Clause 6

National Insurance Contributions Bill – in a Public Bill Committee at 5:45 pm on 7 December 2010.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 5:45, 7 December 2010

I beg to move amendment 10, in clause 6, page 3, line 40, at end add—

The amendment is at the heart of clause 6 and seeks to test the definition of the “qualifying employee”. Clause 6(1) states:

Clause 6(2) states that that person would count as one of the 10 qualifying employees, where

“only the first 10 persons who become qualifying employees are qualifying employees.”

In other words, it does not matter for how long that person is employed and whether full or part-time: the simple fact that they are a person means that they count against the quota of 10. The amendment seeks to refine the definition of the single qualifying employee, so that several individuals in aggregate might comprise the equivalent of a full-time employee.

We argue that, rather than going on the head count alone, it might be more convenient for a business to ensure that it benefits properly from and maximises the national insurance holiday by taking several part-time employees together if they add up to a full-time equivalent. As the Bill is drafted, several part-timers might do the same job, under the same terms of contract, as a single full-timer, but, by virtue of the fact that they work fewer hours each, their new start-up employer might not be able to qualify for as much of the national insurance holiday as other start-ups that immediately employ 10 full-time staff.

That is not a very likely scenario in many start-up circumstances, but the rationale behind the amendment is that many start-ups will employ gradually and will take on part-time staff. Some of those might go full time, but, in order to ensure that the national insurance holiday regime has the maximum benefit for such firms, we felt that it was important to ask the Minister why we could not take into account part-time employment and avoid the penalisation of firms that only take on part-timers. If that flexibility was in place, it might give a better incentive for a new start-up to employ a higher number of individuals. For example, if by taking on 15 part-timers, a firm could gain the same benefit as an equivalent new start-up taking on 10 full-timers, it would help people back to work. We want to see the maximum number of people given that first step on the ladder.

I should like to see many more people in full-time employment but it might be preferableif a greater number of people had the opportunity to take part-time employment, whether they are mothers coming back into the workplace having taken time off to have children, or young people starting their careers and perhaps looking for part-time employment to support the increasing cost of their student fees, for example. There may be any number of reasons why we want to encourage part-time employment opportunities. It would seem a more sophisticated approach if the Bill could allow the flexibility for new firms to take account of the fact that on aggregate they would qualify and be able to maximise the benefits not just for 10 head-count employees but for 10 full-time equivalent employees.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 6:00, 7 December 2010

The Government’s intention is to try to press or even force women with children—younger than the previous Government would have encouraged—to take up employment. Many of them, probably the majority, would want part-time employment and pursuing this policy would make such part-time employment less likely. I strongly support what my hon. Friend is saying. Indeed, I have five members of staff, only one of whom is full-time.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed. My hon. Friend hits on a reality of the modern work force that is not quite captured in the framing of the Bill. Although it might be convenient for the administration of the large establishment bureaucracy that is Her Majesty’s Revenue and Customs, as circumstances change, we should not design legislation for the Treasury’s benefit; it should be designed around the convenience and the realities of the employment market and the small businesses wanting to start up. They would certainly find it far preferable to be able to maximise the national insurance holiday in that way. I would not regard our proposal as particularly difficult to administer. Most organisations are aware of the concept of full-time equivalence for a member of staff. They can understand that. It would not be beyond the wit of HMRC to issue guidance as to how various part-time arrangements might together comprise a full-time equivalent arrangement.

The lack of flexibility in the Bill seems to echo the sense in which the shadow of disadvantage is still cast upon the whole part-time labour market more generally. We know that in many circumstances part-timers can be at a disadvantage even though, as I am sure the Minister will confirm, under employment law, part-timers are entitled to receive the same treatment as equivalent full-timers, unless there is an objective justification for not doing so, in terms of bonuses, benefits, sick pay, maternity leave and so forth.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South

Does my hon. Friend agree that in other aspects of our taxation system we take account of the fact that there are a variety of different working practices, with a smaller or larger number of hours for how we define part-time and full-time working, for example? Therefore all those things should be taken into account when deciding whether the amendment could help the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Absolutely. We had a useful evidence session last week. When that point was put to the two witnesses from the Federation of Small Businesses and  the British Chambers of Commerce, Mr Priyen Patel and Mr Steve Hughes, they both acknowledged the attractiveness to business of having some flexibility that would allow the aggregation of several individuals in part-time employment to equate to a full-time equivalent arrangement. They both, it is fair to say, said that there could be some complexity involved in doing that, but if that could be overcome they felt that it would be useful and it was certainly an option that they wished to pursue.

Most small businesses would want to ask that question. Indeed, I suspect that it will be many of the inquiries to the 240 eager HMRC staff, who will be waiting by their telephones for the massed ranks of new start-up businesses to phone the hotline number. They would find it useful to have the flexibility to help those small business start-ups.

I would be grateful if the Minister would explain why the Bill does not currently have that flexibility and whether he foresees a particular cost in providing it. Although I am arguing that new small firms should be allowed to maximise the national insurance holiday, and that allowing the aggregation of part-time employees may involve an extra cost, I cannot imagine that it would be a particularly significant amount. Perhaps the sophisticated models in the “House of National Insurance” in the Treasury division that the Minister presides over have the ability to spit out the number from an Excel spreadsheet. I would be grateful if he would tell us what that might be.

Photo of David Gauke David Gauke The Exchequer Secretary

The hon. Gentleman appears to be concerned that limiting the holiday to the first 10 employees could disadvantage a new business with a large number of part-time employees. To some extent, that returns to the remarks I made about the previous amendment—we must look at how the scheme will work in practice and how it will be administered, and we must keep complexity to a minimum for the purposes both of employers and of HMRC. That is why we have tried to make the rules on qualifying employees as simple as possible.

The amendment would increase the complexity of the legislation, without helping new businesses. Most new businesses are unlikely in their first year of business to take on a large number of employees; we estimate that a typical business hires an average of two employees in its first year. That will come as no surprise given that on a number of occasions we have debated our estimate that there will be 400,000 employers and 800,000 employees.

Only a few thousand new firms per year are likely to employ more than 10 workers, which is less than 2% of the firms it is thought will benefit from the scheme. We have set the number of employees to whom the holiday can apply at 10, which ensures that employers with part-time staff are not penalised and can take full advantage of the holiday.

In the evidence session to which the hon. Member for Nottingham East referred, Priyen Patel from the Federation of Small Businesses was correct to conclude that going down the route suggested would add to the complexity for employers because the national insurance contribution system does not distinguish between full-time and part-time staff. It is based on earnings paid to a single person holding a single employment. Therefore, we would immediately have a problem in defining full-time staff for the purposes of the holiday. We would have to  amend the legislation to allow for the splitting of the £5,000 holiday limit per employee between two or more employees, adding to the complexity for employers and HMRC compliance checks.

The amendment could potentially create incentives for new businesses to make full-time employees work part-time, in order maximise the NIC holiday savings. We want to avoid such incentives. For example, an employer could reclassify some of their existing employees as part-time by reducing their hours while retaining their wage level so as to include 20 rather than 10 employees in the holiday. It is possible that we might see some distortive behaviour in such circumstances.

In conclusion, the limit of 10 employees is not an issue that has been raised by employer representatives, or others, when commenting on the holiday. I reassure Opposition Members that the amendment is unnecessary because the number of employees to whom the holiday applies is already generous when compared with the numbers of employees likely to be taken on by a new business.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I imagine that employers are not so keen on part-time employees but that employees want part-time work. That is why we should be giving them the opportunity through the Bill.

Photo of David Gauke David Gauke The Exchequer Secretary

If employers were conscious that that was a problem and if they could envisage a number of circumstances in which they thought, “If only we had the flexibility”—the word used by the hon. Member for Nottingham East—“to have more than 10 employees if they are part-time workers,” and if those were circumstances that employers’ representatives felt were likely to occur often, I think we would have had some form of representation from them, but it does not appear to be a concern for them.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

This is dancing on the head of a pin. Although the witnesses from the principal employer organisations mentioned that there could be a complexity issue, the Minister has to acknowledge that they both also indicated that they would be in favour of the flexibility to count part-time employees in that way. He needs to acknowledge that they assented to that concept.

Photo of David Gauke David Gauke The Exchequer Secretary

I return to the point I have just made: it is not something that anyone has made any representations to us about. It is something that would add—quite significantly, I think—to the complexity of the administration both for HMRC and for employers, for the reasons that I set out. Most businesses that will benefit will be taking on one, two, three, or four employees. The limit of 10 is not likely to affect very many of them.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I am still concerned about that point. It may just be that the Bill is not high profile, and that subsection of the Bill is not high profile. Is the TUC aware of the proposal? I imagine that it might want to make representations along the lines that some Opposition Members have been making.

Photo of David Gauke David Gauke The Exchequer Secretary

I am not aware that we have had any representations from the TUC on this point; I will certainly let the hon. Gentleman know if I have. The key point is that the amendment would increase the  complexity of the holiday. We want to reduce complexity, or keep it to a minimum, and the amendment would be of little benefit for new businesses.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

I am a little perturbed by the Minister’s argument that because he has not had representations on a particular point the point is not valid, not least because no formal consultation, which would normally generate those sorts of points, has actually been carried out on the proposals. The impact assessment that has been published says that the draft legislation was available to businesses and advisers on the website. That is obviously not as thorough as a process of consultation. When it comes to such technical points, it would be fair to say that just because they have not been raised formally so far does not mean that they are not valid.

Photo of David Gauke David Gauke The Exchequer Secretary

We believe that the amendment would add significantly to the complexity of the scheme, given the typical profile of new businesses, which is that they tend to take on one, two, three or four employees in their first year. A limit set at 10 employees provides some flexibility for part-time workers. Returning to the earlier debate, we think that it is necessary to have a limit, because otherwise the incentives for fraud become greater and the scheme will become less well targeted. For those reasons, we do not believe that the amendment would add to the scheme anything significant to help employers, but it would add significant complexity, and I ask the hon. Gentleman to withdraw it.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

I had not planned to speak to the amendment but, like my hon. Friend the Member for Luton South, one becomes inspired when listening to the debate and to the arguments about what the issues might be. [ Interruption. ] “Inspired” is a strong term, I know. The Committee has already been enlivened by the varying definitions of how one might use Latin terms in economics, and I am sure that inspiration on the technical restrictions around national insurance is but a heartbeat away for all of us.

My main concern comes again from my experience of working in organisations, employing people and looking at some of the margins one deals with, particularly in small-scale organisations. I was disappointed by the Minister’s approach, not least because, for a starting point, we have not had evidence about what the cost-benefit analysis of such a proposal might be. It is, therefore, very hard for us to judge whether it would actually increase substantially the administrative costs of the scheme. He talked about 240 tax advisers waiting, willing and able to encourage businesses to take up the scheme, but it seems churlish to preclude the idea that full-time equivalency could be a useful category for employers to think about when they start a business. Drawing on my own experience with a small, not-for-profit business in the charitable sector—I continue to press this point—when we set up projects, we would take on people for a certain amount of time. We would, therefore, increase the number of employees who were technically on our payroll on a three or six-month contract for a particular project.

As I have said, I talked to a group of women yesterday, and I have also spoken to another group of public service workers who face redundancy, about how they  might bid to provide career services in Waltham Forest and how they might take on additional employees for particular projects within certain time periods. That may mean that they will breach the 10 employee limit for a certain amount of time when they start their business, but that is very different from an ongoing revenue commitment to employing a member of staff. A business could end up with one or two administrators—I think this is the type of small business model that the Minister is talking about—with seven or eight people working for them over a particular period on a part-time basis of two or three afternoons or days a week on a scheme that was fundamental to the growth of their business. I would hate to see a lack of flexibility in the legislation mean that such projects could not be generated.

The legislation is not only about job creation, but job sustainability. Helping organisations to be flexible about how and when they employ people is critical, not just to create jobs but to create opportunities for people to sustain employment and gain experience. They may not end up as a long-term employee of any of the new start-up businesses, but the more opportunities that people have to work, the more their careers are advanced and the more attractive their CVs are to employers.

Setting a limit on the total number of people who could be affected by the scheme, rather than the total number of positions, inadvertently prevents the flexibility that might help employers bid for contracts—several such opportunities will emerge in the near future, as we have discussed—and it might stop them thinking about how they might employ someone on a part-time basis. One of my concerns, particularly as the representative of an area in which a lot of people work flexible hours in the public sector, is that, as those jobs diminish, they will not look for just any job, but one that fits their family and life commitments. That kind of flexibility is critical to those people, wherever they may be.

I appreciate that I represent an area that is excluded from the scheme and that that may not be of concern to the Minister. I am sure that I am not alone, however, in representing a group of people who are at risk of losing their jobs and who seem to be the target, when he talks about job creation in the public sector, of the legislation. They would want to work part time and would therefore fit into the category of tipping an employer over to 10 or 11 people for a particular project, such as running child care or social care provision within a local community. They would inadvertently be hampered by the legislation, so I hope that the Minister will look more favourably at how the amendment could be introduced and what its implications would be.

At the very least, I hope that the Minister will commit to getting more evidence from his Department, because today’s debate has been informed, above all, by limited evidence about the policy and how it might work. I do not know whether that is because of the lack of formal consultation with a wide range of organisations, including trade unions and small businesses, on the technicalities and various permutations of the provision, as opposed to its overall principle. The impact assessment does not even consider what the impact might be of expanding the limit to the positions rather than the people. We are asking reasonable questions and it is a pity that we have to ask them on the basis of a conditional analysis of what might happen rather than the evidence needed to make good decisions.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 6:15, 7 December 2010

I strongly support the arguments put by my hon. Friend the Member for Nottingham East. I do not buy the argument about complexity. Millions of people work part time and have their national insurance and employers’ contributions deducted. Not collecting them seems no more complicated—in fact, it is probably less complex—than collecting them, so I do not think that that is an argument. I suspect that the trade unions have not been consulted. Some employers may not even realise that their representatives have not picked up the point properly. It ought to be debated and brought out more in our debates, perhaps on Report and beyond. I hope that that will happen.

Those who will be affected by the job opportunities that might be lost are people with young families, and one would expect that they would primarily be women. There is a very large group of people who will need part-time employment to survive—students. If the Government get their way on Thursday, and I hope that they do not, hundreds of thousands of students will need part-time employment, but many job opportunities might be lost to them because of how the Bill is drafted. I very much hope that we can win the argument and the Government will eventually relent.

Photo of Gavin Shuker Gavin Shuker Labour, Luton South

I want to return to one of the basic premises of what we are here to do, which is produce a Bill that not only administers a scheme, but has a social benefit. That was recognised in the explanations about why we would apply the blanket relief to some parts of the country and not to others. The argument was also advanced when we looked at the different constituencies that might benefit—the local authorities or areas with high or low rates of unemployment or public sector employment.

Clearly there is a social benefit in allowing businesses to make use of their relief in whatever way they see as most appropriate. Each business will look at the task it is trying to fulfil and its balance sheet, and choose an appropriate way of carrying out its duties and tasks. It is beyond me why a business employing part-time employees should be penalised, and potentially be able to claim, say, only half the amount of a full-time business employing the same number of employees. The amendment could rectify some of the problems.

The Minister said that there would be a need for an additional amendment to change the amount of the cap per employee—a percentage by which to reduce the £5,000. I am new to the House but it does not strike me as being beyond the wit of anyone to come up with a way of doing that. One potential way to do it would be to cap the amount that any business could claim at £50,000. That route would allow full relief equality—as it were—across different businesses and start-ups, so that each was entitled to claim the same amount based on the number of employees and hours, and the amount of money paid.

I do not feel that the case against the amendment has been made fully, and we need to take it forward on Report. I recently heard the story of a group of women who lost their jobs in the previous major recession. They lost their cleaning contract and used that as an opportunity to club together to form a new business, and they grew out of that recession. I do not know the exact numbers involved, but if there were more than 10 of them and they were working part-time, I would view it as a social good if they could claim full relief like a start-up company that had only 10 full-time employees.

We have increasingly looked at the impact of legislation to ensure that it does not disadvantage certain groups that have been historically disadvantaged by the labour markets, such as women, people with small children or other people who would not necessarily find work or a job. If the Government are serious about getting more people into work, they should take the amendment seriously as well.

Photo of David Gauke David Gauke The Exchequer Secretary

In a way, I am grateful that Opposition Members have become so enthusiastic about this policy—a tax cut—that they want to apply it more widely than we feel able to do. One idea floated this morning was that we should apply this nationally and, to keep things within budget, perhaps have fewer employees. Now the argument is that we need to lift the cap and have more employees. The evidence that we have shows that, of the various start-up businesses that are likely to benefit from the scheme, less than 2% are likely to employ more than 10 workers.

So does the amendment address a particular problem that is likely to pinch a great deal or cause considerable disadvantage? No. What are the consequences of the considerable additional complexity of those phone calls between employers setting up a business and HMRC, which we talked about a moment or so ago? There will be more points to go through. How many employees? How many part-time? How many full-time? How do you prove whether someone is part time rather than full time? At the moment the national insurance contribution system is not set up to make a distinction between the two. We would have to introduce all of that just to solve a problem that will not occur that often. For those reasons—I think I have made the point very clear—we cannot accept this amendment, and I urge the hon. Member for Nottingham East to withdraw it.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

This has been a useful debate. My hon. Friends the Members for Luton North, for Luton South and for Walthamstow articulated far more effectively than could I the important changes that have occurred in the labour market, which are not particularly well reflected in the framing of the legislation. I get the impression sometimes that the Minister, perhaps unwittingly, is articulating a tired stance on behalf of a Treasury that is slightly weary of anything that does not fit within its computations and its limited world view. Although it may be convenient for the customers or for the businesses of this country, something cannot be done if it is too difficult or if it does not quite fit in the neat little boxes that HMRC considers applicable.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

Does my hon. Friend agree about how frustrating it is that we do not have all the evidence—we do not even have the various models—to make the assessments that the Minister has made of the cost-effectiveness of the policies? The impact assessment always presumes that 10 employees would be the cut-off point. It does not talk about whether it might be five or 15. It does not give us any of the analysis on which that is based. That is frustrating in terms of the amendments and how we make decisions.

Photo of George Howarth George Howarth Labour, Knowsley

Order. Before the hon. Member for Nottingham East proceeds, I think we have debated that point previously.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

In terms of the amendment, it is relevant, as my hon. Friend the Member for Walthamstow has pointed out, that there has not been a full consultative process for the Bill. Perhaps I am a little harsh on HMRC and on officials at the Treasury, but it is said from time to time that they take the producer interest a little too seriously and see things from the perspective of what is easy to administer, rather than what is beneficial for consumers and businesses.

I suspect that the reason we do not have full information on this particular amendment and this particular clause is that the scheme’s design was included in the Conservative party manifesto. The poor old officials at Her Majesty’s Treasury had the scheme foisted upon them and had to retrofit their arrangements around the hare-brained ideas of the Chancellor of the Exchequer.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

The hon. Gentleman cannot have it both ways. He cannot argue both that there has been no consultation and that there has been a general election fought on policies including this one.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I certainly can make that argument. In the hon. Gentleman’s mind it may be that there was massive worldwide awareness of the small print that was included in an addendum to an appendix to a sub-paragraph of the Conservative party manifesto on the way in which this scheme would run, but I suspect that many people were not aware of the issue that we are addressing today—whether part-timers or full-timers should count among the first 10 qualifying employees. Now that Her Majesty’s Revenue and Customs has to make the scheme a reality, it quite naturally resists anything that may go beyond this.

It may be that the Minister has shone a light on the fact that this will probably be a scheme of small benefit to a very small number of employers because it is just for new start-ups and not for existing employers. In this case, it will not affect that many employers, which is a great shame. I would like to see this relief benefit the widest number of new firms and employers. We have already mentioned the excluded regions, but we feel that there could be cases—as my hon. Friend the Member for Walthamstow said—of new start-ups that are on the margins. They might have more than 10 qualifying employees, but they would fall short of maximising the relief that could otherwise accrue to them if the flexibility were available in the Bill.

We urge the Minister not simply to cut and paste what might have been drawn up by his right hon. Friend the Chancellor in that half-hour meeting at which they were penning the Conservative party manifesto on the back of an envelope, but to spark the enterprise, initiative and innovation that exists in some deep recesses within the Treasury. They have the capability to design a scheme that is flexible, that can suit today’s modern labour market and that can help those firms that want a sophisticated mix of part-time and full-time employees, so I urge him to think again. I suppose that I am coming to the conclusion that we should press this issue to the vote.

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 8.

Division number 3 Decision Time — Clause 6

Aye: 7 MPs

No: 8 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Clause 6 ordered to stand part of the Bill.