National Insurance Contributions Bill

Lord Hanson of Flint Excerpts

Tuesday 23rd November 2010 Commons Chamber

[Mr Gauke]

Compared with the plans that we inherited, the impact of the increase in threshold will be such that employers will pay £3 billion less in employer’s national insurance contributions. The overall reduction of the burden on employment will be £6 billion as a consequence of the overall package.

[Mr David Hanson (Delyn) (Lab)]

Will the Minister confirm, however, that about £1.4 billion is not being compensated for by the threshold? I want us to be clear. He says that he has offset the threshold, but he has offset only about £3 billion, not the whole amount of the rise.

[Mr Gauke]

The fact is that the Labour party would have raised the full amount. We are offsetting £3 billion, which will be most helpful for employers whose employees earn under £20,000. The package is good for employment and, given the fiscal mess that we inherited, I am very proud that this Government are able to reform national insurance contributions exactly as we set out in our manifesto at the general election, and in the coalition agreement.

As far as we can deduce it, the Labour party’s position is that it wants to do more to reduce the deficit by raising taxation and it does not believe in increasing VAT, which will bring in £13 billion a year. We can assume only that it would favour greater increases in national insurance contributions than it had already set out.

We are not going to take any lectures; this Government have managed to reverse a very painful and damaging policy that would have meant employers’ contributions rising for every single employee paying national insurance—and in a way that would have damaged jobs in this country.

--- Later in debate ---

[Mr Gauke]

A charitable entity that is located in one of the relevant regions and that carries on a trade, vocation or business will benefit. That is likely to apply to, for example, shops that are run by charities. Such entities must meet that criterion to benefit, but not all charities will necessarily do so.

[Mr Hanson]

Will the Minister tell the House, for the sake of clarity, how many businesses have to date applied for the holiday?

[Mr Gauke]

At this early stage, we have had around 1,000 applications, but we expect more as awareness of the policy becomes greater and as businesses contact their professional advisers. We are keen to publicise the policy, and I encourage hon. Members for any of the relevant regions to notify businesses in their areas. The Government and our policy aim to help businesses and those who want to start a business and get it going. In contrast, the previous Government increased such taxes. Start-up and existing businesses throughout the country faced rising taxes and employers’ national insurance contributions, which was a particularly deeply damaging tax.

The Bill is an important part of the Government’s plan to reduce Labour’s taxation, help those on the lowest incomes, and support private enterprise and employment in the parts of the country that need them most. It is a simple and important Bill, and I commend it to the House.

[Mr David Hanson (Delyn) (Lab)]

I am grateful to the Minister for his exposition of the Bill. We will test aspects of it in Committee and at other stages in its passage. As he said, it divides effectively into two parts. The first part is the increase in national insurance contributions by 1%, which we will support because we want to ensure that we protect services and support our economy. The second part introduces a three-year regional national insurance holiday for new employers. As the Minister said, many businesses will qualify for their first 10 employees in their first year of business; I shall return later in detail to the question of the regions and areas that will not qualify.

Let us first consider the national insurance contributions. The Minister rightly said that this policy was set out both in the Labour manifesto and elsewhere in the period before the general election in May. My right hon. Friend the Member for Edinburgh South West (Mr Darling), the then Chancellor, announced in the pre-Budget statement on 9 December 2009 that the previous Government would increase national insurance contributions by 1% to protect public services. We had a choice, and we were straight about it both before and during the election. Raising national insurance contributions was a tough decision, but we ensured that we would protect those earning less than £20,000 a year.

The Conservatives condemned that national insurance rise throughout the election, but—surprise, surprise!—they have now decided to go ahead with it. In the Conservative manifesto, which I have come to recognise is not worth the paper it was written on, the party committed itself to raising the thresholds for national insurance by £24 a week, the upper earnings limit by £29 a week, and the secondary threshold at which employers start paying national insurance by £21 a week. I look forward to seeing the details in the secondary legislation.

My intervention on the Exchequer Secretary showed that although the Government are raising the thresholds, there is still a shortfall of about £1.4 billion in employer national insurance contributions. The Labour party was open about that in the run-up to, and during, the general election, but the Conservative party was not. In my view, this is all smoke and mirrors.

[Mr Gauke]

Page 8 of our manifesto stated that we would

“raise the secondary threshold at which employers start paying National Insurance by £21 a week.”

The secondary legislation will increase the secondary threshold at which employers start paying national insurance by £21 a week, so we are doing exactly what we said in the manifesto.

[Mr Hanson]

But there were no caveats about a shortfall in the Budget proposals of about £1.4 billion. I think it is smoke and mirrors—and, as my hon. Friend the Member for Edmonton (Mr Love) said, it is coupled with the increase in VAT from next year. The VAT rise will impact more than three times as much as the increase to national insurance contributions would have done, and will affect 250,000 jobs.

[Charlie Elphicke]

Will the right hon. Gentleman give way?

[Mr Hanson]

I will give way to the hon. Member for Dover (Charlie Elphicke); the national insurance holiday will not apply in his constituency.

[Charlie Elphicke]

The right hon. Gentleman is right that the national insurance holiday will not apply in my constituency—a matter that I regret. Nevertheless, I welcome the fact that 1,400 of the least well-off people in my constituency will be taken out of tax altogether. It seems that he opposes the increase in the personal allowance and would rather cut national insurance, which we originally planned to do. Instead, we are helping the least well-off. Surely he would welcome that.

[Mr Hanson]

I look forward to the hon. Gentleman going back to Dover to explain why he is supporting not only a Bill that does not give a national insurance holiday to his constituents, but the VAT rise elsewhere in the Budget proposals—we need to look at that in the round—which will impact on pensioners, the low paid and everybody in his community. This is not a topic for today, but the debate on the national insurance rise was open and honest on our side. During and after the election, the Conservative party argued against the rise, but it is now implementing it. On top of that, it is not meeting the objectives in its manifesto and has increased VAT. I think that a VAT rise is a regressive tax policy that will hit the poorest hardest, but that is the choice that the Conservative party has made.

I want to focus most of my remarks on the second part of the Bill. The decision to introduce a regional employer national insurance holiday is welcome, but it specifically excludes new businesses in Greater London, the south-east and the eastern region. We tabled a reasoned amendment that has not been selected, but which would have declined to give a Second Reading to the Bill because of those exclusions. I sense that the hon. Members for Portsmouth North (Penny Mordaunt), for Meon Valley (George Hollingbery) and for Basildon and Billericay (Mr Baron), who spoke earlier, will have expressed their concerns about how the choices on the national insurance holiday were made. [Interruption.] The Economic Secretary to the Treasury says that we would have increased national insurance contributions across the board.

[Madam Deputy Speaker]

Order. We cannot have comments shouted across the Floor from a sedentary position. It makes it very difficult for Hansard to record our proceedings, particularly when the comments are then referred to without having been recorded. Will the hon. Lady make her point from the Dispatch Box, so that the right hon. Gentleman can answer it?

[The Economic Secretary to the Treasury (Justine Greening)]

My point was that the Labour party would have increased NICs for absolutely everybody.

[Mr Hanson]

The hon. Lady knows that that was a clear and honest policy that we put to the electorate. The Government have now introduced proposals for a national insurance holiday for new businesses in certain regions. I will explore shortly why we think that that choice is unfair in the context of the resources the Government are trying to save.

[Justine Greening]

Can the right hon. Gentleman tell us whether it is still his party’s policy to go ahead with those NIC rises?

[Mr Hanson]

I have said what I have said. We were open and honest during the election campaign, and we will support the rise proposed in the Bill, because we expected to do that. During the election campaign, the Economic Secretary and the Exchequer Secretary attacked the NIC rise without proposing the alternative that they have seen through in practice.

Let us put that aside, because the key issue before the House is the payment holiday. We do not believe that it is being proposed fairly, honestly or openly, and we do not believe that it will help the poorest and most deprived areas of the UK, which in great part are excluded from the scheme. Of the top 12 most deprived local authorities on the economic deprivation index, no fewer than seven will be excluded from the payment holiday. The seven boroughs of Hackney, Newham, Tower Hamlets, Islington, Barking and Dagenham, Haringey and Lambeth are excluded from the scheme.

In his written statement on 6 September, the Exchequer Secretary said:

“The Government are determined that all parts of the UK benefit from sustainable economic growth”.—[Official Report, 6 September 2010; Vol. 515, c. 1WS.]

If we are having a holiday from national insurance contributions, I do not understand how excluding those areas from the payment holiday will do that.

I want to challenge the Government’s logic. They claim that the reasoning behind the policy is that areas outside London, the south-east and the east are more reliant on public sector employment. Will the Exchequer Secretary confirm that that is his logic?

[Mr Gauke]

indicated assent.

[Mr Hanson]

The Minister has confirmed that. Tomorrow’s business leaders who want to start businesses in the constituencies of Oxford East, of Luton North, of Lewisham East, of Canterbury, of Southampton, Test, of Eltham, of West Ham, of North Thanet, of Hackney North and Stoke Newington, of Tooting, of Islington North, of Dulwich and West Norwood, and of Brighton, Kemptown will miss out. I mention those constituencies specifically because they are in the top 10% in the country with the highest percentage of public sector employment.

As the hon. Gentleman knows, there are 650 constituencies. His policy is supposed to help compensate for possible loss of employment in the public sector. Those concerns have been reflected today, and I pay tribute to the hon. Members for Portsmouth North, for Meon Valley and for Basildon and Billericay, who have defended their constituencies and raised their concerns about how the policy will be applied.

If there is to be a holiday, it can be applied in different ways. It could be applied regionally, as the Minister has done, or on the basis of unemployment levels or regional levels of public sector employment per constituency, instead of the blanket regional approach that the Minister has chosen.

[Mel Stride (Central Devon) (Con)]

The shadow Minister has heard that rolling the scheme out across the entire country would cost an additional £660 million. Will he explain whether he would propose to raise that by increasing our deficit, by cutting expenditure—in which case what expenditure would he cut—or by raising taxes, in which case what taxes would he raise?

[Mr Hanson]

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

[Barry Gardiner (Brent North) (Lab)]

Will my right hon. Friend give way?

[Mr Hanson]

How can I resist my hon. Friend from London?

[Barry Gardiner]

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

[Mr Hanson]

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

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

[Stephen Pound]

Neither will Ealing.

[Mr Hanson]

Indeed, and neither will the constituencies of my hon. Friends the Members for West Ham (Lyn Brown) and for Ilford South (Mike Gapes). We are talking about encouraging growth and promoting job opportunities, and how we split the cake is very important, as the hon. Member for Central Devon (Mel Stride) has pointed out. My hon. Friend the Member for Brent North (Barry Gardiner) mentioned the different figures for jobseeker’s allowance across the country. We need to address those significant differences.

[Mr Love]

For the record, unemployment in my constituency is about the 50th highest in the country, and my constituents want to know why they will not be getting the benefit of these measures in the Bill. The fallacy behind the Government’s argument is that the affluent part of the region will raise employment in my constituency, but all the evidence shows that there are hard-core pockets of unemployment, and that even during the economic good times over the past 13 years, unemployment there did not come down. The only way to address that fallacy is to apply the provisions of the Bill to all the regions of the country, as my hon. Friend suggests.

[Mr Hanson]

I am grateful to my hon. Friend. The question that the Minister needs to reflect on, here or in Committee, is how we should split the national insurance holiday cake. There are many ways of doing that, but his way is unfair to the areas of greatest need, to the areas with the highest public sector employment, and to areas that contain seas of prosperity as well as deprivation.

The Minister has mentioned areas of high public sector employment, but I have already shown him the fallacy behind his argument as it affects many of our constituents throughout the country. Figures for jobseeker’s allowance show that the rate of unemployment is currently higher in London than in the south-west, part of which is represented by the hon. Member for Central Devon, in North Wales, where my constituency is, or in Scotland, where it is 3.8%. Unemployment is also higher in London than in the east midlands or the north-west—[Interruption.] The Economic Secretary to the Treasury did not take your strictures to heart, Madam Deputy Speaker. She is continuing to heckle from a sedentary position. I would be happy to give way to her if she wants to intervene.

However we measure unemployment, the levels of jobseeker’s allowance claims in London are higher than in the south-west, Wales, Scotland, the east midlands and the north-west. Indeed, they are above the UK average. That is a key point when we are thinking about how to divide the cake up.

[Andrew Bridgen (North West Leicestershire) (Con)]

I must say that the enthusiasm being shown by the right hon. Gentleman, and by so many Opposition Members for this fantastic Conservative policy, or coalition policy, on national insurance holidays is absolutely heart-warming.

--- Later in debate ---

[Mr Hanson]

The hon. Gentleman will know that North West Leicestershire will benefit from the scheme, but I hope that he will look slightly beyond the confines of Leicestershire and talk to the hon. Members for Portsmouth North, for Meon Valley and for Basildon and Billericay, who have all expressed concern about the proposals.

[Charlie Elphicke]

rose—

[Mr Hanson]

Perhaps the hon. Gentleman can tell us whether he is in favour of his constituents not having this benefit at this time.

[Charlie Elphicke]

I spoke on the subject of regionalisation in the Finance Bill, and we have to take the rough with the smooth. Does the right hon. Gentleman welcome the fact that in places such as Delyn, 500 new jobs have been created in the past six months? In Dover 500 new jobs have also been created in the past six months. Across the country as a whole, about 300,000 new private sector jobs have been created in the past six months. Does he not welcome that?

[Mr Hanson]

I think I know Delyn better than the hon. Gentleman. If he would like to come to me to talk to the 320 people who lost their jobs yesterday at Headland Foods in Flint, I should be happy to discuss the issue. That happened only yesterday in my constituency, so I will not take any lessons from him about what happens on my patch in north Wales.

I will tell the hon. Gentleman straight away, however, that West Ham has 6.8% unemployment, Tottenham 7.4% and Camberwell 6%. That is more than three times the level of unemployment in Tatton, in Richmond (Yorks), represented by the Foreign Secretary, and in Derbyshire Dales, represented by the Government Chief Whip. Indeed, it is four times the level in Sheffield Hallam, represented by the Deputy Prime Minister. All those areas will benefit from the scheme, while areas of severe deprivation in London will not.

Let us look at the constituencies of coalition Cabinet members. Berwickshire, Roxburgh and Selkirk has 2.8% unemployment, North East Somerset has 1.6%, Tatton has 2.1%—

[Jacob Rees-Mogg (North East Somerset) (Con)]

Will the right hon. Gentleman give way?

[Mr Hanson]

In a moment. [Interruption.] Not North East Somerset. The hon. Gentleman knows that I meant the Defence Secretary’s constituency. I am sure that the hon. Member for North East Somerset (Jacob Rees-Mogg) will eventually make the Cabinet, however, because he is an assiduous attender of the Chamber.

Richmond (Yorks) has 1.8% unemployment, Derbyshire Dales has 1.6%, Rushcliffe has 2%, Sheffield Hallam has 1.8%, Sutton Coldfield has 2.6%, North Shropshire has 2.7%, and Inverness has 2.3%. All the Cabinet members representing those constituencies will benefit from the payment holiday, while colleagues representing seats in Walthamstow, Islington, Mitcham, Luton North, Luton South, Tottenham, Tooting, Dulwich, Streatham, Hampstead, Vauxhall, Hammersmith and the two in Hackney will not.

If we are to make the scheme fair, taking the point that the hon. Member for Central Devon made, we should divvy up the benefits that the Government are bringing forward in a way that tackles the central issues of deprivation and unemployment.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

We as a party welcome the initiative, and I am sure the Government will be happy to hear that. It is an important countervailing measure, and we need further such measures. Have the Opposition assessed how much it would cost to roll out the scheme as they suggest in their amendment, and how that would be funded?

[Mr Hanson]

If the scheme were applied to Greater London, the east and the south-east, and taken up at the level that the Minister expects, it would—according to figures that he gave me only last night—cost about £660 million. He says that there are about 1,000 interested companies to date, but I do not know what the take-up would be.

The cost could be offset by new employment and new taxes, because let us remember that the scheme under discussion is for new businesses, so the holiday period offset will be a cost to the Treasury, but it could be offset by increased growth, increased taxation paid by individuals who are employed and by the increased growth of businesses. The cost of the scheme downstream, at the end of the three years, is debatable, but, equally, there are ways in which we could divvy up the money that the Minister has allocated to the regions of Wales—one of which the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) represents—and all others. We could think about whether to divvy them up differently, so as to tackle areas of high unemployment in London or—if the Minister’s criterion is high public sector employment—areas with high public sector employment, such as those that I mentioned. They are in the 10% of areas with the highest such employment, and include seats that the current scheme will not cover.

[Andrew Bridgen]

Will the right hon. Gentleman clarify his statement? Did he just suggest that we cut taxes to increase growth in order to increase the tax take overall? If so, I welcome the right hon. Gentleman as a believer in the Laffer curve.

[Mr Hanson]

The hon. Gentleman knows that the Opposition have a growth strategy. We had one prior to the election.

The measure under discussion has been proposed to give new businesses a national insurance holiday to help them with their costs for three years. The Minister estimates the costs for the three regions as £650 million to £660 million, based on the scheme’s anticipated roll-out in those regions. My simple point is that these are new employment jobs and new businesses, so they will presumably entail new employment areas and new people employed to fill them, who will pay new taxes. All that is part of the growth strategy, which will be hit hard by VAT increases and public spending cuts. That is a separate issue.

If we are thinking about a payment holiday, the question for me is whether it will achieve its objectives by being available in the areas of the highest public sector employment, or whether it will go to areas such as Tatton, Richmond or other wealthy areas of the north and midlands. In those areas jobs will be created, but the people who most need them will not be able to get them. That is the crucial issue for debate.

Without making a party political point of it, I would argue that Government Members have participated constructively both in previous debates on this subject and in today’s debate. John Walker, the chairman of the Federation of Small Businesses has said:

“With small firms in the South East most likely to be working below capacity, this shows how wrong the Government is to not include this vital region, as well as the East and London, in its proposals for a National Insurance holiday for start-up businesses.”

I have already said that we are not going to vote against the Bill—although if the reasoned amendment had been selected we would have voted for that. However, it is important both to consider the issue in the round and for the Minister to reflect on the concerns expressed, by his hon. Friends as well as by Labour Members, about the application of the national insurance holiday.

At the same time as implementing this Bill, the Minister is scrapping completely the regional growth strategy for different departments, and scrapping the regional development agencies and replacing them with local enterprise partnerships, which in my view will not help with regional development to the extent that we would want. The Under-Secretary of State for Defence, the hon. Member for Mid Worcestershire (Peter Luff) has said that that sends out the wrong message about the work that has been done.

We need to look towards a better application of this policy, and the Minister needs to reflect further on the concerns expressed in our debate. Although we will disagree politically, I am most interested in ensuring that any national insurance holiday is of benefit to the people who most need it. Sadly, the Bill misses the mark in that respect, and fails to address those key issues.

I repeat that we will give the Bill a fair passage and not vote against it this evening. We welcome the rise in national insurance, which we too would have implemented. We welcome the holiday provisions as far as they go, but they need further reflection, so we will take every opportunity in Committee to try to persuade the Minister to look at more imaginative schemes, which might use the same amount of money in different ways, or extend the holiday to areas where it would be a valued resource and help reduce unemployment in the constituencies in the south-east, London and the east that most need that.

I hope that what I have said is helpful to the Minister. I look forward to spending the next few weeks in Committee with him, just as I have spent the last few weeks in Committee with him and his colleagues on various other Bills. To make a wholly non-partisan point, the Treasury appears to be one of the busiest Departments at the moment, and we are all having fun. I am sure that our discussions will shortly continue elsewhere.