National Insurance Contributions Bill

Barry Gardiner Excerpts

Tuesday 23rd November 2010 Commons Chamber

[Mr Hanson]

That is a fair and valid point. Yesterday, in reply to a parliamentary question, the Minister emphasised the cost of the scheme for the regions covered. My purpose today is to challenge the Minister’s logic for allocating the resources for the payment holiday to the regions that he has selected, because that distribution does not necessarily reflect the level of deprivation or public sector employment. The cake that the Minister has allocated may be sliced in several ways, but he has sliced it to exclude the constituencies represented by my hon. Friends in London and those who represent seats in the south.

[Barry Gardiner (Brent North) (Lab)]

Will my right hon. Friend give way?

[Mr Hanson]

How can I resist my hon. Friend from London?

[Barry Gardiner]

Is my right hon. Friend aware that Tottenham, which has the eighth highest number of jobseeker’s allowance claimants in the country, will not benefit, although Tatton, which has the 509th highest number of JSA claimants, will receive the NI break? Is that fair?

[Mr Hanson]

My hon. Friend makes a very valid point. I do not begrudge the people of Tatton anything, and I will tell him why. I was once a Labour councillor in the Tatton constituency. I represented the ward of Rudheath and Whatcroft, and I was the leader of the Labour council that covered half the constituency at that time. I have absolute faith in those areas, but there is deprivation in Tatton. In fact, Neil Hamilton, a former Member of this House for that area, was my pair when I first came here. Such is life! But that is another story.

Tatton has one of the lowest levels of unemployment in the country. That constituency, which is represented by the Chancellor of the Exchequer, will get the benefit of the national insurance holiday to start 10 employees, but Portsmouth North will not. Neither will Brent North, Edmonton or Lewisham. The constituency of my hon. Friend the Member for Leyton and Wanstead (John Cryer) will not get that benefit either—

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[Julian Sturdy (York Outer) (Con)]

I am delighted to contribute to this important debate. It is essential to assist economic recovery by incentivising entrepreneurship and private sector-led growth and I make no apologies for supporting the coalition Government’s focus on encouraging our small and medium-sized businesses, which this Bill does in abundance. The Bill’s benefits are threefold. First, it will contribute to the Government’s wider economic recovery programme through a small increase in national insurance contributions. Secondly, it will promote and support small businesses and entrepreneurship. Thirdly, it will fulfil the coalition’s pledge to raise the threshold of income tax personal allowance.

Like other hon. Members, I shall focus my contribution mainly on the second of those benefits—the so-called national insurance holiday for small businesses. First, however, it might be useful to take stock of the history of NICs. This form of taxation was introduced in 1911 before being expanded in 1940 to help fund the national health service. The scheme has always consisted of benefits financed by contributions from earners, employers and others. NICs have always been flexible and responsive to the wider economic situation and thus linked to the ever-changing needs of society. Given the wider economic outlook and the appalling financial legacy that we have inherited, it is absolutely right that we now consider increasing these rates. However, as a low-tax Conservative, I hope that the actions we take to repair our broken economy today will be replaced with lower taxation policies across the board in future.

Turning to the scheme’s main benefits, I am absolutely delighted that the Government have already taken measures to make Britain a more business-friendly country once again. The Bill adds to the welcome return to promoting and encouraging entrepreneurship rather than suffocating businesses with endless regulation and red tape, as sadly occurred too frequently in the previous decade. By raising NICs, we will encourage the creation of private sector jobs in regions that are too reliant on public sector employment by reducing the cost of employing staff in new businesses.

NICs will be abolished for the first 10 jobs created in new start-up enterprises during the first 12 months of the business. As we have heard, the exemption will be available for new businesses within a three-year qualification period. Such measures will save businesses vital cash, thereby encouraging further growth and new employment opportunities, which are vital at this time. Early forecasts suggest that about 400,000 employers will claim the holiday, covering 800,000 employees. The average benefit per business will be about £2,000, as my hon. Friend the Member for Newton Abbot (Anne Marie Morris) has mentioned. The total cost to the Treasury is estimated at about £940 million.

[Barry Gardiner]

The hon. Gentleman will know that the October 2010 claimant level for JSA in his constituency was 901, but the figure for my constituency was about two and a half times that. Why does he think that his constituency and his benefit claimants should benefit from the holiday period while mine should not?

[Julian Sturdy]

I think that the hon. Gentleman is talking about the regional aspect of the measures, which is important and has already been raised by some Members. I shall address that issue and if he wants to intervene on me again, I shall be more than happy to take his intervention.

As we appreciate the cost of the scheme to the public purse, it is only right to drill down into the specific details. There are many concerns about the holiday provision not applying to three English regions—Greater London, the south-east region and the eastern region. I accept that this limitation might seem unfair, particularly to those right hon. and hon. Members who represent such areas, but we live in extremely difficult economic times and the woeful financial legacy will limit our ability to extend the holiday relief to every part of the country. That is regrettable, but it is a fair compromise. It is well-known that the gap between the northern and southern economies is widening and has been for the past 13 years, so it is essential that the coalition focus on closing the gap by encouraging new private sector-led growth in the north.

An unhealthy dependence on the public sector has blighted many northern towns and cities for too long. Alongside the creation of local enterprise partnerships and the regional growth fund, it is essential that private enterprise be given a boost in northern cities—such as mine, York, I confess. Economic recovery will take place only if the private sector leads the way. Only private sector expansion in the areas that are most dependent on the public sector will ensure that the recovery leads to sustainable, long-term stability in local economies. Sustainability is key.

I am sure the holiday aspect of the Bill will be welcomed by many small businesses throughout the country. It has already won the backing of the Federation of Small Businesses. I know that Opposition Members say that that is not the case, but I believe it is, although the federation raises concerns about the length of the relief and the number of firms to which it will extend. Although my support for the Bill remains unequivocal, I must confess that I share some of those concerns, while understanding the financial constraints placed on the Government.

I fear that we might be slightly short-sighted in limiting access to expansion to new firms alone, and in allowing new firms to claim it only during the first year of their business operations. I admire the way in which the coalition has governed thus far with a long-term prospect. I ask the Front-Bench team to review through the same visionary lens the time scales and business exemptions from the contributions holiday over the course of the next year or when the financial position allows. My hon. Friend the Member for Newton Abbot raised that point, referring to micro-businesses, and I agree wholeheartedly with her comments.

In conclusion, I strongly believe that the Bill sends out exactly the right message from the Government to budding entrepreneurships. This is positive Government-led action that our small and medium-sized businesses will welcome. More broadly, this action must be supplemented by Britain’s banks. Put bluntly, too few small and medium-sized businesses are receiving flexible finance. Members in all parts of the House should unite in urging the banks to free up vital cash flow. The new emphasis on bank lending, alongside the measures contained in the Bill, will ensure that our private entrepreneurs receive practical assistance in a true time of need.

The Bill will play a vital role in our economic recovery and future growth, and I will strongly support it.

[Barry Gardiner (Brent North) (Lab)]

The Exchequer Secretary commended the first part of the Bill by saying that it was fair, that it was progressive and that it supported the poorest in society. In so commending the first part of the Bill, he damned the second part, because he could not say that the second part of the Bill was fair, progressive and supported the poorest in society. That is the essence of the Opposition’s argument this evening.

The second part of the Bill is incoherent in principle and in practice and, worse than that, it is ineffective in practice. Let us look at the fundamentals. Who is it that leads us out of recession? I am happy to make common cause with Members on the Government Benches and say that it will be the private sector, in particular small and medium-sized enterprises, that will lead us into the growth that this country badly needs. Why is it, then, that the holiday provision is given precisely in those areas where private sector growth has been proven year after year not to take place?

We know, and it has been a cause of problems to us, that it has been in London and the south-east that small businesses set up and grow. That has been the engine of the private sector in our economy, yet instead of seeking to use that to advantage, the second part of the Bill is incoherent in principle because it denies that region the holiday and because it denies those potential businesses the benefits that will be made available in parts of the country that have been proven not to be able to utilise them, and therefore not to be able to bring us out of the recession and be the engine of growth that we all want.

The hon. Member for Sevenoaks (Michael Fallon) made the point that to extend the holiday to London and the south-east would cost £660 million. Of course, there will be a cost to the scheme, wherever it is put in place, but presumably that cost is seen as an investment to achieve the growth and dynamism in the economy that will return that investment multiplied to the Exchequer. Yet £660 million is not being invested in the very parts of our country where we know from experience that the private sector is most likely to give the maximum returns to the public purse. That is incoherent.

Now let us look at whether the measure is incoherent in practice. The Budget documentation quoted in the explanatory notes to the Bill states:

“The Government’s strategy to support private sector enterprise in all parts of the UK aims…to encourage the creation of private sector jobs in regions reliant on public sector employment, through reducing the cost to new business of employing staff”.

Yet we have heard this evening that that is not the case. There are parts of London and the south-east that are far more reliant on public sector employment than parts of the country that will receive the benefit from the holiday. That is incoherent and wrong.

My hon. Friend the Member for Lewisham East (Heidi Alexander) made the pertinent point that the Bill was unfair in another respect, and one can only marvel at that unfairness coming from the Conservatives. The unfairness is that the Bill is anti-competitive. My hon. Friend presented the straightforward example of two companies alike in all that they do, except that one will get a £50,000 benefit in its first year of operation which is not available to the other—and that from the party which believes in free markets and in abolishing anti-competitive practices? How can those on the Treasury Bench put that forward as a coherent philosophy?

[Mel Stride]

Does the hon. Gentleman accept that the purpose of the holiday, as we are calling it, is to try to compensate for a reduction in the size of the public sector in certain parts of the country, rather than targeting it specifically, as he and other Opposition Members seem to be suggesting, at areas of higher unemployment?

[Barry Gardiner]

The hon. Gentleman suggests that what the Government are seeking to do is compensate in some way for the decimation that they believe they will cause to employment in those areas. We share a belief that the Government’s cuts will have that decimating effect on employment in those areas. Where we differ is that the hon. Gentleman believes that the measures will in some way compensate for that, whereas I am pointing out that in other parts of the country, precisely in those areas where they are not to apply, they would have a greater effect in boosting the economy.

The hon. Gentleman may say that the measures will have a marginal effect in mitigating the increases in unemployment which he knows will come from his Government’s policies. I do not believe, and I am confident that he does not believe, that they will totally compensate for those. But the most important thing is to get our economy moving again; after all, that is why we are making those public sector cuts in the first place. If we are focused on economic regeneration, we must seek to make that investment where we know it will achieve the maximum return.

[Justine Greening]

Can I get this clear? Is the hon. Gentleman saying that Government should not try to help regions that need infrastructure improvement and are currently less productive? Should we simply not invest in them?

[Barry Gardiner]

I try to keep debate in this Chamber at a rational and reasonable level. I try not to play silly party politics or create a straw man simply so that I can knock it down. If the hon. Lady wishes to play those games, let her intervene on somebody else. It is really puerile to start talking in those terms; she knows that that is absolutely not my purpose at all.

The hon. Lady should consider her policies—not only these, but those that relate to VAT—and the effects that the Chartered Institute of Personnel and Development has said they will have. John Philpott, the chief economic adviser to the CIPD, said just a few days ago that:

“we are looking at something like 900,000 job cuts in the private sector as a result of both spending cuts and the VAT hike.”

That will be the effect of the hon. Lady’s policies. Of course I want that effect to be mitigated as far as possible, and for her to intervene on me in that ridiculous way, asking whether I am suggesting we should not try to mitigate the effect of her own policies—the loss of 900,000 jobs —is ludicrous.

In contrast to the hon. Lady, the hon. Member for York Outer (Julian Sturdy) was extremely reasoned in responding to my intervention on him. He accepted that there was unfairness in the Bill and that that unfairness was “regrettable”. My point is that although it is regrettable, it is not inevitable. We do not have to cut the cake or make the investments in this way.

In a rather partisan speech, the hon. Member for Sevenoaks (Michael Fallon) derided my right hon. Friend the Member for Delyn (Mr Hanson). He said that my right hon. Friend was suggesting that the Government were not going far enough. It is not a matter of not going far enough with the holiday; it is a matter of the Government’s being fair, equitable and effective. The Government cannot and should not take these decisions in an arbitrary fashion; they should take them on the basis of equity and effectiveness. The Bill does not enable that.

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[Barry Gardiner]

Will my hon. Friend none the less acknowledge that the hon. Member for Newton Abbot (Anne Marie Morris) made a pertinent suggestion? She identified the phase of business development that could give maximum benefit to the Treasury—when very small businesses are growing into small to medium-sized businesses, rather than when businesses are growing from zero to micro.

[Chris Leslie]

Perhaps I got the wrong end of the stick from the hon. Member for Newton Abbot when she made that pertinent point about micro-businesses. The Bill perhaps does not capture the benefit to the economy that small businesses have in that phase of their development. I hope that she will be a member of the Public Bill Committee that considers the Bill, although interestingly, as has been pointed out, perhaps some of the questioning from Government Members might prevent them—mysteriously—from being selected for membership of that Committee. We shall see.

The Prime Minister said before the general election that VAT is

“very regressive, it hits the poorest the hardest, it does, I absolutely promise you”.

The Government have chosen a path that will hit employment, jobs and businesses very hard indeed. That should be borne in mind when we consider the Bill. It is odd that this Bill is separate from either of the Finance Bills. I have not quite figured out the Government’s tactics, and perhaps they had not quite worked out what they were going to do. In that wider context, it is necessary to compare their choices in VAT against the national insurance changes.

Hon. Members mostly spoke about part 2 of the Bill, which includes the concept of a national insurance holiday. Such a holiday is, of course, superficially attractive, but there are reasons to be concerned about the poor design of the measure, which applies only to new businesses and not to existing firms. That is important. Many businesses could be under the misapprehension that they will qualify, and a lot of effort and time will go into contacting Business Link and the Treasury to find out whether the measure applies to them, and many will be disappointed.

The proposal is complex because of the limited time and extent of the scheme. It applies only to a small number of employees and there is a convoluted application process. Government Members pointed out that efforts need to made to ensure that the measure is as simple as possible. The Bill will require HMRC to take on 240 extra staff—I am not sure that they will be additional staff, especially given that HMRC is cutting numbers—and we will press the Minister on that extra complement in Committee. Businesses could apply for the national insurance holiday but not get it because they have to swim for hours through treacle to get someone in the Treasury to pick up the phone. That could be a significant problem.

The Minister gave a vague figure when asked how many people had applied since the scheme started in September. Very few people are aware that the scheme exists, and it has hardly been advertised—[Interruption.] I am glad that Liberal Democrat Members have joined us in the Chamber, even if they are just passing through, because they have been conspicuous by their absence. Perhaps that is related to their embarrassment over the VAT comparator.

My hon. Friend the Member for Ilford South (Mike Gapes), who highlighted the discriminatory nature of the national insurance holiday proposal—it affects some parts of the country but not others—and my hon. Friends the Members for Lewisham East (Heidi Alexander) and for Ealing North (Stephen Pound) pointed out the unfairness of a crude system that will exclude the east of England, London and the greater south-east, as my hon. Friend the Member for Luton South called it. That will cause significant disquiet, and many new entrepreneurs in those parts of the country will complain. Legitimately, they will not understand why they are excluded while reasonably affluent areas of the country outside the greater south-east—Chester, Worcester, Harrogate, York Outer, Tatton and Richmond, to name areas at random—will be eligible for the benefits. My hon. Friend put things perfectly when he said that the boffins at the Treasury ought to be capable of understanding the distinction between the greater south-east and other parts of the country. Of course they are capable of that, and we will seek to make amendments to deal with that problem in Committee.

Unfortunately, this small and partial measure—a national insurance holiday for some businesses in some parts of the country—reveals first of all the Government’s complete failure to develop a regional growth strategy, especially for the English regions. They have taken the knife not only to regional development agencies, but more importantly to the budgets at their disposal to help to build SMEs and provide the infrastructure necessary for businesses to survive. We know that for every £1 spent through the auspices of RDAs, £4.50 of benefits accrued to the regional economies. The Government disregarded evidence from the National Audit Office. They have damaged the prospects for growth in our economy, but particularly in those parts of it that have not benefited from the historic engine of growth that has surrounded London and the south-east. The Government’s alternative —these local enterprise partnerships, which are unfunded, and only partially covering the country—is a poor substitute for a proper regional economic strategy. Nearly 21 million people and 780,000 businesses will not be covered by the LEPs, the Business Secretary has described them as “chaotic”, and Richard Lambert of the CBI has called the process a “bit of a shambles”.

That sums up the Government’s lack of a growth strategy. We know that they have pulled the rug from under the growth White Paper that was meant to be forthcoming. They did that because they have no clear idea of how to drive growth: they are fixated on austerity alone and have no solutions for the long-term course of our economy. That is a great pity. The regional growth fund has been hacked down to a pathetic size, with few opportunities for small and medium-sized enterprises to apply for support under it. In many ways, therefore, small firms have been cast to one side, with perhaps a few crumbs from the table made available for them as a result of this Marie-Antoinette strategy of the Ministers—“Let them eat cake” seems to be the approach they are willing to take.

The hon. Member for York Outer (Julian Sturdy) rightly pointed out that the Government should be trying to make the banks lend more and give more support to SMEs, making inroads into that desert of loan and credit available to them. We know from the Chancellor’s statement at Treasury questions last week and from Ministers’ comments that they have gone soft on the banks in a number of ways, particularly on the coalition commitment to restart net lending targets for the banks in which they have a shareholding. They have decided now to row back from their commitment to institute those net lending targets, and I urge hon. Members, particularly Government Members, to ask serious questions of Ministers about why they are not prepared to ensure that the banks play their full part in repairing the economy.

I would not like to think that we cannot trust the Chancellor to fulfil some of the pledges to lessen the impact of these national insurance increases. As we know, the Government have already reneged on the commitment on employee national insurance changes, even though the press reported before the election that the Conservative party would do so. It is true that in many ways the personal allowance changes deal with some of these elements, but only in part—there was a commitment on national insurance as well, but it folded and absorbed it into that change. Again, it raised people’s hopes before the general election, but has not fulfilled them.

In particular, the Government are not fully offsetting these changes for employers, which will be a surprise to many people. Before the election, the Conservative party gave the impression that it was fully against the 1% increase and that it would repeal it entirely. [Interruption.] Ministers seem to think that they were going to repeal it entirely. As I see the measures, the impression they gave—[Interruption.] There was small print, it is true, but that was not the impression given. The £4.5 billion change is offset by the £3.1 billion increase in the threshold for employers on national insurance, so there is a deficit of £1.4 billion in the compensation that the Government will not be giving to employers. This is a question not necessarily of a broken promise, but of an impression that many people had that the Government were going to end the jobs tax, as the Prime Minister and Chancellor characterised it. As ever with this Government, however, when we look at the small print, we see that those changes will not be forthcoming.

We have not seen the secondary legislation yet. I would like to know when the Minister will introduce it. Presumably on Monday—traditionally the time of what was the pre-Budget report—we will hear from the Chancellor about the threshold changes and the indexation elements of these changes. Ministers have said they are going to add £21 to the employer threshold, but what will be the indexation? Will they follow the long-standing traditions of the Rooker-Wise amendment when it comes to allowance and threshold changes and follow the retail prices index option, or will they row back again and go for the cheaper consumer prices index option? In other words, will they be giving with one hand, through the threshold change, but taking with the other, by only opting for CPI?

This debate has revealed significant concerns among Government Members about the crude discrimination shown against London, the south-east and the east of England. The Bill reveals a lack of a proper strategy for growth, especially in the English regions, and the Government have revealed their preference for regressive taxation, particularly VAT, which will harm businesses and raise unemployment. We will certainly need to see serious improvements in these measures in Committee.

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[Justine Greening]

Clearly, that must be seen in the context of our desperate need to tackle the fiscal deficit that the Labour party left us. It is one reason why our overall plan is not just to support business—that is clearly how we will grow our economy back to the healthy state that it needs to get to—but, as the hon. Gentleman pointed out, to make our numbers add up across the board. We must get rid of the structural deficit that his party handed over to us.

We believe that the package of measures is right, the OECD has said that it is moving in the right direction, and it has been welcomed throughout Europe. If the hon. Gentleman is saying that we should not increase VAT, that prompts a question. His right hon. Friend the Member for Edinburgh South West (Mr Darling) was interviewed recently and said that the Labour party would have increased VAT, so we cannot accept the hon. Gentleman’s comments that his party would not have increased it. There is a blank piece of paper, and at the top are the words, “Labour economic strategy”. It is time for the Labour party to start to become credible by trying at least to pull together and to plan for our economy. Most people will put the contributions about jobs and the complaints about reductions in national insurance not going far enough in the context of a party that has absolutely no alternative plan for managing our economy. They will realise that its arguments are not credible.

The regional aspect of national insurance policy must be seen in the context of the broader package to support business. The level of VAT registrations in different parts of our country and the number of jobs created in different parts of our country show that we need to ensure that we can stimulate growth, particularly in the communities that can benefit most from it. The policy should be looked at not in isolation, but in the context of the broader tax reductions on business and the rise in the personal allowance for employees. Nearly 900,000 of the lowest-income workers in our country will be taken out of income tax altogether. The vast majority of people will benefit from our proposals, and under the Bill many of them will be small businesses with a handful of employees.

[Barry Gardiner]

I do not think I heard a single speech from either side of the Chamber that suggested in any way that those benefits should not flow to certain businesses. The question that was repeatedly asked and that the Economic Secretary and her colleagues failed to answer is why those businesses are favoured, not only when they are specifically not the ones in the areas that will produce the economic growth that she indicates is required from the policy, but because of the manifest unfairness that will result from their distribution.

[Justine Greening]

I realise that the hon. Gentleman takes a different view about how to target the policy. I happen to believe that he is wrong. We recognise that there needs to be some targeting, but the way in which he would have done that would have been unwieldy and unaffordable. In the context of our broader measures to reduce corporation tax instead of allowing rises, which would have happened under the Labour party, and the measures to take the lowest-income employees in our country—nearly 900,000—out of income tax altogether, we are trying to strike a balance, and I believe that we have struck the right balance.

I have no doubt that we will continue the debate in Committee, but we must be pragmatic. I draw attention to the hon. Gentleman’s attempts to target policies when the Opposition were in government. They faced difficulties with their changes during their final years in office. Under the deprived area fund, and the neighbourhood renewal fund, which became the working neighbourhood fund, some communities that had previously received funding were cut off. We want an overall package that supports business across the board, while retaining an element of support targeted at the regions that we think need to benefit most from the next economic upturn. That is what the Bill is doing.

The package of reforms of which the measures in the Bill are part will benefit individuals and employers throughout the country, and help us to achieve the twin objectives of creating a fair and competitive UK tax system. The burden of labour taxation will be reduced by more than £6 billion a year in a way that will help the lowest earners in Britain and protect lower-paid jobs.

The national insurance holiday provides targeted support to new enterprises, and encourages people to set up their own businesses and to employ new staff. It is an important part of our economic strategy to help the parts of the country that are most reliant on the public sector, and to ensure that we make the transition to a more sustainable model of growth and employment as smooth as possible. The Bill will ensure that as the recovery takes hold, all parts of the country will benefit. It will enable a reduction in taxation on labour nationally, and provide extra support in targeted areas. It will be good for growth, and for jobs. I commend this Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

National Insurance Contributions Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7),

That the following provisions shall apply to the National Insurance Contributions Bill:

Committal

1. The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

2. Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 9 December 2010.

3. The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

4. Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

6. Standing Order No. 83B (Programming committees) shall not apply to proceedings on consideration and Third Reading.

Other proceedings

7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Norman Lamb.)

Question agreed to.