excellent opening speech, the Opposition support the introduction of this measure and this Bill. It might be painful for the Exchequer Secretary—although he is not here to pained—but it could be helpful to cast our minds back to why we support this Bill. Let us think back to 2011 and the similarly entitled National Insurance Contributions Bill of that year.
Before the hon. Lady casts our minds back to 2011, may I ask her the question I asked her hon. Friend Shabana Mahmood? In 2010 she stood on a manifesto that planned to increase the jobs tax. People want politicians who are honest, so will the hon. Lady say that that was a mistake?
I will repeat the words of my hon. Friend, who said that she was proud to stand in 2010 on a manifesto for a Labour Government who were committed to reducing the deficit but had an economy that was growing. Since then we have seen three years of stagnating growth, wages rising slower than prices, and borrowing not coming down anywhere near the amount the Government promised. I would caution Government Members against trying to rewrite in this Chamber the history of what they have achieved over the past three years.
On that point, let us return to 2011. The Bill taken through this House by the Exchequer Secretary—I welcome him back to his seat—included the introduction of the three-year national insurance holiday, worth £5,000 for employers. The scheme, which was originally announced at the Chancellor’s first Budget in June 2010, was not aimed at supporting just any employers, however, because it was restricted. It did not apply to businesses in London and the south-east or east of England, as we mentioned earlier, and it extended only to new business start-ups, and then only to the first 10 employees of those firms—but, of course, only to those first 10 employees who had been hired in the first year of that business. I hope hon. Members are still with me. [Interruption.] I am sure the Minister is still with me as he designed the dubious policy.
Indeed, serious concerns about the scheme’s complexity were raised at the time by Robert Chote—then at the Institute for Fiscal Studies; now at the Office for Budget Responsibility—who told the Treasury Committee that the policy
“might be a little too complicated to offer best value for money.”
Was the context at the time that the Labour party had left the nation’s finances in the most appalling mess, and that for any incoming Government not to target a policy carefully would have been crazy? According to the Government auditor, three Government Departments had lost complete control of their finances.
Once again, Government Members want to airbrush the past three years of stagnation, lack of economic growth and the failure of the Government’s implementation of that policy. They failed to address the issue quickly enough, so only today are we finally introducing a policy that will help and that will give that support to small businesses. Unfortunately, it is a little too late in the day for some businesses, which have suffered over the last three years, and for the people who have lost their jobs as a result.
In the spirit of not wanting to airbrush, will the hon. Lady tell the House how she thinks the jobs tax would have helped her much-cherished goal of encouraging economic growth?
Coalition Back Benchers want to forget what the Government have done and the past three years of the policy we are debating. They want to debate a policy that never came into play.
None the less, despite the restrictive and complex nature of the previous scheme, the Exchequer Secretary and his Treasury colleagues had bold ambitions for it. He acknowledged from the Dispatch Box that some 400,000 new businesses would benefit from the scheme, with each successful applicant creating an average of two jobs. At that rate, the scheme would have created 800,000 new jobs, with a total cost to the Exchequer of £940 million over its three-year lifespan.
Given that the scheme, which was one of the Chancellor’s flagship policies, drew to a close in September, one might have assumed that the Exchequer Secretary would want to promote the outcome. Sadly, he cannot do so—sadly for the businesses that failed to benefit. Only through a written answer obtained by my hon. Friend Chris Leslie, the shadow Chief Secretary to the Treasury, did we learn that a grand total of some 25,400 businesses successfully applied for the scheme over the three-year period. That is undeniably a sizeable number, and the creation of any new jobs in the past three years, during a period of economic stagnation, is welcome; but with only 6% of the target reached, the Exchequer Secretary has had to acknowledge that, as flagship policies for economic growth go, that one has been a bit of a flop.
When the previous scheme was introduced, the Opposition called for there to be no regional restrictions on it, for it to be extended to charities, and for a review of its effectiveness after six months. Those proposals were rejected. The Government ploughed on with a scheme that obviously was not delivering the goods throughout its operation. That was why, as long ago as September 2011, my right hon. Friend Ed Balls, the shadow Chancellor, called for a one-year national insurance break for every small firm that took on extra workers, using the money left over from that failing Government policy—it was clear that it was failing even in September 2011.
The Government are now introducing the employment allowance. It is not regionally restricted and will apply to charities as well as businesses, and it will apply whether or not they are start-ups. It should be easier for firms to access it because it will be delivered by the standard payroll software and Her Majesty’s Revenue and Customs real time information system, as the Exchequer Secretary said in his opening comments. The question is this: why did it take so long? Given that the scheme will not be available until April 2014, we have had nearly four wasted years when the Chancellor could have helped the thousands of small businesses about which Government Members have spoken so passionately to expand and create jobs.
This might be a foreign notion to Labour Members, but one reason why it has taken three years to propose the Bill is that the Government have waited until the country can afford it and put the finances right in the meantime.
The budget for the policy in the Bill was there, but the Government introduced a failing policy that was badly delivered, badly thought through and not revised in the appropriate time frame. Given the Government’s record on delivering the previous national insurance contributions initiative, what reassurances can the Minister provide that they are on top of delivering this one?
The Opposition support the legislation and it will pass unopposed this evening. It is rightly up to the Government to promote their support for small businesses. As Government Members have said, HMRC should take a proactive role in ensuring that businesses are aware of schemes that are available to support them.
Clauses 11 to 20 relate to the certification scheme for oil and gas workers on the continental shelf, limited liability partnerships and several miscellaneous measures, but I want to focus briefly on clauses 9 and 10, which seek to extend the application of the general anti-abuse rule to national insurance contributions. The GAAR, which came into force on Royal Assent of the Finance Act 2013, incorporates income tax, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax, stamp duty, land tax and the new annual tax on enveloped dwellings.
A number of Opposition Members raised the concern that the GAAR is intended to prevent only “highly contrived tax avoidance” that has “abnormal features”. The man who designed the GAAR, Graham Aaronson QC, believes that it is
“clearly intended to apply only to egregious, or very aggressive, tax avoidance schemes”.
What deterrent effect is such a narrowly drafted GAAR expected to have? As the Government’s flagship policy for tackling tax avoidance, what dent will the GAAR make on the tax gap, which HMRC says is £32.2 billion a year?
During the debate on the 2013 Act, I pointed out that the GAAR is expected to yield £60 million in 2014-15, rising to £85 million by 2017-18. I am more than willing to acknowledge that those are sizeable sums, but the point made in the House back in April was that it represented a drop in the ocean compared with the then tax gap of £32.2 billion.
What has changed since? HMRC’s latest tax gap estimate, of the difference between what is collected and what would be collected if everyone complied with the letter and spirit of the law, concluded that it has increased to £35 billion, a staggering 8.7% increase in the space of 12 months. I accept that many dispute the figure and say it is too low—that it does not include much of what could be incorporated in the figure for tax avoided.
The latest HMRC estimate, which covers 2011-12, indicates that some £15.3 billion of the gap can be accounted for by unpaid income tax, capital gains tax and NICs combined. HMRC suggests that approximately £4 billion of the gap arises out of avoidance “behaviour”. Will the Minister therefore clarify exactly how much of the £35 billion tax gap is thought to be made up of NICs that are unpaid through avoidance? Given that the Bill deals with only the most aggressive or egregious avoidance activity, how much will extending the GAAR to NICs yield for the Exchequer in additional revenue?
The Opposition have raised many other concerns about the GAAR—my hon. Friend the Member for Birmingham, Ladywood mentioned the Swiss deal and the number of holes in that arrangement, which leave a hole in the Government’s estimates. However, there is also the highly subjective double reasonableness test, which can be used to determine whether a means of avoiding a tax can
“reasonably be regarded as a reasonable course of action”.
That subjectivity is helpfully explained in the GAAR guidance, which states:
“The words ‘contrived’ and ‘abnormal’ are not defined, and therefore will be applied in their normal sense”.
We have long argued that that is a fig leaf, or could be used as a fig leaf, for tacitly legitimising tax avoidance that does not fall within those definitions. We tabled amendments to ensure that the GAAR would be reviewed, and to assess its effectiveness.
Most critically, we have questioned the independence of the advisory panel established by the Treasury to oversee the GAAR. At the time, I said:
“What a tax expert considers to be reasonable might be regarded differently in the eyes of a member of the public. Indeed, many tax experts will differ on what they believe to be reasonable tax planning, as opposed to something egregious that would fall under the GAAR.”—[Hansard, 17 April 2013; Vol. 561, c. 425-426.]
What has changed since April? A matter of weeks after being hand-picked to deliberate on the Government’s flagship anti-avoidance policy, one panel member was caught on camera at a tax planning conference offering tips to people on how to keep their money
“out of the Chancellor’s grubby mitts”.
HMRC’s website simply tells us:
“David Heaton resigned from the Advisory Panel on
It would be helpful to hear from the Minister exactly what those arrangements are, when she expects the appointment to be made and, most importantly, how she and her ministerial colleagues will ensure that this never happens again. If the GAAR is to retain or, indeed, regain any shred of credibility, what are the Government going to do about that?
As we have said, we back the Bill, especially the main provision—the employment allowance. We repeatedly called for changes to the previous national insurance holiday scheme and we consistently warned that it would be a flop. Many of the changes we called for will be introduced in the employment allowance, but it is disappointing that for hundreds of thousands of small businesses it has taken almost four years to deliver the policy that they need. They deserve better, but the Bill is a small step in the right direction today.
This has been a wide-ranging debate and I am grateful to have heard all the thoughtful contributions that have been made. It is noticeable that we heard seven contributions from this side, but only one from Opposition Back Benchers—[Interruption.] I welcome the Opposition’s support for the Bill, but as the shadow Minister said, the Bill is wide ranging, and Opposition Members could have talked about businesses, employment and the living wage. They have not taken the opportunity to do so and clearly had nothing to say about the Bill.
Before I respond to the points raised by hon. Members, it is worth reiterating the four key points of the Bill. First, from next April, all businesses, charities and community amateur sports clubs will benefit. They will receive a £2,000 employment allowance every year to set against their employer national insurance contributions liability. This is a measure specifically set out to support jobs. If I run a small firm employing four members of staff on the average private sector wage, I would see my national insurance contributions bill cut by more than a fifth. If I start a brand-new business and want to give up to 10 18 to 20-year-olds their first chance of full-time employment, paying the minimum wage, I would pay no national insurance contributions at all.
We have previously had time-limited allowances targeted at some businesses, but this is a universal allowance that will help all businesses. It is easy to understand and administer and, most importantly, it will make it easier for businesses in all our constituencies to create jobs. I am sure that that is something that all hon. Members want to see.
Secondly, as well as making it easier for employers to take on staff, the Bill will make it harder for companies to avoid taxes. It will give effect to the general anti-abuse rule, or GAAR, for NICs. As such, it is indicative of the Government’s intention to take a robust line in tackling all forms of tax avoidance. Thirdly, it will allow the Treasury to make regulations to bring in a certification scheme for the oil and gas industry when someone other than the deemed employer for national insurance is undertaking those duties on their behalf. This is part of the Government’s wider measure to address schemes involving employers setting up outside the UK and providing workers to the UK in order to avoid paying employment taxes.
Finally, the Bill will make changes to tackle disguised employment and to address the tax issue arising from the UK implementation of the alternative investment fund managers directive, which the Exchequer Secretary described in some detail earlier. The importance of those last three measures should not be underestimated. With the associated tax changes they will contribute towards raising £265 million for the Exchequer in the 2014-15 tax year.
As I have said, we heard some excellent contributions to the debate. I am sorry to say that the Labour contributions did not extend to any great insight into the Labour party policy on support for businesses. First, Opposition Members tried to take credit for this Bill, if hon. Members can imagine such a thing. The shadow Chief Secretary said that we should say sorry. If sorry is the hardest word, we have never heard it from the Labour party, which left us—as my hon. Friend David Rutley said—with the legacy of a huge deficit and enormous debt that we are having to pay off. This Government are having to make the tough choices.
Shabana Mahmood was wrong about the Labour party’s national insurance contributions scheme, because it would have applied only to small businesses. Our scheme will apply to all businesses. She also said that administration of the previous scheme cost £12 million. In fact, the estimated administration costs from the start of the national insurance contributions scheme that finished in September were £770,000—nowhere near millions of pounds. There was tight control on its administration.
We will not take a history lesson from the Opposition about the regional national insurance contributions holiday. My hon. Friend the Exchequer Secretary made it clear at the start of the debate that this was a temporary, targeted measure that helped 26,000 businesses and created 90,000 jobs. That is 90,000 people who have employment as a result of that scheme. That is something that we should be proud of, while recognising that there is scope for a new scheme, and that is what the Bill will introduce.
On the GAAR, the Opposition had 13 years to introduce it, but they failed to do so. They can pick holes in the scheme as much as they want, but the point is that this Government have taken the tough decisions. The rule will act as a deterrent to those tempted to engage in abusive avoidance schemes. It will take time to bed in, and we will keep it under review.
In answer to the specific questions asked by Catherine McKinnell, the GAAR is expected to raise some £235 million over the next five years and it will also protect revenue that would otherwise be lost. We are confident that the GAAR will change the avoidance landscape as its impact starts to be recognised. The hon. Lady also asked about the Bill not being published in draft, but she then said that we had taken a long time to get round to making the Bill happen. She cannot have it both ways, although that is a position the Labour party always likes to be in.
The employment allowance will be introduced from
I thank the Minister for responding to some of the questions that I raised. She seems to be moving away from the subject of the GAAR, but I wonder if she could address the questions relating to the advisory panel and the member who was dismissed from it in disgrace. What will the Government do to ensure that that does not happen again and that the credibility of the GAAR advisory panel, which was dented by those events, is restored?
Perhaps I should repeat my comments. This Government should get enormous credit for introducing a GAAR in the first place. The last Government had 13 years to introduce one and failed to do so. The important point about the panel is that it is independent. It was recommended by Graham Aaronson, and its members are independent from the Government. The gentleman in question has resigned. It is an important safeguard in the operation of the system that the panel’s independence is maintained.
I turn now to the excellent contributions from Back Benchers, especially on this side of the House. My hon. Friend Margot James talked about charities benefiting from the Bill. It is very welcome that they will benefit as they employ 800,000 people. She also talked about the huge step of taking on the responsibility for that first employee. She is absolutely right about that and I am sure that all hon. Members will wish the very best to the lady who is opening the new floristry business in my hon. Friend’s constituency.
My hon. Friend Ian Swales was right to say the Bill offers real help to small businesses, and that taking on the first employee and worrying about how to pay their national insurance puts firms off growing. This is an important measure to support the next step on the employment journey.
Sheila Gilmore found it strange that we were looking at the Labour party’s national insurance policy. First, her party wants to be the next Government, so it should not be a surprise that we scrutinise its policies. Secondly, we are still having to deal with the legacy of the previous Government. All the tough decisions we take are framed by having to deal with that legacy. I should, however, congratulate her on being the only Labour Back Bencher to speak in the debate. She asked whether the employment allowance would create jobs. The Federation of Small Businesses expects 29% of small businesses to use it to boost staff wages, 28% to use it to employ additional staff and 24% to use it to invest in resources—it is welcomed by business organisations. It is estimated that 90% of businesses that employ people will take up the employment allowance. I am sure the hon. Lady will welcome businesses in her constituency taking up the employment allowance.
My hon. Friend Richard Fuller asked whether tax credits had been factored into the system. We do not believe that tax credits have been factored into this calculation, but the Office for Budget Responsibility considers the net impact of all Government policies on the economy. This policy has been subject to that scrutiny and I am sure we can discuss any further questions he has. He made a thoughtful contribution on the price of labour and the affordability of the living wage. I am sure that that is something we want to consider further. He is right to say that the employment allowance is a small but important start along the road of getting more people into employment. He was right about the encouragement of welfare dependency by the previous Government. By 2010, nine out of 10 families with children were reliant on the state. We want to make work pay. For example, our policy of raising the income tax threshold is all about ensuring that work pays and that people keep more of their earnings so they can spend them in a way that is right for them and their families.
Of course the Government recognise that living standards are under pressure and that household budgets are being squeezed, but it is interesting that the Labour party’s calculations on household income and wages and earnings never factor in tax cuts. We are factoring in tax cuts and ensuring that people keep more of their own money.
My hon. Friend Caroline Dinenage made a characteristically excellent speech. She talked about the support the Bill will give by extending the employment allowance to small businesses and charities, and mentioned that she had been a small business owner herself. It is noticeable that many Government Members have run their own businesses. She rightly said that we want to make Britain business-friendly.
My hon. Friend Julian Smith, who also ran his own business before entering this House, did a sterling job in delivering his speech despite having lost a contact lens—none of us noticed. He made an important point about communicating with small businesses via Her Majesty’s Revenue and Customs, something I am sure Ministers will bear in mind. He also talked about making the employment allowance simple to administer. As my hon. Friend the Exchequer Secretary said in his opening remarks, the employment allowance will be delivered through employers’ standard payroll software and HMRC’s real-time information system. There will be no need for a separate application form or an annual return to report deductions. There will, I hope, be no extra forms, which is good news for small businesses.
My hon. Friend’s intervention says it all. Government Members have run small businesses and know that we need to keep paperwork, in all its forms, as simple as possible. People who run businesses do not want to spend their evenings and weekends filling in forms. They want to spend that time growing their businesses and taking on their next employee.
We heard earlier on that that was a time for a temporary target. We were dealing with the deficit and coping with the legacy left to us by the previous Government. We now have the opportunity to introduce a wider employment allowance. The hon. Lady should not try to teach us lessons about schemes, given the complexity of their scheme, which thankfully, they did not have the opportunity to introduce. How can the fact that 26,000 businesses have benefited and 90,000 jobs have been created be a failure?
Does my hon. Friend find it as amazing as I do that Opposition Members can only snipe at schemes that are clearly designed to appeal to existing small businesses and will incentivise the starting up of new small businesses, which is what our economy desperately needs?
My hon. Friend is right: that is exactly what our economy needs. I have been at the Dispatch Box only a few times, but, sadly, I am not surprised to see the Opposition sniping. That is exactly what we expect. The parties on the Government Benches are about action and putting in place measures to help businesses to take on their next employee.
My hon. Friend David Rutley talked about a culture of entrepreneurialism. I am glad that he had a slightly larger audience than the one he had on Friday, but his remarks have been heard and noted—he should have no fear on that score.
My hon. Friend Damian Collins made a thoughtful contribution, in which he spoke of the Government having put in place a package of measures to support businesses. He mentioned the regional growth fund, which is making a difference in our constituencies to businesses large and small, and the investment culture. Hon. Members rightly paid tribute to his work to support start-up businesses through all manner of schemes.
I am grateful to have had the opportunity to respond to most of the issues raised. The Bill will help to continue to support a stronger economy in the United Kingdom. It will make avoiding tax harder and make creating jobs easier. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.