Business and the Economy
Debate between Damian Hinds and Jerome Mayhew(2 weeks, 2 days ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Damian Hinds
The hon. Lady makes a good point about small businesses, particularly rural small businesses, and I will talk about national insurance contributions and business rates, but let me come back to how taxes on businesses are ultimately taxes on people.
Some Labour Members might say that they do not mind a tax on business owners, because they are the capitalists and they can afford it, but we need to remember that the owners of businesses are a mixture of institutional owners—which, by the way, includes your mum’s pension fund—small business owners, who are quite often sole traders, and family businesses. If the owners are not affected, either the customers or the employees will be affected, and I am afraid the effect of the national insurance contributions rise will ultimately be felt by those two groups of people, and particularly by employees, through a mixture of wage suppression over time and possibly some job losses. The bigger effect will not be about job losses; it will be about jobs that are never created in the first place, particularly among the youngest people and those furthest from the labour market.
Jerome Mayhew
My right hon. Friend is making a good point. When the Government brought in the increased national insurance contribution for employers, they used sleight of hand, saying that it was not a tax on working people, but does he agree that the Office for Budget Responsibility’s assessment of the impact concluded that the overwhelming majority of that cost will be borne by the employees and not by this notional employer?
Damian Hinds
It will, and I repeat that it can only be one of those three groups. There will be some price increases, and those costs will be felt by customers and consumers, but all the indications are that the big effects will be felt in wage suppression and in employment, which will ultimately mean slower economic growth.
In the same way that taxes on business ultimately land on people, taxes that look like they are on people can sometimes have an effect on business. I want to talk briefly about two examples. The first is the family farm tax. This is clearly a desperately ill-conceived measure, although, to be fair to Labour Ministers, they probably did not realise at the time quite what they were doing. However, their Members of Parliament representing rural seats found out very quickly exactly what they were doing and the effect it would have.
There is an alternative proposal on the table, which we know has been put to the Treasury by representatives of the sector. As this brilliant Treasury Minister the Parliamentary Secretary to the Treasury, the hon. Member for Swansea West (Torsten Bell) will be winding up, I am sure—at least I hope—he will find it possible to share with the House the Treasury’s critique of that alternative proposal, the so-called clawback proposal, which would be much fairer, and tell us why the Government are rejecting it.
There has been quite a lot of debate in the House on the family farm tax, but somewhat less on the business property relief situation, which is not quite as acute in some ways, but there are a number of parallels and similarities. Business property relief was put in place to level the playing field for family-owned businesses and others, so that people could invest in their family-owned businesses, confident that they could pass it on, within the family, without incurring a tax that applies to no other business ownership model.
Typically, these businesses will not have large amounts of net cash or liquid assets that will allow them to settle the tax bill upon the demise of the owner, and there are no listed shares, so there is typically no market for those. There has to be a theoretical valuation, because the shares cannot be valued, and that figure is likely to be considerably higher than the amount that could be realised in the event of a sale. The relief was created specifically to stop family firms having to be broken up; however, the net effect of the changes is that a substantial number of firms in this situation will be bought up, either in whole or in part, by foreign owners or private equity. Is that really what a new Labour Government had in mind?
Jerome Mayhew
Labour used to agree with the point that my right hon. Friend makes. Am I right in saying that it was a Labour Government in 1976 that generated the policy of having a relief in the first place?
Damian Hinds
Forgive me, but I do not have the history at my fingertips. The relief has been recognised over the years, and has been looked at in the past by Treasury officials. I have been a Treasury Minister, and I know that they get presented with various things that could be done, but generally speaking, when many Ministers before you have found good reasons to keep a measure, it is a good idea to wonder what those reasons might be.
Overall, this Government’s changes to the business taxation regime will affect many sectors, but particularly those that are labour intensive. We can all name hospitality, retail and care as the three really big-volume employers in the country. In my constituency, I would also mention nurseries, pubs and hair and beauty businesses. Of course, there are sector-specific pressures. For nurseries, for example, the issue is whether the unit rate per child per hour is sufficient. Many of my nurseries say that it is simply not sufficient to cover their costs, at a time when entitlement to nursery care is increasing. In the hair sector, there has long been an issue about those who have created a business that has employees, and their ability to compete with others who are below the VAT threshold.
The confluence of four things that the new Government have done is creating a big headache. First of all, the national living wage going up to £12.21 is a good thing in and of itself. We absolutely support a rise in wages for people on lower wages; it is the fact that it is happening at the same time as all the other things that is causing the problem. I will not talk in detail about the national insurance contributions increase, because others have done so, but that will have an effect, particularly on part-time employees, and the Government ought also to acknowledge the gender differential effect of that, which we have heard little about.
Today I have heard two Labour MPs say that business rates have gone down for retail and hospitality businesses. One was the Minister. Try telling that to those businesses—
Damian Hinds
I shall suitably dampen. At a time when the Government are changing the relief from 75% to 40%, try telling those businesses already facing the national insurance contributions increase and all the other cost increases that their bill is being reduced. Clearly, it is going up.
Damian Hinds
I am conscious that I have gone on for quite a while, and I want to wind up.
Fourthly, there is the Employment Rights Bill. On the face of it, who would not like something with that name? It sounds like a positive thing, but the point is the effect that it will have, particularly on seasonal businesses, which might otherwise take somebody on at Christmas or in the summer. Hospitality, travel and events businesses rely on doing that. The Bill will affect the national health service, which will have to deal for the first time with some of those considerations. It turns out that the national health service is a considerable user of zero-hour contracts—by the way, not for someone’s first job, but usually for their second—so that staffing can vary according to the demands of a hospital or clinic. The Minister is a labour—and a Labour—economist, so I would be interested to hear his comments on the shift that we are likely to see from permanent to temporary contracts, and the shift that we are already starting to see in companies that are moving from relying on contracted, salaried employees to relying on agency workers.