National Insurance Contributions Bill

Lord Razzall Excerpts

Tuesday 7th January 2014 Lords Chamber

[Lord Razzall (LD)]

My Lords, I should start by saying, for the record, that this is the first time in my 17 years in your Lordships’ House in a Second Reading debate that two-thirds of the speeches have been delivered by Liberal Democrats. It goes without saying that we on these Benches support the Bill very strongly. The Bill ought to be put into the context of the package of measures that the coalition Government have introduced to support the so-called SMEs in recent years, which were very much supported by the Liberal Democrat members of the coalition—and often, dare I say it, provoked by them.

I will briefly list them. We have corporation tax down from 28% to 23% and heading for 20% by 2015. We have the proposed creation of the new business bank and the various lending schemes designed to assist SMEs. We have the establishment of the regional growth fund and the increase in capital allowances, very much sponsored by my friend in another place, the Member of Parliament for Burnley. We have the “one in, two out” policy on deregulation, and, of course, the small business rate relief, spread over two and a half years.

We very much welcome the creation of the employment allowance system, allowing a grant of £2,000 a year to employers in relation to their employees’ class 1 NICs, and the Government’s confirmation that HMRC will engage with the representative bodies of businesses and others to ensure that the system works as simply as possible, so as to minimise its impact. I think the Minister reported the Treasury calculation that up to 1.25 million businesses will benefit from the scheme, with around 450,000 being taken out of paying employer’s NICs altogether. That is about one-third of all employers. It is clearly a significant figure. The other issue here that we very much welcome from these Benches is the effect of including charities. It is calculated that up to 35,000 charities with employees will benefit, reducing their tax burden, it is calculated, by around £45 million in total.

At this time of night, far be it from me to comment on Labour’s alternative policy, which undoubtedly the noble Lord, Lord Davies, will touch on, but I do not think that there is any disagreement across the Floor of your Lordships’ House that something must be done to help SMEs. The Labour proposals of which I am aware would freeze business rates for two years from 2015. It is calculated that this would save small businesses an average of £450 over two years. Of course, the employment allowance scheme created by this Bill would see those businesses save £4,000 over the same period.

From these Benches, we also very much welcome the inclusion of NICs in the so-called GAAR—the general anti-avoidance rule. They were originally excluded. I am particularly conscious of the effect that this will have on offshore employment payroll companies, preventing them doing what they have so often done to allow employers to avoid paying NICs. We also welcome the fact that the Bill removes the presumption that limited liability partnership members are to be treated as self-employed, which can be used as a tax loophole. It is important that these changes will only target those NIC arrangements that are regarded as abusive. As the Minister indicated, as with all other measures under the GAAR, the NIC arrangements will be subject to the double-reasonableness test, which will consider whether the arrangements used by a company can be reasonably regarded as a reasonable course of action.

The Minister indicated the overall welcome for these proposals from a number of representative bodies. The Federation of Small Businesses stated:

“The NICs Employment Allowance is a measure our members have warmly welcomed. It will have a positive impact on small firms and the economy when it comes into force next spring. Our members have said they’ll spend the savings on their business, either through investing in the business, increasing wages or taking on staff”.

The CBI director-general said:

“The surprise £2,000 National Insurance rebate in the Budget will give smaller firms the confidence to take on extra staff. Extending the General Anti Avoidance Rule is sensible. No one can condone abusive avoidance schemes which serve no commercial purpose other than the minimisation of tax—even if they are legal”.

Finally, the chief executive of the Small Charities Coalition said:

“For a lot of the smallest charities, having one paid member of staff is a big step forward … having this allowance now helps them to do that, so it is a very positive thing”.

It just remains to be seen whether this proposal has the effect desired by the Government of helping create new jobs.