National Insurance Contributions Bill

Jonathan Edwards Excerpts

Monday 4th November 2013 Commons Chamber

[Mr Gauke]

My hon. Friend raises an important point. I pay tribute to the work that she does on the all-party parliamentary group on micro-businesses. She provides a very strong voice in the House for smaller businesses, and she is absolutely right to do so. She is right to draw the House’s attention to the FSB survey. We have already talked about the contribution that the measure will make to the taking on of more staff, but where more staff are not taken on, there will very often be investment in the business, which will clearly help it to expand.

The Bill cuts the jobs tax for 1.25 million employers and takes 450,000 of them out of employers’ national insurance contributions altogether, making it less expensive for businesses to take on new staff, so the Bill will help job creation. It contains four main measures. We have touched on the employment allowance. I will also say something this afternoon about the fact that the Bill gives effect to the general anti-abuse rule on national insurance contributions. It also amends the Social Security Contributions and Benefits Act 1992 to allow regulations to be made on the certification of non-UK employers of oil and gas workers, and makes changes in connection with two elements of the partnerships review carried out by Her Majesty’s Revenue and Customs. The Bill also makes a small number of technical corrections that I am happy to take the House through, should there be demand for that; if there is not, I am sure that we can cover them in some depth in Committee.

Returning to the employment allowance, as part of our efforts to remove barriers to growth for businesses and to equip the UK economy to compete in the global race, the Chancellor announced in this year’s Budget the creation of a new employment allowance, as my hon. Friend the Member for Dover (Charlie Elphicke) pointed out. It will take effect from 6 April next year. Businesses, charities and community amateur sports clubs in the UK will be entitled to a £2,000-a-year allowance towards their employer national insurance contribution liability.

The employment allowance builds on action that the Government have taken to make the tax system more competitive, and to encourage growth. That includes cutting corporation tax, increasing the rate of the research and development tax credit for small and medium-sized enterprises, increasing the annual investment allowance to £250,000, and giving a cash-flow benefit to those who invest in plant and machinery.

The objective of the employment allowance is to help businesses with the cost of employing their staff by reducing their employer class 1 national insurance contributions bill each year. It will support thousands of small businesses that aspire to grow, perhaps by hiring their first employee or expanding their work force, as well as those already employing others, or facing temporary cash-flow problems.

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

In the emergency Budget that followed the last Westminster election, the Treasury said that it wanted to rebalance the economy geographically, but the only measure that we have seen to date is the reduction in employers’ national insurance contributions for companies outside London and the south-east. The employment allowance is a UK-wide measure. Does that indicate that the Treasury has given up on its ambitions geographically to rebalance the UK economy?

[Mr Gauke]

No, not at all. There is a whole host of measures, including the regional growth fund, and there is some really good news; exports are up significantly in the west midlands and the north-east in particular. We are taking steps to strengthen industries up and down the country. The hon. Gentleman touches on the regional employers’ NICs holiday; let me turn to that, because I suspect that the policy will feature heavily in the arguments that we hear from Opposition Front Benchers.

--- Later in debate ---

[Shabana Mahmood]

I do not think that an economy that was growing was a bad legacy to leave. The legacy of three wasted years, caused by the Government pursuing a failed economic plan that has delivered a cost-of-living crisis for millions of people, is not one to write home about.

[Jonathan Edwards]

The key point about the national insurance measure in the emergency Budget was that it was a statement of intent that the UK Government wanted to rebalance the economy geographically. Under the last Labour Government, wealth polarised geographically at an incredible rate. If the hon. Lady is in the Treasury after the next election, what will she and her colleagues do to rebalance the UK economy geographically?

[Shabana Mahmood]

We have been speaking a great deal about rebalancing the economy and our proposals on regional banking, for example, are proof that we take the issue seriously. The hon. Gentleman described this Government’s policy as a statement of intent, but it was an absolute failure, and that is the subject of the debate today.

The national insurance holiday was a flagship policy of the Government’s first Budget, which is why they are so desperate to forget that it happened. They created a scheme that ran from 6 September 2010 until 5 September 2013 and applied to new businesses only. They were eligible only if they were created after 22 June 2010. Under that scheme, new businesses would not have to pay the first £5,000 in national insurance for each of their first 10 employees during the first year of the business. Greater London, the south-east and the eastern region were all excluded from the scheme. The Government said that 400,000 businesses and some 800,000 employees would benefit from the national insurance holiday, at a cost of £940 million over the three years of the scheme. In their impact assessment, the Government confidently predicted that the average benefit per business would be about £2,000, but by the end of the three years of the national insurance holiday in September this year, the scheme was shown to have been a comprehensive failure.

In the end, only 25,000 businesses received NICS relief—that is 375,000 fewer businesses being helped than the Government originally claimed. It was always highly unlikely to have ever been worth the maximum £50,000 to a new start-up business. To get the maximum relief available, the new businesses would have had to take on 10 people with salaries of up to £40,000, which does not exactly fit the pattern of how new start-ups behave and the sorts of choices that they make in their first year of business.

Of the £940 million set aside to pay for the scheme, only £60 million was ultimately paid out, a paltry 6% of the amount originally intended. To put that in context, the Government spent £12 million on the administration of the scheme. We repeatedly warned that the scheme was not working, that it was not helping businesses as intended and that the Government should reform it, expand it, review it or bring forward a new one, but they refused to listen.

It is not as though the Minister could not see the failure unfolding before his eyes. Take-up of the national insurance holiday was never anything other than dismal. In the first year of the scheme, there was not one month in which HMRC received more than 850 applications. In 2012, there was only one month when the total number of successful applications was more than 1,000—that was in May 2012, when there were 1,130 successful applications. For the Government’s scheme to succeed, they would have needed to hit that number every month for three years, and they got nowhere near that.

When the Treasury Committee conducted its inquiry into the June 2010 Budget, the Chair of the Committee said:

“For those of us who have been on the circuit a while it sounds like another case of the triumph of hope over experience.”

How right he was.

--- Later in debate ---

[Ian Swales (Redcar) (LD)]

I warmly welcome the proposals in the Bill. We have already heard the statistics on its impact, including that 90% of the money involved will go to companies with fewer than 50 employees. That represents real help for small businesses up and down the country. I also welcome the fact that it will be much simpler to apply for the allowance, and that businesses will no longer have the kind of issues they are experiencing with the present scheme.

It is certainly true that people and businesses respond to financial incentives, and it is no wonder that national insurance is sometimes called a jobs tax, because it can be a disincentive to employing people. It raises the bar to employing people and, given the importance of creating jobs in our economy, it is great to see that bar coming down. The Federation of Small Businesses has stated that the Bill will affect not only jobs; investment will also increase, as will the pay of the staff. I warmly welcome the FSB’s conclusion. Let us contrast these measures with the previous Government’s proposed 1% increase for employers and employees in April 2011. The independent Centre for Economics and Business Research said that that measure would have taken 57,000 jobs out of our economy—proving the point that national insurance can indeed be a big incentive either to employ people or fire them.

I welcome the proposals relating to offshore oil and gas employees. Quite a number of them live in my constituency, and many have had great difficulty with the intermediary companies that employ them. The confused nature of the national insurance arrangements can cause them personal issues when they start to claim pensions, for example, so I welcome the simplifying measures and look forward to the remaining measures required to give offshore oil and gas workers the right status in our economy.

The tax avoidance measures are also welcome. They are part of an ongoing campaign by the Government, who have already increased by 2,500 the number of staff employed to deal with tax avoidance and evasion. There is a lot more to be done, but we should all warmly welcome clauses 9 and 10, which will apply the general anti-abuse rule. This will prevent offshore payroll companies from avoiding national insurance.

[Jonathan Edwards]

How much of the annual tax gap does the hon. Gentleman think this measure will tackle?

[Ian Swales]

Very little. We heard from the hon. Member for Birmingham, Ladywood (Shabana Mahmood) that the measure will not bring in an enormous amount. It will, however, remove the loophole that has been used by many companies, including some of our merchant banks, to pay their staff offshore as a technique for avoiding national insurance. We have to welcome any measures that will improve that situation.

I want to ask the Minister for clarification following the 2011 Budget announcement that tax and national insurance would be simplified and that work would be done to bring them together. We have long since lost the hypothecation of national insurance, and I wonder whether we could simplify the arrangements a lot more than we are doing at the moment. I hope he will respond to that point.

The Bill is part of a big package aimed at supporting small and medium-sized businesses. Corporation tax is down from 28% to 23%, and it is heading for a rate of 20% by 2015. A new business bank has been proposed, along with other lending schemes. There has been a response to the Lib Dem campaign to increase capital allowances, which went up tenfold in the last Budget. That is particularly helping small manufacturing companies to increase their investment in equipment. The one in, two out policy on regulation is also a great help, as is the setting of small business rate relief at 100% for two and a half years. Those measures and more are driving the economy forward, and have now created 1.4 million jobs.

Last week, a shadow Minister described his party as the party of small businesses. The laughter that greeted his statement almost brought the house down. If we look at what could have been done in 13 years and what this Government have done in three short years, it is quite clear to see who is out there supporting small businesses.

The Opposition propose a business rate freeze, which would give small businesses about £450 over two years. These measures give businesses £4,000 over two years—almost 10 times as much. They are certainly a great help to small businesses. We have heard about the FSB supporting them, and about the Small Charities Coalition doing the same, while the CBI has also welcomed them. If there is a coalition of those organisations, we know we are doing something right.

This Government are continuing to sort out the mess left by the Opposition, and the Bill will help to create jobs in our economy, will strengthen it and will make the national insurance system fairer.