New Clause 1

National Insurance Contributions Bill – in a Public Bill Committee at 9:30 am on 9th December 2010.

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Brought up, and read the First time.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I beg to move, That the clause be read a Second time.

Photo of Jim Sheridan Jim Sheridan Labour, Paisley and Renfrewshire North

With this it will be convenient to discuss

New clause 6—Consideration of extension of scheme to contain existing businesses—

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I welcome you back to the Chair, Mr Sheridan.

The two new clauses are designed to prompt the Minister to report on aspects of the scheme, and to give him the flexibility to look at varying it if the take-up is not what he has suggested. New clause 1 suggests that it would be in everybody’s interests if we set a budget for the scheme, as I have said in previous sittings. The budget should be known before the scheme commences and it should be adhered to for the scheme’s duration.

The Minister has helpfully indicated that he expects the budget to be £940 million over the three years of the scheme, but that is a Treasury projection of the possible expenditure on the scheme. As we discussed earlier, that projection could be underspent or overspent. In a time of fiscal tightening and economic difficulties, it is important  that the Treasury sets a figure for the total amount of money to be spent on the scheme and that it is published beforehand, so that the excellent Treasury forecasts on the likely expenditure are not overshot.

I have served on a number of Committees over the past few weeks and, on the Savings Accounts and Health in Pregnancy Grant Bill Committee only two weeks ago, the Financial Secretary argued that we should save £500 million on child trust funds because the country cannot afford them. On this Bill, we will spend an estimated £940 million over three years, but that is an open-ended commitment. If the scheme takes off and there is a massive pick-up in the regions outside London, the south-east and east, there might be an additional cost over and above the £940 million that the Treasury would have to absorb.

I am sure that the Treasury forecasts for HMRC are fairly accurate—we may undershoot or overshoot—but we are being asked to legislate and give authority to an open-ended scheme. Given the fact that the scheme will attract excellent publicity, that HMRC will work hard on it, and that we have appointed 240 extra staff to administer it, it is perfectly possible that the scheme will take off and that we might spend £1.3 billion in its three years, rather than £940 million. That would be a £400 million liability on the Treasury, but it is not considered relevant to the Bill.

It would be helpful to state in new clause 1, as we have done for other Government schemes, “Here is a pocket of money. It’s worth £940 million, that’s our benefit. It does not now cover London, the south-east and the east because we discarded that. It covers the other regions of the United Kingdom. It will operate for three years, but if the scheme runs out of money, it runs out of money.” We would then know exactly what it is.

There may be a perverse effect. If the scheme has a fixed budget, and people know that, it might generate greater interest and speedier take-up because it is time-limited. The previous Government introduced the car scrappage scheme, which had a fixed budget and we knew what it would cost before it started. It drove forward the sale of cars because people knew that the money would run out quickly. Instead of undershooting on the cost of the scheme, fixing the amount of money beforehand would ensure that the total amount was spent in the three years.

At the moment, I do not know, and the Minister cannot tell me today, on 9 December 2010, whether at the end of the period, on 5 September 2013, we will have spent £600 million on the scheme, or £1.3 billion.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk 9:45 am, 9th December 2010

I have been listening carefully to the right hon. Gentleman’s argument, but I do not understand something that he has just raised. He said that by 2013 the Government will have spent £600 million on the scheme, but is not the key point that renders the new clause inappropriate that we are discussing a tax cut, not a spending project? It is different from the car scrappage scheme or other spending projects. It is a tax cut, and in this country tax cuts are organised through the tax code and people adhere to it. How much tax is raised is a consequence of the tax code, rather than being limited or schematic.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

We can argue about the definitions, but the Minister has set out in the Bill an estimated cost of £940 million.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

But as I understand it, it is absolutely standard for the Treasury to put forward what it expects to raise in taxation. The key insight that is missing from the new clause, which makes it inappropriate, is that the project is not a spending one; we are debating a change to tax.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

However we define it—we could debate the matter for many hours—the key issue on which the hon. Gentleman should reflect is that the Minister said that the scheme will have a net cost to HMRC of £940 million over its period.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

Perhaps we can shed some light on why it is necessary to set some parameters for the scheme, which is essentially what the new clause would do. I am grateful to the Minister for finally responding to my concerns about the evidence base for the policy, but his letter raises more questions than it answers, not least because it says that the Government cannot quantify either the cost to the Exchequer or the net benefits. Would it not be wise to set some parameters and say that they believe that the tax cut will have an equivalent cost of £940 million, but that they cannot be sure so that will be the maximum benefit or cost that they are looking for? The alternative, as he said, is that they may not lose anything, but they may gain something—they simply do not know.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to my hon. Friend, and I am pleased that the Minister was able to respond before the Committee reported. I am flexible about this, but the key point is that I want the Minister to be able to tell the Committee and the House that an element of resource is allocated to the scheme, however that is done, that either drives forward applications, or at least enables the Minister, at the end of the scheme, as my hon. Friend the Member for Walthamstow said, to stand up on 5 September 2013 and say what the net cost of the scheme has been. In new clause 1, which would require a total budget to be determined for the scheme, I am trying to persuade the Minister to indicate now the limits of the scheme, so that we can drive it forward and assess its net cost to the Exchequer, and the public at large.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

My right hon. Friend is making a good point. An alternative might be that if the allocation he is talking about has not been used up at the end of the period, the scheme might be extended until such time as it is used up.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to my hon. Friend for that suggestion. I have tried to be positive in this Committee—I do not know whether the Minister feels that I have been, but I have tried. We have welcomed the scheme and the fact that it is positive, and we have tried to extend it to Greater London and the south-east for the reasons that have been discussed. In new clause 1, I am  simply saying that we need to think about the possible parameters of the scheme, as my hon. Friend the Member for Walthamstow said.

We will now probably have Report in the new year. I would be happy if the Minister set out the parameters on Report. If I were in the Government, I would want to know what the net cost of the scheme will be at the end of three years, and I would want to budget for it. However the net cost is determined—the hon. Member for West Suffolk has experience in these matters—it is important that it is set out. The scheme has the potential to be an unending commitment, depending on its take-up.

Complex matters are involved. If individuals are employed under the scheme, they will pay income tax; therefore, there will be different aspects across the Treasury as a whole. However, at some point, the Minister needs to set out what he believes the net costs of the scheme will be. Not paying national insurance for new employees will result in a loss of revenue for somebody, and therefore we need an assessment of the cost.

Photo of Heidi Alexander Heidi Alexander Labour, Lewisham East

Does my right hon. Friend agree that publishing an annual review, as the new clause suggests, would give the Government a means to compare the costs and benefits of the scheme with other job creation schemes that have been run by Governments in the past? Clearly, we are all concerned about the creation of new jobs and getting people into work. Having a review published annually would give us some more concrete evidence so that, in future, when we are determining the best possible policies to adopt in creating jobs, we will have something that clearly sets out the costs and benefits.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to my hon. Friend for that contribution. She backs up the point that I am making. I will move on from the first part of the new clause and leave that thought in the Minister’s mind. It is good budgeting practice for the Government to know and to set out exactly what the net cost to the Exchequer will be, and to ensure that they do not overshoot or, indeed, undershoot it.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

If the Minister is unconvinced, perhaps he should consider his own words. He said to me in a letter that

“£940 million is a large sum of money to allocate for an uncertain benefit.”

Is not the new clause all about ensuring that we have more certainty about the benefits or otherwise of the policy and are able to respond accordingly?

Photo of David Hanson David Hanson Shadow Minister (Treasury)

My hon. Friend puts her finger on why I introduced the new clause. I simply want to get from the Minister the net cost to the Exchequer at the end of the period. Can we set it now so that we know exactly what it will be? Indeed, there may be a net benefit—but at least we would know what it was. Having a time-limited funding element rather than simple timed funding might in itself drive forward the success of the scheme for the future.

The rest of new clause 1 would simply do what I can do anyway, but the Treasury would be able to think about it before I do it. I am capable of tabling questions in one, two or three years’ time asking the Treasury how  much has been spent, in how many constituencies, where the businesses are, how many people are affected and what is the outcome of the scheme. It might save the Minister a great deal of red box time—many questions to be answered on many issues—if he simply says, “Yes, I will publish the information to show exactly what is happening.”

I happen to know the constituency of Delyn reasonably well—very well, in fact. In my constituency, one business might avail itself of the scheme during the three-year period. It might employ one person. Next door, in the constituency of Alyn and Deeside, there might be 10 businesses employing 10 people as a result of the scheme. We need that information so that we can assess where the scheme has been used.

Returning to the Tatton experience, nobody in Tatton may take up the scheme, but lots of people may do so in Manchester, Central, which is not too far away. It would be helpful to know how the scheme operates in practice. Every hon. Member would want to know how the scheme is undertaken, particularly given that the Minister has said that he seeks to use it to support certain objectives, such as helping areas facing challenges because they are affected by public sector job losses.

If all the funding ends up being spent in the county of Cheshire alone, the scheme will not have been of benefit. We need to know factual information across the board, because that would help.

I can table a question in a year’s time, asking for a breakdown by parliamentary constituency and the Minister will either have to answer or avoid it. Dealing with the matter now would save us the wait. The Minister could deal with that now. I am happy for him to consider new clause 1 and bring back his own procedures in due course. [Interruption.] Crowds outside are cheering. The students are already here, by the sound of it.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

I am grateful to my hon. Friend. [Interruption.] I will quit while I am ahead, as the hon. Member for High Peak says.

It would help to have the information. Whether or not the Minister provides it in response to new clause 1, it would be useful for him to agree today to publish the impact of the scheme annually, by constituency or by sub-region, or however he wants to do it, so that we know exactly how many people and businesses are involved and what expenditure has been saved.

Subsection (c) provides not for a commitment from the Minister, but for him to consider whether he should re-apply the scheme by employment sector, rather than by geographical region. He would make that assessment as part of the assessment of the scheme. When he and the Treasury and HMRC assess the scheme, they might see that certain regions were not using it as the Minister hoped they would. He might want to encourage new businesses to commence in areas, even—dare I say it?—in the London, south-east and east region, with particular employment shortages in new businesses. Unlikely though it seems, there might be a need—for example, in London—to promote the interests of plumbers, electricians and other small new businesses. The Minister might want to consider applying the scheme by employment sector, rather than by geographical region.

New clause 6 would not commit the Minister to do anything other than assess the scheme after six months from Royal Assent. The new clause asks him to do so to see whether he should widen its application to existing businesses either employing fewer than 20 employees or having a turnover of less than £500,000 per annum. If we take that with new clause 1, the Minister can set an overall budget. The application of the scheme to existing employers or businesses with a turnover of less than £500,000 would allow the Minister to extend on a regional basis it in the event of low turnout or take-up elsewhere. He said that 1,100 people are taking the scheme up. If there was a lower turnout, under new clause 6 he could examine whether the scheme should apply to existing businesses.

The Minister can take my word on that positive suggestion for the holiday period, but he might want to listen to some of his hon. Friends on that point. On Second Reading, the hon. Member for Newton Abbot (Anne Marie Morris) said:

“I suggest that the Treasury urgently considers extending the provision to micro-businesses. I cannot see why micro-businesses should not be covered across the country rather than in regions.”

The hon. Member for York Outer (Julian Sturdy) said:

“I fear that we might be slightly short-sighted in limiting access to expansion to new firms alone, and in allowing new firms to claim it only during the first year of their business operations.”

The hon. Member for Meon Valley (George Hollingbery) said:

“Will the Minister consider taking powers to himself that allowed him not just to exclude areas, but to keep a register of those he felt could be excluded, therefore allowing some flexibility? Should labour markets deteriorate markedly in certain areas, he could then revisit his decision and decide to support certain areas.”

The Minister could listen to the hon. Member for Dundee East (Stewart Hosie), who said:

“did they consider extending it to existing businesses with very small work forces of one or two people”?—[Official Report, 23 November 2010; Vol. 519, c. 195-214.]

In the Second Reading debate, three hon. Members from the Minister’s own party and a Member of another party—not a Member of the Opposition—spoke on this matter, suggesting that it is not just the Opposition who think that he might want to consider that proposal but people from his own party.

My contention is quite simple. The Minister should publish a budget—show the success of the scheme on a factual basis, by publishing that information. He should take a power to himself to consider applying the measure to individual sectors, even if he does not necessarily use that power, and he should take the power to consider applying the measure to new businesses, even if—again—he does not necessarily use that power. He would then have the powers, in case he needs to use them, to ensure the success of the scheme as a whole.

Having made those comments, I commend new clauses 1 and 6 to the Committee.

Photo of David Gauke David Gauke The Exchequer Secretary 10:00 am, 9th December 2010

The new clauses are motivated by a commendable wish to encourage transparency and to ensure that proper consideration is given to how the holiday operates in practice. However, I want to set out why I think they are unnecessary.

First, as I explained in the evidence session, there is no budget for the scheme, as such. Businesses can be confident that there is no budgetary constraint and that the holiday will continue as proposed, regardless of how many applicants there are. It is very important that we offer that certainty. As I said on Tuesday, if a business found that suddenly the holiday was no longer available because the budget had been used up, that would damage employers’ confidence in the scheme.

It is also right to highlight the point made by my hon. Friend the Member for West Suffolk that this is, after all, a tax cut and not an item of spending. Moreover, it is worth putting this tax cut into context. We are talking about £940 million over the course of the next three years. That is not insubstantial, but we have to put that in the context of the fact that the Government raise approximately £50 billion a year through employers’ national insurance contributions. The estimate of £940 million has been scrutinised and verified by the independent Office for Budget Responsibility and it means that we will raise £940 million less than we would otherwise have raised.

It has been asked what would happen if the take-up is enormous and we have far more businesses taking this measure up in respect of far more employees. That scenario would suggest that we would have identified a successful dynamic effect and, as a consequence, more people would be in employment and paying income tax, employees’ national insurance contributions and VAT. It would also suggest that the Burger King franchise in Nottingham being run by the hon. Member for Nottingham East was doing extremely well and that he was employing more people—[Laughter.] It would actually be a good thing for the Revenue if take-up were enormous. So the suggestion that enormous take-up would somehow cause great difficulties for us is not correct. The expected costs of the scheme were set out in the policy costing documentation in the Budget 2010.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

It is an excellent idea to retain flexibility, as my right hon. Friend the Member for Delyn on the Front Bench has said. However, it is much more likely that there will be an underspend rather than an overspend. It is my belief that the Government’s policy will lead to a serious downturn in the economy, because of savage cuts in public spending, and an increase in unemployment, which will affect the ability to generate more jobs. So making the scheme more generous and applicable to the areas that are currently excluded might be necessary to help generate more employment in the economy when we enter a serious downturn.

Photo of David Gauke David Gauke The Exchequer Secretary

I note the rather gloomy assessment by the hon. Gentleman. I am sure that if he made a representation to the OBR, it might be persuaded by his economic expertise. However, the fact is that the independent OBR has said that the economy will continue to grow throughout the next few years.

The Government are committed to increasing the transparency of tax policy making and of the tax system more generally. To that end I am happy to undertake to provide, to the House and to the public, updates after the end of the tax year on the operation of the scheme, including information at regional level,  although the precise requirements set out in new clause 1 could raise legal issues, for example on confidentiality of taxpayer data.

New clause 6 would require the Treasury to conduct a review of the holiday no later than six months after Royal Assent, considering specifically the case for extension to certain types of existing business. However, the passing of time will make no difference to the policy objective of targeting support on those considering setting up new businesses. Nor will it make a difference to the objective of targeting assistance on those countries and regions most dependent on public sector employment, as opposed to “employment sector” as suggested by new clause 1. Indeed, it is unclear what is intended by “employment sector”.

The impact assessment commits the Government to reviewing the policy as evidence becomes available, and I am happy to repeat that commitment. Formal evaluations will be disseminated in the usual way. With these reassurances, I hope that the right hon. Gentleman will withdraw the new clause.

Photo of David Hanson David Hanson Shadow Minister (Treasury)

The new clauses were intended to probe. The Minister has undertaken to publish an annual assessment of the take-up of the scheme on a regional basis and I will hold him to that commitment. I am happy to look at that information in due course. I hope he will also reflect on the fact that HMRC, the Treasury and the Minister should make an ongoing evaluation of the effectiveness of the scheme. I hope the points we made in these amendments about the extension to new businesses or to existing small businesses, sectoral employment and the different regions will be kept under constant review by the Treasury.

The point that my hon. Friend the Member for Luton North made about the underspend is the one I am most concerned about. We could have an overspend on this budget, but equally we could have an underspend. If the Government have allocated a sum of expected resource to this scheme, I would want to see that resource met by 5 September 2013. It is a fluid situation and the Minister should keep it under review. With his assurances—and given that not only will he keep it under review, but I will too—I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.