David Gauke
Main Page: David Gauke (Independent - South West Hertfordshire)Department Debates - View all David Gauke's debates with the HM Treasury
(11 years ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
The Bill underlines this Government’s belief that pro-business policies help growth and job creation. For too long, our economy has been dependent on a booming financial services sector, on the one hand, and unsustainable levels of public spending, on the other. That made us particularly vulnerable to the crisis of 2007-08, the consequences of which continue to be felt today.
The challenge the Government faced in 2010 was how to begin the process of getting our public finances in order and to put in place the conditions for growth. Some believed that it was not possible to do both and some argued that measures to reduce the deficit would result in higher levels of unemployment. It was the Leader of the Opposition, no less, who said that the Government clearly had
“a programme that will lead to the disappearance of one million jobs”.
That was just over three years ago and there are now more people in work than ever before.
Since the coalition came to power, employment has increased by more than 1 million and there are 1.4 million private sector jobs, more than there were at the time of the last election. Employment in the three months until August 2013 was at its highest ever level, at 29.87 million. Those predicting disaster massively underestimated the capability of businesses up and down the country to adapt, innovate and expand, but they also failed to appreciate that we now had in place a Government on the side of businesses who were willing to put in place the conditions that help them to invest and expand, whether by addressing burdensome regulations or reforming our tax system.
In case we forget, such action included reversing the worst effects of the previous Government’s jobs tax. Yes, at a time when we needed businesses more than ever to take on more staff, Labour’s contribution to deficit reduction consisted of increasing the tax on jobs.
Mr John Redwood (Wokingham) (Con)
Does my hon. Friend think that it is possibly because they are embarrassed by that record that there are only two Labour Back Benchers in the whole Chamber and nobody from the other Opposition parties? How many extra jobs does he think his excellent Bill might help to create?
Mr Gauke
My right hon. Friend makes a very good observation. I can rarely remember so few Labour Members being present for the opening of a Second Reading debate. I was beginning to take it personally, but he has reassured me that this issue does not attract the interest of the Opposition. Labour is the party that intended to increase the jobs tax. Pretty much the only measure that they had for deficit reduction was to increase employers’ national insurance contributions, which was not a sensible approach at all.
We are not predicting how many jobs the Bill might create because a number of factors apply. It is interesting to note, however, that the Federation of Small Businesses believes that the measure is better than the one that it had advocated, which it anticipated would have created 45,000 new jobs. It has carried out a survey of its members and 28% of respondents believed that this measure would help them to increase the number of people they employ. That is a very encouraging step.
Guy Opperman (Hexham) (Con)
I accept entirely that the Minister cannot give specifics on the number of jobs the Bill will create, although quite evidently it will create jobs. Can he estimate how many employers he expects it to assist, particularly in the north-east?
Mr Gauke
That is a similar point, and, as I say, I am nervous about giving precise numbers. Of the FSB respondents, 28% believed that this would help them. We believe that we have to consider a range of measures, but clearly measures that reduce the cost of taking on staff must help in increasing employment. For example, the Bill would enable a business to take on four people on the national minimum wage and not pay any employers’ national insurance contributions at all. That will clearly help.
Margot James (Stourbridge) (Con)
My hon. Friend mentions the welcome for this Bill from the FSB. Is he aware that charities and social enterprises will also benefit from it? Alex Swallow, chief executive of the Small Charities Coalition, said:
“For a lot of the smallest charities, having one paid member of staff is a big step forward…having this allowance now helps them to do that, so it is a very positive thing.”
Mr Gauke
I am very grateful to my hon. Friend for that intervention. She makes an important point that applies to both businesses and charities. Taking on the first member of staff can be the most difficult step, as it is a big event for a business. If we are able to help and to reform our tax system to enable businesses or charities to take that member of staff on without paying the jobs tax—employer’s national insurance contributions—that will clearly encourage those businesses, which, I hope, will then take on further staff and expand.
Charlie Elphicke (Dover) (Con)
Will my hon. Friend confirm that the measure was the largest tax cut in the Budget? Does he therefore not think it is all the more surprising that there are no Labour Members here to scrutinise a major plank of that Budget?
Mr Gauke
Another observation one could make is that there are no Labour Members of Parliament here because they are—[Interruption.] I apologise. That remark is unfair and I withdraw it. There are the Labour Front Benchers and now three Back Benchers. Who knows? We might reach five or six by the end of the debate. Perhaps Labour Members have confidence in, and enthusiasm for, the Bill and can find nothing to criticise. However, we look forward to the speeches to come later. On that note, as the hon. Member for Bolton West (Julie Hilling) has waited so patiently, and as it is about time that we heard from a Labour Member, I give way to her.
Julie Hilling (Bolton West) (Lab)
I thank the Minister for giving way. Has he considered the fact that there are only a few Labour Members here because, to our relief, he has, in the end, listened to what we have been asking for and included a great deal of it in the Bill? I congratulate him on listening to us, and therefore on introducing the Bill.
Mr Gauke
That, too, is a theory, but I am not sure that it is necessarily persuasive. When we fought the previous general election, the Labour Government’s big policy for deficit reduction, among a pretty thin set of policies, was a big increase in national insurance contributions. We have already reversed the worst effects of that, and the Bill is a further measure that will help businesses up and down the country to create jobs.
The hon. Member for Bolton West is referring to one element of Labour’s five-point plan, which we do not hear much about any more, but there were serious problems with Labour’s proposal; this one is very different from that. It was a much more targeted scheme aimed at smaller employers taking on new employees, which raised all sorts of practical questions about how to define a new employee and how to prevent there being perverse incentives. I put it to the House that that scheme was neither workable nor likely to achieve its objectives. I suspect that we shall return to that issue.
Christopher Pincher (Tamworth) (Con)
While the Labour Whips hunt for a seventh dwarf—
Christopher Pincher
No, I am definitely Bashful. Cheeky is probably on the other side of the House.
Does my hon. Friend the Minister agree that the key component—the most important innovation in the proposal—is the fact that it encourages confidence among businesses, particularly small businesses? I held a jobs fair a couple of weeks ago and 500 jobs, part-time and full-time, were available. Many small businesses at the fair thought that cutting their tax through this measure was the right thing to do.
Mr Gauke
I am grateful to hear of the experience in Tamworth, and my hon. Friend is right to raise that point. Particularly for those small employers taking on their first person, the fact that they do not have to pay employer’s national insurance contributions at 13.8% will help them. In many cases, the Bill will have exactly that effect. I welcome what appears to be broad support for the measure.
Anne Marie Morris (Newton Abbot) (Con)
Following on from the earlier point about confidence, does the Minister agree that, although all the surveys indicate that confidence is at an all-time high, the challenge is investment? A Federation of Small Businesses survey has said that the measure will enable 28% of businesses to take on additional staff; that is what businesses want to do. Some 25% of those surveyed would invest in new machinery and equipment, and 21% in new staff training. That is exactly what we need; we need to turn confidence into a deliverable result.
Mr Gauke
My hon. Friend raises an important point. I pay tribute to the work that she does on the all-party parliamentary group on micro-businesses. She provides a very strong voice in the House for smaller businesses, and she is absolutely right to do so. She is right to draw the House’s attention to the FSB survey. We have already talked about the contribution that the measure will make to the taking on of more staff, but where more staff are not taken on, there will very often be investment in the business, which will clearly help it to expand.
The Bill cuts the jobs tax for 1.25 million employers and takes 450,000 of them out of employers’ national insurance contributions altogether, making it less expensive for businesses to take on new staff, so the Bill will help job creation. It contains four main measures. We have touched on the employment allowance. I will also say something this afternoon about the fact that the Bill gives effect to the general anti-abuse rule on national insurance contributions. It also amends the Social Security Contributions and Benefits Act 1992 to allow regulations to be made on the certification of non-UK employers of oil and gas workers, and makes changes in connection with two elements of the partnerships review carried out by Her Majesty’s Revenue and Customs. The Bill also makes a small number of technical corrections that I am happy to take the House through, should there be demand for that; if there is not, I am sure that we can cover them in some depth in Committee.
Returning to the employment allowance, as part of our efforts to remove barriers to growth for businesses and to equip the UK economy to compete in the global race, the Chancellor announced in this year’s Budget the creation of a new employment allowance, as my hon. Friend the Member for Dover (Charlie Elphicke) pointed out. It will take effect from 6 April next year. Businesses, charities and community amateur sports clubs in the UK will be entitled to a £2,000-a-year allowance towards their employer national insurance contribution liability.
The employment allowance builds on action that the Government have taken to make the tax system more competitive, and to encourage growth. That includes cutting corporation tax, increasing the rate of the research and development tax credit for small and medium-sized enterprises, increasing the annual investment allowance to £250,000, and giving a cash-flow benefit to those who invest in plant and machinery.
The objective of the employment allowance is to help businesses with the cost of employing their staff by reducing their employer class 1 national insurance contributions bill each year. It will support thousands of small businesses that aspire to grow, perhaps by hiring their first employee or expanding their work force, as well as those already employing others, or facing temporary cash-flow problems.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
In the emergency Budget that followed the last Westminster election, the Treasury said that it wanted to rebalance the economy geographically, but the only measure that we have seen to date is the reduction in employers’ national insurance contributions for companies outside London and the south-east. The employment allowance is a UK-wide measure. Does that indicate that the Treasury has given up on its ambitions geographically to rebalance the UK economy?
Mr Gauke
No, not at all. There is a whole host of measures, including the regional growth fund, and there is some really good news; exports are up significantly in the west midlands and the north-east in particular. We are taking steps to strengthen industries up and down the country. The hon. Gentleman touches on the regional employers’ NICs holiday; let me turn to that, because I suspect that the policy will feature heavily in the arguments that we hear from Opposition Front Benchers.
Mr Brooks Newmark (Braintree) (Con)
The hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) made a good point about rebalancing the country’s economy. Is my hon. Friend the Minister aware that we have had the biggest growth in construction in six years? The Chancellor and the Treasury should be congratulated on ensuring that the Government are rebalancing financial services and manufacturing in the economy.
Mr Gauke
The striking point about the most recent growth numbers is that they demonstrate growth in every sector, and that is very encouraging. I began by saying that the economy in the mid-2000s, say, was very dependent on financial services and on London and the south-east. Of course we want a successful financial services sector and we want London and the south-east to do well, but it is also important that growth is better balanced throughout the United Kingdom, and the Government continue that commitment.
Charlie Elphicke
While hesitating to introduce any controversy into the debate, does my hon. Friend agree that the hikes in the jobs tax under the previous Government destroyed jobs, and that this Government’s policy of reducing the jobs tax, particularly in this Bill, will enhance job creation and aid the recovery?
Mr Gauke
I do agree. Given that we want to increase employment, it would not have been sensible to undertake the increase in national insurance contributions that the previous Government intended. That was clearly a mistake. I am sure that my hon. Friend will be delighted to know that not only are he and I in agreement but Tony Blair said last week that he thought it was a mistake.
Sheila Gilmore
Can the Minister explain how a measure that was not actually implemented destroyed jobs, as the hon. Member for Dover (Charlie Elphicke) suggested?
Mr Gauke
To have implemented the policy we inherited would have destroyed jobs. It did not do businesses in the United Kingdom any good to have the prospect of an increase, sending the wrong message that we were going in the wrong direction. I am pleased to say that we have reversed that direction of travel by not implementing the previous Government’s policy in full. We have increased thresholds for national insurance contributions, which has clearly helped. Now, through this Bill, we are providing an employment allowance of £2,000.
Margot James
Does my hon. Friend agree that the reason the previous Government proposed the ridiculous increase in the jobs tax was testimony to the fact that they could not countenance cutting public expenditure? That was their downfall. They were content to continue to borrow £1 for every £4 this country was spending, and their proposal was evidence of a wholesale mismanagement of the economy.
Mr Gauke
My hon. Friend makes a valuable point that is well worth highlighting. When running a deficit of the size that we were running, we face some tough decisions. We have taken a range of measures to reduce the deficit, and it has reduced by a third.
Ultimately, though, whoever was in government was going to have to take these difficult decisions. If we are not prepared to take difficult decisions on spending—there is no evidence that Labour Members would do so—the answer is that we have to increase taxes. When we look around to see what taxes are available, it is clear that some very difficult decisions have to be made. Labour Members chose to go for employers’ national insurance contributions; perhaps they considered that that option was less visible to the general public than some of the others. However, the consequences would have been higher unemployment, and this Government were not prepared to face that.
Sir Edward Leigh (Gainsborough) (Con)
What business hates more than anything else is the complexity of the tax system. We still have one of the longest tax codes and one of the most complex tax systems in the world. Will the Minister explain how we are still setting about our long-term objective of simplifying the tax system and achieving a much flatter rate of tax for the sake of business?
Mr Gauke
The Bill will result in a big simplification for 450,000 businesses, because they will no longer have to pay any employers’ national insurance contributions. That is significant progress. We have established the Office of Tax Simplification, which has produced a number of reports. Anyone who has studied recent Finance Acts closely will have seen that a whole range of measures have been introduced as a consequence of the OTS’s recommendations. Of course, there is more work to be done and we as a Government remain committed to that, but there have been a whole range of measures. The OTS is looking at employee benefits at the moment, and that is significant.
Julian Smith (Skipton and Ripon) (Con)
One of the concerns that small businesses had about the national insurance holiday—which was an excellent policy, despite the Opposition’s comments—was about the forms that had to be filled in to qualify. Will the Minister clarify how easy it will be for businesses to take advantage of the new proposal?
Mr Gauke
My hon. Friend makes a good point. I want to turn to the employers’ national insurance contributions holiday, because I suspect it will feature in the speeches of Opposition Members. They will make the point that take-up was not as high as we had anticipated. [Interruption.] Let me give the numbers: 26,000 employers and 90,000 employees have benefited from it. Our expectation was that take-up would be much higher. [Hon. Members: “How much?”] Don’t worry; I am going to set it out.
We said that 400,000 businesses and 800,000 employees would benefit from the scheme. I think that the reason why that did not happen is closely aligned to what my hon. Friend has just pointed out: a scheme that was, essentially, quite targeted and required businesses to apply—even though we worked hard to try to make the application process as simple as possible—simply meant that fewer businesses applied for it than we had anticipated. Take-up was lower than expected and there are lessons to be learned from that. We should be open about that.
We need a system that is simple and that can be applied easily. Under the new proposal, no application process is needed as such. Businesses will receive the benefit of the employment allowance simply by using up-to-date payroll, and the introduction of real-time information makes that much easier to apply. We believe that this is a much-improved policy. It contrasts with the employers’ NICs holiday, because that was a targeted regime. It also contrasts both with the policy advocated by Labour in its five-point plan, which was even more targeted, and with the policy we heard about yesterday on the living wage. Complicated, temporary schemes requiring applications are likely to have disappointing levels of take-up, whereas permanent schemes automated through the payroll system will, we believe, apply much better.
Chris Leslie (Nottingham East) (Lab/Co-op)
Will the hon. Gentleman give way?
Chris Leslie
I am grateful to the Exchequer Secretary and I also welcome the new additions to the Government Front Bench. He will remember that we both sat on the National Insurance Contributions Bill Committee—I think it was one of his first Bills as a brand new Treasury Minister—and Labour said at the time that the proposal was very complicated. We said that he needed to be very careful with the convoluted regional design that he put in place and that the scheme would not get the anticipated take-up, which evidently it did not. It is sometimes invidious to say these things, but we told you so. Will the Exchequer Secretary go a little bit further, accept that we were right and he was wrong, and be big enough to say sorry?
Mr Gauke
If I remember correctly, that was in autumn 2010, when the next leader of the Labour party was saying that 1 million jobs would go missing. The hon. Gentleman says that the NICs holiday was too complicated. One of the lessons that can be learned from the NICs holiday is that the simpler the scheme, the better. Perhaps the Labour party has not been listening to him because since that debate, it has proposed two NICs schemes, both of which are more complicated than the one that we had in place. If he is making the case for keeping NICs schemes simple, perhaps he ought to have a word with his party leader.
Margot James
My hon. Friend is being exceedingly generous in giving way. Does he agree that the Opposition’s latest wheeze of giving a subsidy to employers who take on employees at the living wage will have a huge dead-weight cost, because 12 months before the appalling prospect of the return of a Labour Government, employers are likely to stop giving salary increases to workers who are on the minimum wage, mindful of the fact that if they give it another year, they might get it all rebated by the taxpayer?
Nick de Bois (Enfield North) (Con)
The Minister has talked about wages. Interestingly, the Federation of Small Businesses has said that about 29% of its members will use the employment allowance to give a pay rise to some of their employees, which they have been unable to do because of the economic circumstances. Does that not show that this policy is a way of delivering sustainable growth and sustainable wages, and not just a gimmick that will do more harm than good?
Julian Smith
Will the Minister confirm that he will take no lessons from the Labour party, because during the debates on the national insurance contributions holiday, it advocated more bureaucracy in the form of annual reports and the like?
Mr Gauke
My hon. Friend is right. The policy of providing a NICs break only for new employees raised all sorts of practical questions such as who constituted a new employee and what perverse incentives might have been created. That is not dissimilar to the point that my hon. Friend the Member for Stourbridge (Margot James) has made about Labour’s current policy.
I will turn to the other elements of the Bill. Clauses 9 and 10 relate to the general anti-abuse rule. The Government announced at last year’s Budget that they accepted the recommendation of the Aaronson report to introduce a GAAR targeted at abusive tax avoidance schemes. The GAAR was introduced in part 5 of the Finance Act 2013 and has been in force since July. This Bill will apply the GAAR to national insurance contributions.
Clause 11 relates to oil and gas workers. In this year’s Budget, the Chancellor announced that the Government would strengthen the legislation on offshore employment intermediaries. The Bill will address the non-payment of employer’s national insurance contributions in the oil and gas industry through the placement of the employer of oil and gas workers who are working on the UK continental shelf outside the UK. The measure has been subject to consultation. The consultation document, “Offshore employment intermediaries”, was published on 30 May 2013 and the consultation closed on 8 August 2013. The summary of responses was published in October.
The Government intend to address those offshore employment schemes largely by using existing powers contained in social security legislation. The Bill supplements those with a new certification provision for the oil and gas industry. That provision will apply where the national insurance obligations are fulfilled by someone on behalf of the person deemed to be the employer for national insurance purposes.
Clause 11 is part of a measure that, as a whole, is expected to bring in the region of £100 million per year to the Exchequer, without having a significant economic impact on the oil and gas industry. Staff costs for some businesses may increase if they had not previously been accounting properly for all tax and NICs. There will be little cost to the Government through additional administration, other than HMRC implementing the new certification system, and I hope hon. Members will agree that this is a straightforward and uncontroversial provision.
Finally, I wish to refer to provisions in the Bill concerning HMRC’s partnership review, which are contained in clauses 12 and 13. Following the Chancellor’s Budget announcement, HMRC carried out a consultation on two aspects of the partnership rules between May and August this year, and the Government are bringing forward measures in the Bill as a result of that review. The Government are proposing two sets of changes, the first of which was not part of the consultation proposals but resulted directly from information received during that consultation. It concerns a tax issue that can arise from the interaction of the alternative investment fund managers directive—AIFMD—and existing partnership tax rules. Only those alternative investment fund managers who operate as a partnership will be affected by the proposed changes in the Bill.
A provision in the Bill will allow regulations to be made to modify the class 4 NICS liability of partners whose profits will be deferred under AIFMD, which aims to improve investor protection and reduce risk. The regulations will be based on new tax legislation that will be included in the forthcoming finance Bill. Measures will be included in the NICs Bill, the forthcoming finance Bill and secondary legislation to reclassify certain limited liability partnership—or LLP—members as employed earners for tax and national insurance purposes, to tackle the disguising of employment relationships through LLPs.
The tax and NICs changes are expected to bring in approximately £125 million to the Exchequer in the first year, while the broader economic impact is expected to be negligible. There will be changes to the NICs liability for certain partnerships and individual partners in the alternative investment fund sector. The Bill will also result in some LLPs in certain industry sectors where disguised employment has been most prevalent paying increased amounts of NICs.
Richard Fuller (Bedford) (Con)
I greatly appreciate the Minister giving way. Before he sits down, will he or one of his colleagues respond on the financial costs of the employment allowance contained in the Treasury documents? What impact on the take-up of tax credits were included in the estimate of £1.25 billion impact on the Exchequer in 2014 through to £1.7 billion in 2017-18? I do not expect the Minister to have those numbers to hand, but if his colleagues could reply to that later, or send me a note, I would appreciate it.
Mr Gauke
I am grateful to my hon. Friend for that observation, and we will of course take a cautious estimate on the impact on tax credit take-up. Those numbers were signed off by the Office for Budget Responsibility, but I will ensure that my hon. Friend receives an answer on the detailed technical point before long.
This is an important and necessary Bill. Through the employment allowance it will allow us to support businesses with the cost of employing their staff, as well as small businesses that are aspiring to grow. The Bill also includes a package of measures aimed at activity that attempts to reduce the national insurance contributions payable to the Exchequer—an issue we are seeking to address.
This is another Bill that will help to create a system of low taxation that is properly enforced. It will continue to help businesses help our economic recovery, and it will help jobs and job creation. I commend the Bill wholeheartedly to the House.
Shabana Mahmood
I was proud to stand as a Labour candidate at the general election when the economy was starting to grow, but that recovery was choked off by the hon. Gentleman’s Government.
During the Committee stage of the National Insurance Contributions Act 2011, we tabled amendments to extend the national insurance holiday to charities. The employment allowance will do just that. This is effectively our policy, so we are of course delighted to support the Bill. Since the policy was announced in the Budget, we have been calling for it to be enacted immediately, rather than waiting until April 2014.
Mr Gauke
I note that the hon. Lady did not respond to the question from my hon. Friend the Member for Bedford (Richard Fuller) on whether she supported the Labour party’s policy of increasing employers’ national insurance contributions. Does she recognise that the Labour party’s policy has been to target the NICs scheme at small businesses—not all businesses, as she said—and only for new employees, not all employees? That substantially complicates the scheme, requires applications and shares many of the complexities of the NICs holiday.
Shabana Mahmood
I thank the Minister for that intervention. I am not surprised he wants to turn the attention away from his own U-turn. I remind him that our proposal was a refinement and an extension of his failed policy. We could see it was failing and, doing our job as a responsible Opposition, we were suggesting ways in which the Minister might be able to rescue his failed national insurance holiday. I must correct him: the scheme was not for small businesses only, but all existing businesses.