National Insurance (Contributions) Bill

David Gauke Excerpts

Tuesday 10th December 2013 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss amendment (a), at end insert—

‘(13) The Treasury shall publish a review of the level of youth unemployment as at December 2013 and the effect on the level of youth unemployment if the amendments made in this section were required to be brought into force on 6 April 2014.’.

[Mr Gauke]

New clause 3 brings forward an important initiative announced by my right hon. Friend the Chancellor of the Exchequer in his autumn statement of last week. He announced that employers employing workers under the age of 21 would no longer have to pay employers’ class 1 national insurance contributions. Proposed new section 9A of the Social Security Contributions and Benefits Act 1992 and its Northern Ireland equivalent bring this into effect by introducing a zero rate of secondary class 1 NICs for all employers on the earnings of employees under the age of 21. As my right hon. Friend the Chancellor made clear, the Government believe this measure will, alongside other initiatives on apprenticeships and work experience placements, help to address the problem of youth unemployment in the United Kingdom. The measure will apply both to new and existing employees aged under 21 and is not time limited.

[Mr Philip Hollobone (Kettering) (Con)]

I congratulate my hon. Friend on introducing this proposal. How much will it cost and how many young people will it help?

[Mr Gauke]

I am grateful to my hon. Friend for his question. The details of the costings can be seen in the autumn statement document published last week. The initial cost is £460 million and that then increases beyond that. All those working who are under the age of 21 will be able to benefit from it, although there is one caveat that I wish to make in a few moments.

This is a step in the right direction. It is striking that this Government came to office inheriting an increase in NICs and we have not only increased the thresholds for paying employers’ NICs, but we have introduced the employment allowance which gives £2,000 off for businesses in respect of employers’ NICs, and now we are exempting those under the age of 21. All this will help to create employment.

[Ian Swales (Redcar) (LD)]

Will the Minister clarify whether the years in which employers do not pay contributions for people under 21 will still qualify under the pension arrangements as years worked?

[Mr Gauke]

Yes; this will not make any change in that regard. It is worth bearing in mind that the changes relate to employers’ national insurance contributions, and that employees’ contributions will remain unchanged. There is no change in terms of contributory benefits.

The new clause contains regulation-making powers to vary the age group and the rate of secondary class 1 NICs for that group, and to reduce the rate of secondary class 1 contributions for a previously specified age group. For example, the Government could allow for an increase in the age bracket of employees falling into the zero-rate band of secondary class 1 contributions. I want to reassure hon. Members that that power is capable of placing an employee only in a lower percentage bracket, and that it is therefore a relieving power only.

There is also a regulation-making power to ensure that the benefit of the zero rate or reduced rate of secondary class 1 NICs will be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means of introducing an earnings limit. As the Chancellor announced in the autumn statement, this will be set initially at the level of the upper earnings limit, which is expected to be the equivalent of about £42,000 a year in 2015-16. I would be happy to take the House through the new clause, subsection by subsection, although all that information is provided in the explanatory notes. Perhaps, instead, I will respond to any questions on those subsections that arise during the debate.

Let me turn to the Opposition’s amendment (a) to the new clause. It proposes:

“The Treasury shall publish a review of the level of youth unemployment as at December 2013 and the effect on the level of youth unemployment if the amendments made in this section were required to be brought into force on 6 April 2014”—

rather than in April 2015. I hope that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) will not mind my anticipating some of her remarks, but I want to take this opportunity to explain why the amendment is unnecessary.

The Government are committed to increasing employment levels for all, and employment is now at its highest ever level, while unemployment is lower than when we came to power. I recognise the challenges posed by youth unemployment, and dealing with them has long been a priority for the Government. For example, about 370,000 young people have been supported through the Work programme since June 2011. Furthermore, the Youth Contract provides almost £1 billion in funding to support up to 500,000 young people into employment and education opportunities. The autumn statement announcement on abolishing employer NICs for under-21s builds on those policies and has been widely welcomed by industry. Indeed, the director-general of the CBI, John Cridland, has said that the policy

“will make a real difference and help tackle the scourge of youth unemployment.”

[Sheila Gilmore (Edinburgh East) (Lab)]

There has been considerable criticism that there has not been a significant take-up of the wage incentive attached to the Youth Contract. To what degree has that influenced this decision to try to achieve the same thing through national insurance measures?

[Mr Gauke]

Our motivation—and, I am sure, that of any sensible Government—is to do everything we can to address the issue of youth unemployment. That means trying a number of approaches and adopting a number of policies. It is difficult to quantify the number of jobs that will be created as a consequence of the measure, because many factors will come into play, but we believe that it will be helpful none the less. As I said, the director-general of the CBI also believes that it will make a real difference in tackling the scourge of youth unemployment.

[Mr Brooks Newmark (Braintree) (Con)]

It is probably worth considering the fact that a lot of businesses, particularly retail businesses, work on very small margins. Does my hon. Friend agree that the extra money that they will receive through not having to pay this jobs tax will probably encourage them to hire a young person rather than someone who is over 21?

[Mr Gauke]

My hon. Friend makes an important point. We have to set this in the context of a range of Government measures, including the introduction of the employment allowance and the measures on business rates that we announced last week, which I am sure he will be the first to acknowledge will help retailers and small businesses in particular. All those measures will help to put in place the conditions that will encourage firms to take people on and to increase employment and wages. This is all about achieving sustainable growth in living standards. There is no short-cut to achieving that, but measures such as these will help us to ensure that the economy is on a strong footing and that we are in a position to improve the living standards of the British public.

[Ian Swales]

This might be a trivial drafting point, but will the Minister explain exactly what age he is talking about? The new clause refers to people “under 21”, which suggests that it would apply to people before they reach their 21st birthday. Is that correct?

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[Mr Gauke]

The exemption is available up to, but not including, the month in which the employee turns 21. I hope that that makes the matter clear to my hon. Friend.

Returning to the Opposition’s amendment, I see little point in the Treasury publishing a review of the level of youth unemployment. The Office for National Statistics is responsible for publishing statistics on employment, and those regular releases are available to the public through the ONS website. There is a limited case for the Treasury intervening and also publishing a review.

In addition, I do not think that there is much value in attempting to estimate the impact of a policy being introduced on a theoretical date. We announced in the autumn statement that employer NICs would be abolished for those under 21 years of age from April 2015. I can understand why the hon. Lady raises the question, but attempting to deliver that a year earlier, in 2014, would increase the administrative costs to business, and rushing the measure through in that way would be likely to lead to cost confusion and the failure of many employers to take it up. Such a tight time frame would not give employers, payroll software developers and Her Majesty’s Revenue and Customs enough time to update their IT systems. It would also not give HMRC enough time to ensure that the policy could be implemented in a way that did not disrupt its other important IT systems. Given that the policy cannot be delivered in April 2014, it would not be a good use of Government time and resources to attempt to estimate the impact of something that we do not intend to do and that cannot be delivered.

I dare say that I shall return to this matter later, but in the light of those comments, I hope that the hon. Lady will not press her amendment to a vote. I also hope that the new clause will be able to stand part of the Bill. It is an excellent measure that will help many of our constituents by increasing employment.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I wish to speak to amendment (a) to new clause 3. I welcome the Minister’s explanation of the thinking behind the new clause and his clarification of how the age limit will be interpreted. His clarification of the measure’s impact on pensions was also helpful, given that we did not have these proposals before us when the Committee considered the Bill.

In general, the Government’s new proposal, announced in the autumn statement last week, will hopefully encourage employers to take on more young people under the age of 21. With youth unemployment so high—it is nearly 1 million—and long-term youth unemployment a real concern, some action is welcome but, as the Minister has anticipated and as our amendment suggests, we have some concerns about how the Government are going about dealing with the issue.

I will deal first with some practical points relating to new clause 3 before moving on to our more substantive concerns about the Government’s approach. I have briefly discussed the impact of the measures with various stakeholders who have been scrutinising the new clause since the Government tabled it. Given that we were unable to scrutinise it in Committee, because of when it was tabled, it would be helpful if the Minister at least gave the House the benefit of his thoughts on the issues I am about to raise. Members of the other place can then take forward some of our concerns if there is more in them.

What impact does the Minister think the new measure will have on young people who are employed part time? As he will know, we have seen a huge rise in part-time employment and insecure employment, for example through the growth of zero-hours contracts, something the House has debated a great deal in this Parliament. My understanding is that many young people who work part time will not be caught by the measure because they earn far beneath the primary threshold. What consideration has he given to the impact on young people who are employed part time, given that for so many of them their first job is part time? As many Members will know, it is now not unusual for young people on the Work programme to be offered only part-time employment of zero-hours contracts, so it would be helpful if he explained the Government’s thinking on that.

I would also welcome the Minister’s view on how the measure might interact with the willingness of employers to take on graduates and the impact it might have on graduate employment. That is not about passing a value judgment on whether someone is taken on when they are 18 or whether employers decide to employ a graduate, but the Minister knows that the other announcements made in the autumn statement in relation to young people were about an increase in student numbers of 30,000 and a removal of student number controls to enable universities to take on as many students as they like. The number of 18-year-olds, in particular, participating in higher education is likely to increase.

It would therefore be helpful if the Minister outlined the Government’s thinking on how those two changes will interact and how they will ensure that they work in a complementary way, rather than skewing one type of recruitment practice ahead of another. Those issues are worthy of much greater deliberation than we will have the opportunity for today, so we might need to return to them, depending on what happens as the Bill makes progress.

I have two other points to make on the practicalities of new clause 3. First, we need to ensure that it is promoted properly to employers, particularly micro-businesses and even one-man bands, which might be encouraged to take on a young person, perhaps a family member. How will we ensure that they know exactly how that will operate and how it will interact with the employment allowance? That is important to ensure that micro-businesses, in particular, are well aware of how the two things align and that there is no confusion that could lead to a decrease in take-up. Secondly, my understanding is that no new funding has been announced to pay for the proposal, so it would be helpful if the Minister set out where the money will come from and how the costs are expected to increase, and not only in the first or second years, but in future years.

There are two main points of difference between the Opposition and the Government in relation to the new proposal. First, it is not bold enough. The Minister will know, because we have discussed it before, about the scale of the challenge we face and what the Government could and should have done to tackle the scourge of youth unemployment.

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[Mr Gauke]

First, I thank hon. Members for welcoming the proposal. I am grateful to the hon. Member for Birmingham, Ladywood (Shabana Mahmood) for describing it as a good one. I will respond to some of her specific questions and then deal, as she did, with the area of contention, to the extent that one exists.

On part-time workers, it is right to say that employers of staff earning below the secondary threshold of £148 per week—which applies to a lot of part-time staff—will not be affected directly by this change. It is worth pointing out, however, that some employers may at present be discouraged from increasing the hours of an under 21-year-old because they may then have to pay employers’ national insurance contributions. To that extent, the proposal may well help those part-time workers who want to extend their hours, because it will increase the incentives for their employers to do so. That will also enable an employer with both part-time and full-time employees to connect the work of the two groups.

Similarly, there is no direct interaction with the employment allowance. Obviously, the measure will reduce the national insurance contributions bill of a number of employers, which may allow the employer’s allowance to spread further: the £2,000 would be just as valuable to the employer, but it would contribute more to reducing their total NICs bill. I think that is a fair point to make.

The hon. Lady asked about the interaction with university numbers, which we have said we will increase. Again, I do not think there is a direct interaction. The Government are trying to do everything we can for young people with regard to increasing choices, providing more university places and creating a good environment with more jobs for them. If the hon. Lady is worried about graduates over the age of 21 hitting the labour market, the point I would make is that extending the policy to those under 22 or 23 would be significantly more expensive, which must be taken into consideration in the light of the pressures on the public finances. Overall, we think the package is a good one.

On youth unemployment generally, I touched on a number of measures earlier, and my hon. Friend the Member for Braintree (Mr Newmark) mentioned some that we are taking, such as the Work programme, and which should be recognised. In case it has escaped the notice of the hon. Member for Birmingham, Ladywood, youth unemployment in her constituency has fallen by 15.6% in the past 12 months, and we have ambitions to take it down even further.

I thank my hon. Friend the Member for Braintree for his work on the Million Jobs campaign and, indeed, on this policy. He certainly contributed to the policy process for the autumn statement, and I thank him for all his efforts.

To turn to the areas of contention, my hon. Friend the Member for Bedford (Richard Fuller) referred to a certain pattern: first, the Labour party goes into the general election advocating an increase in employer’s national insurance contributions and then, following the election, every time this Government come forward with policies to reduce employer’s national insurance contributions, it complains that we are not bold enough and that we should go further and faster. I must say that his characterisation of that as a flip-flop is entirely accurate.

In relation to our not making the change now, I have set out the reasons for that. Attempting to deliver it a year earlier, in April 2014, would increase the administrative cost not just to HMRC, but to business. Rushing the measure through in that manner would be likely to lead to cost, confusion and the failure of many employers to take it up. Payroll companies need time to update their software and employers need time to download it, and such a time frame would put the policy at risk. Does the hon. Member for Birmingham, Ladywood really think that, with 18 months to run in this Parliament, the Government prefer to introduce the measure in April 2015, rather than in April 2014? If we could possibly introduce it safely in April 2014, we would, but we can do it in April 2015. That is absolutely the right thing to do, and we will not jeopardise that policy.

Finally, the hon. Lady asked about progress on the employment allowance. HMRC has been in discussions with various interested parties over many months. There is ongoing engagement with relevant groups, including software providers, on the draft employer guidance, with a view to making it available on the HMRC website in the new year. HMRC will also target communications to key interested groups, and use its publications and products to build further awareness in February and March. We believe that that is all on track.

I welcome the support for the policy. I understand why the hon. Lady asks why we should not make the change in April 2014, although given that her party has at no point advocated getting rid of employer’s NICs for under-21s, it would be slightly strange for her to push the matter to a vote. There are good practical reasons why we cannot do it, much though we would like to, so I will be disappointed if she presses her amendment to a Division. None the less, I welcome the support given to the measure, and I am proud that the Government are taking real steps to deal with youth unemployment.

Question put and agreed to.

Clause accordingly read a Second time.

Amendment proposed to new clause 3: (a) at end insert—

‘(13) The Treasury shall publish a review of the level of youth unemployment as at December 2013 and the effect on the level of youth unemployment if the amendments made in this section were required to be brought into force on 6 April 2014.’.—(Shabana Mahmood.)

Question put, That the amendment be made.

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Brought up, and read the First time.

[Mr Gauke]

I beg to move, That the clause be read a Second time.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

With this it will be convenient to discuss the following:

Government new clause 5—Limited liability partnerships.

Government amendments 1 and 2

[Mr Gauke]

New clause 4 is needed as it addresses a tax issue arising under existing partnership tax rules where the immediate entitlement to partnership profits is restricted by the alternative investment fund managers directive—AIFMD. HMRC received further information about this during the partnerships review consultation. Following their discussions with the funds sector representatives and the Financial Conduct Authority with responsibility for the AIFMD implementation in the United Kingdom, the Government intend to put in place a statutory mechanism to address the issue, subject to parliamentary approval.

It is important to note that the vast majority of fund managers would not be affected; only those who operate through a partnership would be affected. Under existing partnership tax rules, tax is charged on profits as they are earned, rather than when they are received. An unfunded tax charge can therefore arise on profits that are allocated to an individual partner of an AIFM partnership and which are then deferred in line with the regulatory requirements of the AIFMD. That is because the partner cannot access the deferred profits in the year when they arise.

The new mechanism that the Government propose is designed in such a way as to meet the Government objective of a partnership review to achieve fairer taxation by stopping tax-motivated allocation of profits in mixed membership partnerships that typically include individual and corporate members. The new power introduced under new clause 4 will support the introduction of the mechanism and will be used to change the relevant national insurance contributions legislation by regulation, once the related Finance Bill 2014 legislation becomes law. It will also allow NICs legislation to be amended in future to reflect any subsequent changes to income tax legislation in that area, to maintain symmetry between tax and NICs positions.

New clause 5 and amendment 2 replace clause 13, which would have removed limits on the Treasury categorising members of limited liability partnerships who satisfy certain conditions as employed earners for the purposes of NICs, rather than self-employed earners. New clause 2 provides an express power to treat LLP members who meet certain conditions as employed earners for NICs purposes. Those conditions will be set out in regulations and will follow income tax legislation introduced in the Finance Bill 2014. Broadly, it will mean that the individual member of the LLP has no or little real economic interest or risk in the LLP, and instead will be rewarded by a fixed salary. Those conditions will be based on proposals on which HMRC has consulted, as part of the public consultation on changes to partnership tax and NICs rules. HMRC has been advised that in response to those proposals, structures with only corporate members were being promoted as a way around the proposed legislation. The schemes involved the individual establishing a personal service company or other intermediary, with that intermediary becoming a member of the LLP in place of the individual in order to avoid those provisions.

New clause 5 provides power to make regulations to achieve the policy objective of the measure, and counteract the artificial imposition of a company or intermediary to avoid the impact of the measure. Regulations will follow new income tax legislation in the Finance Bill 2014. That power will enable the reclassification by regulation of certain LLP members as employed earners for NICs purposes, even when they hide behind a company or intermediary.

The treatment of members of LLPs as self-employed was designed to replicate the position of traditional partnerships. The new clause will ensure that those tax rules are not used to create a tax advantage, and it creates a level playing field between partnerships that have not sought to misuse tax rules for LLPs and those that have done so. I appreciate that that was a rather technical explanation for rather technical new clauses, but I hope it was of use and that the House will agree that new clauses 4 and 5 be added to the Bill, instead of clauses 12 and 13.

[Shabana Mahmood]

I am grateful to the Minister for that helpful explanation of new clauses 4 and 5, and particularly the technical points and why the Government are no longer proceeding with clauses 12 and 13. I had some concerns in Committee about the impact of clause 13 in disapplying section 4(4) of the Social Security Contributions and Benefits Act 1992. That seemed to be possibly going too far and was ripe for lawyers to have fun with—I was one in my former life. I note that the Government have got rid of that problem and clarified their intention for LLPs by tabling new clause 5.

New clauses 4 and 5 both state that the Government can bring forward regulations to deal with their more technical aspects. Will there be an opportunity for consultation on those draft statutory instruments when they are ready, so we can ensure that no further issues arise as the Government try to implement the objectives that new clauses 4 and 5 are trying to achieve?

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[Mr Gauke]

I thank the hon. Lady for her support for these measures. Detailed proposals in the form of draft regulations will be published early in the new year, and they will tie in with measures in next year’s Finance Bill. There will therefore be plenty of opportunity to consult on those regulations, and I look forward to debating with her measures on partnerships in next year’s Finance Bill. In that sense, I assure the hon. Lady that the measures will receive an appropriate amount of scrutiny, and I hope that the new clauses will stand part of the Bill.

Question put and agreed to.

New clause 4 accordingly read a Second time, and added to the Bill.

New Clause 5

Limited liability partnerships

‘(1) SSCBA 1992 is amended as follows.

(2) After section 4A insert—

“4AA Limited liability partnerships

(1) The Treasury may, for the purposes of this Act, by regulations—

(a) provide that, in prescribed circumstances—

(i) a person (“E”) is to be treated as employed in employed earner’s employment by a limited liability partnership (including where E is a member of the partnership), and

(ii) the limited liability partnership is to be treated as the secondary contributor in relation to any payment of earnings to or for the benefit of E as the employed earner;

(b) prescribe how earnings in respect of E’s employed earner employment with the limited liability partnership are to be determined (including what constitutes such earnings);

(c) provide that such earnings are to be treated as being paid to or for the benefit of E at prescribed times.

(2) Regulations under subsection (1) may modify the definition of “employee” or “employer” in section 163, 171, 171ZJ or 171ZS below as the Treasury consider appropriate to take account of any provision falling within subsection (1)(a) to (c).

(3) If—

(a) a provision of the Income Tax Acts relating to limited liability partnerships or members of limited liability partnerships is passed or made, and

(b) in consequence, the Treasury consider it appropriate for provision to be made for the purpose of assimilating to any extent the law relating to income tax and the law relating to contributions under this Part,

the Treasury may by regulations make that provision.

(4) The provision that may be made under subsection (3) includes provision modifying any provision made by or under this Act.

(5) Regulations under this section are to be made with the concurrence of the Secretary of State.

(6) Section 4(4) of the Limited Liability Partnerships Act 2000 does not limit the provision that may be made by regulations under this section.”

(3) In section 4B (power to make retrospective provision in consequence of retrospective tax legislation), in subsection (3), after paragraph (c) insert—

“(d) section 4AA (power to make provision in relation to limited liability partnerships)”.

(4) In section 10 (Class 1A contributions: benefits in kind etc), at the end, insert—

“(11) The Treasury may by regulations modify the law relating to Class 1A contributions in the case of an employed earner’s employment which is treated as existing by virtue of regulations under section 4AA.”

(5) SSCB(NI)A 1992 is amended as follows.

(6) After section 4A insert—

“4AA Limited liability partnerships

(1) The Treasury may, for the purposes of this Act, by regulations—

(a) provide that, in prescribed circumstances—

(i) a person (“E”) is to be treated as employed in employed earner’s employment by a limited liability partnership (including where E is a member of the partnership), and

(ii) the limited liability partnership is to be treated as the secondary contributor in relation to any payment of earnings to or for the benefit of E as the employed earner;

(b) prescribe how earnings in respect of E’s employed earner employment with the limited liability partnership are to be determined (including what constitutes such earnings);

(c) provide that such earnings are to be treated as being paid to or for the benefit of E at prescribed times.

(2) Regulations under subsection (1) may modify the definition of “employee” or “employer” in section 159, 167, 167ZJ or 167ZS below as the Treasury consider appropriate to take account of any provision falling within subsection (1)(a) to (c).

(3) If—

(a) a provision of the Income Tax Acts relating to limited liability partnerships or members of limited liability partnerships is passed or made, and

(b) in consequence, the Treasury consider it appropriate for provision to be made for the purpose of assimilating to any extent the law relating to income tax and the law relating to contributions under this Part,

the Treasury may by regulations make that provision.

(4) The provision that may be made under subsection (3) includes provision modifying any provision made by or under this Act.

(5) Regulations under this section are to be made with the concurrence of the Department.

(6) Section 4(4) of the Limited Liability Partnerships Act 2000 does not limit the provision that may be made by regulations under this section.”

(7) In section 4B (power to make retrospective provision in consequence of retrospective tax legislation), in subsection (3), after paragraph (c) insert—

“(d) section 4AA (power to make provision in relation to limited liability partnerships)”.

(8) In section 10 (Class 1A contributions: benefits in kind etc), at the end, insert—

“(11) The Treasury may by regulations modify the law relating to Class 1A contributions in the case of an employed earner’s employment which is treated as existing by virtue of regulations under section 4AA.”’.—(Mr Gauke.)

Brought up, read the First and Second time, and added to the Bill.



New Clause 1

Post implementation review

‘(1) Her Majesty’s Revenue and Customs must, after one year, prepare a post implementation review of the employment allowance which the Minister shall lay before Parliament.

(2) The review must consider—

(a) what impact the employment allowance has had on the number of jobs;

(b) what impact the employment allowance has had on wage levels;

(c) overall take-up of the employment allowance;

(d) the geographical spread of businesses, charities and sports clubs taking up the employment allowance; and

(e) the effectiveness of Her Majesty’s Revenue and Customs’ strategy to promote the employment allowance.’.—(Shabana Mahmood.)

Brought up, and read the First time.

[Shabana Mahmood]

I beg to move, That the clause be read a Second time.

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Both clauses are designed to assist the Government from a perspective of support for the employment allowance, a desire to see it work effectively, a desire to make sure that every business that is eligible for it is able to take it up, and a desire to see that it has a positive impact on job levels and wage rates.

[Mr Gauke]

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) said that she is not yet suffering from review fatigue; I wish I could say the same. I note that much of this debate also took place in Committee and I am tempted simply to refer the House to my speech on 21 November. However, I think that that would not be quite the appropriate thing to do, so let me address the points on the new clauses.

Let me make the case, as I did in Committee, for why new clause 1 is unnecessary. The tax information impact note already commits the Government to keep the scheme under review through ongoing communication with taxpayers’ groups affected by the measure. Moreover, in Committee on 21 November, I agreed that the Government should publish information twice a year about the overall take-up of the employment allowance, including by geographical location. I am happy to repeat that commitment today.

Nevertheless, as with the hon. Lady’s previous amendment in Committee, this new clause focuses in particular on the number of jobs created by the employment allowance. As I made clear on Second Reading on 4 November, and in the evidence session on 19 November, although the employment allowance will clearly reduce the cost of taking on new staff for small businesses and charities, it will be up to those businesses and charities to decide how they use the resulting national insurance contribution savings.

The hon. Lady will also recall the comments made by both the Institute for Fiscal Studies and the Federation of Small Businesses at the evidence session on 19 November that it is impossible to get precise numbers. We cannot conduct the equivalent of a randomised trial of tax policy to determine the number of jobs created because of the allowance because, as the IFS pointed out, there is no counterfactual, as there are a number of factors in the economy influencing the number of jobs at the same time. The Government have not set a target for the number of jobs we expect to be created, although as we have previously noted, survey evidence from the Federation of Small Businesses suggests that 28% of such businesses will use the savings to employ additional staff. Therefore, as I made clear in Committee, it would not be possible to provide information about the number of jobs created as a direct result of this measure.

[Sammy Wilson (East Antrim) (DUP)]

Although I understand the Minister’s position, given all the variables that will determine the number of people employed as a result of any change, it will nevertheless result in about £1.75 billion left with employers and not coming into the Exchequer as tax. Does he not feel, therefore, that there is at least some need to judge the effectiveness of a policy that will release a substantial amount of money?

[Mr Gauke]

The hon. Gentleman is absolutely right: the measure will release substantial amounts of money and a considerable amount of revenue will be forgone. We believe that taking less from employers is likely to have an impact on employment, wages or investment, or a combination of the three, all of which will be welcomed. However, tempting though it might be to call for a particular number of jobs to be created from the measure, I do not believe, for the reasons I have outlined—because there are so many factors in play—that we could give such a number with the necessary degree of robustness. Some 28% of the businesses surveyed by the FSB said they would use the savings to employ additional staff, while 29% would use the NICs savings to boost staff wages. Again, it would be difficult to quantify the precise effect, given that wage levels are subject to many different pressures, which vary from business to business.

The new clause also seeks an assessment of HMRC’s strategy to promote the employment allowance. HMRC has already been proactive in promoting the allowance, having spoken to various interested parties over the summer, including representatives of software providers, charities and small and medium-sized enterprises about the design and operation of the measure. There is continuing engagement between HMRC and those interested parties on guidance for employers and publicity. As a result of those discussions, communications to raise awareness of the employment allowance will begin more widely in February and March 2014, to maximise the impact in the crucial period running up to the introduction of the allowance next April, using a range of HMRC publications and products and the Department’s national network of local “working together” groups. As a result, we are confident that employers across the UK will be ready to claim the allowance next April, and those efforts to support take-up will continue after April.

[Sammy Wilson]

Does the Minister accept that there is at least some value both in looking at the geographical take-up, especially given how patchy the national insurance holiday has been across the United Kingdom—indeed, take-up in Northern Ireland was quite disappointing—and in monitoring how effective the promotion of the scheme has been in different parts of the United Kingdom?

[Mr Gauke]

Let me return to my earlier remarks and the commitment I made in Committee, which I have repeated this afternoon, that we will publish take-up numbers twice-yearly. That information will be provided on a regional basis, which I hope reassures the hon. Gentleman that he will be able to monitor take-up in Northern Ireland.

The other point I would make—again, it is a point I made in Committee and on Second Reading—is that there are a number of distinctions between the employment allowance and the NICs holiday that we had in place earlier in this Parliament and, indeed, the Opposition’s proposals for a NICs holiday. What we are proposing is a much easier policy for employers to implement; in fact, it is largely automatic. Those with an up-to-date payroll—that essentially applies to nearly every employer—will find that the employment allowance is automatically applied. Those employers essentially just need to click on a box and then it should work.

Given those reassurances and in the light of my existing agreement to make information about take-up available twice yearly, I hope that the hon. Member for Birmingham, Ladywood will withdraw her new clause.

Let me deal with the hon. Lady’s new clause 2, which seeks to require HMRC

“after six months of the Act coming into force”

to “prepare a review” to be published in Parliament. Such a review should consider

“whether there are any administrative or compliance costs”

reported by employers claiming the employment allowance, and

“whether businesses, charities and sports clubs are having any problems in claiming the…allowance.”

The new clause is unnecessary for two reasons. As I have pointed out, the tax information impact note already commits the Government to keep the scheme under review through the communication of stakeholders affected by the measure. As part of this review, HMRC will speak to interested parties to gauge their view of the employment allowance and to ascertain the ways it has been used.

As I said, HMRC talked over the summer to various interested parties, including software developers, charities and small and medium-sized businesses, about the design and operation of the allowance, including the claims process. There are continuing discussions between HMRC and these groups around the guidance and publicity, and they will continue after the launch of the employment allowance next April. These contacts between HMRC and relevant representative groups will provide the basis for a continuous review of the way in which the allowance is working. I acknowledged in Committee that hon. Members will relay any concerns or thoughts about the allowance on behalf of employers in their own constituency. Hon. Members will also recall the commitment I gave in Committee to publish the information twice yearly, as I mentioned. That in itself will provide an indication of the ease with which employers are able to claim the benefit of this relief.

As I pointed out earlier this afternoon, the employment allowance will be very easy to claim. Employers will receive it through the routine operation of PAYE—pay as you earn. Employers will simply need to confirm their eligibility by their regular payroll processes. Enabling the employment allowance to be claimed by employers through the payroll software will ensure that it is straightforward to claim. Employers simply have to indicate yes once in their EPS—employer payment summary—and the claim will continue from tax year to tax year.

After making the claim, employers will not need to pay their first £2,000 of secondary class 1 national insurance contributions if their liability is lower than £2,000 in the first month or quarter—depending on whether the employer pays his PAYE liabilities monthly or quarterly—and any unused allowance will be carried forward to the next month or quarter until it is exhausted. If an employer does not have an employer payment summary on their software, the free HMRC basic PAYE tools package can be used. For the small number—about 2,000—of eligible employers who still submit their returns to HMRC on paper, there will be a paper process to mirror the IT process.

With those reassurances, I hope that the hon. Lady will withdraw her new clause.

[Shabana Mahmood]

I am grateful to the Minister for his comments on my new clauses 1 and 2, particularly for the additional information he made available on the issues raised by new clause 2. Given his explanation, I am happy to withdraw the motion.

Clause, by leave, withdrawn.

Clause 12

Alternative Investment Fund Mangers

Amendment made: 1, line 2, leave out Clause 12.—(Mr Gauke.)

Clause 13

Members of Limited Liability Partnerships

Amendment made: 2, page 11, line 8, leave out Clause 13.—(Mr Gauke.)





Third Reading

[Mr Gauke]

I beg to move, That the Bill be now read the Third time.

I thank all Members for the valuable insight that they have provided throughout the Bill’s passage so far. Their expert scrutiny has gone a long way towards ensuring that it reaches the statute book in good shape. Indeed, my officials suggested that I describe it as being “in good NIC”—[Hon. Members: “Oh dear!”]—but I thought better of it.

Such has been the level of scrutiny and insight contributed by Members that I shall give the House only a brief reminder of the five main measures in the Bill. The first is a measure to help both to remove barriers to growth for businesses and to equip the United Kingdom to compete in the global race. In this year’s Budget, my right hon. Friend the Chancellor of the Exchequer announced the creation of a new £2,000 employment allowance, which will come into effect on 6 April 2014. The objective is to help businesses with the cost of employing their staff. The allowance will help thousands of small businesses that aspire to grow, and is set to benefit more than 1 million employers.

The second measure was introduced this afternoon. In last week’s autumn statement, the Chancellor announced our proposal, in effect, to abolish employers’ secondary class 1 national insurance contributions on the earnings of any employee under the age of 21 up to the level of the upper earnings limit on 6 April 2015. That will substantially reduce the fiscal burden of secondary class 1 NICs, and thus support youth employment. As the figures in the autumn statement made clear, we estimate that about 340,000 employers could benefit to the tune of more than £450 million in 2015-16, and that the figure could rise to about £530 million in 2018-19. This is another measure that will make it cheaper and easier for businesses to employ young people, and I am sure that it will be welcomed, as a latecomer, by Members in all parts of the House. I appreciate the support that it has received this afternoon.

Thirdly, we have introduced provisions relating to the general anti-abuse rule, or GAAR. We announced in last year’s Budget that we had accepted the recommendations of the Aaronson review, and would 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. The Bill ensures that it will apply to NICs. While the extension to NICs is a relatively simple measure, it is an important step because it makes it harder for individuals and businesses to avoid paying what they owe.

The fourth main provision concerns oil and gas workers on the UK continental shelf. In this year’s Budget, the Chancellor announced that the Government would strengthen legislation in respect of offshore employment intermediaries. The measure, which has been subject to consultation, is specifically intended to address the non-payment of employers’ national insurance in the oil and gas industry, involving the placement of employers of oil and gas workers who are working on the UK continental shelf outside the United Kingdom.

Fifth and finally, the Bill contains provisions relating to HMRC’s partnership review. The Government propose two sets of changes. The first is intended to address an issue that can arise from the interaction of the alternative investment fund managers directive and the existing partnership tax rules. The second reclassifies certain limited liability partnership members as employed earners for tax and national insurance purposes to tackle the disguising of employment relationships through LLPs. Together, those changes will ensure that the correct NIC consequences follow the planned changes in the taxation of partnerships.

The Bill is both important and necessary. I am sure that all Members will recognise that every one of the measures that I have described will either make employing people easier, or will make avoiding taxes harder. The Bill will be good for growth, good for jobs, and hence good for the United Kingdom. On that basis, I commend it wholeheartedly to the House.