Clause 4

National Insurance Contributions Bill – in a Public Bill Committee at 4:00 pm on 7 December 2010.

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Amendment proposed this day: 1, in clause 4, page 2, line 9, leave out paragraph (b).—(Mr Hanson.)

Question again proposed, That the amendment be made.

Photo of George Howarth George Howarth Labour, Knowsley

I remind the Committee that with this we are discussing the following: amendment 7, page 2, line 10, leave out

‘not in any of the excluded regions’ and insert

‘within a local authority area which features on a list of local authority areas drawn up at the discretion of the Secretary of State for the purposes of this section’.

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

Amendment 5, page 2, line 21, leave out

Greater London, the South East Region and the Eastern Region’ and insert

‘the 350 constituencies with the lowest percentage rate of unemployment as defined by the Department of Work and Pensions on the date of Royal Assent’.

Amendment 6, page 2, line 21, leave out

‘Greater London, the South East Region and the Eastern Region’ and insert

‘the 350 constituencies with the lowest percentage rate of public sector employment as defined by the Department of Work and Pensions on the date of Royal Assent’.

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

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

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I welcome you to the Chair, Mr Howarth. We have also spent some time together in Committee over the past few weeks on various measures, and I am very content to see you back in the Chair. I hope you enjoy this Committee and its deliberations.

There was a smidgen of opportunity for me not to talk very much after 4 o’clock, but, having seen the Government majority troop in from the Committee corridor, that smidgen has now passed, and I may well continue my discussion of these matters for a few moments. So, as ever, I congratulate the Government Whip on maintaining his troops on time and on budget.

Before the Committee adjourned for lunch, we were discussing amendment 1, which seeks to ensure that we exclude the exclusions from the Bill, so that London, the south-east and east regions are part of it. We had a full discussion on those matters, and I do not wish to detain the Committee having jested about it for too long. I can only sum up what has been said by quoting individuals who believe that the Government have got it wrong. On occasion. the Government expect the Opposition to say that they have got it wrong, and I have tried to point out the Opposition’s concerns in a constructive way.

In June, when the proposals were first announced, Mr John Bridge, the chief executive of Cambridgeshire chambers of commerce, said that the move to exclude his region would put his region and his region’s businesses at a disadvantage:

“In the east we have tremendous success in terms of business development and start-ups but what we don't believe is right is that businesses here should not have the same opportunities as elsewhere.”

I could not concur more with Mr Bridge. His argument goes to the heart of the arguments made by my hon. Friends the Members for Luton South and for Luton North. I understand the Minister’s wish to exclude those regions and an argument could be made, although I do not agree with it, that areas such as Lewisham, West Ham and Walthamstow may be attracted to the honeypot that is central London for employment purposes. That is not an argument that I accept, but it is an argument that the Minister has made.

I find it more difficult to accept that, as Mr Bridge has said, businesses in those regions may be disadvantaged by the national insurance opt-out being in place in other regions close to their places of employment, work and business, but not in their region. My hon. Friend the Member for Luton South put that very clearly in his contribution to the Committee, as did my hon. Friend the Member for Luton North. Towns such as Northampton, which is just up the road from Luton in business terms, will benefit from the new start-up business. Before we move on from these amendments, the Minister has to answer that point about the edges of the regions.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

The hon. Gentleman was not present for the debate for most of the morning—he sat outside doing his post—but, of course, I give way.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

Despite that discourtesy, I will continue to make my point. I represent a seat in the east of England. As the shadow Minister, who is not paying attention, should recognise, I have consulted businesses in my constituency very broadly. Those businesses recognise the need to get to grips with the deficit, and, therefore, that infinite money is not available for the scheme. They also recognise that the eastern region has public sector employment of less than 14%, which is one of the lowest proportions of public sector employment. They therefore accept the argument that the scheme is targeted at areas with high public sector employment, which will be most affected by the cuts caused by the Labour party’s woeful management of public finances.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I would never wish to be discourteous to the hon. Gentleman, and, if I was, I will formally apologise to him.

I do not think that the hon. Gentleman was present for the whole debate. Had he been, he would have heard that, of the top 100 constituencies for public sector employment, 23% are in London, the south-east and the east. Many of them are in London and, indeed, in his own region. There are high levels of employment not only in seats that elect Opposition Members, but in seats that elect hon. Members from his own party. It is woeful if the logic of the Government’s proposal for the national insurance opt-out is to target public sector employment by making the scheme available to regions other than London, the south-east and the east, because they represent the almost quarter of constituencies with the highest level of public employment. That would miss the target.

I recognise that the Minister may have concerns in relation to the amendment, but, if it is the case that he is targeting the areas with the highest public employment, it is incumbent upon him to look at the top 100 or 200 seats with public employment. The amendment suggests the top 350 seats. The Minister could devise the scheme in ways, based on postcode, that look at those areas of high public sector employment, rather than adopt a blanket approach that completely discards such areas.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I mentioned in my speech this morning that Luton North has one of the highest levels of public sector employment, but that is not the point that I want to make. Long travel distances are just not possible for many lower paid workers with families. They need employment in their own localities. Travel to town centres in areas of inner London and some parts of my own constituency is significant to the budget of lower paid workers. They need jobs near to where they live.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

Indeed. If we are to adopt the agenda of localism that the Government seek to approve, surely it would be sensible to base it on a local basis without that conflict. The Minister does not have to listen to me—as I said earlier, I have a political agenda, even though I am offering him the hand of friendship. He could, however, listen to his hon. Friend the Member for Basildon and Billericay (Mr Baron), who asked him on Second Reading whether he could

“revisit the Government’s decision to exclude businesses in the south-east from the national insurance holiday? Otherwise, it could be seen to discriminate against local entrepreneurs there and hit the areas that need higher employment.”

I have crossed swords with the hon. Member for Basildon and Billericay on a number of occasions, but he strongly believes that the Minister should reconsider the issue.

If the Minister does not want to listen to the hon. Member for Basildon and Billericay, he could listen to the hon. Member for Portsmouth North (Penny Mordaunt), who asked him on Second Reading:

“If the scheme cannot be extended to an entire region, does the Exchequer Secretary accept that there will be pockets of that region, such as my constituency, that would benefit massively from it? The area has historically had very low new business start-up rates”.

That is the very point that I made earlier in relation to London, the east and the south-east regions in general. The hon. Lady said that her area

“would benefit from what I think is an excellent scheme.”—[Official Report, 23 November 2010; Vol. 519, c. 195.]

There is not a cigarette paper between me and the hon. Lady on that matter. I have said that it is a good scheme, and it is encouraging that the Opposition support the Government on the issue.

The hon. Member for Portsmouth North also thinks that she will benefit from the scheme, so much so that, on 2 December, she went to the trouble of tabling a question asking the Exchequer Secretary what estimate he had made of the revenue forgone from the national insurance contribution scheme in the Portsmouth city council area. If the hon. Lady were on the Committee, I suspect that she would support the amendment that we have tabled stating that the Secretary of State should look at the matter by local authority area, because she would be able to make the case for Portsmouth. She might be able to explain to the Exchequer Secretary any difficulties at the dockyard as well as problems for businesses, the loss of public sector employment and difficulties at Hampshire county council. Why, she may therefore ask, can we not look at Portsmouth authority as one of the areas for the scheme?

We have had a good discussion and I do not want to labour the point too much, because we have made our issues clear. Having taken some indication from you, Mr Howarth, and Mr Brady, on the likelihood of a clause stand part debate, I just wish to ask a couple of questions that are separate to the amendments. They are linked to them in general terms and the Minister might want to consider them, too, in relation to the clause as a whole. We have had a good discussion and I anticipate that we may not have a clause stand part debate.

Photo of George Howarth George Howarth Labour, Knowsley

That might be helpful at this point. I am of the opinion that the relevant matters have been discussed during the debate. I am informed by the Clerks that that is the case. I do not propose to have a clause stand part debate on that, so if the right hon. Gentleman wants to, I will allow him a little latitude.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful, Mr Howarth, because I did want to speak to the amendments. I will try and link the debate on clause stand part to the amendments.

The Minister knows that we are trying to remove the Greater London, south-east and eastern regions from the exclusion. He knows that under clause 4(4), the relevant period for the scheme commencing is 22 June 2010 to 5 September 2013. At the moment, the Greater London, south-east and eastern regions are excluded under that scheme, which is why I am relating it to this issue.

I accept that it is an unlikely event, but if the Minister had not convinced his hon. Friends today, and I convinced my hon. Friends that we wished to vote against clause 4 in its entirety because of the absence of those three regions, could he tell the Committee what would happen to those 1,100 businesses that he indicated have already taken part and have already applied to take part in the scheme from 22 June 2010? That is an unlikely event, because I am not advocating that my hon. Friends should vote against the clause, but—and this is an important point for me, as an MP for nearly 19 years—Parliament is an important place. The Government have started the scheme, issued publicity about the  scheme, encouraged people to take up the scheme, have got 1,100 people, by the Minister’s own version of the Bill, applying for the scheme and planning for the future, yet we did not even have a Second Reading when the Bill was introduced.

In the unlikely event of me, when I was a Minister, introducing a Bill, spending taxpayers’ money, bringing forward investment, and providing a scheme that gave promises before we even had a Second Reading in the House of Commons, I suspect that the current Minister would have been making points of order against me in the Chamber in front of the Speaker of the House of Commons. I would like him to give me some indication of his view about what would happen if the scheme did not progress and was not approved by both Houses of Parliament.

We are all paid to scrutinise the Bill. We are paid to give an endorsement, on behalf of our constituents, to the Bill. I just venture to suggest to the Minister that it might have been better if he had started the scheme on a date subsequent to the authorisation of the House, at least on Second Reading, before running it for a similar period of time in the next two to three years. He is, in a sense, just testing the wishes of Members who say that we should retrospectively approve something. If we are into the area of retrospective legislation, there are a number of occasions when we have been criticised for potentially thinking about it, never mind doing it. I would, therefore, welcome an explanation from him on that point.

As part of the consideration of the amendments to date, I am still not satisfied with the answers that the Minister gave to my hon. Friend the Member for Walthamstow in the evidence session. I would welcome it if the Minister gave some clarity about how many he expects to take up the scheme and over what period of time. We have been told today that approximately 1,100 people have applied for the scheme to date. We have a figure of 400,000 prior to the commencement of the scheme with employers, and we have a figure of 800,000 people, from memory, who will take up the scheme in that three-year period. I would welcome it if he examined that for the Committee today, before we approve the clause and approve the opt-outs of the regions that we are concerned about, and told us what his curve trajectory is on that. How many does he expect in the first year, and how many in the second and third years? I would welcome information about the modelling he has undertaken to look at which regions will potentially take up the offer. Even within the regional take-up, I am not yet clear whether he expects the north, the constituency of the hon. Member for Central Devon in the south-west, the north-east and places such as Hexham, Lancashire, or Scarborough and Whitby, for example, to take up the national insurance holiday. What is his trajectory?

Part of the debate on this amendment, and future amendments, concerns the dividing of the cake, its time scale and the Minister’s trajectories. He has made great play of the fact that in Greater London, the south-east and eastern region, the scheme will involve a major take-up and cost a considerable amount of money. Has  any modelling been undertaken on the potential trajectory? Returning to my earlier point, we could table an amendment on Report on behalf of the Opposition—or, if they were convinced, on behalf of the Government—to give a review period to the scheme of two years, for example. Even if the Minister does not accept that London, the south-east and the east should be part of the scheme now, we could table an amendment to the Bill to see whether the trajectory outlined by the Minister is met. It may be that the take-up of the scheme is not what he expects.

Suppose that £940 million of expenditure is allocated, and after 18 months or two years we have invested only £300 million in the scheme because that was the take-up. I would be concerned if there was only one year left in which to invest the other £640 million but my constituents, and those of hon. Friends in West Ham, Luton, Walthamstow and Lewisham, had not had the benefit of the scheme. There is scope to look at that issue, and as a precursor to a later discussion I would welcome more details from the Minister about the trajectory he outlines.

My hon. Friend the Member for Walthamstow mentioned a point that she raised in Committee on Thursday that the Minister had promised to write to her about—she may wish to ask further questions about that. That material is relevant to today’s debate, but it might not be to the debate on Thursday afternoon. If the Minister was not able to respond to my hon. Friend about the point she made last Thursday, it is important that he outlines what those concerns were to the Committee. I commend the amendment, and I would welcome clarification on those points from the Minister.

Photo of David Gauke David Gauke The Exchequer Secretary 4:15, 7 December 2010

It is a pleasure to serve under your chairmanship, Mr Howarth. I am grateful for the points raised by the right hon. Member for Delyn. The first half of his remarks covered ground that was perhaps familiar from this morning. Given that my response will also be familiar, I will spare the Committee a response on all those points.

One point was not stated this morning as clearly as it might have been. The right hon. Gentleman argues that we should be looking at levels of public sector employment across constituencies, and the hon. Member for Luton North said that his constituency has one of the highest levels of public sector employment. When looking at constituencies as opposed to regions, and therefore a smaller sample, we must acknowledge that there is some uncertainty in the statistics. I have seen statistics suggesting that both Luton seats have levels of public sector employment that are slightly below average. I do not dispute that other figures are available, and I do not doubt that the hon. Gentleman has seen other statistics. Those I have seen contain some margin of error, because the sampling size is small. One of the difficulties we encounter if we try to look at such matters on the basis of constituency is that there is a danger of inaccuracy.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

These are statistics from the Library and I was surprised when I found them and I asked the Library why that was the case. It is about the employment in the area. There is a large general hospital, two very large colleges and much of the industrial employment is in Luton South. That is reason for the disparity.

Photo of David Gauke David Gauke The Exchequer Secretary

I am grateful. The numbers I have seen are from the Office for National Statistics but it acknowledged that there is some uncertainty about its numbers as well. Some of the constituency numbers look somewhat strange. For example, of the two Norwich constituencies, one has a much higher level of public sector employment than the other. I do not know Norwich well enough to know whether that is likely to be true, but it does not look right. There is this uncertainty over constituencies as well as the border issue, which the right hon. Gentleman touched on, and the fact that people will travel long distances to work and so trying to target this on employment in particular locations does not seem entirely sensible.

The right hon. Gentleman asked what will happen if the Bill fails. That is a point that I touched on this morning in relation to the amendments. If the Bill fails, those employers who have benefited from the scheme and have not paid the national insurance contributions that they would otherwise have had to pay would have to pay that outstanding amount. All of them were informed that that was the case because all of this was subject to the Bill receiving Royal Assent. Everyone was notified of that. It would be a great pity if that happened, given the right hon. Gentleman’s comments in support of the Bill.

As for the principle, if we had waited for Royal Assent before we commenced doing anything on this, we would not have been able to help those businesses starting since 22 June. As we want to encourage private sector employment and we are now seeing growth in private sector employment, I make no apologies for this Government wanting to act quickly to help businesses and to provide businesses with that opportunity. But it is all subject to Royal Assent and if the Committee and the House refuse to let the Bill go forward in its current form, those businesses that have benefited will have to pay the money back.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

This is a very important point. If the Committee accepted our amendment for London, the south-east and the eastern region it would change the whole nature of the potential for the scheme. It would change the nature of the £940 million that he has put in place, even if it were the same figure across the board. It would change the nature of the advertising and everything else. I just hope that the Minister thinks about this for future occasions. I would have been lambasted as a Minister had we not even had a Second Reading. In my 19 years in the House, I cannot think of a single time when expenditure has been incurred before a Second Reading.

Photo of David Gauke David Gauke The Exchequer Secretary

The consequence of the approach that the right hon. Gentleman sets out would have been that businesses would not have received the help. Some businesses might have delayed starting up. There are people in employment today who would not be if we had followed his approach. It is not by any means unusual when we are talking about a benefit, or something that is helping people within the tax system, for it to be announced at one point and legislated for later. I dare say that there was even an example or two of that in our Finance Bill just a few weeks ago: it is not unusual.

This is a measure that is helping businesses and we are pleased to be able to do that. As the right hon. Gentleman suggests, the House may take away some of  those benefits, and the House is perfectly entitled to do so. However, we felt it that was right to be on the side of start-up businesses and we were able to move quickly. If we had been constrained by not doing this until Royal Assent, we could not have helped until much later and business would not have benefited.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South

Is not the real issue that the Minister said earlier that the reason for not accepting amendments was that we did not necessarily have the right to change fundamentally a scheme that had already been started? Is not that the area of contention? I may be new to the House but I do not believe that we are just going through the motions in this Committee.

Photo of David Gauke David Gauke The Exchequer Secretary

My argument is not that the Committee does not have the right to do change the scheme—the Committee is perfectly entitled, if it so decides, to scrap the holiday altogether or to change the regions—but that it would have to do so bearing in mind the consequences for certain businesses that have responded to this opportunity. They would have to pay back the money that they would otherwise have paid in tax, and that would have certain consequences. If that is what the Committee wants to do, it is perfectly entitled to do it, but we do not think it would be advisable. Withdrawing a benefit such as this one, which enables start-up businesses to get up and running with a reduced tax burden, would be a strange position for the Committee to take.

Photo of Heidi Alexander Heidi Alexander Labour, Lewisham East

I thank the Minister for giving way. Does he have any concerns that the decision to initiate the scheme prior to legislation passing suggests an attempt to disregard the House, its Members and its procedures?

Photo of David Gauke David Gauke The Exchequer Secretary

No, I do not. The House and the Committee is entitled to amend the legislation, but we wanted to move quickly and to be on the side of businesses. We wanted to provide this benefit at the ideal time—when there was private sector growth. We want businesses to start up and do well. Had we followed the approach that nothing could be done until legislation had been passed, it would have been a great pity.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

I was not a Member of Parliament before the election, so perhaps the Minister could advise me. Is it not true that the changes to alcohol taxation in the former Labour Government’s last Budget, only eight months ago, were announced and implemented immediately and only legislated for in the following Finance Bill?

Photo of George Howarth George Howarth Labour, Knowsley

Before the Minister responds to that, I must say that I have allowed rather a lot of latitude to avoid the necessity for a clause stand part debate, but I do not think that the Minister should be tempted down that road.

Photo of David Gauke David Gauke The Exchequer Secretary

I shall resist the temptations of alcohol, Mr Howarth, however near to Christmas we may be. There may be Budget resolutions with Budgets, but full scrutiny happens some months afterwards, as a matter of course. My hon. Friend is right to draw the Committee’s attention to that.

May I turn to modelling and take-up? We have published details but it might be helpful for the Committee to examine this point. The right hon. Member for Delyn rightly makes the point that we have a long way to go from the take-up at the moment of 11,000 businesses to the 400,000 that we hope for by the end of the process. As Mr Mitha suggested, we anticipate that as time goes on knowledge of the availability of this scheme will spread, and there will be greater understanding from professional advisers in particular. As people reach the end of the accounting year and seek advice, more information will be available.

It may be helpful to the Committee if I state the anticipated costs of the policy over the next few years —£50 million for 2010-11, £230 million for 2011-12 and £180 million for 2012-13. That results in a total cost of £940 million. That gives some indication of the likely profile. As expected, the cost starts relatively slowly and picks up over the course of 2011-12 and 2012-13. That is what we anticipate and more information will be published on that.

Let me turn quickly to the issues raised by the hon. Member for Walthamstow. I apologise for the fact that she does not have the letter that deals with them, although I think that it is about to be sent to her. She raised the issues of the methodology and, in particular, the behavioural effects, so let me attempt to address the substance of her points and to clarify those issues.

There could be direct behavioural effects of business fragmentation, with companies with many staff setting up multiple separate entities to avoid being affected by the limit of 10 employees and so on. However, as a result of our compliance plans, we do not expect there to be a lot of such behaviour, which one could describe as equivalent to avoidance. Such direct effects are a consequence of the way in which the rules are set up, but they will be somewhat limited. Those are the behavioural effects that the hon. Lady asked about, and the cost would involve a relatively small amount of money.

It would be hard to model the policy’s indirect dynamic effects, such as enabling the provision of jobs that otherwise would not have existed or encouraging more start-up businesses, so we have not done so. If there is a significant dynamic effect, it is unlikely to be very expensive, because we will receive more tax revenue, which we would not otherwise have received. However, that is not what we have modelled in the numbers that the hon. Lady referred to in her questions last week. I hope that that distinction is clear.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow 4:30, 7 December 2010

I am exceptionally disappointed that we did not have this information before this sitting, and it would have been fair to provide it. From what the Minister says, my original points on Thursday are true, and the scheme has a very great dead weight. The Minister is saying that we can ascertain only that there will be £10 million of direct benefit, or £10 million of cost to the Exchequer, as a result of introducing the proposal. He cannot actually guarantee the indirect stuff that he is talking about and he cannot show us any workings out to show where it comes from. Is he saying that he cannot provide any information beyond that in the original memorandum that he put  forward on Thursday? It was discussed at that meeting that additional information would be forthcoming, so does that mean that there is no additional information on the basis of which this policy has been proposed?

Photo of David Gauke David Gauke The Exchequer Secretary

I refer to the answer that I gave my hon. Friend the Member for West Suffolk, and reiterate that there is a degree of uncertainty as to what the dynamic behavioural effect will be. That is not what we have modelled: we have looked at possible fragmentation behaviour—people forming two businesses rather than one to benefit from the full policy. The policy will help those who are starting up a business because it will reduce their tax burden and enable them to get through the difficult years. There is some uncertainty—this is why we have not covered this in the scorecard—about how policy will change things.

I will make sure that the hon. Lady gets the full letter, which explains things in greater detail, later today. I am sorry that she did not get it before today’s sitting, but I am keen to set out the essence of it. We accept that there is a degree of uncertainty about the dynamic and behavioural effects, but reducing employment costs will have a positive effect. Indeed, research by the Federation of Small Businesses has indicated that the reduction in labour costs is the single factor most likely to make the difference between taking on an extra member of staff and not doing so, and that has been cited by 60% of small businesses surveyed. We are not making bold or unsubstantiated claims as to the behavioural effect, but we will be monitoring and evaluating the policy to improve our understanding. With those comments, I hope that the clause will stand part and that the amendments will be withdrawn.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to the Minister for his response. I share the disappointment of my hon. Friend the Member for Walthamstow that the figures are not there, but it is about time that we came to some conclusions on these matters. I will not force a vote on the issues to do with employment, public sector employment or local authority areas—we may return to those on Report—but I will press the Minister on the inclusion of London and the south-east and east regions. My hon. Friends the Members for Lewisham East, for Walthamstow, for Luton North and for Luton South, have made strong arguments in favour of their areas, and it is important that we reflect the fact that the scheme needs to operate on a universal basis across the United Kingdom to benefit all businesses.

I hope that the hon. Members for West Suffolk and for Watford, in particular, will consider their constituents when they vote on this issue. I want to give them a little reminder of those issues; I am sure that they will vote in the way that they want but we will be taking an interest in how they vote, particularly the hon. Member for Watford. I am grateful for the clause stand part debate, but I want to press amendment 1 to a vote if the Minister refuses to accept it.

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 9.

Division number 1 Decision Time — Clause 4

Aye: 7 MPs

No: 9 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Question put and agreed to.

Clause 4 ordered to stand part of the Bill.