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Madam Deputy Speaker (Dame Rosie Winterton)
I call Minister Jesse Norman to move the motion. He is asked to speak for no more than 20 minutes.
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Employment Allowance (Increase of Maximum Amount) Regulations 2020 (S.I., 2020, No. 273), dated 11 March 2020, a copy of which was laid before this House on 10 March, be approved.
This draft legislation allows the Government to increase the employment allowance by one third, or £1,000, giving more than 1 million small and medium-sized businesses up to £4,000 off their employer national insurance contributions bills. Employers pay secondary class 1 national insurance contributions on their employees’ earnings above the secondary threshold, which is set at £8,788 this year. Those contributions are charged at 13.8% and constitute the largest business tax by revenue in the UK.
The employment allowance was introduced in 2014 to help businesses with the costs of employment and to encourage them to grow and to hire more staff. It is claimed by more than 1 million employers in order to reduce their employer NICs bill by up to £4,000 per year. The Government recently restricted the employment allowance to smaller businesses with a national insurance contributions liability under £100,000, thereby ensuring that this valuable support is targeted at those who need it most.
At Budget, the Chancellor announced that we would deliver our commitment to increase the employment allowance for smaller businesses from £3,000 to £4,000 from April 2020. Businesses have been able to access that increased support from the start of the tax year. The draft regulations, if passed, will legislate for that increase to the employment allowance. More than half a million eligible businesses will benefit from the increase by up to £1,000. The Treasury expects the average gain from this measure to be about £850.
The Government are committed to supporting the UK’s smallest and often most entrepreneurial businesses, and this measure achieves that. Some 95% of the businesses benefiting from this increase are small and microbusinesses. Increasing the employment allowance to £4,000 means that 65,000 more businesses will see their employer national insurance liabilities fall to zero. Since introducing the employment allowance in 2014, the Government will have taken around 650,000 of the UK’s smallest businesses out of paying national insurance contributions entirely.
The Government are determined now more than ever to support people and businesses. At Budget, we increased the national living wage by 6.2% to £8.72 an hour. Along with increases to the income tax personal allowance and the national insurance primary threshold, that means an employee working full time on the national living wage is £5,200 better off today compared with April 2010.
However, we are aware that by supporting people at work through national living wage increases, we also increase cost for businesses. Increasing the employment allowance helps businesses to meet that cost. Businesses will now be able to employ four rather than three full- time employees on the national living wage without paying any employer national insurance contributions.
This increase will cost more than £2.3 billion over this Parliament; it is a large tax measure. It should be noted that in just four years, the Government have doubled the value of the employment allowance. The draft regulations legislate for a Budget measure that is already helping more than half a million of our smallest businesses with the costs of employment and has been supported by the Federation of Small Businesses.
Before I conclude, let me welcome the hon. Member for Ilford North (Wes Streeting) to the Labour Front Bench. I enjoin him and all colleagues in the House to join me in supporting the draft regulations, which I commend to the House.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the shadow Minister, Wes Streeting, who is asked to speak for no more than 15 minutes.
Wes Streeting (Ilford North) (Lab)
It is a privilege to reply on behalf of the Opposition, and you will be relieved to know that I hope to speak for nowhere near as long as 15 minutes. My party has resolved to work constructively with the Government through the extraordinary and unprecedented challenges presented by the coronavirus. It is in that spirit that I address today’s motion to approve the proposed increase in the employment allowance.
There is an air of unreality to our proceedings that extends beyond this empty Chamber and virtual Parliament to the substance of this afternoon’s business. On Second Reading of the Finance Bill, my hon. Friend the shadow Chancellor observed that it felt as though the Bill had been written for a different age. I feel the same way when I look at today’s motion on the employment allowance. This measure, which was announced in the Budget, increases the maximum amount of employment allowance from £3,000 to £4,000 for the new tax year, benefiting small and medium-sized businesses, charities and amateur sports clubs. It is expected to reduce the national insurance contribution bill to zero for around 65,000 businesses.
We recognise that the intention behind the measure is actively to enable small, growing enterprises to take on staff without incurring national insurance contribution liabilities, recognising that small businesses may need assistance to meet the costs of the welcome increase in the national minimum wage—it is described as a living wage, but it is perhaps almost a living wage. In ordinary times, we would welcome that, but for the businesses, charities and sports clubs that stand to benefit, these are the most extraordinary circumstances, just as they are for the whole country. For many of those organisations, this crisis is an existential one. Despite their best efforts, some of the businesses and charities that the Government intend to help will simply not exist by the end of the year. Of course, any measure that reduces their outgoings will be of some help, but, taken alone—or even as part of the package of support already announced by the Chancellor—this will not be enough to stop many businesses and charities going bust, so I urge the Financial Secretary and his colleagues in the Treasury to go further.
I turn first to the SMEs that stand to benefit from the proposed increase in the employment allowance. Small businesses form the backbone of the economy in communities such as mine across the country, and their survival through this crisis will form a crucial part of the recovery that we hope will follow. As we have heard, the Federation of Small Businesses has, as ever, done a sterling job of making sure that the pressures facing those businesses are well understood by Parliament. I take this opportunity to thank the FSB for all that it is doing while grappling with the challenges that coronavirus poses to its own operations and ways of working. Just last week, the FSB’s Martin McTague told the Business, Energy and Industrial Strategy Committee:
“Most small businesses have gone into this crisis with very little in the way of cash reserves. The latest evidence is that about 30% operate with only two weeks of cash, so they are in a very vulnerable position trying to cope with this crisis.”
That is why my right hon. Friend the shadow Business Secretary has called on the Government to introduce a second wave of business support, including an extension of the furlough scheme where necessary and greater flexibility to enable part-time working. The Chancellor has indicated that the Government will not allow a cliff-edge to form, so some clarity on how he plans to avoid that risk would be both timely and welcome for businesses that are already facing make-or-break decisions.
According to the Office for National Statistics, two thirds of companies have made use of the Government’s furlough scheme, many of which are small businesses. Since the Chancellor is already considering how to unwind the scheme, can I ask the Financial Secretary what consideration the Treasury is giving to calls from the FSB and others to introduce some flexibility in the scheme to allow for part-time working? Many small businesses cannot afford to bring staff back full time to quote for work, generate new business, fulfil orders or keep back-office functions ticking along. A small business might want to furlough its staff for 80% of the time, but under the current rules that is not possible if it has just two or three staff.
A more flexible approach to furlough rules would give SMEs the flexibility they need, which the FSB has described as absolutely critical for survival and recovery. That is why my right hon. and learned Friend the Leader of the Opposition called for that flexibility as part of his attempt to build national consensus on the next phase of the coronavirus response. It would be reassuring to businesses if the Financial Secretary could give us some hope today that consensus on this issue can be achieved.
As the Financial Secretary will be aware, the sorts of businesses that the employment allowance is designed to benefit will benefit from the opening of the bounce back loan scheme. That is welcome, but some serious issues remain around the working of the CBIL scheme for SMEs. Many SMEs are reluctant to take on loans because of the concern that they will not be able to repay them on the terms on offer. What more will the Government do to ensure that cash is reaching the businesses that need it?
I shall turn now to the charities that stand to benefit from the proposed increase in the employer’s allowance. For small charities, this will come as some relief. According to the survey conducted by the National Council for Voluntary Organisations, the Institute of Fundraising and the Charity Finance Group, charities are reporting a projected loss of 48% on their voluntary income and a third being wiped off their total income, with 91% of those surveyed expecting to have their cash flow disrupted. Although the vast majority felt that they could play a role in responding to the coronavirus outbreak, 62% were anticipating reducing their charitable activity. So for the smaller charities that the employment allowance increase is designed to benefit, the financial challenge will be even more acute.
We recognise that the Government committed £750 million in support for the voluntary sector and that they provided match funding to “The Big Night In”, but this support has failed to match the scale of the challenge facing our charities. The NCVO has calculated that a three-month lockdown would cost the sector £4.3 billion, which is six times the £750 million of support announced, so will the Financial Secretary tell us what more the Government plan to do to ensure that the charities eligible for the increase in the employment allowance still exist by the end of the year?
Since I have the Financial Secretary’s ear this afternoon, and given that the opportunities to raise issues with the Government had become more limited by the constraints that are understandably in place as a result of the coronavirus, may I take this opportunity, with the brief indulgence of the Chair, to lay down a marker about the future of the social investment tax relief? SITR is the only tax break for investors in social enterprises and charities, and it would be damaging to lose it in the current climate, so may I ask the Financial Secretary if he will give serious consideration to calls for a time-limited two-year extension to the relief, so that the organisations that benefit from SITR can continue to leverage in philanthropy to benefit a wide range of good causes?
Returning to the issue of employment allowance, this measure is estimated to cost the Government £455 million in lost revenue for the current tax year, which makes it all the more important to ensure that the benefit of this increase is enjoyed by those who are genuinely eligible and for whom the increase is designed. The Financial Secretary will know that there have been concerns in the past that the employment allowance has been exploited by tax avoidance schemes using umbrella companies to avoid national insurance contribution liabilities. We know that Her Majesty’s Revenue and Customs included anti-avoidance measures in the allowance from launch, and made it clear through Spotlight 24 that attempted avoidance arrangements such as these, which seek to use artificial and contrived arrangements to gain an unintended advantage, do not work. However, these measures require enforcement. Given the significant cuts in resources that we have seen, including job losses and tax office closures under successive Conservative-led Governments in the past decade, can the Financial Secretary reassure the House that any such avoidance is being identified and that tax inspectors are taking appropriate action?
In conclusion, the increase in employment allowance may not have quite the impact that was intended when the policy was first announced, but in so far as it will provide a bit of extra help to small businesses and charities, we welcome it and will not be opposing the Government’s motion. Our charities, small businesses and enterprises often represent the best of Britain and the beating heart of our local communities, and I hope that this measure will provide some assistance to those going through tough times. Where the Government take the right action, they will find our support and co-operation, as they do this afternoon. Lives and livelihoods are at stake, and the Government must go further and faster to give small businesses and charities the backing they need to weather this crisis and play their part in building a better country in its aftermath.
Neil Gray (Airdrie and Shotts) (SNP) [V]
Thank you, Madam Deputy Speaker. Like the shadow Minister, I do not intend to take anywhere near the quota of time on offer.
I thank the Minister for the motion. I dealt with him positively on the Roadchef Employee Benefits Trust issue and I hope we can continue to assist in progressing that matter. However, I must challenge him on his comments regarding the minimum wage. The minimum wage premium is not the real living wage. I encourage the UK Government to follow the Scottish Government’s lead by engaging with business to encourage more employers to pay the real living wage, if they cannot make it the minimum wage, and to remove the age discrimination that means under-25s cannot earn the same as their older colleagues for doing the same job.
As this is my first virtual speech, let me thank all those in the House staff who have gone out of their way to make the virtual House of Commons work and allow colleagues to hold the British Government to account. That includes Mr Speaker, you Madam Deputy Speaker and your fellow Deputy Speakers. Having spent considerable time on a committee with the Leader of the House, the irony of its being this particular Leader of the House who is proving that remote participation and eventually electronic voting can work, is certainly not lost on me.
Regarding the regulations, it is a pleasure to be able to respond on behalf of the SNP. Colleagues will be relieved that I do not intend to speak for very long. The business before us is uncontentious. We of course welcome an increase in employment allowance, but would have liked to have seen it go further. That is not an opportunistic position that we take for the afternoon to nit-pick or find division where there is none; our manifesto committed us to an increase in the employment allowance from £3,000 to £6,000 per employer, per year. Of course, that was the manifesto that helped the SNP win 80% of the seats we contested in December’s general election.
I welcome the shadow Minister to his place on the Opposition Front Bench. Like him, I encourage the UK Government to do more to assist small employers across the UK during the covid-19 crisis. The job retention scheme and business support schemes have massive gaps that so many of our constituents are falling through, and that is before we get on to the unsatisfactory self-employment scheme. I share the calls from the shadow Minister on bringing about flexibility to the furlough scheme. Something I would like to see on top of what he called for would be an appeals process, where an employer refusing to furlough a member of staff, leaving them without an income, can be challenged. The CBIL scheme is also not helping all those who need support. For many, incurring debt is just not an option. There needs to be much more in the way of grants available. Similarly, not all charities are covered in the third sector scheme, such as research-based charities, so I hope they will look at those areas again.
Short of the full powers of independence, we want the UK Government to devolve control of national insurance to Holyrood, so that the Scottish Government can use economic levers such as these measures to make decisions that support employers to create jobs. At the moment, our control over economic policy is very limited and largely rests with the UK Government, who take decisions that may favour other parts of the UK and may not be in Scotland’s best interests.
We will also continue to oppose the UK Government’s decision to restrict eligibility for employment allowance. In our view, it should cover all firms and all employers. The UK Government estimate that about 7% of all employers will no longer be eligible for the employment allowance. By removing this relief, they will be levying an additional £3,000 in tax on those employers.
In conclusion, we will not be forcing the regulations to a Division—I am sure that that will please those still testing remote electronic voting—but we would have liked the UK Government to have been more ambitious to support job creation by halting the eligibility restrictions and by expanding the relief that is available.
Madam Deputy Speaker (Dame Rosie Winterton)
I am now introducing a time limit of five minutes. I advise hon. Members who are speaking virtually to have a timing device visible. I call Kim Johnson.
Kim Johnson (Liverpool, Riverside) (Lab) [V]
Thank you, Madam Deputy Speaker. I welcome the opportunity to contribute to the debate on the increase in employment allowance. Labour recognises that many businesses are facing severe difficulties at the moment and the proposed changes go some way to providing assistance to many struggling small and medium-sized enterprises.
The economic decisions we take now will determine the length of the recession we face going forward. The Government have provided a number of economic packages to support SMEs, many of which have just weeks of cash in reserve. The additional assistance will increase the maximum amount of employment allowance from £3,000 to £4,000 for the tax year 2020-21, which is expected to reduce about 65,000 businesses’ national insurance contributions bill to nil.
My constituency of Liverpool, Riverside covers the city centre, with thousands of SMEs working across a number of sectors, including 4,500 digital and creative industries that employ 22,000 people and contribute £1.8 billion gross value added to the local economy. We are one of the fastest growing hubs in the country for digital companies, devising solutions for all sectors, including the health sector. The vast majority are micro-businesses, and many of them have been supported by our regional Federation of Small Businesses, which has consistently championed raising the employment allowance. It was a central ask in its “Back to Business” manifesto for the 2019 general election, supporting small businesses to cope with the increases in the national living wage. It will also assist half a million SMEs, raise wages and keep more people in work.
I have received a high volume of emails from businesses that are unable to access the support that has been made available. The funding is there to be used to ensure that we have a strong and robust economy to bounce back once restrictions are eased. It also needs to be lasting, as we head into the next phase of the pandemic, with micro-businesses in particular looking to recover. I believe that some businesses are falling through the cracks, and the increase in the employment allowance will be of limited assistance to the many SMEs struggling to keep afloat during the covid-19 pandemic. While I welcome this statutory instrument to increase the employment allowance, I call on the Government to go further—to provide SMEs with the support they need to weather this crisis, and to investigate concerns about HMRC’s ability to tackle tax avoidance effectively following tax office closures.
Sarah Olney (Richmond Park) (LD) [V]
Madam Deputy Speaker, it is a pleasure to be making my digital debut under your chairmanship this afternoon.
I welcome the change in employment allowance that the Minister has announced. It will obviously come as a massive boost to small businesses at this incredibly difficult time. I want to take the opportunity to raise the case of some of the groups, which have been contacting me, that have been missed out in the Government’s plans of support during the coronavirus crisis. I welcome the Government’s overall objective to support employment and people’s household incomes during this time, but I think it is important to note that there are some groups that have been missed out.
The priority at this time should be support for the self-employed, particularly small limited companies in which individuals pay themselves by dividends. They have been cut off from all sources of support. I also have a lot of our constituents on regular short-term contracts—they go from contract to contract—who are paid through pay-as-you-earn, and they cannot take advantage of the furlough scheme, welcome as it is. I would like to hear more about the Government’s plans for them.
I have been contacted by a lot of new starters who started jobs after 28 February and were not on their current company’s payroll scheme at that time, so they have missed out on furlough. There are also the businesses that have been set up in the most recent tax year, which do not have turnover that they can demonstrate. I also have a lot of constituents whose average earnings have been more than £50,000, so they have missed out on self-employment schemes. I really want to hear more from the Government about what they are going to do to support those businesses and self-employed individuals, who have been working very hard to support their families and are now finding themselves in a really desperate situation.
I want to support what the hon. Member for Ilford North (Wes Streeting) said about the job retention scheme. It is so important as the Government look at their furlough scheme, and obviously they will be reviewing it. What I want to call for is not just to extend it beyond June, but to make it more flexible so that businesses can furlough part of an employee—they could bring employees in for two days and furlough them for three days. It is going to be so important to businesses to have such flexibility as we emerge from the coronavirus crisis. I want to make that call today to the Government, as they are reviewing the situation, to support those entrepreneurs who are going to be leading us out of this economic crisis and those people who are going to innovate to enable the changes we need to build a better society as we seek to move forward.
Steven Bonnar (Coatbridge, Chryston and Bellshill) (SNP) [V]
I am grateful for the opportunity to contribute today on a matter that affects many charities, small companies and amateur clubs across my constituency and across Scotland. I place on record that I fully embrace these virtual proceedings, allowing us to look after the interests of our constituencies. The credit of course goes to the staff and officials behind the scenes who are pulling this all together for us.
I am speaking broadly in support of the motion as we in the SNP welcome an increase in the employment allowance. It is our desire to ensure that companies have the confidence to increase their workforce in what are uncertain times. However, I would like to have seen the increase go further still, and we will continue to oppose the UK Government’s restrictions on employment allowance eligibility, which particularly hamper single-employee companies in my constituency. We back a rise in the employment allowance, but we also want a policy that covers all firms and organisations, such as the many charitable organisations, amateur sports clubs and companies right across my constituency and Scotland to which this allowance makes a real difference each and every year.
The increase in the maximum allowance of £4,000 a year is an improvement, and it is welcome, but we would like to see this increase further. Our election manifesto called for an increase to £6,000 a year. This was before the crisis that many organisations now face. The reality is that many of them may not survive to avail themselves of this allowance. The UK Government have also estimated that around 7% of all businesses will no longer be eligible. Removing this relief will cost affected employers up to an extra £3,000 per tax year.
Overarching all this, the SNP wants the UK Government to devolve control of national insurance to the Scottish Parliament, allowing us to make our own decisions on a tax that directly impacts our employers’ ability to afford to create the new jobs that we need here in my constituency and all across Scotland. We support the measure and will not divide the House on this, but it could have gone further.
Layla Moran (Oxford West and Abingdon) (LD) [V]
The increase in the employment allowance is of course a welcome step from the Government, but the new restrictions on eligibility for the allowance introduced in April are a real cause for concern for small businesses and charities in Oxford West and Abingdon, which are already struggling to cope during this economic crisis. We need to assess this allowance increase in that context and, in any case, the Government need to go further if this relief is going to have any real impact. And there is an elephant in the room that needs to be addressed: the ongoing plight of the self-employed.
The limitations introduced on the employment allowance last month, most notably the restriction of eligibility to those with secondary class 1 national insurance contribution liabilities of under £100,000, unfairly disadvantages charities. In many ways, this negates the positive increase in the allowance amount altogether. Many larger charities, fearful of having to close due to a lack of financial support—such as the Children’s Air Ambulance in my constituency—may now be unable to claim this relief. Four thousand pounds may seem small fry, compared with the scale of the problems many are facing, but believe me, as they say, every little helps right now. That is why the Liberal Democrats are also calling for a dedicated grant for charities during this crisis.
There are charities in the care sector as well that I am concerned about. I spoke to many care homes in my constituency last Friday and they have urgent funding issues that need to be resolved, because they often have a disproportionately high employment spend compared with similarly sized SMEs, and they are at a disadvantage under these new rules. Now that the relief provided by the employment allowance needs to be counted by charities towards the state aid received, it is clear that more needs to be done. Will the Minister tell the House what is being done to fund charities properly at this time and what further relief might be available through the employment allowance?
To turn back to SMEs, for small businesses right now this increase in the employment allowance is of course welcome, but it is insignificant compared with the severe difficulties many find themselves in at the moment. I was on a Zoom call with a number of them right at the beginning of this crisis. They have been one week away from closure for many weeks and now is not the time to restrict which employers can access the employment allowance. It strikes me that the opportunity to temporarily relax those restrictions has been missed in this and any other statutory instrument to fix that.
With many businesses unable to operate right now, or operating from people’s homes, the Government need to make sure that they are covered by that allowance too.
I would like to take this opportunity to talk again about the self-employed. They are ineligible for the employment allowance because they pay class 2 and class 4 national insurance contributions. Time and again, the Government have thought about contractors and freelancers second, leaving them in the lurch or falling through cracks. I urge the Minister to investigate whether the employment allowance could be extended—even temporarily—to the self-employed, to provide some financial relief during this crisis.
We need to look at the statutory instrument in the whole context, not just within the limitations placed on the employment allowance. For charities, small businesses and freelancers alike, there is so much more that could be done to make the employment allowance and other relief measures go further. I thank the Government for what they have done, but I beg them to continue to go further.
Tim Farron (Westmorland and Lonsdale) (LD) [V]
The employment allowance, of course, was born during the years of the coalition to help small businesses, charities and sports clubs to take on their first employees. The Liberal Democrats are proud of our legacy and commitment to understanding and meeting the needs of entrepreneurs and small businesses. This has never been more important than it is now, so the increase is a welcome development and we are very happy to support it. However, it will be of use only to those businesses that are able to stay in business. Our challenge is to ensure that small businesses and charities are able to stay afloat until we are out of lockdown, so that they can benefit from it. That is not a call to end or ease the lockdown soon; we have to be led by science and safety, not politics and impatience. My fear, though, is that the increase in the allowance could end up being the cherry on a cake that no longer exists. Put bluntly, it will be of no use to businesses that have gone to the wall.
The allowance increase, sadly, will have escaped the attention of many, given that it arrived just as the economy went into shock in the face of the covid-19 crisis. Here in the south lakes, that shock is being felt acutely. We are a community where volunteering is second nature, where small charities, community groups and sports clubs form the glue that binds us together, but for most, their income has disappeared, and Government support has not reached everyone. We are a community where one in four people work for themselves, hundreds of them new start-ups. Small employers, new employers and potential employers are the very people the employment allowance is there to help, and most of them have been closed or curtailed by the virus.
We claim to be the biggest visitor destination in the UK outside London, but the market squares, pubs, restaurants and hotels of the lakes and dales are still and silent. It is right that they are; we all know that the priority is to protect people, to save lives. The problem is that if hospitality and tourism are phased back into action in the autumn, the industry will have missed out on the business of the summer months that it relies on to get through the winter. If we do not provide long-term support for those businesses, we will be faced with tens of thousands of furloughed workers losing their jobs as soon as support ends. That will have a colossal impact on our communities in the south lakes and will push countless families into poverty.
I hope that Ministers share my determination to ensure that we keep businesses going now, so that employers are able to re-hire furloughed staff and to employ new staff after this is all over. For those in the tourism and hospitality business, that must mean committing to a 12-month funding settlement, to see them through to spring 2021. Anything less, and we will simply be delaying the collapse of hundreds of businesses until the autumn. I want those employers to be around to benefit from the raised employment allowance.
If you could live in a beautiful place like Cumbria and make a living, you just would. Well, thanks to improved broadband speeds, increasing numbers of people have done just that. We are one of the most entrepreneurial places in the country. Hundreds of people have set up their businesses here, underpinning our local communities. There has been an explosion in the number of new businesses based in spare bedrooms, on kitchen tables, in sheds or shared spaces. Often, these businesses do not expect to make much money—if any—in the first year or two; many work at a loss until the third or fourth year. Those are the very businesses that, until now, have not qualified for any support from Government during this crisis—those self-employed for less than a year, those working in shared spaces and those who work from home. Small B&Bs have also missed out. Many of these businesses have already had to close, leaving people’s dreams shattered and families experiencing desperate hardship and even destitution.
The announcement last weekend of a £617 million package for those who have fallen through the cracks is welcome, and I am grateful to Ministers for listening to us. But I confess that the details of this fund trouble me and my constituents. South Lakeland has such a large number of businesses hit, because of our reliance on tourism and hospitality, that the local council has distributed one of the largest hardship budgets in the country—£70 million, which is much more than places like Newcastle and Nottingham, with populations of three times our size. If this new money is divided out according to the size of population, South Lakeland will get about £2 million, which would leave hundreds of businesses with absolutely nothing. This announcement would, in that case, have given false hope.
I ask the Government to distribute on the basis of need and be willing to increase the sum available across the country if it turns out that people are missing out. I also ask for clarity on which businesses will be eligible for this support. For example, will it include those who are operating from home? I warmly welcome these regulations. We must do everything in our power to ensure that small employers survive this crisis, so that they are still around to use this money and create opportunities for others.
Jim Shannon (Strangford) (DUP) [V]
I very much welcome the Minister’s announcement today and the Government’s commitment to it. I thank you, Madam Deputy Speaker, for giving me the opportunity to speak.
Initially, the employment allowance was set at £2,000 but was increased to £3,000 from April 2016. From April 2020, the allowance may only be claimed by employers with employers’ national insurance contributions of below £100,000 in the previous tax year, a change announced in 2018. HMRC estimates that the annual cost of the allowance is around £2.2 billion.
I absolutely understand the reason for the inclusion of this measure in the Conservative party manifesto and the Minister’s announcement today, but I am a wee bit concerned that we need to be doing more to help the small and medium-sized businesses that continue to employ large numbers of people across my constituency and the whole United Kingdom of Great Britain and Northern Ireland. In my constituency and across Northern Ireland, we probably have a higher per capita percentage of small and medium-sized businesses than the rest of the United Kingdom. I welcome this measure, but we need to ensure that these small and medium-sized businesses are able to return to the position they were in, so that they can give the opportunity of employment and wages and give the economy a bit of a kick-start.
I want to say an incredibly large thank you to Frances and her staff at my local social security office, who have helped many people and given advice during this crisis. It is important that their hands are not tied by a system that understands the rules but has no discretion to understand individual circumstances.
I welcome the help that will be coming for the many charities that we and many others contribute to. I think of the National Society for the Prevention of Cruelty to Children, Cancer Care, Marie Curie, St John Ambulance and the Cancer Fund for Children here in Northern Ireland. All those charities have no or little fund raising at the moment. The moneys coming into them are direct donations. There may be other moneys coming in, but there is no fund raising taking place. The help that the Government have offered charities is very welcome, but it will never bridge the gap for the incredibly large amounts of money that they are losing.
I was very happy with the Chancellor’s decision to allow workers to be furloughed, although there will be no payment until June for the self-employed. I think also of self-employed directors—I asked the Secretary of State for Work and Pensions a question about this yesterday, and I raise it again now—who put their profits back into the business, so do not have much in the way of savings. Unfortunately, they do not get the real benefits here that they could.
I put on record my thanks to the Government and to Ministers for all that they have done. They have reached out to many people. As elected representatives, we are made aware with each passing day of others who perhaps do not tick the box—who do not fit into a certain category—and I am thinking of them. We therefore bring those people to the attention of Ministers whenever the opportunity arises.
Many of us will be in receipt of a paper from Ian Geary of the Salvation Army referring to the report that has already been mentioned, entitled “Understanding Benefits and Mental Health”. We cannot let this go by without reflecting—in a small way for this debate but in a big way for the individuals themselves—on the barriers that vulnerable groups experience, and on some of the multiple mental health challenges that they are facing. That paper emphasised that the aforementioned findings were collated before the current crisis, but it has highlighted the lack of resilience experienced by many people who need help at this moment.
Again, I welcome the provisions that we have today, which benefit the many who fall within the criteria, but there are others who perhaps fall just outside the criteria or outside the box-ticking exercise that Departments sometimes do. We need to identify and support vulnerable claimants. We need to help those with mental health issues. We need to support businesses and those self-employed people who cannot create the opportunity—
Madam Deputy Speaker (Dame Rosie Winterton)
Order. I thank the hon. Gentleman for his speech but we now have to move on to the Minister.
Jesse Norman
I thank all Members who have contributed to this very constructive debate for their support on this important measure.
I agree, in some respects, with the hon. Member for Ilford North (Wes Streeting) that there is a degree of unreality about this. Of course, as he will know, this measure legislates for change that is already in operation as from the Budget, and therefore does not reflect, is not designed to reflect, and cannot, in fact, in law reflect all the changes that have happened since then. I think he will also be aware that we have had several Budgets- worth of additional measures since then from the Treasury and from across Government.
It is worth saying that the air of unreality that the hon. Gentleman describes can also, in some respects, apply to some of the points that have been made in the debate. It vaguely reminds one of the famous “Monty Python” sketch, “What have the Romans ever done for us?” Well, at the moment we have the coronavirus jobs retention scheme, the business interruption loan scheme, the self-employment scheme, statutory sickness pay, £750 million of charity support, grants, tax reliefs, billions of pounds to local authorities, and HMRC’s “time to pay” arrangement. That is an astonishing array of different packages. Of course, there may be people who are not, or not yet, able to benefit from them, or to benefit as much as they would like, but I think that everyone will be able to benefit from them in some regard, because that is how they are designed.
The hon. Gentleman mentioned the social investment tax relief. As he will be aware, we have consulted on that. Interestingly, I have talked to some of the social investment tax relief organisations involved, and they concede that so far the relief has not been effective, so the question is really whether it would be more effective if it were continued. Of course, the Treasury continues to reflect on that matter, as it does with all taxes.
I share the view of the hon. Member for Airdrie and Shotts (Neil Gray) that we have had constructive interactions in the past, and I thank him very much for his speech. He asked whether the employment allowance could be extended to cover all employees; I think I am right in saying that 93% of all businesses, including those owned and run by charities, remain eligible for the employment allowance, so it is extremely comprehensive. The restriction to smaller companies reflects the point that £4,000 is a substantial amount for small and micro- businesses but not for much larger businesses with national insurance contributions payments of more than £100,000 a year.
The hon. Member for Richmond Park (Sarah Olney) asked about the self-employed and dividends. She will be aware that dividends are a payment in return to capital ownership of a company, rather than as a matter of wages. Because of that, there is no available information as to who benefits and by how much and there is no clarity as to whether the dividends are in fact a form of wages or may have come from other activities of the business. It is of course right to focus on the issue if that is what her constituents are pressing her on, and we continue to think about the point.
The hon. Lady mentioned the £50,000 threshold for the self-employed; I think I am right in saying that on average, according to Her Majesty’s Revenue and Customs, a self-employed business has to have had £200,000 of revenue in order to have £50,000-worth of profit, so in most instances we are not talking about the most vulnerable people in society, who make up the groups that we are very much focused on assisting to the extent that we possibly can.
The hon. Member for Coatbridge, Chryston and Bellshill (Steven Bonnar) asked about devolution. As he will be aware, the Smith commission made a clear recommendation that national insurance contributions should remain reserved. National insurance is, of course, a social security contribution, so there would be many interactions with entitlement to benefits and other impacts across other businesses and individuals. The UK Government have delivered on their promise to devolve increased income tax powers to Scotland; it remains up to the Scottish Government to decide what to do with their own tax policy, and they have begun measures—be it said not enormously wide-ranging ones—to change tax policy.
The hon. Member for Oxford West and Abingdon (Layla Moran) made a point about charities. As I have suggested, the employment allowance covers an overwhelmingly large 93% of the businesses to which it is potentially applicable.
The hon. Member for Westmorland and Lonsdale (Tim Farron) talked about a 12-month funding settlement. As the Chancellor has acknowledged, in terms of the public purse the present situation is not sustainable. It is not a situation that people should want to sustain, not least because it may in due course have counterproductive economic effects. We in the Treasury, and across Government, are reflecting very hard on how we can emerge from this lockdown stronger and more unified as a country than ever. With that said, I commend the regulations to the House.
Question put and agreed to.
Resolved,
That the Employment Allowance (Increase of Maximum Amount) Regulations 2020 (S.I., 2020, No. 273), dated 11 March 2020, a copy of which was laid before this House on 10 March, be approved.
Adjournment