National Insurance Contributions Bill

Lord Newby Excerpts

Wednesday 2nd February 2011 Lords Chamber

[Lord Newby]

I thank the Minister for the clear way in which he introduced the Bill, which we support. This is not the occasion for a major economic policy debate but I wish to respond to the comment of the noble Lord, Lord McKenzie, that the Labour Party’s policy—to the extent that we can discern it—is to delay and reduce the adjustment made to the public finances as compared with the policy of the coalition. However, if Japan is having its debt downgraded by the rating agencies for failing to take significant action, think how much our debt would have been downgraded by now if we had followed the prescriptions of the shadow Chancellor of the Exchequer.

As regards the rate increase proposed in the Bill, over the past 15 years we have seen considerable increases in national insurance, largely because national insurance is the ultimate stealth tax. Virtually nobody understands it and virtually nobody understands its relationship with the funding of the NHS. I doubt whether many people realise that, whereas income tax raises £150 billion, in 2009 national insurance raised £96 billion—two-thirds of the amount of income tax. Most people are largely unaware of how the system works and how much they pay.

To a certain extent, it is a pity that the raising of taxation from individuals is focused on national insurance because it is the opposite of having a transparent tax system. I would have been far more sympathetic to the previous Government if, from time to time over the past 13 years, the basic rate of income tax had been raised. However, once Tony Blair said in the run-up to the 1997 general election that he would not do that in that Parliament, it became impossible for the previous Government to do so. Politically, it has now become virtually impossible to contemplate doing so, even though that would be fairer than national insurance as a way of raising very large sums of money from the entire population.

We welcome particularly the fact that the Government are increasing the personal allowance in respect of both national insurance and income tax. I would be interested to know whether the Labour Party also supports this major measure for incentivising those at the bottom end of the income stream to pursue and take up gainful employment.

The holiday for new businesses has been greatly debated in another place. There are a number of contentious elements to it. I support the measure in principle because it will put back into the regions some £940 million. As noble Lords will be aware, I have been extremely concerned at the way in which funding for the regions has been decimated at a time when they are likely to be suffering disproportionately large job losses for the very reason that this measure is being introduced—namely, that they have a disproportionately large number of public sector workers.

The advantage of this means of putting funding into the regions over the traditional forms of regional policy is that it is entirely market-led. No money is spent unless individuals decide that they are prepared to establish a business in the regions. Therefore, the criticisms of the RDAs—I supported them but lost the battle—that a lot of money was wasted cannot, by definition, apply to this measure.

One of the big issues which the noble Lord, Lord McKenzie, raised was whether the coverage is right. Is it right to exclude the southern regions from the scope of the Bill? It probably is, for two reasons. First, there is a limited amount of money available, so it is better to put it where there is greater need. There is undoubtedly greater need the further away from London you get. Secondly, the reason we have very high levels of unemployment in particular parts of London is very different from the reason that we have very high levels of unemployment in parts of the north and has virtually nothing to do with lack of demand. London is a hugely buoyant economy, which draws in very large numbers of staff from around the world. If you live in London and have even a modicum of skill, getting a job is much easier—indeed, it is of a different order of magnitude—than if you live in Barnsley, Sunderland or Liverpool. The problems with the London labour market are largely to do with skills, and with the attitudes in some communities about what type of job people are prepared to take and where they are prepared to take it up, rather than with a deficit of aggregate demand in the region as a whole. I have no difficulty with the exclusion of London from this measure.

The criticism that has been made of the holiday, with which I have some sympathy, is that the funding might have been as well if not better targeted if it applied to micro-companies—companies with five or fewer staff—that are thinking of taking on an additional person. That is partly because the likelihood of those companies sustaining themselves over a period is greater than that of start-ups, given that a large number of those inevitably do not make it. Also, a large number of small companies, involving two or three people, are now thinking of taking on additional staff.

I declare an interest as a chairman of one such company. At the moment, we are thinking seriously about employing somebody full-time based in Birmingham, and the major constraint is simply whether we can afford it. A holiday of the kind proposed in the Bill for start-ups would help us quite a lot. The lobbying by the Federation of Small Businesses on this is pretty telling. Surveys of the federation’s members show that 57 per cent would like to employ an additional staff member in future. If that were limited simply to one person per company, it would create 800,000 jobs.

I know that money is tight and that you cannot give a blanket holiday to everybody. However, I fear that the holiday will not necessarily be taken up by as many as the large number that the Government hope for. My request to the Government is that the operation of the scheme be reviewed after a year to see whether it has been taken up by the numbers of new companies that they hope. If not, I hope that they will see whether the scheme can be extended to existing, very small companies, and in those cases possibly limit it to their taking on a very small number of additional staff. That said, this is a welcome way of incentivising job creation outside the more prosperous areas and I wish it well.