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.
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