The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
The Bill before us consists of two parts. The first part introduces a 1% increase in the rate of national insurance contributions from April next year, as announced by the previous Government, although let me assure my right hon. and hon. Friends that we will reverse the impact of this jobs tax through an increase in the employer national insurance threshold. We have already announced the increase in the income tax personal allowance.
Mr Andrew Love (Edmonton) (Lab/Co-op)
I thank the Minister for giving way. What is the net impact on employers of the 1% increase offset by the increase in threshold? What is the impact on individual businesses?
Mr Gauke
Compared with the plans that we inherited, the impact of the increase in threshold will be such that employers will pay £3 billion less in employer’s national insurance contributions. The overall reduction of the burden on employment will be £6 billion as a consequence of the overall package.
Mr David Hanson (Delyn) (Lab)
Will the Minister confirm, however, that about £1.4 billion is not being compensated for by the threshold? I want us to be clear. He says that he has offset the threshold, but he has offset only about £3 billion, not the whole amount of the rise.
Mr Gauke
The fact is that the Labour party would have raised the full amount. We are offsetting £3 billion, which will be most helpful for employers whose employees earn under £20,000. The package is good for employment and, given the fiscal mess that we inherited, I am very proud that this Government are able to reform national insurance contributions exactly as we set out in our manifesto at the general election, and in the coalition agreement.
As far as we can deduce it, the Labour party’s position is that it wants to do more to reduce the deficit by raising taxation and it does not believe in increasing VAT, which will bring in £13 billion a year. We can assume only that it would favour greater increases in national insurance contributions than it had already set out.
We are not going to take any lectures; this Government have managed to reverse a very painful and damaging policy that would have meant employers’ contributions rising for every single employee paying national insurance—and in a way that would have damaged jobs in this country.
Mike Gapes (Ilford South) (Lab/Co-op)
Is the Minister aware that the proposals in the Bill discriminate against many areas—in London, in particular—with above-average unemployment? Will he explain to people in my constituency, where according to the Library there is already 6.6% unemployment, why on earth the national insurance contribution holiday does not apply to them?
Stephen Pound
That is extremely generous of the Minister. All I can say is that if he was surprised, imagine how I felt.
The Minister just gave the figure for receipts following on from the increase in VAT. Are his figures based on current patterns of consumption or on an anticipated level of consumption? Most economists would say that the VAT increase will depress demand and reduce consumption.
Mr Gauke
The sums are based on the assessment made by the independent Office for Budget Responsibility at the time of the Budget. I hope that that provides some clarification to the hon. Gentleman.
Part 1 of the Bill provides for changes, which the previous Government announced in two instalments, to national insurance contributions from next April. Initially, a 0.5% increase in rates was announced in the 2008 pre-Budget report. That was then changed to a 1% increase in the pre-Budget report of the following year.
I am sure that Members will remember that reversing the most significant impacts of those rate rises was a key issue at the general election. The Federation of Small Businesses said that the policy would cost 57,000 jobs. Thirty business leaders supported our campaign to reverse the policy. When the letter from those 30 business leaders—many other business leaders followed shortly—was published, Tony Blair apparently considered that for Labour the game was up. Thankfully, he was right, and we now have in place a Government who are determined to bring down the deficit but also to put in place conditions favourable to private sector-led growth.
In June, we announced our plan to reverse the most damaging aspects of Labour’s jobs tax. There was a choice how best to do this—for example, we could have cancelled the rate and threshold rises—but we have chosen the option that best protects low earners. In the emergency Budget, my right hon. Friend the Chancellor confirmed that national insurance contribution rates would rise by 1%, that the personal allowance would increase by £1,000 from next April, and that the employer national insurance contribution threshold would rise by £21 a week plus indexation. The reform of employer national insurance contributions is exactly as set out in the 2010 Conservative party manifesto.
The Bill sets out how these rises will apply to the main rates of class 1 national insurance contributions. The employer rate will rise from 12.8% to 13.8% and the employee main rate will rise from 11% to 12%. The 1% increase will also apply to class 1A and 1B contributions that are paid on benefits in kind and pay-as-you-earn settlement agreements. The same 1% rise will apply to class 4 contributions paid by the self-employed, which will rise from 8% to 9%. Taking into account the increase in the personal allowances and employer threshold, the net effect of these changes will reverse the damaging £6 billion-a-year net increase in the cost of labour planned by Labour Members. Our package of measures entirely reverses this increase.
Compared with the plans that this Government inherited, no changes are being made to the rates. More than £3 billion a year is being returned to employers through the threshold increase, and even more to individuals through the increase in the personal allowance. Our actions will mean that some 880,000 low earners in the UK will be taken out of income tax altogether.
Mr Love
The hon. Gentleman mentions low earners. Of course, the thing that the Conservatives did not put in their manifesto was that they would raise VAT. They talked about national insurance being a tax on jobs, but is it not correct to say that the rise in VAT will destroy more jobs than the national insurance increase would have done?
Mr Gauke
No. We agree with the view of Tony Blair and, apparently, the previous Chancellor of the Exchequer that VAT is the right tax to raise if one wants to get a substantial sum of money. The hon. Gentleman will find that most economists take the view that in terms of the impact on jobs, increasing employers’ national insurance contributions is far more damaging than any increase in VAT.
As a result of the package of measures that we are putting in place, employees earning under £35,000 a year will pay less in income tax and national insurance contributions overall, and employers will pay less national insurance on employees earning under £20,000 a year. As well as the 880,000 low earners taken out of income tax, almost 1 million low earners will no longer pay national insurance contributions, while the number of low earners for whom employers pay no national insurance contributions will rise by about 650,000. It is also worth mentioning that people who will now be exempt from paying national insurance will retain the same entitlement to contributory benefits. However, tackling the deficit remains the priority, and the benefits to low earners could be achieved only through the increase in national insurance contribution rates included in the Bill. This decision is fair and progressive, and it will help to support the poorest and most vulnerable in society.
Let me turn to part 2 of the Bill. In the June Budget, my right hon. Friend the Chancellor announced an employer national insurance contribution holiday for new businesses in countries and regions with a high dependency on the public sector. This holiday will apply across Wales, Scotland and Northern Ireland and many regions of England—the north-east, the north-west, Yorkshire and the Humber, the west midlands and east midlands, and the south-west. Those areas have a higher proportion of jobs in the public sector than the rest of the country, and as we take the much-needed steps to rebalance our economy, it is vital that they benefit from additional support.
Mr John Baron (Basildon and Billericay) (Con)
There is no doubt that one welcomes this package of measures, which will help the lower paid in particular. However, will my hon. Friend 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.
Mr Gauke
I understand my hon. Friend’s point, but the fact is that we have limited resources and have inherited a legacy in which the private sector is relatively strong in some areas, such as his constituency and mine, but much weaker in others. At a time when we cannot rely on massive public spending, and when the public sector will have to find economies, it is perfectly reasonable that we have adopted the approach of focusing on areas where there is high dependence on the public sector.
Stewart Hosie (Dundee East) (SNP)
I am very supportive of the proposal in general terms, but when the Government came to their decision on it, did they consider extending it to existing businesses with very small work forces of one or two people as opposed to simply new starts, and did they consider what the cost of that might have been?
Mr Gauke
The focus of the policy has always been on start-up businesses. It is an attempt to encourage new businesses to be set up, given where we are in the economic cycle and the need to encourage private sector growth. That is why the Conservative party’s policy before the general election was focused on start-ups. After the election we considered how best to introduce the policy, and came to the view that we should include the regions where the private sector was at its weakest.
Penny Mordaunt (Portsmouth North) (Con)
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 and would benefit from what I think is an excellent scheme. When I asked his Department about the costs of administering the scheme in such areas, it said that they would be prohibitive, but I cannot understand why that would be. Can he elaborate on that?
Mr Gauke
If we were to choose precisely where the policy applied on a much more closely defined geographical basis, we would have difficulties such as distortive behaviour, problems in enforcing the policy, the bureaucracy that may be involved, the need to establish where a company’s principal place of business was, and the difficulty of policing the scheme. Also, labour markets tend to be somewhat larger than constituency or even local authority areas. My hon. Friend is right to highlight the circumstances in Portsmouth, but there are neighbouring seats with a very low level of public sector employment and quite a high level of private sector employment. Such labour market flexibility can exist.
Mr Andrew Tyrie (Chichester) (Con)
I take my hon. Friend’s points about the limited resources, the risk of bureaucracy and the difficulty of policing the scheme, but Robert Chote, while he was still at the Institute for Fiscal Studies, described the regional relief scheme as
“complicated…prone to avoidance and oddly targeted.”
I have had a number of representations to that effect. What assurance can my hon. Friend give that the scheme will not be accompanied by an enormous amount of extra regulation and a much higher compliance burden?
Mr Gauke
My hon. Friend raises a fair point. We are determined that in administering the scheme, Her Majesty’s Revenue and Customs will adopt a light touch as much as possible. The problems of bureaucracy and avoidance would be much greater if we tried to drill down to constituency or local authority level as opposed to regional level. I assure him that our assessment is that gains for participating businesses will greatly outweigh any administrative costs that they may face.
George Hollingbery (Meon Valley) (Con)
It occurs to me that this is a particularly prescribed aspect of the Bill with three particular areas identified. 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.
Mr Gauke
What we must bear in mind is that we have limited resources. If we were to extend this measure to every part of the country, the cost would increase by around 70%—in other words, £660 million over the course of three years. For the reasons that I set out, it would be difficult to drill this down to very precise areas.
Mr Gauke
I must make some more progress.
If we are to move to a model of economic growth founded on private sector enterprise and investment, it is important that we encourage the formation of new business. For that reason, the holiday applies only to businesses that have been set up since 22 June, the date of the Budget. To ensure affordability, the holiday is limited to the first 10 employees taken on in the first 12 months of business. For each of those workers, the holiday will last for a single year, unless the closing date for the scheme—5 September 2013—is reached before the 12 months is up.
John Cryer (Leyton and Wanstead) (Lab)
I have listened very carefully to the Minister. Some 40% of the people in employment in my constituency work in the public sector. I represent some of the most deprived wards in London, which means some of the most deprived in the country, yet my constituency will be excluded from the holiday, whereas certain leafier parts, outside London and the south-east, will be included.
Charlie Elphicke (Dover) (Con)
I welcome this measure. It is just the thing to spur on the private sector. In evidence to the Treasury Committee, Alan Clarke said that it was a “particularly encouraging measure”. Mr Whiting, of the Chartered Institute of Taxation, said that it was a
“worthwhile experiment for the small, new business with new employees.”
This is just the sort of measure to encourage the private sector that the House should be passing.
Mr Gauke
I am grateful for that intervention. We have to build this private sector recovery. This measure is a useful contribution, particularly to those regions where the private sector is not as strong as elsewhere. It is a transitional measure, scheduled to end in three years. We are committed to monitoring and evaluating its effectiveness over that period to ensure its success.
It is not our intention for this policy disproportionately to benefit businesses that employ highly paid staff. For that reason, the maximum amount that an employer can profit from any single employee is limited to £5,000. That cap ensures that the policy will not distort European Union markets and that it complies with state aid legislation. We do not expect any significant competitive disadvantage to arise either for existing businesses or for new businesses in regions where the holiday does not apply. The Bill also makes provision for the administration of this measure. Businesses benefiting from the holiday can withhold the employer contributions from the monthly payments they make to HMRC. If the payment cannot be withheld, the businesses can apply to HMRC for a refund. That will help to minimise employers’ costs as well as the costs of delivery.
The Government expect that hundreds of thousands of businesses will benefit from the measure over the next three years. In the Budget, we estimated that new businesses would save hundreds of millions of pounds worth of national insurance contributions during the lifetime of the scheme, giving them the ability to hire more staff, expand their business or invest in the recovery.
Jeremy Lefroy (Stafford) (Con)
The Government correctly emphasise the importance of the voluntary sector, and it is likely that there will be a surge in the number of charities that are set up. I declare an interest as a trustee of Stafford Works, which is a new charity. Will the Minister confirm whether charitable trusts and companies are included in the scope of part 2 of the Bill?
Mr Gauke
A charitable entity that is located in one of the relevant regions and that carries on a trade, vocation or business will benefit. That is likely to apply to, for example, shops that are run by charities. Such entities must meet that criterion to benefit, but not all charities will necessarily do so.
Mr Gauke
At this early stage, we have had around 1,000 applications, but we expect more as awareness of the policy becomes greater and as businesses contact their professional advisers. We are keen to publicise the policy, and I encourage hon. Members for any of the relevant regions to notify businesses in their areas. The Government and our policy aim to help businesses and those who want to start a business and get it going. In contrast, the previous Government increased such taxes. Start-up and existing businesses throughout the country faced rising taxes and employers’ national insurance contributions, which was a particularly deeply damaging tax.
The Bill is an important part of the Government’s plan to reduce Labour’s taxation, help those on the lowest incomes, and support private enterprise and employment in the parts of the country that need them most. It is a simple and important Bill, and I commend it to the House.
Mr David Hanson (Delyn) (Lab)
I am grateful to the Minister for his exposition of the Bill. We will test aspects of it in Committee and at other stages in its passage. As he said, it divides effectively into two parts. The first part is the increase in national insurance contributions by 1%, which we will support because we want to ensure that we protect services and support our economy. The second part introduces a three-year regional national insurance holiday for new employers. As the Minister said, many businesses will qualify for their first 10 employees in their first year of business; I shall return later in detail to the question of the regions and areas that will not qualify.
Let us first consider the national insurance contributions. The Minister rightly said that this policy was set out both in the Labour manifesto and elsewhere in the period before the general election in May. My right hon. Friend the Member for Edinburgh South West (Mr Darling), the then Chancellor, announced in the pre-Budget statement on 9 December 2009 that the previous Government would increase national insurance contributions by 1% to protect public services. We had a choice, and we were straight about it both before and during the election. Raising national insurance contributions was a tough decision, but we ensured that we would protect those earning less than £20,000 a year.
The Conservatives condemned that national insurance rise throughout the election, but—surprise, surprise!—they have now decided to go ahead with it. In the Conservative manifesto, which I have come to recognise is not worth the paper it was written on, the party committed itself to raising the thresholds for national insurance by £24 a week, the upper earnings limit by £29 a week, and the secondary threshold at which employers start paying national insurance by £21 a week. I look forward to seeing the details in the secondary legislation.
My intervention on the Exchequer Secretary showed that although the Government are raising the thresholds, there is still a shortfall of about £1.4 billion in employer national insurance contributions. The Labour party was open about that in the run-up to, and during, the general election, but the Conservative party was not. In my view, this is all smoke and mirrors.
Mr Gauke
Page 8 of our manifesto stated that we would
“raise the secondary threshold at which employers start paying National Insurance by £21 a week.”
The secondary legislation will increase the secondary threshold at which employers start paying national insurance by £21 a week, so we are doing exactly what we said in the manifesto.
Mr Hanson
But there were no caveats about a shortfall in the Budget proposals of about £1.4 billion. I think it is smoke and mirrors—and, as my hon. Friend the Member for Edmonton (Mr Love) said, it is coupled with the increase in VAT from next year. The VAT rise will impact more than three times as much as the increase to national insurance contributions would have done, and will affect 250,000 jobs.
Madam Deputy Speaker
Order. We cannot have comments shouted across the Floor from a sedentary position. It makes it very difficult for Hansard to record our proceedings, particularly when the comments are then referred to without having been recorded. Will the hon. Lady make her point from the Dispatch Box, so that the right hon. Gentleman can answer it?
The Economic Secretary to the Treasury (Justine Greening)
My point was that the Labour party would have increased NICs for absolutely everybody.
Mr Hanson
The hon. Lady knows that that was a clear and honest policy that we put to the electorate. The Government have now introduced proposals for a national insurance holiday for new businesses in certain regions. I will explore shortly why we think that that choice is unfair in the context of the resources the Government are trying to save.
Justine Greening
Can the right hon. Gentleman tell us whether it is still his party’s policy to go ahead with those NIC rises?
Mr Hanson
I have said what I have said. We were open and honest during the election campaign, and we will support the rise proposed in the Bill, because we expected to do that. During the election campaign, the Economic Secretary and the Exchequer Secretary attacked the NIC rise without proposing the alternative that they have seen through in practice.
Let us put that aside, because the key issue before the House is the payment holiday. We do not believe that it is being proposed fairly, honestly or openly, and we do not believe that it will help the poorest and most deprived areas of the UK, which in great part are excluded from the scheme. Of the top 12 most deprived local authorities on the economic deprivation index, no fewer than seven will be excluded from the payment holiday. The seven boroughs of Hackney, Newham, Tower Hamlets, Islington, Barking and Dagenham, Haringey and Lambeth are excluded from the scheme.
In his written statement on 6 September, the Exchequer Secretary said:
“The Government are determined that all parts of the UK benefit from sustainable economic growth”.—[Official Report, 6 September 2010; Vol. 515, c. 1WS.]
If we are having a holiday from national insurance contributions, I do not understand how excluding those areas from the payment holiday will do that.
I want to challenge the Government’s logic. They claim that the reasoning behind the policy is that areas outside London, the south-east and the east are more reliant on public sector employment. Will the Exchequer Secretary confirm that that is his logic?
Mr Hanson
The Minister has confirmed that. Tomorrow’s business leaders who want to start businesses in the constituencies of Oxford East, of Luton North, of Lewisham East, of Canterbury, of Southampton, Test, of Eltham, of West Ham, of North Thanet, of Hackney North and Stoke Newington, of Tooting, of Islington North, of Dulwich and West Norwood, and of Brighton, Kemptown will miss out. I mention those constituencies specifically because they are in the top 10% in the country with the highest percentage of public sector employment.
As the hon. Gentleman knows, there are 650 constituencies. His policy is supposed to help compensate for possible loss of employment in the public sector. Those concerns have been reflected today, and I pay tribute to the hon. Members for Portsmouth North, for Meon Valley and for Basildon and Billericay, who have defended their constituencies and raised their concerns about how the policy will be applied.
If there is to be a holiday, it can be applied in different ways. It could be applied regionally, as the Minister has done, or on the basis of unemployment levels or regional levels of public sector employment per constituency, instead of the blanket regional approach that the Minister has chosen.
Barry Gardiner
The hon. Gentleman suggests that what the Government are seeking to do is compensate in some way for the decimation that they believe they will cause to employment in those areas. We share a belief that the Government’s cuts will have that decimating effect on employment in those areas. Where we differ is that the hon. Gentleman believes that the measures will in some way compensate for that, whereas I am pointing out that in other parts of the country, precisely in those areas where they are not to apply, they would have a greater effect in boosting the economy.
The hon. Gentleman may say that the measures will have a marginal effect in mitigating the increases in unemployment which he knows will come from his Government’s policies. I do not believe, and I am confident that he does not believe, that they will totally compensate for those. But the most important thing is to get our economy moving again; after all, that is why we are making those public sector cuts in the first place. If we are focused on economic regeneration, we must seek to make that investment where we know it will achieve the maximum return.
Justine Greening
Can I get this clear? Is the hon. Gentleman saying that Government should not try to help regions that need infrastructure improvement and are currently less productive? Should we simply not invest in them?
Barry Gardiner
I try to keep debate in this Chamber at a rational and reasonable level. I try not to play silly party politics or create a straw man simply so that I can knock it down. If the hon. Lady wishes to play those games, let her intervene on somebody else. It is really puerile to start talking in those terms; she knows that that is absolutely not my purpose at all.
The hon. Lady should consider her policies—not only these, but those that relate to VAT—and the effects that the Chartered Institute of Personnel and Development has said they will have. John Philpott, the chief economic adviser to the CIPD, said just a few days ago that:
“we are looking at something like 900,000 job cuts in the private sector as a result of both spending cuts and the VAT hike.”
That will be the effect of the hon. Lady’s policies. Of course I want that effect to be mitigated as far as possible, and for her to intervene on me in that ridiculous way, asking whether I am suggesting we should not try to mitigate the effect of her own policies—the loss of 900,000 jobs —is ludicrous.
In contrast to the hon. Lady, the hon. Member for York Outer (Julian Sturdy) was extremely reasoned in responding to my intervention on him. He accepted that there was unfairness in the Bill and that that unfairness was “regrettable”. My point is that although it is regrettable, it is not inevitable. We do not have to cut the cake or make the investments in this way.
In a rather partisan speech, the hon. Member for Sevenoaks (Michael Fallon) derided my right hon. Friend the Member for Delyn (Mr Hanson). He said that my right hon. Friend was suggesting that the Government were not going far enough. It is not a matter of not going far enough with the holiday; it is a matter of the Government’s being fair, equitable and effective. The Government cannot and should not take these decisions in an arbitrary fashion; they should take them on the basis of equity and effectiveness. The Bill does not enable that.
The Economic Secretary to the Treasury (Justine Greening)
We have had an interesting debate and I am grateful for hon. Members’ contributions, especially that of the hon. Member for Ealing North (Stephen Pound), who provided the most entertaining canter through an explanatory memorandum I have listened to in years.
At the beginning of the debate, my hon. Friend the Exchequer Secretary explained that the Bill contains two important measures: an increase in national insurance contributions and a regional employer national insurance contributions holiday for new businesses. Both are part of the Government’s plan to reduce the burden of labour taxation, reducing obstacles for those who want to recruit and retain staff. It is worth stressing that the clauses are part of a much wider package of reforms to help businesses and ensure that Britain is again open for business. The reforms are designed to reverse the most damaging aspects of Labour’s ill-conceived jobs tax. I listened with care to the contributions from Labour Members, but members of the public listening will have found it easy to forget that the Labour party left office with unemployment higher than when it entered.
Nevertheless, I am pleased that the debate has led to so many Opposition Members—and, indeed, Government Members—recognising that the best way to kick-start new business, as the hon. Member for Lewisham East (Heidi Alexander) put it, is to ensure that businesses are not over-taxed. In fact, the hon. Member for Ilford South (Mike Gapes) was extolling the virtues of low tax on businesses. That is why the Bill is so important. Were the coalition Government not in power, rather than corporation tax on businesses going down, it would have gone up, and rather than the national insurance burden, particularly on small businesses, being held down, it would have risen remorselessly.
The hon. Member for Nottingham East (Chris Leslie) talked about a split personality, but it is probably fairer to level that charge at the right hon. Member for Delyn (Mr Hanson), who, on the one hand, wanted to raise national insurance for all employers, but, on the other hand, complained that the tax break we wanted to introduce to reduce national insurance was not fair because it did not apply to all regions. He cannot have it both ways.
Mike Gapes
I am glad that the hon. Lady was listening so carefully to what I said. She refers to unemployment, but will she confirm that 3 million more people were in work when the last Government left office than when they entered?
Justine Greening
A lot of people would debate who those jobs were taken by. In reality, unemployment was higher—every Labour Government leaves office with unemployment higher than when they entered.
I want to talk about some of the most important aspects of the Bill. Employers will be £150 better off each year for each employee earning above the threshold. There will be an increase of 650,000 in the number of employees in respect of whom employers pay no national insurance contributions. Compared to this year, employers will pay less national insurance contribution in respect of those employees earning under £20,000. In fact, low-earning employees will also be better off, because the point at which they start to pay national insurance contributions is also going up—by about £23 per week. By reversing the planned employer national insurance increases, this package will help to maintain the UK’s attraction as a place to do business. In doing so, it will support the Government’s aim of creating a fairer and more competitive tax system. The national insurance holiday will help with the transition to a more sustainable model of economic growth, encourage private sector enterprise and investment where it is most needed, create jobs in some of our poorest regions, and encourage people to become business people, entrepreneurs and wealth creators—the very people who will lead the recovery.
Those points were made eloquently by my hon. Friend Member for Sevenoaks (Michael Fallon) and later by my hon. Friend the Member for York Outer (Julian Sturdy), who also talked about the burden of red tape, which is another matter that the Government are keen to reduce for businesses. My hon. Friend the Member for Central Devon (Mel Stride) talked about the need to support business, and to create new jobs and the positive culture that we need to engender throughout the country. That is absolutely what the Government want to do.
The Bill should be seen in the context of wider measures. The Government have taken several steps to support business. In the emergency budget we announced measures to reduce corporation tax, not raise it on large companies year on year. We announced measures to reduce the small companies rate of corporation tax. The hon. Member for Strangford (Jim Shannon) talked about what we can do to help small companies and new companies. He was right, and that is precisely why, instead of increasing corporation tax on those companies, we preferred to try to ensure that they can enjoy a rate decrease.
We have gone further. The regional growth fund will benefit all communities in our country. The capital infrastructure plan was announced as part of the spending review, and more capital will go into supporting our country’s infrastructure than would have happened under the previous Government. We have published the local growth White Paper.
Chris Leslie
In the hon. Lady’s list of Budget changes, what will be the impact of the VAT increase on employment?
Justine Greening
Clearly, that must be seen in the context of our desperate need to tackle the fiscal deficit that the Labour party left us. It is one reason why our overall plan is not just to support business—that is clearly how we will grow our economy back to the healthy state that it needs to get to—but, as the hon. Gentleman pointed out, to make our numbers add up across the board. We must get rid of the structural deficit that his party handed over to us.
We believe that the package of measures is right, the OECD has said that it is moving in the right direction, and it has been welcomed throughout Europe. If the hon. Gentleman is saying that we should not increase VAT, that prompts a question. His right hon. Friend the Member for Edinburgh South West (Mr Darling) was interviewed recently and said that the Labour party would have increased VAT, so we cannot accept the hon. Gentleman’s comments that his party would not have increased it. There is a blank piece of paper, and at the top are the words, “Labour economic strategy”. It is time for the Labour party to start to become credible by trying at least to pull together and to plan for our economy. Most people will put the contributions about jobs and the complaints about reductions in national insurance not going far enough in the context of a party that has absolutely no alternative plan for managing our economy. They will realise that its arguments are not credible.
The regional aspect of national insurance policy must be seen in the context of the broader package to support business. The level of VAT registrations in different parts of our country and the number of jobs created in different parts of our country show that we need to ensure that we can stimulate growth, particularly in the communities that can benefit most from it. The policy should be looked at not in isolation, but in the context of the broader tax reductions on business and the rise in the personal allowance for employees. Nearly 900,000 of the lowest-income workers in our country will be taken out of income tax altogether. The vast majority of people will benefit from our proposals, and under the Bill many of them will be small businesses with a handful of employees.
Barry Gardiner
I do not think I heard a single speech from either side of the Chamber that suggested in any way that those benefits should not flow to certain businesses. The question that was repeatedly asked and that the Economic Secretary and her colleagues failed to answer is why those businesses are favoured, not only when they are specifically not the ones in the areas that will produce the economic growth that she indicates is required from the policy, but because of the manifest unfairness that will result from their distribution.
Justine Greening
I realise that the hon. Gentleman takes a different view about how to target the policy. I happen to believe that he is wrong. We recognise that there needs to be some targeting, but the way in which he would have done that would have been unwieldy and unaffordable. In the context of our broader measures to reduce corporation tax instead of allowing rises, which would have happened under the Labour party, and the measures to take the lowest-income employees in our country—nearly 900,000—out of income tax altogether, we are trying to strike a balance, and I believe that we have struck the right balance.
I have no doubt that we will continue the debate in Committee, but we must be pragmatic. I draw attention to the hon. Gentleman’s attempts to target policies when the Opposition were in government. They faced difficulties with their changes during their final years in office. Under the deprived area fund, and the neighbourhood renewal fund, which became the working neighbourhood fund, some communities that had previously received funding were cut off. We want an overall package that supports business across the board, while retaining an element of support targeted at the regions that we think need to benefit most from the next economic upturn. That is what the Bill is doing.
The package of reforms of which the measures in the Bill are part will benefit individuals and employers throughout the country, and help us to achieve the twin objectives of creating a fair and competitive UK tax system. The burden of labour taxation will be reduced by more than £6 billion a year in a way that will help the lowest earners in Britain and protect lower-paid jobs.
The national insurance holiday provides targeted support to new enterprises, and encourages people to set up their own businesses and to employ new staff. It is an important part of our economic strategy to help the parts of the country that are most reliant on the public sector, and to ensure that we make the transition to a more sustainable model of growth and employment as smooth as possible. The Bill will ensure that as the recovery takes hold, all parts of the country will benefit. It will enable a reduction in taxation on labour nationally, and provide extra support in targeted areas. It will be good for growth, and for jobs. I commend this Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
National Insurance Contributions Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7),
That the following provisions shall apply to the National Insurance Contributions Bill:
Committal
1. The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 9 December 2010.
3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and Third Reading.
Other proceedings
7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Norman Lamb.)
Question agreed to.