Clause 5

Part of National Insurance Contributions Bill – in a Public Bill Committee at 5:00 pm on 7th December 2010.

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Photo of Gavin Shuker Gavin Shuker Labour, Luton South 5:00 pm, 7th December 2010

To be frank, I looked through the amendments to the Bill and this one did not seem the most compelling. However, as I have listened to the debate, I have swung behind the amendment: it is potentially a crucial aspect of the Bill, and we must provide more light on the matter and explore it in greater detail.

Put simply, we do not come to the House to administer schemes: we come to legislate, to change the way that the country is governed, and to make a difference to individual communities. We explored that matter earlier. Across the country, charities are making a real difference in their own way. We would struggle to find anyone who would want to say that there are terrible aspects to charities. However, a charity is an employer. Many charities across the country employ staff, and they have to comply with health and safety regulations and ensure that proper procedures are in place. We require that in the legislation that we have laid down over successive years and successive Parliaments. Often, we require charities to go through a pay-as-you-earn scheme. We take taxes from employees, and require employers to  pay national insurance on their employees. The fact that an organisation is a charity does not affect the fact that it is also an employer, although many charities start to be an employer from a less confident base.

As has been said, this legislation will offer perverse incentives. Imagine, for example, a local council looking to outsource services. It regrets doing that, but it accepts that that is part of the current landscape. Potentially, commercial companies could have a significant advantage over a charity that has been set up to provide the same services. There will also be changes in behaviour. I will speak from my own experience: my right hon. Friend suggested that I did not necessarily need to declare an interest, but I realised that, because of a change in the way in which our charity is structured, we would be included in the legislation if the amendment were passed, so I will just declare that more fully.

One of the key growing pains of the charity of which I have been a trustee is that—as budgets have increased and we have been able to take on more staff time—we have had to take the plunge and make the transition from having someone who was self-employed, and providing services to the charity at a time of their choosing without a set number of hours, to employing that person and paying employers’ national insurance. There is currently a disincentive to move to that arrangement, because it involves a significant step up. On top of the money that the charity pays to an employee, it must pay a significant chunk—12 or 13%— of employers’ national insurance on top of that.

I believe that the legislation could change behaviour. For a new charitable organisation setting up, having that initial period where staff can be moved into new roles without the organisation having to pay a whole load of national insurance up front, and being able to plan for the bumps that are inevitable when it comes to setting up a new venture, would be really beneficial. As a trustee of a charity, I have spent a lot of time poring over charitable budgets and trying to work out what is possible. If there is an increase in the dead-weight costs to charities as employers, they cannot go and sell more product to cover them, because that option is not available to charities. The only option is to trim somewhere else.

As someone who has been employed by a charity, in some years I have reduced my pay in order to make a more sustainable budget for the charity. I have taken a pay cut to cover the additional costs arising from the change of employment. It is not the case that if a charity takes on an increase in national insurance contributions, that will not have a knock-on effect for its employees. They may very well have to step up and take a cut in order to cover the additional cost. When we are looking at setting up new charitable organisations—let us be honest, we all fully expect to see more of them in the coming years—we need to be able to tell a strong story about our notion of the social good that comes from the charitable sector, and I believe that the amendment would do that.

I also have concerns about the ambiguity over what is a charitable body or organisation. None of us immediately jumped up to say that we were experts in charity law when that issue was discussed previously, but we are the Committee that is looking at how we word the legislation  specifically to incorporate or exclude different bodies. The level of ambiguity will increase over the coming years. Where does the charitable sector stop and become the public sector? If a charity and a company limited by guarantee exist side by side in the same kind of governance framework, where do we draw the line there? Although I was pleased to hear from the Minister that to the best of his knowledge none of the 54 applications that have so far been rejected under the scheme was rejected because there was ambiguity over whether it was a charity, if we hit the targets for the scheme there will be a small but significant number of cases where it is not clear. By accepting the amendment, we will deal with that ambiguity clearly, without having to refer to subsections of subsections of various Bills.

One of the other points that the Minister made was that the charitable organisations that would be included would be few in number, and therefore there was no particular reason to include them in the legislation. In many ways, that argument serves another purpose, which is to prove that, while the additional costs may not be great, the additional benefits for a new charitable venture that is starting out could be great.

I declared an interest before as a trustee of a charity. We are coming up to our budget-setting period for 2011 and we are looking at how we employ our staff and the amount of money that is available. I can tell the Minister and coalition Members that these are tough times, not just for business but for the charitable sector as we look at how we respond to rising costs, including the VAT that we pay on the things that we have to buy and consume as a charity, the additional costs of inflation—many employees will not receive an inflation-related pay rise this year—and additional needs caused by the cuts that are coming to our public services.

In the charitable sector, part of our core identity is to step up and serve even when there is no direct financial benefit to the organisation for doing so. In fact, it is quite the opposite—it is 180° in the other direction. At a time when pressures on budgets are very tight, we hope that the charitable sector will expand to provide new and innovative models for delivering public services—for example, in working with offenders, patients and people with drug and alcohol problems—and, more broadly, to be the social glue that holds together individuals and societies as the Government pull out of local communities. I do not believe that the Bill necessarily sends the right signs in that regard.

The amendment is very sensible. I said at the start that it was not necessarily the one that jumped out at me, but it is the one that I feel very strongly about. It would make a real difference to our charitable sector and we would do ourselves a huge service to include it in the Bill.