National Insurance Contributions Bill

Lord Davies of Oldham Excerpts

Wednesday 2nd February 2011 Lords Chamber

[Lord Davies of Oldham]

My Lords, this has been a most interesting debate. As the House will recognise, the Opposition’s case has largely been presented in the excellent speech of my noble friend Lord McKenzie of Luton. However, it is my interesting task to sum up some of the major questions that the Government need to respond to in this debate. I appreciate that the Minister still has the Committee stage to go through and that many of these questions will receive more deliberation during that stage. However, several questions were raised today which—in fairness to the excellence of this debate—he ought to answer.

I will answer one question for him, if he likes. The noble Lord, Lord Bilimoria, wondered why national insurance contributions were the great hidden tax. Where was the noble Lord in the general election? He might recall that the general election was substantially fought on issues such as national insurance contributions—in fact the Labour Party was berated by the Conservative Party because we intended to increase NICs. Subsequently, the Conservative Party, as the coalition Government, came to agree with this position, which is why we have clearly indicated that we have no intention of objecting in principle to the Bill.

We also note that what the Conservative Party did not mention in the general election, but which the coalition Government have brought into operation, is a VAT increase. My noble friend Lord Myners has reinforced the point that this will have three times the impact on jobs—it will cost 250,000 jobs—that the NIC position will create.

The real issue of contention here is the concept of how this holiday will be implemented. First, the very fact that it will not be general will increase the administrative costs and complexity. It means that there will be more of a paperchase and that more people will need to be employed in Her Majesty’s Revenue and Customs. So there are costs involved. Secondly, what are these broad categories of exclusions? Speaking from the coalition position, the noble Lord, Lord Newby, said that the London labour market is somewhat different, and that help for the regions which might be appropriate elsewhere might therefore not be appropriate for London. But he did not mention the eastern region, did he? It is losing its RDA, too, and it is subject to this exemption. Why did he not address himself to that matter? He said that the London situation is different, and it is.

One of the problems with the London situation is that far too many Members of Parliament arrive in London either at our great railway stations and are conveyed through the West End to Westminster; or they come down the great roads from Tatton, through north London and Hampstead and into Westminster; or they come from Oxfordshire on the great roads through the west of London—Kensington and Chelsea perhaps—into Westminster. They are therefore utterly oblivious of the fact that London includes eight of the most deprived areas in the country. Several of them are east London boroughs. Tower Hamlets and Hackney—to take but two—are second and third in terms of levels of deprivation.

We therefore need to take seriously the representation from Thames Gateway. Of course its area covers more than these London boroughs, but these London boroughs are part of that developmental scheme. They are suffering with rates of unemployment that match anywhere in the United Kingdom. So what is the justification for excluding these authorities and London from the provision?

The noble Lord will also recognise that my noble friend Lord McKenzie asked two quite specific questions which are general enough and relevant enough to this debate. They will certainly be pursued in due course. They are important to the structure of the debate, and the Minister ought to reply to them. My noble friend wanted to know, first, whether the increases proposed in the Bill will be greater by some £1.4 billion than the savings that employers will obtain from increases in the secondary threshold. It will not do to argue that the measures should be seen in the context of the broader taxation structure. The issue is what the Bill will do concerning demands on resources.

The second question concerned the part of the national insurance contribution that is hypothecated for the NHS. Will we get some insight here? The fact that the Bill reduces that by some 50 per cent has serious implications both for the Government’s promise that the National Health Service will be fully funded and in terms of the enormous demand on resources that that represents. Reducing the hypothecated amount is a loss of resource available to the health service. It is not a gain. So I think that the Minister ought to reply to that point as well.

This has been a most interesting debate, and I think that noble Lords have been restrained. Although he indicated that he sympathised with those who want a general debate on the economy, even my noble friend Lord Myners ensured that his contribution remained entirely relevant to the measure, at the same time as posing to the Minister some very real anxieties about the course that government policy is following. However, this is not a general economic debate. This is a debate about a particular Bill that the Government are putting before the House. We in this House never object to Second Readings, and we find the basic principle behind the Bill unexceptionable, but that does not mean that we do not have a number of questions and issues that we want to discuss in Committee.

--- Later in debate ---

[Lord Sassoon]

My Lords, we are talking about the estimates here of the effect of the national insurance holiday. They have been put through the OBR’s estimable machinery in the normal way that the OBR does. As to the basis for the figure of 800,000 jobs, the detail of how that estimate was made and the data sources used were set out in the policy costings document published alongside the June Budget. I believe that the basis on which it was done was entirely transparent.

There was also a question whether the £940 million might be an overestimate of the benefit. It is a number that represents money that these new employers would otherwise have paid, so it genuinely reduces their labour costs and benefits them by that amount.

Lastly, I address the question about monitoring the holiday. My noble friend Lord Newby and the noble Lord, Lord McKenzie, asked about this, and the noble Lord, Lord Myners, may have touched on it. There will be monitoring and updates will be published after the end of the tax year on the operation of the scheme, including information at regional level. The Government envisage that the report will cover, from a regional and national perspective, the number of businesses applying and applications rejected, as well as the number of employees for whom a benefit is received and the amount claimed. This report will require information supplied by employers following the end of the tax year, and the first report will be published when the necessary information has been received, processed and checked to ensure that there is appropriate quality assurance. The Government aim to have these collated data and provisional findings published as soon as they become available, so it will be a comprehensive report on how the scheme is going.

[Lord Davies of Oldham]

Of course, the House will be reassured by the points that the Minister has just made, but does he have any comment to make on the question asked about the up-to-date position? The scheme has been running for a while now and there must, therefore, be some analysis of progress.

[Lord Sassoon]

My Lords, I really think that it is too early yet to have reliable data of the sort that I have indicated, which will come in at the end of the year, to make any judgments about the success of the scheme. As I have explained, we will publish comprehensive regional and national data on the scheme. It would cause there to be a disproportionate burden on the employers and the scheme if we asked them to report with greater frequency. The Government will study the data when they come in to make sure that we understand fully the impact of the scheme.