Lord McKenzie of Luton
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National Insurance Contributions Bill
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Lord McKenzie of Luton
My Lords, I shall speak also to Amendment 2. Amendment 1 seeks to probe why 50 per cent, rather than, say, 75 per cent, of the product of the additional primary rate and additional class 4 percentage rate form part of the health service allocation. Amendment 2 poses the same question for a 100 per cent—the existing percentage—allocation.
The main features of the contribution system are helpfully set out in appendix 2 of the Government Actuary’s Department report on the Social Security Benefits Uprating Order 2011. For the NHS allocation it sets out, as partly provided for in the Bill, the rates of 2.05 per cent of earnings between the primary threshold and the upper earnings limit and 1 per cent of earnings above the UEL. From April 2011, the UEL, as we have just heard from the Minister, has reduced and the primary threshold has increased. That would appear to mean that for any given level of earnings, the 2.05 per cent of the allocation will be lower because the band is narrower, and the 1 per cent will be greater because the starting point is lower. However, overall, with constant earnings, this part of the NHS allocation would appear to be reduced. Similarly, the constant 1.9 per cent NHS allocation from employer contributions would appear to be less because it starts from a higher secondary threshold. The same issue arises in respect of class 4 contributions.
Given that GAD assumes the number of jobs to be the same next year as this year, with earnings increasing by just 2.1 per cent, what estimates have been made of the overall NHS allocation? Will the Minister let us know the estimated figure for the current year and how this would change if the percentage of the additional rates applied was variously 75 per cent and 100 per cent? These issues are important in seeking to understand the projected outcome on the National Insurance Fund in the context of the funding that has been allocated to the NHS. On this matter, in responding to the Second Reading debate, the Minister said:
“I hope it is completely clear to noble Lords that nothing in the Bill affects in any way the commitment to increase NHS spending in real terms in each year of this Parliament. We can afford to do this without additional funding from national insurance contributions”.—[Official Report, 2/2/11; col. 1429.]
Anyone who followed the debate in another place, which I will not replicate today because there will be other opportunities, will understand why the Government are effectively failing in this pledge; I refer to the switch in funding to cover social care budget shortfalls, the consequences of the VAT increase on the NHS given the inflation in the costs of treatment, and the costs of the reorganisation.
Perhaps the Minister will tell us, if the Government are to struggle to reach their NHS spending commitment, where the money will come from if the moneys allocated from the National Insurance Fund are not to be used. Will he also let us know how the additional moneys retained in the National Insurance Fund and not allocated to the NHS have contributed to its balance, which is projected now to be £53 billion by 2015-16? Clearly, if the NHS allocations were greater, the balance of the fund would be less and the investment income less—but what would the other ramifications be? We probe with these amendments. I beg to move.
Lord Sassoon
My Lords, I hope that I did not give too much encouragement with my remarks on Clause 1 to indicate that I would be in too accommodating a mode this afternoon. As regards the two amendments, I find this split of the proceeds between different allocated funds rather confusing and arcane. The relevant questions are the big picture ones asked by the noble Lord, Lord McKenzie of Luton, about the impact, if any, on NHS funding.
The point is that although for government accounting purposes—which are important—the moneys need to be allocated, the allocation does not and will not have any impact on NHS funding. It is absolutely not part of government policy to cut NHS funding automatically if, for example, global conditions lead to a reduction in national insurance contribution receipts. The Government would simply make up any shortfall from lower than expected national insurance contributions from other sources.
Even though the noble Lord questions it, the overriding commitment is the one that has been given on National Health Service spending. The amendments do not have any bearing on how much the NHS will have to spend because if the money does not come out of one fund it will come out of other sources of general government expenditure. We are maintaining the level of national insurance contributions allocated to the NHS and taking the additional revenues from rate rises to the National Insurance Fund. That is what is happening here although, as I have said, it will not have any impact on the NHS but merely maintain the previous level of funding. However, putting the additional revenue into the National Insurance Fund will help to ensure that plans for the payment of pensions and other contributory benefits will be sustainable in the long term. Through that funding we can protect pensioners by the new triple lock that guarantees a rise in the basic state pension every year in line with earnings, prices or by 2.5 per cent, whichever is the greater. In ordinary circumstances we would expect contributions to rise broadly in line with earnings, and therefore to rise in real terms.
Under the Government’s proposals, we expect allocations to the NHS to rise in real terms in a typical year. I do not have the breakdown of the split under different percentages. I could get my calculator and work it out but the main point, as I have tried to explain, is that the split itself is not relevant. We are maintaining the allocation and ensuring that the National Insurance Fund continues to grow, and National Health Service expenditure is protected by the commitments that the Government have given in their broader expenditure plans. I hope that I have adequately explained what is going on and that noble Lords will withdraw the amendment.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply. Of course we will withdraw the amendment; as he knows, that is the practice in the Moses Room. I understand the broad thrust of his point about funding for the NHS, but we shall have to agree to differ on the Government’s performance in that regard. We shall have the opportunity to debate that fully on other occasions.
The Minister said that in the event of a shortfall in contributions, the Government would make up the difference. One point that I was probing concerned the respective levels of the NHS allocation for the current year and for the year we are about to enter. I accept that the Government are preserving the 1 per cent and 2.5 per cent rates. However, the bands on which they are operating are changing; the bands for next year will mean that the UEL is reducing and the primary threshold is increasing. All other things being equal, if there were constant earnings between the two years, you would expect a lower contribution to the NHS allocation than was the case before the changes were introduced. With great respect, I do not think that the Minister has fully responded to that point—but it looks as if he may be about to do so.
Lord Sassoon
I apologise for not responding earlier, but I see that the noble Lord has the Government Actuary’s report, from which the Committee can see that the NHS allocation for 2010-11 will be about £20.5 billion, and pretty much the same for 2011-12. The figures in appendix 6, towards the bottom of page 25 of the GAD report, show that the expectation is £20,608,000,000 for 2010-11 and £20,437,000,000 for 2011-12. That is after the bands change; the amount is very close.
Lord McKenzie of Luton
I had not reached that appendix, so I thank the Minister for those figures. I accept that they are very close. Nevertheless, there is a reduction year on year. Had more than 50 per cent been allocated, the outcome would have been different. It is not just a matter of comparing one year with the next. Dealing with the rates is one thing, but if the bands are changed there will be consequential effects in subsequent years as well.
I will press another point that I raised concerning the impact on the balance of the National Insurance Fund. The actuary’s report shows an increase to some £53 billion over the years to 2014-15. The effect of not allocating more to the NHS is to build up that balance, which will also have implications for the investment in the fund. If more were allocated to the NHS, what would be the effect, other than reducing that balance and changing the investment income?
Lord Sassoon
My Lords, clearly, if there was more in the fund, a greater part of NHS expenditure could come via that route, but I am not clear that there would be any significant consequence in terms of the outcomes we are talking about. NHS expenditure will be determined by the allocation that has been given in the spending review. The noble Lord may quibble about the nature of the numbers and what is covered by them, but they are set out with great clarity in the review. For this purpose we are talking about some relatively simple arithmetic in terms of what would happen if there were to be any shortfall. If there is a surplus, funds that do not go to the NHS go to the National Insurance Fund; that is what has led to the considerable current balance. We are talking about a process where a fund has accumulated over the long term and we need that surplus, although it is predicted to fall, in order to fund future pensions.
In summary, one way of looking at it is that in the short term a high balance will help to tackle a deficit. Indeed, as the noble Lord heard from his officials in the past, and as has been explained to me, that balance is invested with the Commissioners for the Reduction of the National Debt.
Lord McKenzie of Luton
I am grateful to the Minister and beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I beg to move Amendment 3 and to speak to Amendments 8 and 9. The purpose of this group of amendments is to probe a little the boundaries of the national insurance contributions holiday. As I think we made clear at Second Reading, we see merit in the scheme as an incentive to encourage employment by new businesses but wonder whether the parameters of the scheme are driving a bureaucracy that will considerably lessen its impact.
We acknowledge that the wider the scheme is drawn, the further the resources have to go but the level of take-up referred to when this was debated in the other place suggests that the Government are falling far short of their anticipated take-up. Without praying in aid the report that is due to come more officially in due course, perhaps the Minister might give us some update on the take-up to date. The scheme has effectively been under way for something like nine months. Is the expectation that this incentive will still reach 400,000 businesses over the relevant period? By limiting the holiday to new businesses, the complexity of the legislation inevitably increases as it has to address the avoidance possibilities of people recasting an existing business as a new enterprise. We will come later to the validity of the excluded regions but we accept that if they are to be part of the scheme, the boundaries of the non-excluded regions must be secure.
The purpose of Amendment 3 is straightforward: to secure that,
“the principal place at which the new business is carried on … is not in any of the excluded regions”,
not only when it is started but “throughout the period when” the benefit of the holiday is being enjoyed. There is an argument that the requirement should be satisfied throughout the relevant period, but if that were imposed you would not be able to grant the holiday and the benefit of the cash flow until the end of that period.
Amendment 8 seeks to probe why six months has been chosen as the cut-off point in determining whether a business has effectively been recycled. The Minister might explain why that is considered a more appropriate period than, say, the 12 months that the amendment suggests. Perhaps he would also take the opportunity to expand on some of the terms in Clause 5. A business is not a new business for that clause’s purposes if a person has, within the defined period, carried on a,
“business consisting of the activities of which the business consists”.
That might be abundantly clear in many circumstances but not, we suggest, in others. Will a retail business—say, a grocery store—conducted in one part of a non-excluded area consist of the same activities previously carried on by that person if the business were a retail business in a different location selling the same type of products? What if the product range were different—children’s clothing, say—but trading were from the same location and, possibly, under the same name?
The purpose of Amendment 9 is to test whether there is any leakage of the benefit of the holiday where P genuinely starts a new business which is run alongside an existing business of P. In part, that depends on whether it is a single business or there are two or more separate businesses. Organising an expansion as a branch of an existing operation would presumably not be a new business; organising via a separate company or partnership could be. What, in the arrangements in the Bill, would prevent employees being employed by the new business with some recharge to the other businesses? Does Clause 6(1)(a) require employment wholly for the purpose of the new business?
I would not expect the Minister necessarily to respond in detail to all of these points this afternoon. They are raised to highlight the fact that focusing on new businesses and having excluded regions complicates matters—sometimes, I suggest, considerably. It certainly complicates the legislation, notwithstanding the general anti-avoidance provisions of Clause 10, which we thoroughly support. It will inevitably be the case that when boundaries to a scheme are set down, there are those who will seek to circumvent them. I am not sure whether the Government have been wise in offering so many of these opportunities.
Baroness Kramer
My Lords, I apologise if my newness to the institution shows in my bobbing up at the wrong time. I wish to make a couple of small comments on the amendments in this group, although my comments are less about the detail and more, in a sense, about questioning the underlying principle.
For all of us, the notion that new business can be stimulated to be a fountain of growth and of new jobs is obviously highly desirable, so an effective take-up of the programme would, I suspect, be met with pleasure on every side of the House. However, given the potential for a review period as we move through the Bill, might it not be good to keep in the back of one’s mind that even new jobs that come from existing businesses can be valuable, even if the take-up does not reach the targets of the initial programme? It strikes me that that would not be a failure, given that economies are volatile and take-up can take time but that jobs are beneficial even if they originate from business that is already under way. It might be important to ensure that this whole category of issues is critical in any review that might come one year after the initiation of the programme so that the Government can consider whether they would be wise to expand the categories in order to achieve the underlying intention of the Bill.
Lord McKenzie of Luton
Again, I am grateful to the Minister for his response. I would like to reflect a little on what he said on Amendment 3 and the application of Clause 7(3) but we see the import of that response. Of course, I shall not press any of these amendments this afternoon. I agree with the noble Baroness, Lady Kramer, about the take-up of the scheme as conceived; if it does not use the resources and if there is a view to possibly recasting it, the value of new jobs for existing businesses is certainly something that the Government might consider including. I entirely accept, as we all would, that you have to strike a balance on the cost of these things and on where you draw the line. I would hang on to my point and spend a little time trying to bust the anti-avoidance provisions. By and large, I think they are pretty secure. The more targeted it is, the greater the risk of avoidance arrangements and people trying to take the benefit of something which is not intended. Obviously, the broader the scheme, the less likely that is to happen. In the interim, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I shall speak also to the other amendments in this group. As we discussed at Second Reading, and as was pursued in another place, we have concerns that the national insurance holiday is targeted by crude geographical area and not by any more objective assessment of need. These amendments variously look to remove Greater London, London, the south-east and the eastern region as excluded regions. As we have just discussed and as we shall discuss further under the next grouping, there are practical ramifications and administrative costs in excluding certain parts of the UK from the benefit of the holiday.
The Government’s chosen method of targeting is to look at those areas with the greatest reliance on public sector employment and to do that at regional level. Given that the RDAs are being abolished—that is about to be debated in another place—and that different economic groupings are being established through LEPs, can the Minister say on what basis the analysis has been undertaken at a regional level? We certainly acknowledge that the scale and speed of cuts in public spending will have devastating effects on unemployment, both public and private. If the basis of targeting is reliance on public sector employment, perhaps the Minister can say a little more about how this measure is determined.
For example, does the Minister accept that direct employment in the public sector is only part of the story? Parts of the private sector are as heavily reliant on public expenditure as perhaps those in the public sector that provide direct employment. That can be for a combination of reasons, including previous outsourcing of functions of central or local government and the reliance on public sector construction contracts. For instance, the Building Schools for the Future programme would have provided significant employment opportunities. For example, we know that the Government have been recruiting via agency companies in order to keep head counts down. Perhaps the Minister can say whether those arrangements are included as part of the public sector.
Another issue to consider is the extent to which spending cuts are borne fairly and proportionately across areas. In devising this policy, what analysis was undertaken of how spending cuts are being borne across the country? Have the Government sought to differentiate between front-line and other staff? We certainly accept that levels of public sector employment are one measure of vulnerability to spending cuts, but by taking a regional perspective the Government are averaging out high reliance on the public sector in some parts of the excluded regions. Debate in another place highlighted a number of constituencies in the excluded regions which were in the top 10 for public sector employment. These include Oxford East in the south-east, Lewisham East in London and Luton North in the eastern region. It was highlighted that Newham has a public sector employment rate of 33.6 per cent but is excluded from the holiday, whereas Macclesfield, with a rate of 11.8 per cent, is included. The Government’s approach does not recognise differences within regions and could be giving rise to significant deadweight costs. However, at a regional level, London has a higher employment rate than three regions which are not excluded. It is difficult to see the sense in that.
The east of England is the region that I know best. Currently, the east of England business start-up rate is below that of London, the south-east and some international comparator regions. The region requires a skills base that better meets the needs of regional businesses. It is also underperforming in terms of levels of GVA compared with London and the south-east and has a marked east-west split in economic performance. Workplace earnings vary acutely, with workers employed in Suffolk, Norfolk and Southend-on-Sea being the lowest paid in the region. Despite the region’s overall high employment rate, areas of high and persistent unemployment remain. This has a major impact on levels of deprivation and health inequalities. While some districts in the region are among the most prosperous in the country, 11 districts are rated among the most deprived in England.
The February labour market statistics are very worrying, particularly the 66,000 increase in the unemployment rate among 16 to 24 year-olds. It appears that the benefit of the holiday is simply not available to some of the worst affected areas. Two of the top 15 constituencies in the UK with the highest unemployment rates are denied—both Luton constituencies, ranked 168th and 269th, are excluded. A detailed analysis of deprivation data suggests the same picture. Some areas of greater affluence are included in the scheme ahead of others with greater levels of deprivation.
We accept that public sector employment is in some measure a proxy for vulnerability to spending cuts and that an incentive for private sector businesses can help. It is also accepted that if there are to be geographical exclusions and inclusions, the broader these are the less likelihood there is of displacement activity. However, the scale of the exclusions fundamentally calls into question the fairness of the policy as cast. I beg to move.
Baroness Kramer
My Lords, I rise to speak because I grew up and have spent much of my political life in Greater London. Like most Londoners, I would defend to the last any opportunity or benefit that might come to London. However, I recognise that if areas such as Greater London, the south-east and the eastern region—I know the latter region less well—were included in this scheme, they would suck up the overwhelming majority of funds that the Government could make available. At a time of great prosperity that might not matter, but at present those of us who live in the better-off regions have to be conscious of how seriously difficult life can be in other parts of the country, particularly those which are losing a significant number of public sector jobs and are dependent on those jobs.
Lord Sassoon
My Lords, I am very grateful to my noble friend Lady Kramer for answering the main thrust of the questions put by the noble Lord, Lord McKenzie. This measure does need to be targeted. It cannot be targeted in a way that picks out pockets of deprivation—of which there are a significant number in London and elsewhere. However, the basis on which we came up with the holiday includes a relative regional effect. Of course, if we were to sweep away all the geographic exclusions, the thrust of the holiday, which will be to have a relative regional effect, would disappear. On the other hand, as my noble friend says, unlike other measures, this would not be an appropriate measure to target in a subregional way—that would not be feasible.
We have gone with a broad regional analysis. The simplest way to explain the basis for doing this is through the numbers for public sector employment as a percentage of total employment by region. The latest available data when the policy was formulated showed that against a national UK average of 25.1 per cent public sector employment, the three lowest regions were the south-east with 22 per cent, London with 22.5 per cent and the eastern region with 23.1 per cent. That was the principal basis on which the exclusions were made.
My noble friend made the critical point that I was going to make about cost and targeting the money. If the three excluded regions were included, that would increase the total cost of the holiday by some two-thirds. To put it another way, out of the total holiday cost, two-fifths of the benefit of the holiday would go to those regions that are least dependent on government employment, and only three-fifths would go to those regions that are more dependent—in some cases considerably more—on government public sector employment. At the heart of this measure is the belief that the funds available should go to the regions that most need them on this metric.
Indeed, the evidence in the public evidence session on the Bill supported that. For example, representatives from the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and new business formation would not be significantly harmed because the holiday was not available in these regions. It is worth reminding the Committee that all new and existing businesses in the south-east will benefit from the increase in the employer national insurance contribution threshold and in the reduction in corporation tax rates. Therefore, considerable benefits go to the region through our wider package of measures.
There were questions about the different definitions of regions and so on. The LEPs do not have geographic boundaries that equate to the regions and, in theory, could cross the regional boundaries that we are using. In effect, they are groupings by local authority boundary. Yes, there are other ways of doing it. We have taken the regions as defined for the purpose of public sector employment, which we think is the most cost effective way of targeting the benefit.
Lord McKenzie of Luton
I thank the Minister for that response and the noble Baroness, Lady Kramer, for her contribution. I do not think that we will totally see eye to eye on this issue. The noble Baroness referred to better-off regions, but that does not address the point that regions are not homogeneous. For example, there are huge disparities across the eastern region, but because of areas of particular prosperity in aggregate the area is counted out. As a result, those areas where there is deprivation and high unemployment lose out. I agree that it is to be hoped that there are other arrangements which would enable jobs to be created via one mechanism or another, but I believe that the regional focus is producing unfairness in the scheme.
The Minister said that the measure could not operate at a sub-regional level. I am not quite sure why not. Exactly the same rules will apply. There simply will be a different set of boundaries and descriptions. He referred to the fact that all businesses are benefiting from the national insurance changes to the threshold and corporation tax deductions. I guess that they are all equally suffering or all suffering from the impact on consumer demand of the VAT increase. But that is probably a debate for another day. I do not think that we will make progress on this issue. Accordingly, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, Amendment 10 focuses on the inclusion within the term “business” of “property business” and “investment business”. Section 263(6) of the Income Tax (Trading and Other Income) Act 2005 includes a UK property business and an overseas property business within the definition of “property business”. This would seem to open up the possibility that the principal place at which a new business is carried on is overseas with subsidiary business activities in the UK. Obviously, those overseas operations would not be within an excluded area.
Furthermore, even if those subsidiary activities were in the excluded regions, the national insurance holiday would still seem to apply. I ask myself whether this was what was intended. I looked again briefly at Clause 7(3), which the Minister prayed in aid in response to an earlier amendment. If you have a business where the principal place of that business is outside the excluded region, but nevertheless there are employees operating in excluded regions, what in the Bill would stop a holiday applying to them? Having just argued that I do not want any excluded regions, I might seem to be arguing against myself. However, in terms of the integrity of what is proposed here, it may be that I am missing something. Perhaps the Minister would respond to that. Even if the subsidiary activities were in the excluded region, the national insurance holiday would, I suggest, still seem to apply. There seems to be nothing which precludes a new business being carried on in any of the excluded regions or indeed for the national insurance holiday to be available to employees based in the excluded regions so long as the principal place at which the new business is carried on when it started is not in any of the excluded regions. Is that how the Minister reads the legislation?
The principal place at which the business is carried on will often be very clear, as the HMRC’s very helpful note suggests. However, for an investment business or a property business, it might be much less certain. The core of such businesses might be based on the judgment of a few individuals; it would not necessarily be where the portfolios, especially investment portfolios, are located or indeed where the back-office functions are located or where the contracts for the investments or property portfolios are executed. Where the business is primarily carried on could be quite nomadic or easy to place in a favourable location, perhaps where the guiding minds of the business meet periodically to receive investment reports and make decisions about changes to the portfolio. Does the Minister have a view on this? The noble Lord may feel able to say that it has to be determined on a case-by-case basis and I accept that that may be so. Would he accept that this probing amendment highlights a layer of potential complexity which is introduced into the scheme again by having excluded regions? I beg to move.
Lord Sassoon
My Lords, in relation to what we are trying to achieve through the holiday scheme, it is important to create employment. The question of the nature of the activity which is being engaged in is one where again we want to be as permissive as we can be, consistent with the nature of the scheme. Although the noble Lord raised a number of other points going back to the question of boundaries between excluded and non-excluded regions, what we are principally talking about in the amendment is the type of trade or business which the activity is engaged in.
In that context, as well as making the general point that what we are focusing on is maximising employment growth from a broad range of sectors, it might be worth saying a word or two about what property business includes. It covers activities including property rental, land rental and furnished holiday lettings; for example, I believe that the holiday could be particularly valuable in relation to furnished holiday lettings which, of course, would typically operate in rural areas and often provide employment where there are not other significant job opportunities. I would certainly like to think that the noble Lord, in proposing this amendment, was not intending to remove businesses from relief if that could, for example, prevent people or discourage people from providing holiday lettings, furnished cottages, apartments and so on.
Similarly, on investment business, the Government’s view is that making investments and deriving profits from them is no less inherently a business than buying and selling any other tradable item. As the noble Lord says, there will be case-by-case determination by HMRC if there are questions about the validity of the trade or of boundaries.
Lord McKenzie of Luton
I thank the Minister for his response. We propose to withdraw the amendment. The purpose of framing the amendment and focusing on property and investment business is to highlight again the particular conundrums that arise in respect of businesses of that nature, which often—particularly for smaller businesses—would be controlled by one person or two people. Where that business is principally located would often be where that individual or individuals are, and the substantive back-office-type operations could be completely separate and different. It just highlights the sort of problems that come from having these definitions and having to guard the boundaries of them.
The Minister has confirmed one point that surprised me when I happened upon it. He has confirmed that so long as the principal place at which the new business is carried on is not in any of the excluded regions, other parts of the business could be carried on anywhere including in the excluded regions, and if the employees in the excluded regions happened to be part of the first 10 they would be eligible, or count towards, the national insurance holiday. I see nodding from the Box—perhaps I have been going on too long and they are nodding off—but, if that is right, it looks a bit daft in terms of the definitions we have been probing this afternoon.
I beg leave to withdraw the amendment.
“( ) A new business shall be able to treat two or more part-time employees, up to the value, in terms of hours worked, of a full-time employee, as a single person for the purposes of the relief available.”
Lord McKenzie of Luton
My Lords, to a certain extent the Minister has already pre-empted this and given us a response which will be, I think, that in a sense there is room for part-time workers within the headroom that the count of 10 will provide. Nevertheless, I will seek to pursue the argument.
The technical note issued by HMRC in August adds some clarification on the maximum number of qualifying employees. In particular it makes clear that employees earning below the secondary threshold—that is the start of national insurance obligations—still count towards the 10, even if they are part-time or casual employees. Even if there is no employer national insurance due and no benefit from the holiday, they still count against the number 10.
The purpose of this amendment, which I accept would need some tidying up to be acceptable, is to enable part-time employees to be aggregated when determining the first 10 employees of a new business. It may well be that individual part-time employees do not earn above the secondary threshold so that, irrespective of their employment, a holiday would not produce a benefit for the new business, but it may allow the eleventh or twelfth employee to be counted in and the employer to enjoy the benefit of the holiday. Clearly there would need to be rules about what counts as part-time, and who gets added to whom, as it were, to determine a full-time equivalent, and what happens if a part-timer leaves, but these should be capable of being drawn up fairly simply.
Part-time working has been an increasing phenomenon of the UK labour market in recent years, although it dipped slightly in the last quarter to December 2010. Over the last year, it has increased by some 8 per cent for men and over 1 per cent for women. Nearly three-quarters of those employed part-time are women. Job sharing, especially for women, is an increasing way of balancing caring responsibilities with work, and a removal of the default retirement age, which we thoroughly support, will lead possibly to older people working longer but on a part-time basis.
Taking on part-time workers in the early stages of a new business could help lower risk to the business and increase its survival rate. There is clearly a tension between this and having full-time employees who could generate a benefit from the national insurance holiday. Being able to aggregate part-time employees on this basis would go some way to ameliorating the tension between those two positions. I beg to move.
Baroness Kramer
My Lords, I want to speak particularly to this amendment because it is, in a sense, a real request. Part-time working and job sharing are really important. The Government have done a great deal to promote, indirectly, part-time work through, in effect, a pupil premium that now goes down to the age of two. This for many women means that there is a form of very attractive childcare available from the age of two, even for disadvantaged families, making part-time working far more feasible than it might have been in the past. The culture, however, needs to change, and it seems to me that this Bill, because it resists using the language of part-time work and job sharing, falls into that ongoing trap of not challenging the culture and pushing that change forward. Part-time work is often seen as a temporary accommodation, and as the lowest skilled work—that is not always true, but it is the general image—rather than as something that can be embedded permanently into the way that a company functions.
Lord Sassoon
My Lords, I echo my noble friend Lady Kramer’s view of the importance of job sharing. I, too, could introduce a small reminiscence. I have had job-sharing personal executive assistants working for me, and I know that the arrangement can work extremely well. It gives people who, for example, have children, more opportunities to work. I have seen this in action and I and the Government encourage it.
The difficulty in this Bill is that they will be working in the technical framework of tax and national insurance legislation. One feature of the NICs and tax framework is that there is no distinction in the HMRC construct between full-time and part-time work. Therefore, we decided that the way to accommodate this was through the relatively high limit on the total number of employees. Putting together a construct for this piece of national insurance legislation that distinguished between full-time and part-time staff would be enormously challenging. This was recognised in the public evidence session by the Federation of Small Businesses, which concluded that it would add complexity for the employers who were affected.
There is nothing here that discourages part-time employees, and the 10 employee limit should fully accommodate the likely demand, except in the very marginal case of the few thousand firms—perhaps 2 per cent—that would be restricted by the limit. Again, I ask noble Lords to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I will certainly withdraw the amendment in due course. I am grateful to both noble Lords who have spoken. The noble Baroness, Lady Kramer, spoke with authority and passion about the importance of part-time work and of job sharing. She made a hugely important point about cultural change and recognising that part-time work is not simply temporary work in low-level, low-paid jobs. As she explained, very senior job shares will increasingly form part of the system.
I accept what the noble Lord, Lord Sassoon, said about the difficulty of constructing this within the Bill, and I take the point about NICs and the tax system not making a difference between part-time and full-time employees. We will have some debates tomorrow on the Pensions Bill, and on the attempt to get some aggregation of people in part-time jobs for national insurance purposes so that they get credited at least for pension purposes—but that is a debate for another day.
I recognise that the level of 10 employees gives some headroom to deal with this, although I am disappointed that the Minister could not explicitly cater for part-time workers if for no other reason—it is not really the one that I had thought about—than to push the issue of the cultural change that is needed so that we properly value and encourage, where appropriate, part-time working and job sharing. I beg leave to withdraw the amendment.