National Insurance Contributions Bill

David Gauke Excerpts

Tuesday 3rd February 2015 Commons Chamber

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

I beg to move, That this House agrees with Lords amendment 1.

Some right hon. and hon. Members may recall the important initiative on apprentices announced by my right hon. Friend the Chancellor of the Exchequer in his autumn statement on 3 December. The Chancellor announced that the Government will abolish employer class 1 national insurance contributions for apprentices under the age of 25 from April 2016, building on the removal of employer class 1 national insurance contributions for all under 21-year-olds from April 2015.

Amendments to section 9 and new section 9B of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 give effect to the Government’s intention to abolish employer class 1 NICs for apprentices under the age of 25. From April 2016, employers of apprentices under the age of 25 will pay a zero rate of secondary class 1 NICs on the earnings of those employees, and that zero rate will apply to earnings below the upper earnings limit.

As my right hon. Friend the Chancellor made clear, apprenticeships are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. Under this Government, employment is at its highest ever level while unemployment is now lower than when the Government came to power. However, there is more to do to tackle youth unemployment and ensure that no one is left behind.

The amendment provides a zero rate of employer class 1 national insurance contributions on the earnings of apprentices under the age of 25 from 6 April 2016. The measure will apply to both new and existing apprentices aged under 25 and is not time limited.

The main features of the clause are, first, that there is a regulation-making power to define “apprentice”. There are existing statutory definitions relating to apprenticeships. For example, in England and Wales, the Apprenticeships, Skills, Children and Learning Act 2009 introduced the concept of an apprenticeship agreement, which is defined in part with reference to “an apprentice”. Because education and training is a devolved matter, and because not all apprentices are employed under apprenticeship agreements, we will need to look at the approaches taken towards apprenticeships in the different devolved Administrations. The power will allow time to discuss the definition with interested parties such as the Skills Funding Agency and their devolved equivalents. The power will also enable us to respond simply to changing statutory definitions and requirements in future.

Secondly, there are regulation-making powers to vary the age group to which the zero rate of secondary class 1 NICs for apprentices applies. For example, the Government could in future allow for an increase in the age bracket of apprentices falling into the zero rate earnings band of secondary class 1 NICs.

Thirdly, there is a regulation-making power to ensure that the benefit of the zero rate of secondary class 1 NICs for apprentices can be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means to introduce an upper secondary threshold for apprentices in the same way as we are doing for under 21s. That threshold will be set at the level of the upper earnings limit in the 2016-17 tax year.

The Government’s objective is to make all apprenticeships world class. Around £1.5 billion is spent annually to support apprenticeship training, and the Government are committed to driving up the quality of apprenticeships. We are currently taking forward a number of reforms that will have a positive impact. The Government believe that the measure will, alongside other initiatives on apprenticeships and the abolition of employer’s NICs for under 21s from April 2015, help to address the problem of youth unemployment in the UK.

I hope that, with that explanation, the House will accept the amendment made in the other place.

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

I am grateful to the Minister for introducing Lords amendment 1, which was the main amendment made in the other place. As he said, it enacts the announcement made in the autumn statement that employer national insurance contributions for apprentices aged under 25 will be abolished from April 2016. The Opposition support the measure. There is agreement on both sides of the House and across party political boundaries that we need more apprenticeships; and that youth unemployment, and long-term youth unemployment, remain a problem not only for the individuals involved, but for the economy as a whole. We hope the measure helps to alleviate that somewhat.

The Minister said that there is a regulation-making power within the measure for the definition of “apprentice” and referenced the 2009 Act definition, which relates to an apprenticeship contract. That concern was raised in the other place when the measure was debated. Will he give the House more information about progress in discussions with the devolved legislatures about the definition to be applied? How confident is he that the provision will not be manipulated in a way that enables a reduction by companies of their tax liabilities? The lack of a definition of “apprentice” causes concern that that might arise.

The current quality of apprenticeships has come under scrutiny in this Parliament. A recent report from the Department for Business, Innovation and Skills showed that 15% of apprentices are paid below the national minimum wage, and that 28% of level 2 and level 3 apprentices who do not have a written contract are paid below the national minimum wage. We also know that one in five apprentices receive no formal training. Will the Minister consider a stipulation on quality when he looks at the definition of apprentice? That would go some way to alleviating some of the concerns raised about potential gaps in the measure that could lead to abuse, or to a proliferation of apprenticeships that are not of a high quality and that do not add too much to the future prospects of the young people engaged in them. It would be helpful to hear the Minister’s further comments on those points.

[Mr Gauke]

I welcome the hon. Lady’s support for the measures. It is worth noting the considerable progress made on apprenticeships under this Government. We have created 2 million apprenticeships during this Parliament; they are giving young people the skills they need to succeed in the global race and get on in life. That is significant progress—progress on the number of apprenticeships has been considerably faster than was previously expected. For example, the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), said in 2008 that he intended to have 90,000 more young people taking part in apprenticeships by 2013. He said that, together with opportunities for those in their 20s and older, that would mean 220,000 people starting an apprenticeship each year overall. In 2011-12, 520,000 people started an apprenticeship, so we can see that there has been dramatic progress. The measure helps us to pursue that policy yet further.

[Jim McGovern (Dundee West) (Lab)]

I am intrigued as to how the Minister will define an apprenticeship these days. I was an apprentice in the construction industry. I served a four-year apprenticeship from the age of 16 to the age of 20. My father had to sign my indentures to say that I was indentured to that company, and possibly sold into slavery in a way. What is an apprenticeship these days? The Minister talks about half a million new apprenticeships, but are they apprenticeships as I understand them?

[Mr Gauke]

The hon. Gentleman goes to the heart of the question asked by the hon. Member for Birmingham, Ladywood (Shabana Mahmood) about who will qualify for the relief. As I have remarked, we are taking a power to define apprenticeships. Given that this is a devolved matter, it is important that we discuss it with the devolved Administrations. We want to support apprenticeships and will seek to achieve a broad definition for the purposes of the relief. However, the apprenticeship system across the UK is complex and evolving. Education and training is a devolved matter. Apprenticeships operate slightly differently in England, Scotland, Wales and Northern Ireland, and there are differences between Government-funded apprenticeships and independent employer schemes. The Government will discuss the definition of “an apprentice” with the Skills Funding Agency and its devolved equivalents before committing ourselves to a final definition. It is important that the definition is robust, satisfying minimum compliance standards while achieving the objective of supporting the provision of apprenticeships to the under-25s.

In terms of overall support for apprenticeships, the Government have done a great deal. We spend about £1.5 billion annually to support apprenticeship training. In Budget 2014, £170 million of additional funding was made available for apprenticeship grants for employers in 2014-16, providing a grant of up to £1,500 per apprentice for small businesses. The new budget will fund more than 100,000 additional incentive payments for employers to take on young apprentices.

It is also worth pointing out that in 2012 the National Audit Office recognised the strengths of the Government’s apprenticeship programme, highlighting how it continued to be valued by learners and businesses. It concluded that public spending on apprenticeships offered a good return, estimated at £18 for each £1 of Government investment. Evidence from the Department for Business, Innovation and Skills suggests that returns may be higher, at £28 for every £1 of Government investment. I hope Members will resist the temptation to criticise the substantial progress that has been made on apprenticeships over the course of this Parliament. It has been significant.

On the definition of apprentices, which I touched on earlier, there will need to be discussion with the devolved Administrations and the Skills Funding Agency. We want a robust definition, but we have to bear in mind the complexities in this area.

On eligibility, for a business to be eligible to work with training providers to create an apprenticeship programme, the employer offering an apprenticeship needs to employ an apprentice for a minimum of 30 hours per week, pay at least the national minimum wage for apprentices, support on-the-job learning and be involved in reviewing their progress. On the question raised by the hon. Member for Birmingham, Ladywood regarding manipulation, I would make the point that those safeguards are in the system.

One further point I believe is important is that, as the Government are doing with employment allowance and under-21s from April this year and as we did when we came to office and increased the threshold before employer national insurance contributions is paid, we have done a great deal to reduce the burden on businesses of employer national insurance contributions. That has helped in creating the substantial progress in employment we have seen in recent years. Had we pursued the policy we inherited—an increase in the jobs tax—we would not have seen that progress.

[Steve Baker (Wycombe) (Con)]

On reducing the burden on business, the Government have previously considered the notion of merging national insurance. Has the Minister made any progress down that line? I am acutely aware that national insurance still creates the impression that people have contributed to a fund out of which benefits are paid, when of course they are mostly pay-as-you-go. Can we reduce the burden on business, simplifying national insurance by simplifying the overall tax system?

[Mr Gauke]

My hon. Friend raises an interesting point in this context. He is absolutely right that the Office of Tax Simplification recommended we looked at that. There is quite a lot going on in relation to payroll: devolution of income tax in Scotland, the auto-enrolment of pensions and the introduction of real-time information to the payroll system. They have caused considerable challenges—all for good reason; all are doing much to improve the tax system—and we have held off pursuing further integration of income tax and the national insurance contributions system.

My hon. Friend was right to raise a point about people’s understanding of the tax system and greater transparency. The Government have introduced tax summaries so that people can see how much they are paying in income tax and national insurance. That brings greater transparency to our tax system, so we have made progress on that front. On the integration of national insurance and income tax more widely, it remains a position we continue to review. Some evidence from internal reviews was that the benefits to business of bringing the two systems together were perhaps not as great as some outside commentators had anticipated. In those circumstances, we did not want to rush into this matter, but I assure my hon. Friend that we continue to keep it under review.

[Steve Baker]

Will the Minister remind me whether tax summaries include employers’ national insurance? I am always conscious that when we are employees we must generate an amount of value for our employer somewhat greater than even our gross pay, so is employers’ national insurance contribution also reflected in the summary? If not, could it be?

[Mr Gauke]

There is a reference to employers’ national insurance contribution. The tax summaries state how much is paid in income tax and in employees’ national insurance contributions. There is also a line in the summaries saying, “Your employer has paid this much employers’ national insurance contribution.” Returning to the issue directly before us in relation to apprenticeships, there is an argument—I think a lot of economists would make this point—that ultimately the burden of employers’ national insurance contributions is taken up by the employee, as they receive less in salary as a consequence. There is also a case that it may be a disincentive for employers to take on employees.

We believe this sensible and well-targeted measure will encourage businesses to take on apprentices. We have not focused particularly on the limit, but there is provision to prevent manipulation such as the classifying of premier league footballers as apprentices, which might result in a 24-year-old footballer paying no NICs on a salary of £1 million. We have sought to address such abuses.

[George Hollingbery (Meon Valley) (Con)]

Will the Minister develop that point a little by saying exactly how many apprentices he thinks the change will encourage?

[Mr Gauke]

We anticipate that there will be about 3 million apprenticeships over the course of the next Parliament. The provision will come into effect in 2016-17. Not every apprentice is under 25, so not every apprentice will benefit from the provisions, but a large number of apprentices in the next Parliament will benefit.

Overall, we estimate that about 180,000 employers offering apprenticeships in the UK are likely to benefit from the measure. Apprenticeship data from the Department for Business, Innovation and Skills for England for the 2013-14 academic year show that about 500,000 apprentices under the age of 25 are employed throughout the country, and we estimate that about 130,000 apprentices in England are aged 21 to 24. That group will be directly affected by the measure, with those under 21 already benefiting from the zero rate for under-21s from April this year. I hope that information is helpful to the House.

Many Members were delighted by the Chancellor’s announcement on apprenticeships in the autumn statement, which demonstrated, yet again, the Government’s commitment to apprenticeships. If we wish to succeed in the global race, we need a well-educated and well-trained work force and to support employers who provide the training and experience that young people need if they are to be more productive and effective and more likely to make a substantial contribution to the economy.

Quite rightly, we often debate how to improve living standards, but ultimately it is down to improvements in productivity. As the economist Paul Krugman said—I do not often quote him:

“Productivity isn’t everything, but…it is almost everything”.

As part of our long-term economic plan, one measure we are taking to improve productivity is ensuring a well-trained work force, and encouraging apprenticeships is key to that. It is yet another aspect of our long-term economic plan. It will help us improve our productivity, and as productivity increases, so too will wages, salaries and living standards.

[George Hollingbery]

Will the Minister elaborate on the Government’s own productivity and on whether our investment in apprenticeships has been compared with other possible investments in productivity?

[Mr Gauke]

My hon. Friend makes a good point. As I said, the Government invest about £1.5 billion a year in apprenticeships. In its 2012 report, the NAO suggested that for every £1 spent in this area, we got a return of £18, and studies by the Department for Business, Innovation and Skills suggest that the return might be even greater: £28 for every £1 invested. Therefore this offers good value for money. Our policy on apprenticeships is an additional step, and I am delighted that the tax system can be used in this way. Once again, it demonstrates that the Government are on the side of those who wish to work hard, improve their skills and get on in life.

With those remarks, I hope that the House will agree with the Lords amendment.

Lords amendment 1 agreed to, with Commons financial privilege waived.

[Mr David Burrowes (Enfield, Southgate) (Con)]

On a point of order, Mr Speaker.

--- Later in debate ---

[Mr Speaker]

In that case, we shall come later to the hon. Gentleman. I am saving him up. It would be a shame to squander him too early.

Clause 2

Consequential etc power

[Mr Gauke]

I beg to move, That this House agrees with Lords amendment 2.

[Mr Speaker]

With this it will be convenient to consider Lords amendments 3 to 5.

[Mr Gauke]

This group comprises four minor technical amendments to clause 2 and schedule 1, which deal with simplifying the collection of class 2 national insurance contributions payable by the self-employed.

It might help the House if I briefly outline the four amendments. Amendments 2 and 3 are the Government’s response to the report, published on 27 November, by the Delegated Powers and Regulatory Reform Committee on the delegated powers contained in the Bill. The report drew to the House’s attention the power in clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. This power is currently subject to the negative procedure. The Committee said that the justification in HMRC’s “Delegated Powers Memorandum” was not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and the Committee recommended that in this instance the power be subject to the affirmative procedure. The Government have considered and acted on the Committee’s report. Lords amendment 2 provides that regulations made under clause 2 that amend or repeal primary legislation be subject to the affirmative procedure. Lords amendment 3 provides that the negative procedure will continue to apply to any use of the power set out in clause 2 where a statutory instrument does not contain any regulations amending or repealing primary legislation.

Lords amendments 4 and 5 are minor technical amendments dealing with the simplification of the collection of class 2 NICs payable by the self-employed. This is a matter that I have previously debated, if not at great length, with the hon. Member for Birmingham, Ladywood (Shabana Mahmood). Amendment 4 amends schedule 1, which inserts new section 11A into the Social Security Contributions and Benefits Act 1992. It will ensure that the relevant self-assessment penalties apply to class 2 contributions collected through SA by adding a missing reference to the SA under-declaration penalty contained in schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subject to two different regimes, but this penalty was unintentionally omitted. Lords amendment 5 makes a corresponding amendment to the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

With that explanation, which I know the House was keen to hear, I hope it will agree with the Lords amendments.

Lords amendment 2 agreed to.

[Mr Speaker]

I call the Minister to move the remaining Lords amendments.

[Mr Gauke]

Formally.

[Mr Speaker]

It is always a joy to hear the Minister develop the argument, but he is exercising a self-denying ordinance. I must say that the way he has addressed matters thus far—comprehensively and courteously, in his usual manner—has been accompanied by a slight increase in the number of Members present for the next business. It is not for me to suggest that those two phenomena are causally related, but some people might think they are. I suppose if one is in a tight corner and hoping that the Minister will develop the arguments fully, one can always best depend (a) on a Treasury Minister and (b) on a lawyer, and he is both.

Lords amendments 3 to 5.