Social Security (Contributions) (Re-rating) Order 2011
Lord Sassoon Excerpts(13 years, 8 months ago)
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Lord Sassoon
That the Grand Committee do report to the House that it has considered the Social Security (Contributions) (Re-rating) Order 2011.
Relevant document: 16th Report from the Joint Committee on Statutory Instruments.
National Insurance Contributions Bill
Lord Sassoon Excerpts(13 years, 8 months ago)
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The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, Amendment 1 returns to the allocation of national insurance contributions receipts between the National Insurance Fund and funding of the NHS, which was covered both at Second Reading and in Committee. This amendment, as the noble Lord, Lord McKenzie of Luton, has explained, is aimed at ensuring that the NHS allocation of the additional rate is subject to an adjustment to ensure that the funding of the NHS from national insurance contributions will grow in real terms year on year. The amendment would require comparisons to be made from one year to the next of the NHS allocation and adjustments to ensure that the allocation grows in real terms each year.
As I explained in Committee, the amount that is to be spent on the NHS, whatever the noble Lord says, was confirmed in the spending review in October last year and is unaffected by whether the funds come from national insurance contributions or elsewhere. The noble Lord says that he wants to ensure, through the amendment, that the health service is not short-changed. I can absolutely assure noble Lords that nothing in this Bill goes anywhere near short-changing the National Health Service. The amendment would ensure that the national insurance allocation to the NHS increases year on year, which is a bookkeeping matter, but nothing more.
It may help noble Lords if I put this matter into a bit of context, because I was beginning to lose some of the train of the noble Lord’s argument and I fear that others may have done so as well. Perhaps it would be helpful to the House to go back and explain the numbers very broadly.
I shall take the last full year for which the numbers are certain. In 2009-10, the total sum raised by national insurance contributions was £94 billion. Of that, just over £20 billion was allocated to the NHS and the balance, around £74 billion, was allocated to the National Insurance Fund. Total NHS expenditure in 2009-10 in England alone was exactly £100 billion, so it is important to understand that, whatever allocation of funds out of NICs proceeds to the National Health Service, it makes up only around 20 per cent of NHS expenditure.
I have also been looking at the numbers over the past few years. If we go back to 2004-05, for example, in that year the contribution made by NICs to NHS expenditure on the basis that I have described was 24.3 per cent, but by 2009-10 that contribution had fallen to 20.3 per cent. So I find it quite hard to accept noble Lords opposite casting all sorts of aspersions at the present Government about how they will safeguard expenditure on the NHS when their own record shows that over the last few years they contributed a significantly falling percentage of NICs to NHS expenditure. Nobody challenged them with the thought that they would renege on their commitment to NHS expenditure, so I do not expect noble Lords seriously to challenge the fact that this Government will stick to their commitment to increase National Health Service expenditure in real terms. The point is that NICs will only ever make a small but significant—20 per cent or thereabouts at the moment—contribution to NHS expenditure. The balance—the greater sum out of NICs—will go where it has to go, which is into the National Insurance Fund.
I do not want to belabour the point but, in big-picture terms, the amendment would make absolutely no difference. It would not affect the money that goes into the National Health Service. The negative effect of the amendment would be to create a degree of uncertainty in establishing the NHS allocation, as we would know the receipts from national insurance for sure only after the end of the tax year, because they are dependent on wage levels, economic conditions and the thresholds as they apply in a particular year. We would then have to compare those with the previous year’s allocation and make an adjustment if necessary to ensure a real-terms increase. That would add administrative complexity and create accounting and funding uncertainty, not least for the Government Actuary, who is required to report on the state of the National Insurance Fund each year. It would have, as I have explained at some length, no impact on the overall spending on the NHS, which is a rightful concern of noble Lords.
Government policy is to maintain the level of national insurance contributions allocated to the NHS and to allocate additional revenues from rate rises to the National Insurance Fund. That is what the Bill will achieve. That helps to ensure that plans for payment of pensions and other contributory benefits are sustainable in the long term. In that way, we can protect pensioners with the new triple lock, which guarantees each and every year a rise in the basic state pension in line with earnings, prices or a 2.5 per cent increase, whichever is the greatest.
I repeat that this amendment will not affect overall spending on the NHS because that figure has been set in the October spending review. Given that the figure has been fixed, the amendment would serve only to create a degree of additional bureaucracy and complexity. I have gone to some length to reassure, I hope, the noble Lord, Lord McKenzie of Luton, that the health service will in no way be short-changed because of the Bill. Therefore, I ask the noble Lord to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his response. He said that he did not believe that we could reasonably challenge the assertion that the coalition Government would increase funding for the NHS in real terms, but that is precisely what we are doing. If the noble Lord looks at the Red Book and the projections, the aggregate figure is a 0.4 per cent increase, but when you back out the fact that included in that is £1 billion reallocated for social care, because local authority budgets have been squeezed, you will see the opposite effect—a real-terms cut. That was part of the backdrop to the amendment.
The noble Lord said that the Government’s proposition was to “maintain” the allocation, but that is precisely what they are not doing this year. I raise what Mr Gauke said in the other place. He said on the record that, because earnings were increasing and were projected to increase next year, on the basis of the Government Actuary’s report, he would expect the NHS allocation to increase.
At the end of the day, the Government are clearly under pressure on spending, as any Government would be at the current time. If they are looking for resources outside of the National Insurance Fund to make good any shortfall in meeting their commitments, that will be more difficult if they cannot get a reasonable allocation from the National Insurance Fund—a reasonable allocation being an increase in real terms when earnings are increasing as well. That was exactly the premise of Mr Gauke in another place.
The Minister made much of what this would mean in terms of administration, but I reject that rather bureaucratic proposition of how you could deal with this, because I think that it could be dealt with quite easily on the basis of estimates, with adjustments at the end of the year. There is no great mystery about that. Having said that, our real concern is the fundamental issue of whether proper funding is going to the NHS and whether in real terms the Government are meeting their commitment. We do not believe that they are. This is just one facet of that. However, I think that we have probably got as far as we can on this. I beg leave to withdraw the amendment.
Lord Newby
My Lords, I have made clear in the past my criticism of the Government’s cuts to regional expenditure. Therefore, I welcome the fact that this measure potentially puts back the best part of £1 billion into regional development. It is not the traditional way in which it has been done. Arguably, if it works, it will be more effective because it follows the market absolutely rather than the views of regional development agencies. Therefore, it could be an effective way of getting money back where it is needed.
I found the first of the arguments of the noble Lord, Lord McKenzie, about fairness quite perplexing. To argue that the measure is unfair because it excludes the more affluent parts of the country is to argue that regional policy is unfair because it excluded or did not give much preference to the wealthier parts of the country. It is true that there are wards and constituencies in London that are extremely poor and that have high levels of unemployment—that has been the case for a very long time and throughout the history of regional development—but it has not been seen in the past as a reason for not giving additional support to the north, where the problems are even greater. The difference between the problems of Newham and those of Sunderland, Liverpool and Barrow is that Newham is in a buoyant labour market within a travel-to-work area that is doing very well compared with the rest of the country. Many communities in the north are in labour markets and travel-to-work areas where there is simply no way to get a job very easily. That is the essential difference between the excluded regions in the south and those in the north.
The noble Lord spoke about simplicity. While he might have been right to castigate the Minister for using administrative arguments in dealing with the first amendment, he is doing exactly the same here. He cannot argue that a man or a company cannot be given a benefit in Newcastle just because, two and a half years down the line, they employ someone in London. That argument does not stand up.
New businesses have been set up in the past predominantly in excluded areas. Therefore, if his approach were adopted, one would expect a large number of new businesses to be established in London and the other excluded regions. What assessment have he and the Labour Party made of the cost of such an extension of the area? I know that he—and, indeed, I—are not absolutely convinced that £940 million is the cost of this programme, but no doubt he has a view as to what it is likely to be. I suspect that the cost of extending the provision will be double what is in the estimates already, which means a potential cost of another £940 million. Even if it is £500 million, has the noble Lord contemplated that? How does that extra expenditure fit into the Labour Party’s commitment, under the Fiscal Responsibility Act, to halve the deficit over the next four years?
Lord Sassoon
I am very grateful to my noble friend Lord Newby; he has done my job admirably on these amendments. However, I start by returning to fairness. The reason for the Government introducing the holiday is their belief that it is fair that people and regions that have become overdependent on public sector jobs are given additional help as the economy has to rebalance. I therefore agree completely with my noble friend. It is clear that the noble Lord, Lord McKenzie, means to misconstrue the purpose of the Bill.
We in the Government are doing other things to lift the burden of national insurance contributions on businesses right across the country, notably by raising the threshold by £21 per week above indexation from 6 April 2011 and by reducing corporation tax rates. Those very considerable measures are benefiting businesses right across the country, reversing the damaging effect of the Labour Government’s jobs tax. This particular measure is not about fairness across the country in that sense but about fairness to those regions that, under the previous Government, became overdependent on government employment. This is a way of targeting resources to enable new businesses to grow in those regions.
My noble friend Lord Newby went on to ask the noble Lord, Lord McKenzie, about the additional cost of the scheme. The Government estimate that if the scheme were to go national it would increase the projected costs of the scheme by about 70 per cent, so my noble friend is completely right that this could be a significant additional expenditure. He has made the point that I was not going to make, although he is quite right; it is yet another example of Labour’s unfunded spending promises.
As for other issues on the excluded regions, the reason why Greater London, the eastern and the south-eastern regions are excluded is principally because the proportion of the population in public sector employment in those regions is lower than in any other parts of the UK. Also, in addition to my noble friend’s point, noble Lords might wish to be reminded that during the public evidence session on the Bill, representatives from the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and that the formation of now businesses would not be harmed significantly if the holiday was not available in these regions. The Government agree with that assessment.
There is then the question of having pockets of deprivation with high claimant count in particular parts of the excluded region. The Government of course acknowledge that areas smaller than regions have particular concentrations of needs. That is reflected in our looking for more efficient mechanisms than this one for addressing those more local needs. For example, my right honourable friend the Chancellor of the Exchequer announced earlier this month that the Budget will introduce new enterprise zones across parts of Britain. Those zones have great potential but need that extra push from the Government and local communities working together. Such enterprise zones would be expected to be far, far smaller than regions. There are other, fairer and more appropriate ways of dealing with the issues which the noble Lord, Lord McKenzie, raises perfectly reasonably. They just do not happen to have anything to do with this holiday, which is about dealing with an unbalanced economy as far as dependence on public sector jobs is concerned.
In conclusion, the holiday is targeted specifically at regions and countries with the highest proportion of public sector dependence. It is there to encourage new businesses to start up and to take on employees in those areas. I will not be drawn into updating now on the take-up—there will be other occasions for that—but one would expect it to increase over time. We will no doubt discuss a little later today the form of reporting that is appropriate. Expanding the holiday to the whole country would undermine the very purpose and rationale of the policy. I ask the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply and the noble Lord, Lord Newby, for his contribution. We do not misconstrue the purposes of the Bill; we support projects that help to rebalance the economy, and we see that focusing in part on where there is high public sector employment in an area is one way of doing it. It is not the only way, but we have acknowledged that the Bill can make a contribution in that respect.
The noble Lord speaks as though there is almost a huge divide between the excluded regions and those that are included. From the ONS public sector employment statistics bulletin for quarter 1 of 2010, let me run through the list of percentage by region of identifiable public sector employment. The point that I reiterate is that the spread between the regions is relatively narrow, and that London misses out on this basis. The north-east is said to have 25.1 per cent, the north-west 22.3 per cent, Yorkshire and Humber 22.6 per cent, the east Midlands 18.5 per cent, the West Midlands 21 per cent, the east 16.6 per cent, London 21.1 per cent, the south-east 16.8 per cent and the south-west 21.3 per cent. To chop off three of those areas, as though they are a completely distinct part of the economy with in no way the same reliance on public sector employment, seems incredibly flawed as an argument. It is not just a question of looking at little pockets within regions, as the overall regional statistics show a close match across the regions.
The noble Lord, Lord Newby, said that we were talking about £1 billion for regional development—fine; no one is looking to take £1 billion away from the project. However, he again referred to “more affluent” regions. I am sure that parts of all regions are affluent, and parts of all regions are deprived and with high unemployment. One accepts that there are special challenges in some of the northern regions, and one would not want to detract the support available to those. Luton is in the east of England. It still has high levels of deprivation, but the spread across the region shows that parts to the east are distinct, with much lower wage economies, higher employment infrastructure deficits and real challenges. They are every bit as deserving of the benefit of schemes such as this as anyone else.
The noble Lord rightly challenged me on the costs. I refer to figures given by the Minister, but the purpose of the probing earlier—I note that the Minister remains coy on the point—was to question whether the allocation made will in any way be spent. I think that the proposition that underwrites the estimate is that this will support something like 800,000 jobs, and those jobs will have to be created outside the excluded regions by start-up businesses over a period that has about two and a half years to run. That is a tall order. If it can be achieved, great, but there is headway in the allocation to extend the scope of the scheme, and we support that.
I have tried to deal with the points raised. We think that the provision is unfair. All regions should have the opportunity to benefit from this. We shall get to an amendment tabled by one of my noble friends shortly, following which there would be scope, through monitoring, to dampen down the scheme if it proved to be overheating. However, there is no sign of that. It is a pity that the Minister was not even able to give us an update; we are almost at the end of the year. Some £50 million is meant to have been spent, which would mean that at the very least 25,000 businesses would have signed up. I suspect that we are nowhere near that on the basis of the figures of 1,500 that were discussed a couple of months ago in the other place. Having said all that, we have had a brief but, I hope, full encounter on the subject, and I wish to test the opinion of the House.
Lord Davies of Oldham
My Lords, we debated this issue in Committee and it was the subject of debate in the other place as well. However, we found the Government’s response to this amendment and the concept behind it somewhat unconvincing. Their view seems to be that this measure, in this Bill, revolves around what they define as the wealth-creating sector. That seems, by definition, to exclude charities from consideration. Why should the Bill be subject to this narrow definition, which seems to suggest that charities do not contribute to wealth in our society? That view is buttressed by the Government’s arguments that reflect the very narrow definition of what they regard as the nation’s wealth. In other words, it is to do with jobs but not public welfare—it is about people being employed but not what they are employed to do. In other words, it has nothing to do with quality of life.
I know that the Minister will regard my presentation of these arguments as indulging in a flight of fancy that is a little different from the day-to-day preoccupations of the Treasury. However, I ask noble Lords to consider the obvious point that in these difficult times we should give hope to our people, as this measure seeks to do. We should give help and support to those thousands of our fellow citizens who will lose their jobs in the public sector as the Government say that they cannot afford to employ them all. They rarely deploy the argument which they use regularly at party conferences and elsewhere, when rhetoric plays its part, that they wish to reduce the size of the state as they consider that that would benefit the nation. In reducing the size of the state they are, by definition, reducing the number of people in public employment not because they cannot be afforded but because, in the Government’s opinion, society is better when the Government play a smaller part. The House will not be surprised to hear that we take a somewhat different view about wealth and the virtues of public employment.
The previous amendment was directed at those parts of the country which the Minister indicated were more dependent on public sector employment which is to be subjected to such a serious assault from the government cutbacks. Why can we not help these areas by creating jobs in bodies such as non-trading charities? Of course, I appreciate that it will be a modest contribution and I subscribe to the view that the noble Lord will no doubt put forward in his reply that the Bill overwhelmingly concentrates on businesses which create wealth. I am not in any way, shape or form against that endeavour. In fact, my party has made clear that it supports the development of small businesses. However, I am against exclusion for no obvious good reason. I do not see why non-trading charities should not be included.
The Minister’s argument in Committee partly revolved round the fact that the matter is said to be outside the main purposes of this legislation and that we should not bring in something that is somewhat extraneous. However, the number of Bills which the Treasury can introduce over the year is fairly limited. The noble Lord will be all too well aware of the fact that apart from the Finance Bill, in which this feature is scarcely likely to be addressed, Treasury Bills, other than those which have a very specific operation, are few and far between as the Treasury competes with other departments for legislative time in both Houses. We therefore propose an amendment of a most modest but beneficial kind that—even if the Minister thinks it is not entirely appropriate to the main purposes of this modest measure—is not far distant from the objective of creating jobs on a very small scale in areas where public employment is being reduced. I maintain that non-trading charities can play a modest part in creating those jobs.
Given the government arguments thus far—and that is why we are continuing this debate beyond Committee—I see no reason why the amendment should not commend itself to the Government, and that is why I commend it to the House. I beg to move.
Lord Sassoon
My Lords, the noble Lords who put their name to the amendment have again raised the issue of making non-trading charities eligible for the employers national insurance contribution holiday. This matter was debated at some length in Committee and I again suspect that what I am going to say will not come as a huge surprise to the noble Lords concerned. Nevertheless, I will do my best to persuade them to withdraw the amendment.
I thought that the noble Lord, Lord Davies of Oldham, was going to go off on some flight of fancy. I do not think that he went off on any flight of fancy, and he kept entirely to areas that the Treasury takes extremely seriously. I was therefore disappointed, because I expected the noble Lord to go down some exotic new avenue—but he did not.
However, in the first half of his remarks, he did not recognise that an important group of charities will get the benefit of this holiday. It is important for me to confirm that new charities in qualifying areas are eligible for the holiday if they are carrying on a business. I appreciate that the noble Lord later on in his remarks started to distinguish between trading and non-trading charities, but this is an important point. For example, were employees to be taken on for a charitable trade, such as providing education or healthcare services, the charity is potentially eligible for this generous relief. Amendment 5 would specifically extend eligibility to new non-trading charities in qualifying areas. As, to be fair, the noble Lord recognises, this would not support the Government’s objective of encouraging new entrepreneurs to set up businesses in areas with a high proportion of public sector employment. The noble Lord suggested that his amendment would be a nice-to-have add-on, if I may crudely paraphrase him. However, he recognised that it does not chime in with the core purpose of the Bill.
Just as we have other ways of supporting regions that are not covered by the holiday, the Government of course have other important ways in which they support the critical work of charities, not least in their contribution to the big society. We provide substantial support to charities and charitable giving with tax reliefs worth more than £3 billion each year. Gift aid and relief from non-domestic rates are each worth around £1 billion a year. I remind noble Lords that, across the UK, charities that are employers will also benefit from the increase in the employers national insurance contribution threshold by £21 a week, plus indexation, that comes into effect on 6 April.
Lord Davies of Oldham
My Lords, this amendment again relates to an issue that we addressed in Committee. On that occasion, the Minister gave us the benefit of his perspective on this matter and indicated the ways in which the Government would be held properly accountable for their work in this area, as in all aspects of Treasury matters, and indeed wider than that.
The amendment relates to the specific nature of the holiday. We are seeking an annual report in the terms adumbrated by the amendment because this is a most interesting scheme. If not experimental, the scheme certainly has a significant dimension, which is, as we discussed when we debated the earlier amendments on the regional aspects of the scheme, the control factor attached to it. The scheme will operate in the majority of the country, although it will exclude the south-east, London and the eastern region. Therefore, after a year, we shall be able to see how much progress has been made on job creation for those who have lost their position and where there are fewer jobs in the public service and we shall have a control position as regards those regions that are not in the scheme. We may be able to see the benefit of this initiative by the Government.
To my noble friends on the Front Bench, that seems to be a good reason why we should have a precise annual report on this scheme and on how it has worked. Although I quite understand that the Minister’s defence is likely to be that the Treasury is always open and accountable and that it has measures whereby it makes matters explicit to the nation, I would not be the first noble Lord to have to confess, even with the experience of being on the Treasury Bench, that from time to time there has been a degree of obscurity that makes it extremely difficult to analyse just what has transpired in schemes and their effectiveness. This amendment would give the Treasury a golden opportunity, after one year, to make quite clear the success or otherwise of the scheme, which we wish success. I beg to move.
Lord Sassoon
My Lords, Amendment 7 would insert a new clause into the Bill with the aim of requiring the Treasury, following the day on which the Act is passed, to review the operation of the regional employer NICs holiday under Part 2 of the Bill and to provide an annual report to Parliament. The amendment would require the annual report to contain information by region. At the risk of being accused of piling Pelion on Ossa, it is important to get the comparison between what is proposed by this amendment and what I shall go on to say the Government propose to do. It is important to get it straight. I hope that I am not going into any unnecessary detail but I will clarify what is going on in the proposed amendment and what the Government seek to do.
The amendment requires that the annual report should contain, by region,
“(a) the number of businesses availing themselves of the secondary contributions holiday;
(b) the number of employees designated as qualifying employees under the scheme;
(c) the total expenditure saved by businesses under the scheme; and
(d) an assessment of the demand to apply the regional holiday to different areas of the country”.
As I said in Committee when we discussed amendments of a similar nature, I think that this amendment is motivated by a wish to encourage transparency—the noble Lord, Lord Davies, has confirmed that—and to ensure that proper consideration is given to how the holiday operates in practice. I shall attempt to explain to noble Lords why the amendment is unnecessary.
First, as I said in Committee, my honourable friend the Exchequer Secretary explained in the Public Bill Committee in another place that there is no budget as such for the scheme. Anybody contemplating starting up a new business can be confident that there is no budgetary constraint on the scheme. The holiday will continue as proposed regardless of how many successful applications are made. If a large number of additional new businesses are formed as a result of the policy, this would help to increase Exchequer revenues. The expected costs of the scheme were set out in the policy costing document at Budget 2010.
Secondly, on the point on which the noble Lord, Lord Davies, focused his remarks, the Government are committed to increasing the transparency of tax policy-making and of the tax system more generally. To that end, I am happy to repeat the undertaking, which I have mentioned before at different stages of this Bill, made by my honourable friend the Exchequer Secretary in another place to provide to Parliament and the public updates before the end of the calendar year on the operation of the scheme, including information at regional level. As I said in Committee, we envisage a factual report regionally and nationally covering the number of new businesses applying, the number of applications rejected, the number of qualifying employees for whom a holiday has been claimed and the amount claimed.
The only significant difference between the commitment that the Government have made and the amendment that we are debating is that the latter would require,
“an assessment of the demand to apply the regional holiday to different areas of the country”.
I am not completely clear about the meaning of these words and how what is suggested would operate. The noble Lord, Lord Davies, did not address the detail. The substantive point is that the Government do not see the need to report annually on the demand to apply the holiday to different areas of the country. We can assess that now and I do not expect the assessment to change. There is, of course, strong demand from excluded regions to enjoy the benefit of a holiday that they would like to have, but we have debated that already and the House has this afternoon formed a view on excluded regions. The position remains as we have debated it, so I am not sure how that part of the amendment would achieve anything.
The Government’s objective remains to target resources at those regions most in need. The Government do not expect the objective to change. By tabling this amendment again, the noble Lord has given me the opportunity to restate for the avoidance of doubt that we will come forward with a transparent and comprehensive report on an annual basis. With those reassurances, I hope that the noble Lord will withdraw the amendment.
Lord Davies of Oldham
My Lords, I am once again grateful to the Minister for his identification of the way in which the Government are seeking to meet the clear objectives of transparency and effectiveness with regard to the scheme. Of course, I understand that because the scheme has no particular budget there is an aspect of parliamentary control that is clearly not possible in the measurement of the budget. My noble friends support this amendment because we see the value of transparency with regard to the scheme, particularly a scheme that is partial in its impact. Of course I understand that the Government have sustained their position about the limited geographical range of the scheme, but there is bound to be greater demand for transparency in a scheme that does not apply to areas where there are none the less pockets of deprivation, as we sought to identify in the past. Clearly, they would have benefited from the scheme had that been the case.
I accept what the noble Lord has said about the process by which the Government will be transparent on the operation of the scheme. I want to make it clear to him and the Government that we will continue to take a close interest in this scheme. It may be a modest measure, but it is highly significant and, in certain aspects, groundbreaking in the way in which it has been framed. That is why we will hold the Government to account on the extent to which they reflect accurately the operation of the scheme. With that, I beg leave to withdraw the amendment.
Credit Unions
Lord Sassoon Excerpts(13 years, 8 months ago)
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Lord Kennedy of Southwark
To ask Her Majesty’s Government what plans they have to support the development of credit unions in the United Kingdom.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government are bringing forward legislative reforms to help modernise the way in which credit unions do business and to remove barriers to their development and growth. We have recently announced funding of up to £73 million for the expansion of credit union services. The Government also intend to bring Northern Ireland credit unions under FSA regulation to give their members access to the Financial Services Compensation Scheme and the Financial Ombudsman Service.
Lord Kennedy of Southwark
I thank the Minister for his response. Does he agree with me that, today of all days, the Government must pledge themselves to urgent action to deal with illegal loan sharks, who in some cases revert to physical and sexual violence against women as they bully and threaten families to pay interest rates of hundreds of thousands of per cent? Will he agree to meet a delegation from the Association of British Credit Unions to discuss a link-up between credit unions and the Post Office, as a way of providing cheap, affordable credit to all?
Lord Sassoon
My Lords, I am certainly happy to confirm that credit unions play an important part in the Government’s priority to see diversity and choice in financial services and to support financial inclusion, given that in areas of the highest economic and social deprivation credit unions are able to achieve the most impact. The credit union movement is growing significantly, with government support and following the support of the previous Government. We will certainly work to do whatever is reasonable to continue with that growth of the credit union movement.
Lord Newby
My Lords, does the Minister agree that a key role of credit unions is to provide basic bank accounts for people who are currently unbanked? Could he therefore confirm whether the £73 million that the Government are making available to credit unions will be used in part to set up a shared banking platform for credit unions that would be available in all post offices?
Lord Sassoon
My Lords, I am happy to confirm to my noble friend that Ministers expect the post office network to play a central role in enabling credit unions to reach more families. Part of the funding, which I have already mentioned, is going towards projects related to that end—projects that are in the capable hands of my noble friend Lord Freud. He is running with that project; it is in safe hands and the Post Office is central to it.
The Lord Bishop of Liverpool
My Lords, is the Minister aware of the commission into personal debt that was chaired by the noble Lord, Lord Griffiths of Fforestfach? I declare an interest as a member of that commission. Will the Minister consider the proposals and recommendations of the commission, in particular, the proposal to set up a community finance trust that would assist community finance projects such as credit unions?
Lord Sassoon
My Lords, I am happy to look at any suggestions for furthering the development of credit unions and similar savings channels. I am grateful to the right reverend Prelate for drawing my attention to those recommendations.
Lord Elystan-Morgan
My Lords, while I welcome most warmly the initiative announced on behalf of the Government, does the Minister agree that a great deal of suffering and injustice could be alleviated and avoided by giving judges in our civil courts the right to strike down claims that arise from loan contracts with unconscionably harsh conditions, particularly extortionate interest rates?
Lord Sassoon
My Lords, it is very much at the forefront of the Government’s thinking in this area to make sure that all appropriate steps and options are available so that those at the more deprived end of the economic and social spectrum are not ripped off by loan sharks or whoever. The credit unions that we are talking about have a central role to play in that.
Lord Touhig
My Lords, when the Government end the social fund maternity grant for the birth of the second child in April, many poorer families will be tempted to turn to loan sharks to borrow money. Will the Government help these families by promoting credit unions as a better way to save and borrow? In asking that question I declare an interest as a member and president of the Islwyn Community Credit Union.
Lord Sassoon
My Lords, that is exactly what we are doing by bringing forward the various reforms that I have described, which will help to modernise and drive forward the credit union movement—a movement that now numbers some 760,000 members in Great Britain. In Northern Ireland, where the movement has a different history, it has some 400,000 members. We wish to see the total in the United Kingdom growing, which is why the measures that we are bringing forward will promote this area of financial activity.
Lord Phillips of Sudbury
My Lords, is it not the case that the Governor of the Bank of England, Mervyn King, less than a week ago drew attention to the exploitation by the clearing banks of what he called unsuspecting and unsophisticated depositors through their wholly unethical manipulation of interest rates? Should the strictures that the noble Minister has placed on loan sharks not be somewhat directed at the clearing banks as well?
Lord Sassoon
My Lords, we are talking about credit unions this afternoon. I have explained what an important and growing role they have to play in the diversity and choice of our financial services sector in the UK. That is what we should work to promote.
Taxation: Low-value Consignment Relief
Lord Sassoon Excerpts(13 years, 8 months ago)
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Lord Lucas
To ask Her Majesty’s Government whether they have assessed the cost to the Exchequer of Low Value Consignment Relief.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the latest estimate of the annual cost to the Exchequer of low-value consignment relief is £130 million for calendar year 2010, a reduction from the previous estimate of £140 million for fiscal year 2009-10.
Lord Lucas
My Lords, I am grateful to my noble friend for that Answer, which I find mildly unbelievable since the turnover of the largest company involved in this scam is around £500 million—and that is just one of them—on which we lose around £100 million a year. Does my noble friend agree that what started out as a quite reasonable relief for Channel Islands flower growers has now been abused to the point where it has destroyed whole industries in the UK? You can no longer on the internet retail records, computer memory, contact lenses or gifts. It is ever expanding and costing us thousands of jobs and, as the Minister says, hundreds of millions of pounds. Has not the time come to put a stop to it?
Lord Sassoon
My Lords, there is a very wide range of estimates of the effect of LVCR but I believe that the HMRC data are as reliable as—more reliable than—any. I am grateful to my noble friend for drawing attention to this issue because the Government are committed to tackling tax avoidance. In that context, we are actively reviewing the operation of this relief. Ministers hope to be in a position to announce any possible changes to the operation of LVCR flowing from the review in the Budget on 23 March.
Baroness Trumpington
I am sure that I have missed out on something, but could the noble Lord possibly tell me what it means?
Lord Sassoon
My Lords, I have to say that, until a few days ago, I was equally in the dark. I shall try to keep it within the seven minutes.
There is a scheme in European law to make sure that small-value goods imported from outside the European Union can be exempted from value added tax, because it would be disproportionate and a huge cost to consumers and businesses if every small parcel bought from outside the EU had to be scrutinised by the Royal Mail and VAT collected. So there is an exemption under European law for individual consignments up to the value of €22 or £20. At the moment the UK has a limit of £18, below which VAT on imports is not collected. I hope that that explains it.
Lord Newby
My Lords, will the Minister accept that while at one level it sounds a rather frivolous subject, we are talking about more than 90 per cent of all CD sales in the UK? It has had a damaging impact on retailers and is another example of the Channel Islands being able to benefit from a tax scam. Will he take back to his colleagues in the Treasury the view of many Members of your Lordships’ House that this is a classic area where a small change in practice by HMRC can yield very many benefits which not only are good in principle but can also be beneficial to the Treasury?
Lord Sassoon
My Lords, I fully accept my noble friend’s statement that this is an important area, which is why the Treasury is looking at it. It flows not from any scam but from the fact that the Channel Islands are treated as outside the European Union for these purposes. That goes back to the accession treaty. The previous Government took steps with the Channel Islands authorities to encourage them to introduce a voluntary restraint and caps on the activities of individual firms in this area. The issue relates not only to CDs and DVDs but to a whole range of goods. It is precisely because this is an important area and we want to make sure that the Exchequer is protected that Ministers are looking at what else we might do.
Lord Davies of Oldham
My Lords, the Minister’s response to his noble friend’s original Question seemed somewhat complacent in respect of the charge sheet of problems associated with this issue. He implied that things are improving, but the noble Lord, Lord Newby, expressed doubt about whether things are improving. I think that the whole House should be doubtful. With online sales increasing at their current levels and with this trade being very much a matter of online sales, it would be very surprising indeed if it was significantly decreasing. Would it not therefore behove the Minister to indicate that the Government intend to act in this area? If it is not an abuse of taxation—if it is not a scam—then it is certainly very close to being an avoidance of tax which we ought to put an end to.
Lord Sassoon
My Lords, I did not want to turn this into a political question; indeed, I attempted to give credit to the previous Government for the actions that they took in conjunction with the Channel Islands authorities. However, the fact is that the VAT loss is estimated to have increased very considerably—by approximately 50 per cent in the past five years—under the previous Government. Members of that Government are now saying that the situation is terrible and we need to take action, but what did they do in the five years in which the amount of revenue lost to the Exchequer increased by 50 per cent? They only talked to the Channel Islands authorities. We have immediately gripped the situation. Ministerial colleagues and HMRC officials are now examining what—in a very difficult and technical area—can be done. If there are things that we believe should be done, they will be announced in the forthcoming Budget.
Independent Commission on Banking
Lord Sassoon Excerpts(13 years, 9 months ago)
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Baroness Kramer
To ask Her Majesty’s Government what assessment they have made of the progress of the Independent Commission on Banking.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government set up the Independent Commission on Banking to consider reforms to the banking sector. We welcome the progress that the commission has made and look forward to receiving its report in September.
Baroness Kramer
Does my noble friend agree that strengthened regulation supervision and stronger capital requirements are welcome but that neither of them deals with the underlying structural problems of “too big to fail” or “too interconnected to fail”? Will he commit the Government to act on any recommendations from the ICB for reform in this area, even if it means splitting the banks or ring-fencing activities with functional subsidiarity?
Lord Sassoon
I certainly agree with my noble friend that there were two areas that the Government needed to address urgently resulting from the failure of the previous system of regulation and the over-leveraging of our banks. The first one on which we have brought forward proposals is the system of regulation, although I completely agree with my noble friend that that is not sufficient, which is why we set up the independent commission to look into the structure of banking. I am certainly not going to pre-empt either the conclusions that it comes to in its final report or the Government’s response, but I am greatly encouraged by the papers that it put out and by the recent lecture by Sir John Vickers, which indicate that the commission is tackling all the major issues and stimulating a vigorous debate.
Lord Myners
My Lords, in light of the agreement on Project Merlin, do the Government now regard bank bonus practices and numbers as acceptable?
Lord Sassoon
My Lords, this afternoon we are talking about the Independent Commission on Banking. Questions of pay structures have not been set by the Government as part of the commission’s remit and it is sticking to a series of other questions.
Lord Lawson of Blaby
My Lords, I congratulate the Government on having set up this independent commission, which must produce the right result. I agree with the remarks of my noble friend Lady Kramer, and the speech of Sir John Vickers the other day very much echoed the identification of those problems. I hope that we can get international agreement but does my noble friend agree that it is important to do the right thing even if we cannot get that agreement?
Lord Sassoon
My Lords, I certainly agree with my noble friend. He has been thinking about these things for many years and I very much value his thoughts on them. I absolutely agree that the UK wants to do the right thing, but the remit that the commission has been given also reflects the international and global contexts, of which we have to be mindful. I wait with interest to see what the commission says and repeat that I do not want in any way to prejudge its thinking.
Lord Eatwell
My Lords, the Statement that the Chancellor of the Exchequer made on bankers’ bonuses contained a peculiar sentence about the Independent Commission on Banking. It said:
“I should make it very clear that nothing that I will say today about the settlement that we have reached with Britain's banks … in any way prejudges the outcome of the commission”.—[Official Report, Commons, 9/2/2011; col.310.]
What was peculiar about this sentence was that he was answering a question that nobody had asked. Will the noble Lord confirm that in recent weeks there have been threats of resignation from the commission if its remit is in any way constrained?
Lord Sassoon
My Lords, I am attacked one week for not answering questions that have been asked, and now my right honourable friend is being queried as to why he answers questions that he has not been asked. He wanted to make it absolutely clear, which he did in the Statement on Project Merlin, that nothing there pre-empted or in any way cut across the independent remit of the banking commission. I think the position remains clear.
Lord Newby
My Lords, does the Minister agree that one of the issues that the Vickers Commission is looking at is how to reduce risk within the banking sector and risk taken by individual institutions? In light of that, do the Government support the decision by Northern Rock to increase the proportion of loan-to-value on mortgages to 90 per cent, which many people see as the first step towards a return to the bad old days?
Lord Sassoon
My Lords, I agree with my noble friend that risk and the stability of the system go the heart of the remit of the commission. However, the individual product sets which are offered by individual banks is at the moment a matter for the Financial Services Authority, and I am sure that it will be taking its responsibilities very seriously in relation to the business models and products of all the banks it regulates.
Lord Barnett
My Lords, whatever the final recommendations of the commission, what work has the Treasury done with regards to splitting? Would it be helpful to the certain sale of our shareholdings? If it turns out to be bad, will the Minister be acting, as the noble Baroness asked, on a potential splitting?
Lord Sassoon
My Lords, there are a lot of hypothetical questions bound up in this. We will not see what the commission is proposing until September and then it will be up to the Government, in light of all the circumstances, to decide what to do with its recommendations. I can confirm that the separation of retail and investment banking is one item which goes to the heart of the remit of the commission.
Lord Tomlinson
As the noble Lord has now had plenty of time to reflect on the question that he was asked by my noble friend Lord Eatwell, will he now, as there seems to be plenty of time, get around to answering it?
Lord Sassoon
I see the clock is advancing because of the length of that question. I gave the answer I wanted to give.
Lord Campbell-Savours
Are not 90 per cent mortgages dangerous in conditions where the property market might decline by 20 per cent?
Lord Sassoon
My Lords, it is up to the banks to decide what products they offer. They have to do that within a set of rules that are set down by the regulators. It is not for me to comment on either the business model of an individual bank or the regulation and supervision of the regulators on this point.
Child Trust Fund
Lord Sassoon Excerpts(13 years, 9 months ago)
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The Earl of Listowel
To ask Her Majesty’s Government what plans they have to replace the child trust fund, abolished in the Savings Accounts and Health in Pregnancy Grant Act 2010, for children in the care of local authorities.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government announced in October that we will create a new tax-free children’s savings account, which is likely to be known as a junior ISA. We expect the new accounts to be available later this year. It will be possible for local authorities to open junior ISA accounts for eligible children in their care. We are also exploring the possibility of facilitating a voluntary scheme for financial institutions and the third sector to contribute to the junior ISAs of children in care.
The Earl of Listowel
My Lords, I thank the Minister for his reply and indeed, the meeting with Mark Hoban, the Financial Secretary to the Treasury, and Tim Loughton, the Minister for children, to discuss this matter. Does the Minister agree that for our own children we would seek wherever possible to ensure that they have a capital asset so that when they move on to independent living they have money for a deposit on a flat or a car to assist them? Does he not further agree that we should ensure that children leaving care have a capital asset to put down for a car or to buy a new suit to get a job? Does he recall the strength of feeling around the House at Second Reading about the need for these young people to have such a capital asset? Given that, will he understand and consider the need to put on a statutory basis the funds that he has described, so that children can be assured of a capital asset as they leave care?
Lord Sassoon
My Lords, I very much appreciate that the noble Earl, Lord Listowel, keeps these important issues under discussion and alive in our thinking. It is important for all children to understand how to handle money, to be able to make the decisions that they need to start making as soon as they leave school and move on. This is not just a matter of amounts of money that are put aside, but of making sure that the mechanisms are there for all children to learn how to handle their finances as they progress through life.
As to the question of a statutory basis, as and when we come up with the detailed plans for the junior ISA, of course draft regulations will be issued for comment. I cannot confirm that there will be special provision other than in the terms that I mentioned whereby accounts can be set up for children in care to which local authorities and others can contribute.
Lord Soley
Does the Minister accept that one reason for having the child trust fund was to encourage the culture of saving? It affects not just children in care but children from families which are poor or where the parents are not that competent, and who may leave school without any savings or culture of savings. Will the Minister get all the Ministers who are dealing with this to think how much money they have given to their own children to make sure that they survive in future life, and then to ask themselves how a child coming from such a background as described is expected to survive without the help of the child trust fund or the savings culture that it inspired?
Lord Sassoon
My Lords, very difficult choices have to be made at a time when we have been left with the biggest deficit in our peacetime history.
Lord Sassoon
Noble Lords opposite may groan and make all sorts of noises, but those are the facts of the situation. Regrettably, the child trust fund cost £500 million in a full year, and it is one of those things that we as a nation simply cannot, in these difficult times, afford. There are indeed questions about the efficacy of the scheme, but even on the assumption that it was doing all that it set out to do, that is a very large sum which unfortunately the nation cannot afford.
Baroness Walmsley
My Lords, while welcoming what the Minister has said about the junior ISA, I encourage him to go just a little further in relation to looked-after children. It strikes me that there is an opportunity here for philanthropists, charities and the third sector, as well as local authorities, to put money into savings accounts for looked-after children. Will the Government consider developing a scheme to encourage that sort of big society giving?
Lord Sassoon
I am grateful to my noble friend, because we are working on that. We have been talking, for example, to potential junior ISA providers. They have been showing some interest, I am pleased to say, in contributing to a scheme in that way. We need to continue to work on that, but if any financial institutions, charities or other groups are interested in being part of that, we would be very pleased to discuss it with them.
Lord Low of Dalston
The Minister will be aware of local authorities’ inconsistent fulfilment of their duties under the Children (Leaving Care) Act and the inconsistent provision, particularly as regards accommodation, made for children and young people leaving care. What will the Government now do to make good the deficiency in provision for that particularly vulnerable group, whose vulnerability is at its greatest at the point of leaving local authority care?
Lord Sassoon
My Lords, we are straying a bit from the Question and from my area of responsibility, but I appreciate that difficult issues are involved with those who are leaving care, which is why additional funding in the “children in care” line of the new local government formula is there to encourage local authorities to use the staying-put models of practice. From April 2011, we will be implementing provision in the Children and Young Persons Act 2008 that allows young people to resume entitlements to leaving care support up to the age of 25, where they take up education or training.
National Insurance Contributions Bill
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Lord Davies of Oldham
My Lords, presumably the Minister hopes that the Committee stage of this Bill will not be as protracted as another Bill that has been before the House over the past few weeks, and I think that I can give him that assurance. However, we want to debate whether Clause 1 should stand part for the obvious reason that this is by far the most significant clause in what is an important Bill.
As the Minister will appreciate, we support the increase in national insurance contributions but our proposals were very different. He must recognise that, during the course of the detailed discussion on the clauses of the Bill that we will have this afternoon, we will identify some of those points of difference. We hope that he will be in a position to answer some of the questions that were adumbrated in general terms at Second Reading and will be dealt with in rather more detail today.
To put the Bill in context, there is a difference in perspective between the Government’s strategy and the one that my party would pursue. The Minister and the Committee will recognise that last year there were three consecutive quarters of growth followed by a quarter of negative growth, which looked marginal when the first set of figures came out but rather more serious following the subsequent revision. We are concerned about the impact of the Bill and of the Government’s general strategy on the broader economy.
We would put jobs and growth first. That is why we are concerned that the increase in national insurance contributions will prove to be difficult for growth and particularly for the protection of employment, given that the increase in NICs is being supplemented by a very significant increase in VAT. Expert opinion identifies that the increase in VAT could result in the loss of three times as many jobs as might be lost by anything to do with national insurance increases, which were the subject of considerable debate at the last general election.
We are concerned that there is no protection for those earning less than £20,000 per year. We would have sought that protection by raising the primary threshold. The Government are imposing increases without fully increasing the secondary threshold for employers. That presents obvious difficulties. Can the Minister confirm that employers will suffer nearly £1.5 billion extra in terms of commitment of resources as against rather modest savings on the secondary threshold? The Minister will say that the secondary threshold is not meant to compensate for the impact on employers because personal tax allowances will help to some degree. The trouble with that argument, which the Minister vouchsafed to the House at Second Reading, is that it takes no account of the balance on personal tax allowances, namely the very severe benefits cuts and loss of income to many of the less well-off in our society. That is why the Bill needs to be put in that broader context.
We are concerned that the Bill is being promoted against a background of government policies that threaten the recovery. We had some indication of the difficulties just before Christmas. That coincided with adverse weather conditions, which was the reason given by the Chancellor of the Exchequer at the time and looks pretty threadbare now. One cause of anxiety about the recovery is the cuts in public expenditure, which will lead to significant job losses and a severe loss in confidence among employers and consumers. The Government propose—something that they criticised the previous Administration for—to increase national insurance contributions, but they have also increased VAT and have other strategies on the economy that are the source of great anxiety.
We look at the Bill in the context of the importance of growth in the economy and strengthening employment. Declining employment, when people lose their jobs, reduces demand severely in the economy and does enormous damage to the Government’s receipts from their various forms of revenue gathering. That is why we shall be using this Committee session for detailed examination of the Bill. However, we wanted to make this series of comments on whether Clause 1 should stand part because of its significance in the Government’s wider economic strategy, on which this side has very serious doubts. I hope that the Minister will be able to give some response. I beg to move.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I am grateful to the noble Lord, Lord Davies of Oldham, for confirming that the Committee might move more expeditiously through this Bill than some other recent Bills.
I think that the noble Lord said that I would understand why he opposes Clause 1 standing part of the Bill, but I could not quite work it out and I am even more confused now that he says that the Opposition support the 1 percentage point increase, which is the import of Clause 1. However, I guess that I will eventually get used to the way that the House operates on these things. If the purpose of this discussion is to put the Bill into a bit of context, I am certainly very happy to do that.
The Government face the twin challenges of dealing with the inherited deficit and getting the economy growing again. In this wider context, the Bill goes to the heart of those challenges. I have repeatedly said that the recovery is likely to be choppy, and so it is proving. It is not easy to stimulate growth while bringing the deficit under control. The case of national insurance exemplifies the dilemma and the challenge. The 1 per cent increase in national insurance produces revenue of the order of £9 billion to £10 billion, which is necessary to deal with the deficit. Although we will put 70 to 80 per cent of the weight of deficit reduction on spending, nevertheless increases in taxation will bear part of the burden. Therefore, we start by accepting some of the changes that the previous Government proposed. We do not know what they had in mind on VAT. There were strong indications from Ministers in the previous Government that had they been returned to office they might well have increased VAT.
In the context of national insurance increases, offsetting measures that go hand in hand with the Bill—although they are not in the Bill—will increase the secondary threshold by £21 a week and the primary threshold and the lower profits limit by £24 a week. This will significantly offset the rises in the Bill. The increase in income tax personal allowances and the reductions in the basic rate limit and in the national insurance upper earnings and profits limit will, as a combined package, go a substantial way towards offseting the effect of the national insurance rises. Compared with the plans that we inherited, employers will be more than £3 billion better off next year, and that figure will rise in future years. As I said, we are fully compensating for the £9 billion increase in labour taxation that the rate rise represents.
The threshold rises will mean that the burden that the Government add to labour costs will lessen, and there will be more to share between employers and employees so that both will benefit. As a result of the way in which we are doing this, some of the benefit will be switched from national insurance contributions to income tax, so the net rise in national insurance contributions payments will be compensated for by a larger fall in income tax payments. Employers will be better off in respect of employees earning up to £20,000, while employers who have staff among the highest earners will pay more in national insurance contributions.
We are agreed that the 1 percentage point increase is appropriate. Where we diverge from the analysis of the noble Lord, Lord Davies, is in seeing the proposed increase as a significant tax on jobs at a time when the recovery needs to be encouraged and bolstered. That is why we have made the offsetting increases in limits, and the increase in the income tax personal allowance. I am grateful to the noble Lord for enabling us to start our discussion by putting the Bill in a wider context, because that is important. Having explored the issue, I hope that we will now move on to the detailed points that he intends to raise.
Lord McKenzie of Luton
My Lords, I shall speak also to Amendment 2. Amendment 1 seeks to probe why 50 per cent, rather than, say, 75 per cent, of the product of the additional primary rate and additional class 4 percentage rate form part of the health service allocation. Amendment 2 poses the same question for a 100 per cent—the existing percentage—allocation.
The main features of the contribution system are helpfully set out in appendix 2 of the Government Actuary’s Department report on the Social Security Benefits Uprating Order 2011. For the NHS allocation it sets out, as partly provided for in the Bill, the rates of 2.05 per cent of earnings between the primary threshold and the upper earnings limit and 1 per cent of earnings above the UEL. From April 2011, the UEL, as we have just heard from the Minister, has reduced and the primary threshold has increased. That would appear to mean that for any given level of earnings, the 2.05 per cent of the allocation will be lower because the band is narrower, and the 1 per cent will be greater because the starting point is lower. However, overall, with constant earnings, this part of the NHS allocation would appear to be reduced. Similarly, the constant 1.9 per cent NHS allocation from employer contributions would appear to be less because it starts from a higher secondary threshold. The same issue arises in respect of class 4 contributions.
Given that GAD assumes the number of jobs to be the same next year as this year, with earnings increasing by just 2.1 per cent, what estimates have been made of the overall NHS allocation? Will the Minister let us know the estimated figure for the current year and how this would change if the percentage of the additional rates applied was variously 75 per cent and 100 per cent? These issues are important in seeking to understand the projected outcome on the National Insurance Fund in the context of the funding that has been allocated to the NHS. On this matter, in responding to the Second Reading debate, the Minister said:
“I hope it is completely clear to noble Lords that nothing in the Bill affects in any way the commitment to increase NHS spending in real terms in each year of this Parliament. We can afford to do this without additional funding from national insurance contributions”.—[Official Report, 2/2/11; col. 1429.]
Anyone who followed the debate in another place, which I will not replicate today because there will be other opportunities, will understand why the Government are effectively failing in this pledge; I refer to the switch in funding to cover social care budget shortfalls, the consequences of the VAT increase on the NHS given the inflation in the costs of treatment, and the costs of the reorganisation.
Perhaps the Minister will tell us, if the Government are to struggle to reach their NHS spending commitment, where the money will come from if the moneys allocated from the National Insurance Fund are not to be used. Will he also let us know how the additional moneys retained in the National Insurance Fund and not allocated to the NHS have contributed to its balance, which is projected now to be £53 billion by 2015-16? Clearly, if the NHS allocations were greater, the balance of the fund would be less and the investment income less—but what would the other ramifications be? We probe with these amendments. I beg to move.
Lord Sassoon
My Lords, I hope that I did not give too much encouragement with my remarks on Clause 1 to indicate that I would be in too accommodating a mode this afternoon. As regards the two amendments, I find this split of the proceeds between different allocated funds rather confusing and arcane. The relevant questions are the big picture ones asked by the noble Lord, Lord McKenzie of Luton, about the impact, if any, on NHS funding.
The point is that although for government accounting purposes—which are important—the moneys need to be allocated, the allocation does not and will not have any impact on NHS funding. It is absolutely not part of government policy to cut NHS funding automatically if, for example, global conditions lead to a reduction in national insurance contribution receipts. The Government would simply make up any shortfall from lower than expected national insurance contributions from other sources.
Even though the noble Lord questions it, the overriding commitment is the one that has been given on National Health Service spending. The amendments do not have any bearing on how much the NHS will have to spend because if the money does not come out of one fund it will come out of other sources of general government expenditure. We are maintaining the level of national insurance contributions allocated to the NHS and taking the additional revenues from rate rises to the National Insurance Fund. That is what is happening here although, as I have said, it will not have any impact on the NHS but merely maintain the previous level of funding. However, putting the additional revenue into the National Insurance Fund will help to ensure that plans for the payment of pensions and other contributory benefits will be sustainable in the long term. Through that funding we can protect pensioners by the new triple lock that guarantees a rise in the basic state pension every year in line with earnings, prices or by 2.5 per cent, whichever is the greater. In ordinary circumstances we would expect contributions to rise broadly in line with earnings, and therefore to rise in real terms.
Under the Government’s proposals, we expect allocations to the NHS to rise in real terms in a typical year. I do not have the breakdown of the split under different percentages. I could get my calculator and work it out but the main point, as I have tried to explain, is that the split itself is not relevant. We are maintaining the allocation and ensuring that the National Insurance Fund continues to grow, and National Health Service expenditure is protected by the commitments that the Government have given in their broader expenditure plans. I hope that I have adequately explained what is going on and that noble Lords will withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply. Of course we will withdraw the amendment; as he knows, that is the practice in the Moses Room. I understand the broad thrust of his point about funding for the NHS, but we shall have to agree to differ on the Government’s performance in that regard. We shall have the opportunity to debate that fully on other occasions.
The Minister said that in the event of a shortfall in contributions, the Government would make up the difference. One point that I was probing concerned the respective levels of the NHS allocation for the current year and for the year we are about to enter. I accept that the Government are preserving the 1 per cent and 2.5 per cent rates. However, the bands on which they are operating are changing; the bands for next year will mean that the UEL is reducing and the primary threshold is increasing. All other things being equal, if there were constant earnings between the two years, you would expect a lower contribution to the NHS allocation than was the case before the changes were introduced. With great respect, I do not think that the Minister has fully responded to that point—but it looks as if he may be about to do so.
Lord Sassoon
I apologise for not responding earlier, but I see that the noble Lord has the Government Actuary’s report, from which the Committee can see that the NHS allocation for 2010-11 will be about £20.5 billion, and pretty much the same for 2011-12. The figures in appendix 6, towards the bottom of page 25 of the GAD report, show that the expectation is £20,608,000,000 for 2010-11 and £20,437,000,000 for 2011-12. That is after the bands change; the amount is very close.
Lord McKenzie of Luton
I had not reached that appendix, so I thank the Minister for those figures. I accept that they are very close. Nevertheless, there is a reduction year on year. Had more than 50 per cent been allocated, the outcome would have been different. It is not just a matter of comparing one year with the next. Dealing with the rates is one thing, but if the bands are changed there will be consequential effects in subsequent years as well.
I will press another point that I raised concerning the impact on the balance of the National Insurance Fund. The actuary’s report shows an increase to some £53 billion over the years to 2014-15. The effect of not allocating more to the NHS is to build up that balance, which will also have implications for the investment in the fund. If more were allocated to the NHS, what would be the effect, other than reducing that balance and changing the investment income?
Lord Sassoon
My Lords, clearly, if there was more in the fund, a greater part of NHS expenditure could come via that route, but I am not clear that there would be any significant consequence in terms of the outcomes we are talking about. NHS expenditure will be determined by the allocation that has been given in the spending review. The noble Lord may quibble about the nature of the numbers and what is covered by them, but they are set out with great clarity in the review. For this purpose we are talking about some relatively simple arithmetic in terms of what would happen if there were to be any shortfall. If there is a surplus, funds that do not go to the NHS go to the National Insurance Fund; that is what has led to the considerable current balance. We are talking about a process where a fund has accumulated over the long term and we need that surplus, although it is predicted to fall, in order to fund future pensions.
In summary, one way of looking at it is that in the short term a high balance will help to tackle a deficit. Indeed, as the noble Lord heard from his officials in the past, and as has been explained to me, that balance is invested with the Commissioners for the Reduction of the National Debt.
Lord McKenzie of Luton
I am grateful to the Minister and beg leave to withdraw the amendment.
Baroness Kramer
My Lords, I apologise if my newness to the institution shows in my bobbing up at the wrong time. I wish to make a couple of small comments on the amendments in this group, although my comments are less about the detail and more, in a sense, about questioning the underlying principle.
For all of us, the notion that new business can be stimulated to be a fountain of growth and of new jobs is obviously highly desirable, so an effective take-up of the programme would, I suspect, be met with pleasure on every side of the House. However, given the potential for a review period as we move through the Bill, might it not be good to keep in the back of one’s mind that even new jobs that come from existing businesses can be valuable, even if the take-up does not reach the targets of the initial programme? It strikes me that that would not be a failure, given that economies are volatile and take-up can take time but that jobs are beneficial even if they originate from business that is already under way. It might be important to ensure that this whole category of issues is critical in any review that might come one year after the initiation of the programme so that the Government can consider whether they would be wise to expand the categories in order to achieve the underlying intention of the Bill.
Lord Sassoon
My Lord, those two interventions go to the heart of why it is necessary to strike a difficult balance—this is where judgments have to be made—between, on the one hand, providing some tight and suitable anti-avoidance provisions and, on the other, ensuring that we do not make it excessively difficult for people to take up the holiday in the Bill. Of course we need to ensure that the scheme is affordable. That is why it has been targeted at new businesses, with a cap on the number of employees. Yes, we want to stimulate and encourage employment right across the areas of economic activity, but to do so through an across-the-board national insurance holiday would be extraordinarily costly. That is why we have come up with a scheme that is targeted in this way. On the other hand, as has been pointed out, we need to have appropriate anti-avoidance provisions.
When I first saw the amendments in this group, I had considerable sympathy with Amendment 3, which seems to be aimed at ensuring that new businesses that benefit from the holiday must not only have their principal place of business in an area that is not excluded but remain outside the excluded areas for the entire period during which holiday deductions or refunds are claimed. The amendment seeks to prevent a new business that relocates to an excluded area from enjoying any further holiday. The Government certainly agree with that objective. In fact, the Bill already provides that if the new business, having made a successful application for a holiday, relocates to an address within an excluded area the holiday will cease automatically.
The necessary provisions are found in Clause 7, which provides for the appropriate amount of secondary class 1 contributions that a new business can deduct or request to be refunded under the holiday. The appropriate amount is calculated by reference to a qualifying employee’s relevant earnings. Clause 7(3) provides that:
“‘Relevant earnings’ are earnings paid to”,
an employee who is employed,
“for the purposes of the new business, at any time during the holiday period when the principal place at which the business is carried on is not in any of the excluded”,
areas. Therefore, if a new business were to move to an excluded region, any earnings paid to a qualifying employee would cease to be relevant earnings and there would be no appropriate amount to be deducted or refunded, so the protection sought by the amendment has already been provided within the Bill.
Lord Sassoon
My Lords, I am very grateful to my noble friend Lady Kramer for answering the main thrust of the questions put by the noble Lord, Lord McKenzie. This measure does need to be targeted. It cannot be targeted in a way that picks out pockets of deprivation—of which there are a significant number in London and elsewhere. However, the basis on which we came up with the holiday includes a relative regional effect. Of course, if we were to sweep away all the geographic exclusions, the thrust of the holiday, which will be to have a relative regional effect, would disappear. On the other hand, as my noble friend says, unlike other measures, this would not be an appropriate measure to target in a subregional way—that would not be feasible.
We have gone with a broad regional analysis. The simplest way to explain the basis for doing this is through the numbers for public sector employment as a percentage of total employment by region. The latest available data when the policy was formulated showed that against a national UK average of 25.1 per cent public sector employment, the three lowest regions were the south-east with 22 per cent, London with 22.5 per cent and the eastern region with 23.1 per cent. That was the principal basis on which the exclusions were made.
My noble friend made the critical point that I was going to make about cost and targeting the money. If the three excluded regions were included, that would increase the total cost of the holiday by some two-thirds. To put it another way, out of the total holiday cost, two-fifths of the benefit of the holiday would go to those regions that are least dependent on government employment, and only three-fifths would go to those regions that are more dependent—in some cases considerably more—on government public sector employment. At the heart of this measure is the belief that the funds available should go to the regions that most need them on this metric.
Indeed, the evidence in the public evidence session on the Bill supported that. For example, representatives from the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and new business formation would not be significantly harmed because the holiday was not available in these regions. It is worth reminding the Committee that all new and existing businesses in the south-east will benefit from the increase in the employer national insurance contribution threshold and in the reduction in corporation tax rates. Therefore, considerable benefits go to the region through our wider package of measures.
There were questions about the different definitions of regions and so on. The LEPs do not have geographic boundaries that equate to the regions and, in theory, could cross the regional boundaries that we are using. In effect, they are groupings by local authority boundary. Yes, there are other ways of doing it. We have taken the regions as defined for the purpose of public sector employment, which we think is the most cost effective way of targeting the benefit.
Lord McKenzie of Luton
I thank the Minister for that response and the noble Baroness, Lady Kramer, for her contribution. I do not think that we will totally see eye to eye on this issue. The noble Baroness referred to better-off regions, but that does not address the point that regions are not homogeneous. For example, there are huge disparities across the eastern region, but because of areas of particular prosperity in aggregate the area is counted out. As a result, those areas where there is deprivation and high unemployment lose out. I agree that it is to be hoped that there are other arrangements which would enable jobs to be created via one mechanism or another, but I believe that the regional focus is producing unfairness in the scheme.
The Minister said that the measure could not operate at a sub-regional level. I am not quite sure why not. Exactly the same rules will apply. There simply will be a different set of boundaries and descriptions. He referred to the fact that all businesses are benefiting from the national insurance changes to the threshold and corporation tax deductions. I guess that they are all equally suffering or all suffering from the impact on consumer demand of the VAT increase. But that is probably a debate for another day. I do not think that we will make progress on this issue. Accordingly, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, Amendment 10 focuses on the inclusion within the term “business” of “property business” and “investment business”. Section 263(6) of the Income Tax (Trading and Other Income) Act 2005 includes a UK property business and an overseas property business within the definition of “property business”. This would seem to open up the possibility that the principal place at which a new business is carried on is overseas with subsidiary business activities in the UK. Obviously, those overseas operations would not be within an excluded area.
Furthermore, even if those subsidiary activities were in the excluded regions, the national insurance holiday would still seem to apply. I ask myself whether this was what was intended. I looked again briefly at Clause 7(3), which the Minister prayed in aid in response to an earlier amendment. If you have a business where the principal place of that business is outside the excluded region, but nevertheless there are employees operating in excluded regions, what in the Bill would stop a holiday applying to them? Having just argued that I do not want any excluded regions, I might seem to be arguing against myself. However, in terms of the integrity of what is proposed here, it may be that I am missing something. Perhaps the Minister would respond to that. Even if the subsidiary activities were in the excluded region, the national insurance holiday would, I suggest, still seem to apply. There seems to be nothing which precludes a new business being carried on in any of the excluded regions or indeed for the national insurance holiday to be available to employees based in the excluded regions so long as the principal place at which the new business is carried on when it started is not in any of the excluded regions. Is that how the Minister reads the legislation?
The principal place at which the business is carried on will often be very clear, as the HMRC’s very helpful note suggests. However, for an investment business or a property business, it might be much less certain. The core of such businesses might be based on the judgment of a few individuals; it would not necessarily be where the portfolios, especially investment portfolios, are located or indeed where the back-office functions are located or where the contracts for the investments or property portfolios are executed. Where the business is primarily carried on could be quite nomadic or easy to place in a favourable location, perhaps where the guiding minds of the business meet periodically to receive investment reports and make decisions about changes to the portfolio. Does the Minister have a view on this? The noble Lord may feel able to say that it has to be determined on a case-by-case basis and I accept that that may be so. Would he accept that this probing amendment highlights a layer of potential complexity which is introduced into the scheme again by having excluded regions? I beg to move.
Lord Sassoon
My Lords, in relation to what we are trying to achieve through the holiday scheme, it is important to create employment. The question of the nature of the activity which is being engaged in is one where again we want to be as permissive as we can be, consistent with the nature of the scheme. Although the noble Lord raised a number of other points going back to the question of boundaries between excluded and non-excluded regions, what we are principally talking about in the amendment is the type of trade or business which the activity is engaged in.
In that context, as well as making the general point that what we are focusing on is maximising employment growth from a broad range of sectors, it might be worth saying a word or two about what property business includes. It covers activities including property rental, land rental and furnished holiday lettings; for example, I believe that the holiday could be particularly valuable in relation to furnished holiday lettings which, of course, would typically operate in rural areas and often provide employment where there are not other significant job opportunities. I would certainly like to think that the noble Lord, in proposing this amendment, was not intending to remove businesses from relief if that could, for example, prevent people or discourage people from providing holiday lettings, furnished cottages, apartments and so on.
Similarly, on investment business, the Government’s view is that making investments and deriving profits from them is no less inherently a business than buying and selling any other tradable item. As the noble Lord says, there will be case-by-case determination by HMRC if there are questions about the validity of the trade or of boundaries.
Lord Newby
My Lords, I have a factual question to ask the Minister on this. During my life, I have been involved in setting up one or two charities where the legal basis of the charity has been a company limited by guarantee which has then got charitable status, so that we have been filling in returns to Companies House as well as to the Charity Commission. What I do not understand is: if a charity’s legal basis is corporate and that charity is then employing staff, whether trading or not, why does it not mean that it would be covered by the normal income tax and national insurance rules?
Lord Sassoon
My Lords, in answer to my noble friend Lord Newby’s point, my understanding is that there is indeed no distinction within the normal income tax and national insurance rules but that it is all a question of trading versus non-trading. I believe that is a test which is independent of whether it would be a company limited by guarantee with share capital, a partnership or anything else. If I am wrong on that point, I will correct myself but my understanding is that the question is independent of the structure of the business.
That trading/non-trading question—to express the issue in another way—goes to the heart of what we are trying to achieve by this holiday: an objective to encourage new businesses and new entrepreneurs and for those individuals to set up businesses, as we have already discussed, in areas with a high proportion of public sector employment. It is not that it could, in a wider sense, be a good thing to provide all sorts of other benefits to worthy causes, including non-trading charities. The fundamental purpose of the Bill is to encourage new entrepreneurs to set up businesses. In that context, if those business activities are structured and are charities, it is important and quite appropriate that the trading activity should benefit from the holiday in the Bill.
Of course, the Government value the important work that charities do. I heard the noble Lord, Lord Davies of Oldham, talk about the Government in their benign moments valuing the big society. We value the big society at all times. Therefore, by extension, this is indeed a benign Government and I am grateful to him for recognising that. Nevertheless, very tough choices have to be made, benign or otherwise. One of the choices we have made is to continue to provide substantial support to charities. So the total relief which charities and charitable giving get are something of the order of more than £3 billion each year. Of course, charities will also benefit from the increase in the employer’s national insurance contribution threshold.
We certainly do not forget charities in many other ways. They are a critical component of the big society. For a scheme that is intended to target a particular direction, we believe that it is appropriate for the holiday to apply to, say, a new charity business, which may be setting up a charity shop or an entrepreneurial activity, but that it should apply only in those particular circumstances. I am sure the noble Lord did not intend this, but the tone of his remarks sounded, at some points, as if we were depriving charities of something. It is not that charities in regions of the country, whether the eligible regions or the excluded regions, are being deprived of anything that they now have; it is simply that, with the resources that we now have, we believe that it is appropriate and indeed the purpose of the Bill to encourage the setting up of new businesses in areas with a high proportion of public sector employment.
Lord Newby
It is a pity that Amendment 14 is not grouped with these two amendments as they clearly fall together. While everybody supports promoting apprenticeships, it seems to me that the Bill is simpler than what the noble Lord proposes. While it is a good thing to promote apprenticeships, if I am starting up a new business and am not necessarily going to employ apprentices, I could envisage a situation in which I might well employ 10 people. I raise this while declaring an interest. I formed a community interest company a year ago, which will start trading in this coming financial year. It is likely to be based in Birmingham. I do not know whether the company will qualify for this measure, given it was formed but not trading last year, but we will be employing both part-time and full-time people in the area of education and sport. It may well be, if we are successful, that we will be employing more than 10 people within three years. If some of those are coaches or if some of them are already qualified as teachers, they will have skills. They will be working for us where they would not otherwise be working in an area covered by the Bill, but technically they will not be apprentices.
I think that you would lose the opportunity to encourage companies which are employing people who would not be eligible for apprenticeships by reducing the limit down from 10 to five. Of course, if the limit stays at 10, Amendment 14 has virtually no impact because the number would go up only from 10 to 12. Therefore, partly in a self-interested sense—I have no idea whether our company would qualify and this is not the reason that I am doing it—it seems to me that you may damage employment prospects by these amendments in a way that is not really intended.
Lord Sassoon
My Lords, as ever, I am grateful to my noble friend Lord Newby for pointing out some of the logic of what the Government are proposing. But in this case it is not principally to accommodate up to 10 employees that we have put the limit where it is. We recognise, as the noble Lord, Lord Davies, says, that the average number of employees that businesses typically hire in their first year is around two. Yes, it would be nice if a business, such as that which my noble friend Lord Newby may be starting, pushes up against the limit. We would welcome lots of that.
We have set the limit at 10 rather than five for two reasons. It would enable more flexibility to accommodate staff turnover, so that although most new businesses employ only two employees in their first year, those two employees may often be different and come and go on a temporary basis. This is a way of accommodating a rolling number even if at any one time there might be only two, three or four employees. Nevertheless, within the period of the holiday, we allow 10 within the Bill.
On a similar point, we need to think about part-time employees, a point to which we will come later. Certainly, it might have been helpful if a number of these amendments had been grouped. This is the Government’s proposed way of addressing the issue of part-time employees without the need to introduce potentially complex definitions of eligible employees based on full-time equivalents. For example, some employers do not remunerate their staff by reference to the number of hours they work, but they might be remunerated according to the amount of work that they produce—piecework. Again, providing for up to 10 qualifying employees ensures that employers with part-time staff or with staff whose hours are not predictable are not disadvantaged and that such employers can take full advantage of the holiday.
As I anticipated, the noble Lord, Lord Davies, is thinking about where savings might be made in order to extend the scope of the scheme in other directions. It is perhaps worth saying that because of the distribution of new employers’ staff numbers, restricting the number of eligible employees from 10 to five would make a disproportionately small reduction in the cost of the scheme. That is not the main reason, as I have explained, for resisting the amendment. The benefit of the amendment would not be anything like what it might seem on the face of it—relevant to the headline numbers. On that basis, I would ask the noble Lord to withdraw this amendment.
Lord Davies of Oldham
My Lords, apprenticeships are a good thing. I know that I will get nods from all sides of the Committee when I say that. We have made progress in recent years and it is important that we make greater progress. One dimension that ought to worry us all is unemployment. It is a potentially greater problem across wide ranges of our society but unemployment visited on young people is a particularly pernicious burden. We should not be surprised if we have difficulties with the attitudes of young people to our society if it is impossible for them, whatever their talents, to land a job. Apprenticeships are an important way in which people can come within the framework of work, and I suggest that our modern society will reflect rather more the significance of old-style apprenticeships.
When I say “old-style”, I refer to our great and glorious industrial past. A predecessor of mine in Oldham used to boast of there being 20,000 engineering employees in plants in the Manchester and Oldham area, and of hundreds of apprenticeships being available. Young people streamed out of education—in some cases, they might have been better advised to stay on to earn different qualifications—into guaranteed opportunities as apprentices in those big engineering works. Those days are long past; we all appreciate that. However, what may be becoming more significant in our society is the development of skills and crafts that mirror a period prior to the great industrialisation. I refer to small-scale businesses and crafts that often do not need many full-time employees to justify an apprentice who in his or her turn learns their role. That is of very great importance.
In all my time when I was greatly involved in further education, one thing that drove me to distraction was our inability to sell work experience in relation to the education experience in college. This was particularly true for young women. There might be a course leading to a career with the cleanest, most attractive technology imaginable—for example, providing the electronic back-up for pop groups, which should lighten up the heart of every youngster—but one would see engaging in those activities exactly the same proportions of men to women and boys to girls as we had in our traditional pattern in the world of work. We have to move away from that.
Apprenticeships, particularly those in small companies relating to the operations that we are defining in the Bill as worthy of support, potentially provide opportunities to break the mould of some dated employment practices. The Minister will tell me that this is a limited Bill and that the gains that will come from it are necessarily limited when viewed against the broader perspective of the Government’s policies. I recognise that all too clearly but the Bill nevertheless seeks to help a particular sector of small businesses. We should surely try to link that to the importance of developing apprenticeships in our society and, accordingly, I beg to move.
Lord Sassoon
My Lords, apprenticeships are certainly important to this Government. Since the noble Lord, Lord Davies, has talked about them at some length, as he may know, it was National Apprenticeship Week three weeks ago. I met electronic engineering apprentices working on the rebuilding of Blackfriars station and its railway bridge. It was enormously encouraging to see the enthusiasm of those apprentices, who fully understood how their apprenticeships could be the start of a very worthwhile and remunerative career path and that they had a very supportive employer—a much bigger employer than in the scheme we are discussing. However, when I asked them whether their south London schools had encouraged them down this path, it was depressing to be told that there had been absolutely no mention of apprenticeships as a route to go down on the part of those schools. Therefore, I can see that there is work to be done on fully encouraging young people to take up apprenticeships, but it will not be for lack of government money. In 2011-12, we will provide £799 million for apprenticeships in the 16 to 19 age range, which is an increase from the £780 million in 2010-11. This money will fund 230,000 apprenticeship places for that age group. Therefore, the importance of apprenticeships is absolutely not lost on me.
Apprentices and their national insurance are covered by the Bill in the same way as any other employee. On previous amendments we have talked about the number of employees that small businesses typically take on. That is a critical point. The ceiling that we have left in the Bill of 10 employees provides sufficient headroom to take on apprentices. A feature of apprentices is that there is not normally the turnover that we talked about and it is not a question of part-time work. One or two apprentices being taken on by a business should be accommodated within that headroom limit of 10. We think that is a sufficient and appropriate way to accommodate what I completely agree is a critical part of the thrust needed to rebuild the nation’s workforce with the appropriate skills base for a thriving economy in the 21st century. With that explanation, I again ask that the noble Lord follow the convention of withdrawing his amendment.
Lord Davies of Oldham
My Lords, I am grateful to the Minister for that concerted response and, of course, I withdraw the amendment.
Lord Sassoon
My Lords, I echo my noble friend Lady Kramer’s view of the importance of job sharing. I, too, could introduce a small reminiscence. I have had job-sharing personal executive assistants working for me, and I know that the arrangement can work extremely well. It gives people who, for example, have children, more opportunities to work. I have seen this in action and I and the Government encourage it.
The difficulty in this Bill is that they will be working in the technical framework of tax and national insurance legislation. One feature of the NICs and tax framework is that there is no distinction in the HMRC construct between full-time and part-time work. Therefore, we decided that the way to accommodate this was through the relatively high limit on the total number of employees. Putting together a construct for this piece of national insurance legislation that distinguished between full-time and part-time staff would be enormously challenging. This was recognised in the public evidence session by the Federation of Small Businesses, which concluded that it would add complexity for the employers who were affected.
There is nothing here that discourages part-time employees, and the 10 employee limit should fully accommodate the likely demand, except in the very marginal case of the few thousand firms—perhaps 2 per cent—that would be restricted by the limit. Again, I ask noble Lords to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I will certainly withdraw the amendment in due course. I am grateful to both noble Lords who have spoken. The noble Baroness, Lady Kramer, spoke with authority and passion about the importance of part-time work and of job sharing. She made a hugely important point about cultural change and recognising that part-time work is not simply temporary work in low-level, low-paid jobs. As she explained, very senior job shares will increasingly form part of the system.
I accept what the noble Lord, Lord Sassoon, said about the difficulty of constructing this within the Bill, and I take the point about NICs and the tax system not making a difference between part-time and full-time employees. We will have some debates tomorrow on the Pensions Bill, and on the attempt to get some aggregation of people in part-time jobs for national insurance purposes so that they get credited at least for pension purposes—but that is a debate for another day.
I recognise that the level of 10 employees gives some headroom to deal with this, although I am disappointed that the Minister could not explicitly cater for part-time workers if for no other reason—it is not really the one that I had thought about—than to push the issue of the cultural change that is needed so that we properly value and encourage, where appropriate, part-time working and job sharing. I beg leave to withdraw the amendment.
Lord Davies of Oldham
My Lords, I have no doubt that Amendment 16 may cause a slight flurry in the dovecotes. I hope that the Administration recognise that we are seeking to guarantee the success of the scheme by offering protection for the administrative resources devoted to it. However, I also see significant figures in the Treasury, not least the Minister himself, looking somewhat askance at the fact that we might have in public statute a definition of who should do the job of the Inland Revenue with regard to this issue.
This is a probing amendment and I do not expect the Minister to accept it on this occasion, although in due course he may be persuaded. The intention is to identify one obvious factor. We fully recognise that the public service is under considerable challenge at present, that lots of posts will be lost and that an awful lot of people are under pressure. Yet this scheme not only requires additional resources but has particular complexity built into it. There is no doubt that the Bill would be regarded as a matter-of-course administrative exercise if it covered all regions of the country and the excepted areas were brought in. We all appreciate the complexity and difficulty of the position, and the amount of resources that will be required to ensure that the scheme works. Of course we share with the Minister the ambition that this will prove to be successful. However, there are clear administrative implications. I am sure that the Minister has thought about these very seriously and will give me all the reassurances that I could possibly want.
Lord Sassoon
It is a high bar to be able to give the noble Lord, Lord Davies of Oldham, all the reassurances that he could wish for, but I will attempt to give him some reassurance. The way in which HMRC is going about administering the holiday is that it has devised new processes for dealing with the holiday alongside the other day-to-day tasks in its casework. Additional steps have been incorporated already in its day-to-day caseworking, so it has not been necessary to employ new staff. The training has already been done. It shows how HMRC is able to adopt a flexible approach to allocating its resources as and when schemes in tax and national insurance change. HMRC staff have been engaged in this work since September. It would not be possible to use new employees, if that was being suggested. I understand the probing nature of this discussion but using new employees would not technically work as staff are already trained and running the scheme alongside their other responsibilities without the need to employ additional staff.
I hope that the noble Lord has the reassurances he seeks, such that he might be minded to withdraw Amendment 16, as I think he said that he would.
Lord Davies of Oldham
I am grateful to the noble Lord. I feel somewhat encouraged. I did not have the slightest doubt that the issue was expressed entirely in his own words and was not drafted for him by a senior official. If that had not been the case, I would have had a few doubts. I am very grateful for the response that he gave. I beg leave to withdraw the amendment.
Lord Newby
My Lords, I support the principles behind these amendments. This is a very specific scheme and it should be possible to tell whether it has worked. If it does not work—we hope that it will—the Treasury will be in the happy position of not forgoing revenue that it had expected to forgo. There would be an unused pot, as it were. If, as I fear may be the case, the scheme as outlined does not yield the number of new jobs that the Government hope, it would be very useful, after a year, to see how—to the extent that funding is available for job creation in the regions—it might be more effectively deployed.
As I mentioned at Second Reading, an obvious extension to the scheme would be to provide a modest ability for existing businesses in the designated regions to employ additional staff and qualify for a holiday. In those circumstances, it would be perfectly possible to say that every small business in the designated areas could employ an additional person and qualify for the holiday, so that the scope of the scheme is extended but keeps within the expenditure envelope already set aside for it. Whether that is possible will depend on whether the scheme works as intended. The only way we will know that is if we have a report as set out in these amendments.
Lord Sassoon
My Lords, we certainly agree that generally tax policy-making and the effects of tax measures should be more transparent. It is for that reason and because of the commitments given in another place, which I shall run through in a moment, that we do not believe that Amendment 17 is necessary. However, we completely share the commitment to transparency. Therefore, it may be helpful to the Committee if I echo the undertaking given by my honourable friend the Exchequer Secretary in another place to provide Parliament and the public with updates after the end of the tax year on the operation of the scheme, including information at regional level, although the precise requirements set out in the amendment could raise legal issues, for example on confidentiality of taxpayer data.
The factual report that we envisage would cover, regionally and nationally, the number of new businesses applying, the number of applications rejected, the number of qualifying employees for whom a holiday has been claimed and the amount claimed. The main difference between the commitment that the Government have made and this amendment is that the latter would require a constituency level breakdown even though the scheme is regional in England and will not cover every English constituency.
I remind the Committee that during proceedings in Committee in another place, amendments put forward with the aim of altering the holiday to a constituency basis were discussed at some length. My honourable friend the Exchequer Secretary said then that the Government do not believe that a constituency-based scheme is either appropriate or feasible. Since we have a regional scheme including the whole of Wales, Scotland and Northern Ireland, it does not seem logical to provide a constituency level breakdown even if it was possible to do so. A regional scheme and a regional analysis at the end of each tax year will be available for scrutiny. Therefore, we do not think that it is necessary to enshrine that in an amendment to the Bill. I refer to Amendment 18—I said Amendment 17 at one point, and will come to that in a moment.
A technical point in the amendment refers to a budget for the scheme. For the avoidance of doubt, businesses can be confident that there is no budgetary constraint. The holiday will continue as proposed, regardless of the number of applicants. The expected costs of the scheme were set out in the policy-costing documentation at the time of the Budget last year.
Amendment 17 is aimed at providing flexibility to modify the holiday. As I have explained, the Government want to target available resources on the regions most dependent on public sector employment. We want to do so in the way that we have discussed at length with regard to the qualifying businesses, the numbers of employees and so on. However, introducing flexibility to change the details of the scheme, as proposed in the amendment, would increase uncertainty for those who might potentially benefit and would risk inhibiting decision-making for those who need to know with some certainty what the holiday permits. I hope that I have provided considerable reassurance on the questions of transparency and of the ability of the House to scrutinise the way that the scheme will operate in practice, and that noble Lords will withdraw their amendment.
Lord Davies of Oldham
I am grateful to the Minister; half a loaf is better than none. The extent to which he defined how far he was able to go in response to the amendment was some consolation. I appreciate his remarks. I am well aware of the fact that no one in Committee is particularly concerned about constituencies. I am also well aware that the issue was raised in the other place, where concerns were extensive. The Minister will forgive me for seeking to identify that this might be the basis for a degree of transparency that would be welcomed by all those who are directly answerable to the electorate. I am grateful for his response and beg leave to withdraw the amendment.
Monetary Policy Committee
Lord Sassoon Excerpts(13 years, 9 months ago)
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Lord Barnett
I welcome the Answer from the noble Lord, but does it include what the Chancellor told the Treasury Select Committee; namely, that he is going to follow the policy of the previous Chancellor, which would not prevent him reducing or increasing quantitative easing, although he has the powers? Then again, the governor also said in his letter to the Chancellor, published on 14 February, that he believed that inflation would have been below the 2 per cent target if it had not been for three exceptional factors. Does the noble Lord agree with that because the Chancellor’s letter is somewhat unclear to say the least? As to the balance of risk that the governor was writing about, he seemed to be worried about the problems for growth and employment if he increased interest rates. Does the noble Lord agree with that?
Lord Sassoon
My Lords, first, it is for the Bank of England to make any proposals on quantitative easing if and when it wants to, and the Chancellor will then look at them. I am certainly not going to deconstruct and provide a commentary on the exchange of letters yesterday. However, the noble Lord, Lord Barnett, indeed identifies some of the points made by the governor in the letter, where he clearly sets out the downside risks and refers to questions about the “margin of spare capacity”. On the other side, he refers to possible “upside risks”, particularly in relation to inflation expectations. However, I suggest that noble Lords read the letters, rather than have me interpret them.
Baroness Kramer
My Lords, the Minister will be aware of recent remarks by my right honourable friend Vince Cable on the importance and benefits of low interest rates to businesses at this stage of the recovery. Will he comment on that and explain whether it feeds into the decisions made by the Bank of England?
Lord Sassoon
My Lords, I can confirm to my noble friend that sustainable and low interest rates are absolutely what businesses need to enable them to invest and to support the recovery. I will make a further point before the noble Lord, Lord Myners, jumps up. Last week he chided me for not giving the data on relative interest rates. However, the context then was not relevant. It is very relevant to the Question this morning. The latest data from yesterday on our performance on relative interest rates—the 10-year sovereign borrowing rate since the general election—show that the UK continues to outperform the US. We have narrowed our spreads against the 10-year bund by 39 basis points since the general election at a time when the French, for example, have widened their spread by 10 basis points. Therefore, on relative interest costs, which are a key indicator of whether the markets believe the Government are on their economic course, the news continues to be that we have the confidence of the markets.
Lord Peston
Will the noble Lord confirm that it is vital never to confuse the price level with the inflation rate? If the price level goes up as the result of a deliberate policy by the Government to raise VAT, there is no reason to interpret that as a rise in inflation. Therefore, it would be entirely idiotic for the MPC to raise interest rates at any time solely because the Government had raised VAT. Does the noble Lord agree?
Lord Sassoon
My Lords, again, I do not want to be drawn into either economic debate with the noble Lord, Lord Peston, or commentary on the governor. The governor indicates that the rise in VAT was one factor behind the rise in inflation, but I should point out that the rise in VAT to which he was referring was the one under the previous Government and not the present rise to 20 per cent. However, I take the noble Lord’s point about the nature of one-off rises such as that.
Lord Myners
My Lords, the Minister has now introduced the new protocol of answering my questions one week later, but I suppose that that is better than the previous policy of not answering them at all. Is not the reality that the Government’s fiscal policy is pushing the UK back towards recession—a direction which no other major economy in the world is currently following—and that the only thing supporting demand at the moment is very low interest rates? Business welcomes that, although savers are less enthusiastic. However, we are taking big risks on inflation as a consequence of the policy which the Bank of England is having to adopt in order to counterbalance the fiscal policy of this Government.
Lord Sassoon
Absolutely not, my Lords. The direction of the Government’s fiscal policy and the stability of that policy is one of the fundamental certainties which enable the Monetary Policy Committee of the Bank of England to set a firm course for monetary policy. The worst thing we could do to make the MPC’s task harder would be in any way to create uncertainty in government fiscal policy. Therefore, what my right honourable friend is doing in getting the deficit under control with very clear and early measures enables the MPC to do its work in relation to the inflation target.
Lord Davies of Stamford
Does the Minister agree that, although the Monetary Policy Committee has a single target imposed on it—the 2 per cent inflation target—in practice it has been behaving as though, like the Federal Reserve, it has a multiple target, with responsibility not merely for price stability but for stabilisation or employment? It may be a very good thing that the Bank of England has not been increasing interest rates, as it might have done if it had been following a single price stability target over the past couple of years, but are the Government not concerned at the discrepancy between the formal position and the actual practice on which our monetary policy is currently based?
Lord Sassoon
My Lords, I refute that suggestion completely. The Bank of England Monetary Policy Committee is following to the letter not only the direction of the Chancellor in terms of the target but also what it is obliged to do under Section 11 of the Act, and that is what it continues to do.
Egypt: Mubarak Family Assets
Lord Sassoon Excerpts(13 years, 9 months ago)
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Lord Oakeshott of Seagrove Bay
My Lords, with the permission of the House and at the request of my noble friend Lady Williams, who is attending a funeral, I beg leave to ask the Question standing in her name on the Order Paper.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, for well established operational reasons, the Government cannot comment on individual asset-freezing cases. The Government have received a request from the Egyptian Government to freeze the assets of several former Egyptian officials. We will of course co-operate with this request, working with EU and international partners as we have done in the case of Tunisia. If there is any evidence of illegality or misuse of state assets, we will take firm and prompt action.
Lord Oakeshott of Seagrove Bay
My Lords, I accept the point about individual cases, but will the Minister say how long he would expect SOCA normally to take to assess and approve a request of this kind? In particular, will the firm and prompt action that the Foreign Secretary has promised in this case be firmer and prompter than in the disgraceful case of President Daniel arap Moi of Kenya, who looted hundreds of millions from his people, and indeed of British taxpayers’ aid, left a lot of it in London banks, and eight years on has still not had to pay back a penny?
Lord Sassoon
My Lords, there are a number of potential courses of action, but the principal one now is working with our EU partners, following a similar route to the one that was adopted in relation to Tunisia. My right honourable friend the Chancellor discussed the issue with his colleagues in the context of the ECOFIN meetings earlier this week. EU diplomats are discussing the issue this week and it will be on the agenda of the Foreign Affairs Council meeting on Monday 21 February. It could decide to request the Commission to draw up a regulation similar to the one that was drawn up on Tunisia, which would be enforceable in all EU member states.
Lord Campbell-Savours
The Minister referred to evidence of misuse of assets. Has any evidence of that nature been drawn to the Government’s attention?
Lord Sassoon
My Lords, it would be wholly wrong to discuss individual cases. Indeed, it is a matter for the police and the Serious Organised Crime Agency, because in parallel to what I have described as the EU route is the principal relevant UK legislation, the Proceeds of Crime Act 2002. Under that Act, it is for the police and SOCA to initiate as they see fit, and not for the Government to direct, any action on criminal activity that relates to proceeds of crime or money laundering.
Lord Carlile of Berriew
My Lords, given the many assertions that the Mubarak family and their acolytes are the ultimate beneficiaries of substantial funds that are now held by British financial institutions, does my noble friend agree that it might be timely to remind those financial institutions and their compliance officers of their obligations to report suspected money laundering so that those institutions might fully exercise their part in ensuring that any criminal funds are found and released in the appropriate way?
Lord Sassoon
I am grateful to my noble friend. I have explained two parts of the construct: the EU angle and the Proceeds of Crime Act. Of course, it is highly relevant that banks are obliged under their normal reporting rules to file relevant reports if they see any suspicious activities. That relates particularly to any engagement and due diligence that is necessary in relation to politically exposed persons. This is a good opportunity, prompted by my noble friend, to remind the banks of their obligations under those ongoing rules, which I know the banks take extremely seriously.
Lord Davies of Oldham
My Lords, the House will have gained a great deal of reassurance from the Minister’s replies, particularly his first one, on this important topic. We all appreciate that additional requests could come in as the situation in Egypt evolves. Is the noble Lord able to give the House the full reassurance that the Government will be able to meet any request that should come in, given the degree of information that we have under the money laundering legislation?
Lord Sassoon
My Lords, I am grateful to the noble Lord for recognising that the Government are actively on the case. Of course, in relation to requests that come in, it is then up to the appropriate investigating authorities to do whatever is necessary to gather the evidence. Our agencies are well able to do this, although we should recognise that there are always enormous challenges in these cases in tracing assets if that is what is required.
Lord Foulkes of Cumnock
My Lords, will the welcome action that the Minister describes be extended to cover our home and overseas dependent territories?
Lord Sassoon
It is important that the overseas territories recognise, as they do, and have a desire to be fully compliant with, international best practice in these areas. We encourage them to take any action in parallel with that taken domestically.
Civil Procedure (Amendment No. 4) Rules 2010
Lord Sassoon Excerpts(13 years, 9 months ago)
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Lord Sassoon
That the rules laid before the House on 23 December 2010 be approved.
Relevant document: 14th Report from the Joint Committee on Statutory Instruments (special attention drawn to the instrument). Considered in Grand Committee on 7 February.