National Insurance Contributions Bill

Lord Newby Excerpts

Monday 28th February 2011 Grand Committee

[Lord Davies of Oldham]

My Lords, from the perspective of opposition I always rather approve of Bills starting in our House, the upper House. It gives us a first shot at the Minister and a chance to develop our own argument without in any way having been influenced or prejudiced by any discussions elsewhere. In opposition and in government I often found it quite a challenge with Bills starting in the Lords because Members come well informed, with their own perspective, and set the scene which is then followed elsewhere.

On this occasion, however, the amendment that we want to press the Minister on with regard to non-trading charities was dealt with extensively in the other place in Committee but I must say, and I hope the Minister will bear this in mind, we did not think the response of the Government on this issue was particularly convincing. It seemed to rest on why the Opposition were introducing charities to a Bill which is all to do with the wealth-creating sector. That may reflect a rather narrow perspective on what is called, and should be defined as, wealth in our society, but I will not go into too many philosophical—not to say economic—arguments on that.

What it does raise for us, however, is a very odd perspective indeed. As we understand it, the Government in their more benign moments are extolling the virtues of the big society—that we are all in it together and we can all contribute to it in our various ways. Among those various ways there is no doubt at all that there is an expectation, and indeed a hope, that what will be generated is greater activity by those who work in charitable activities, rather than other more formal wealth-creating organisations or public institutions.

The Government, of course, need this encouragement. After all, they are about significantly reducing the public sector. I know that the noble Lord will say—I am almost word perfect on these matters—that that is because of what they have inherited. There is never a suggestion that what the Government have inherited has perhaps nothing to do with the deficit of the last Government but is an inheritance of the philosophy with regard to society; namely, that big government is bad and small government, by definition, is inevitably better.

Small government means that functions are not going to be carried out for people with various needs by government, and those needs are going to be unrecognised. It is not often that Ministers present themselves entirely in that harsh light, although on occasion I must say there are notable exceptions to that kind generalisation. Ministers expect tasks to be done, not by public institutions but supported and sustained by public revenues. In other words, they want someone else to do it.

I recognise, of course, that wealth creation is of enormous significance to our society at all times, but particularly in the present economic situation. However, the idea that we should exclude the active contribution of other institutions seems to me to require a pretty substantial defence. Why so? Why should a non-trading charity not fit within this framework? Why are we not inclusive on the institutions that can contribute to the nation’s welfare and the employment of individuals? Why are the Government saying that in this respect, as far as charities are concerned, there is no room in the inn? That does not seem to be based upon any economic perspective, nor one outstandingly of cost, but upon the presumption that here we have a measure that is overwhelmingly concerned with business and the wealth-creating area.

I am very far from decrying that; I am all in favour of that which encourages new businesses to develop and flourish. However, I cannot see why one should just slam the door in the face of those developments which will contribute to the common good but are non-trading charities. If the noble Lord is just going to fall back on the stance that was presented in the other place, I can only say to him that sufficient time has elapsed to consider the responses made at that time. They were unsatisfactory on that occasion to many Members, certainly to my side of the committee considering the matter in the other place. They appear manifestly unsatisfactory to us at this stage and I hope that the Minister can give a response to these points.

[Lord Newby]

My Lords, I have a factual question to ask the Minister on this. During my life, I have been involved in setting up one or two charities where the legal basis of the charity has been a company limited by guarantee which has then got charitable status, so that we have been filling in returns to Companies House as well as to the Charity Commission. What I do not understand is: if a charity’s legal basis is corporate and that charity is then employing staff, whether trading or not, why does it not mean that it would be covered by the normal income tax and national insurance rules?

[Lord Sassoon]

My Lords, in answer to my noble friend Lord Newby’s point, my understanding is that there is indeed no distinction within the normal income tax and national insurance rules but that it is all a question of trading versus non-trading. I believe that is a test which is independent of whether it would be a company limited by guarantee with share capital, a partnership or anything else. If I am wrong on that point, I will correct myself but my understanding is that the question is independent of the structure of the business.

That trading/non-trading question—to express the issue in another way—goes to the heart of what we are trying to achieve by this holiday: an objective to encourage new businesses and new entrepreneurs and for those individuals to set up businesses, as we have already discussed, in areas with a high proportion of public sector employment. It is not that it could, in a wider sense, be a good thing to provide all sorts of other benefits to worthy causes, including non-trading charities. The fundamental purpose of the Bill is to encourage new entrepreneurs to set up businesses. In that context, if those business activities are structured and are charities, it is important and quite appropriate that the trading activity should benefit from the holiday in the Bill.

Of course, the Government value the important work that charities do. I heard the noble Lord, Lord Davies of Oldham, talk about the Government in their benign moments valuing the big society. We value the big society at all times. Therefore, by extension, this is indeed a benign Government and I am grateful to him for recognising that. Nevertheless, very tough choices have to be made, benign or otherwise. One of the choices we have made is to continue to provide substantial support to charities. So the total relief which charities and charitable giving get are something of the order of more than £3 billion each year. Of course, charities will also benefit from the increase in the employer’s national insurance contribution threshold.

We certainly do not forget charities in many other ways. They are a critical component of the big society. For a scheme that is intended to target a particular direction, we believe that it is appropriate for the holiday to apply to, say, a new charity business, which may be setting up a charity shop or an entrepreneurial activity, but that it should apply only in those particular circumstances. I am sure the noble Lord did not intend this, but the tone of his remarks sounded, at some points, as if we were depriving charities of something. It is not that charities in regions of the country, whether the eligible regions or the excluded regions, are being deprived of anything that they now have; it is simply that, with the resources that we now have, we believe that it is appropriate and indeed the purpose of the Bill to encourage the setting up of new businesses in areas with a high proportion of public sector employment.

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[Lord Davies of Oldham]

The Minister will be somewhat shocked by the fact that I am being constructive at this juncture. We have a later amendment that asks the Minister to address himself to a modest change to the Bill, which he might define as an extra demand on resources, so I am being constructive with this amendment. Given the fact that we know that the vast majority of new businesses in their first year employ not many more than two persons, I think that the Government may be excessive in their proposition of 10. I suggest five against a background where the Minister will already have sniffed the air and decided that there must be an ulterior purpose. Indeed there is. As he knows, with the later amendment I want to talk about apprenticeships and to extend the definition a little more.

We think that the vast majority of new businesses will benefit from what is on offer from this measure if we restrict it to the first five employees. We have tabled the amendment to see whether the Minister agrees with us.

[Lord Newby]

It is a pity that Amendment 14 is not grouped with these two amendments as they clearly fall together. While everybody supports promoting apprenticeships, it seems to me that the Bill is simpler than what the noble Lord proposes. While it is a good thing to promote apprenticeships, if I am starting up a new business and am not necessarily going to employ apprentices, I could envisage a situation in which I might well employ 10 people. I raise this while declaring an interest. I formed a community interest company a year ago, which will start trading in this coming financial year. It is likely to be based in Birmingham. I do not know whether the company will qualify for this measure, given it was formed but not trading last year, but we will be employing both part-time and full-time people in the area of education and sport. It may well be, if we are successful, that we will be employing more than 10 people within three years. If some of those are coaches or if some of them are already qualified as teachers, they will have skills. They will be working for us where they would not otherwise be working in an area covered by the Bill, but technically they will not be apprentices.

I think that you would lose the opportunity to encourage companies which are employing people who would not be eligible for apprenticeships by reducing the limit down from 10 to five. Of course, if the limit stays at 10, Amendment 14 has virtually no impact because the number would go up only from 10 to 12. Therefore, partly in a self-interested sense—I have no idea whether our company would qualify and this is not the reason that I am doing it—it seems to me that you may damage employment prospects by these amendments in a way that is not really intended.

[Lord Sassoon]

My Lords, as ever, I am grateful to my noble friend Lord Newby for pointing out some of the logic of what the Government are proposing. But in this case it is not principally to accommodate up to 10 employees that we have put the limit where it is. We recognise, as the noble Lord, Lord Davies, says, that the average number of employees that businesses typically hire in their first year is around two. Yes, it would be nice if a business, such as that which my noble friend Lord Newby may be starting, pushes up against the limit. We would welcome lots of that.

We have set the limit at 10 rather than five for two reasons. It would enable more flexibility to accommodate staff turnover, so that although most new businesses employ only two employees in their first year, those two employees may often be different and come and go on a temporary basis. This is a way of accommodating a rolling number even if at any one time there might be only two, three or four employees. Nevertheless, within the period of the holiday, we allow 10 within the Bill.

On a similar point, we need to think about part-time employees, a point to which we will come later. Certainly, it might have been helpful if a number of these amendments had been grouped. This is the Government’s proposed way of addressing the issue of part-time employees without the need to introduce potentially complex definitions of eligible employees based on full-time equivalents. For example, some employers do not remunerate their staff by reference to the number of hours they work, but they might be remunerated according to the amount of work that they produce—piecework. Again, providing for up to 10 qualifying employees ensures that employers with part-time staff or with staff whose hours are not predictable are not disadvantaged and that such employers can take full advantage of the holiday.

As I anticipated, the noble Lord, Lord Davies, is thinking about where savings might be made in order to extend the scope of the scheme in other directions. It is perhaps worth saying that because of the distribution of new employers’ staff numbers, restricting the number of eligible employees from 10 to five would make a disproportionately small reduction in the cost of the scheme. That is not the main reason, as I have explained, for resisting the amendment. The benefit of the amendment would not be anything like what it might seem on the face of it—relevant to the headline numbers. On that basis, I would ask the noble Lord to withdraw this amendment.

--- Later in debate ---

[Lord Newby]

My Lords, I support the principles behind these amendments. This is a very specific scheme and it should be possible to tell whether it has worked. If it does not work—we hope that it will—the Treasury will be in the happy position of not forgoing revenue that it had expected to forgo. There would be an unused pot, as it were. If, as I fear may be the case, the scheme as outlined does not yield the number of new jobs that the Government hope, it would be very useful, after a year, to see how—to the extent that funding is available for job creation in the regions—it might be more effectively deployed.

As I mentioned at Second Reading, an obvious extension to the scheme would be to provide a modest ability for existing businesses in the designated regions to employ additional staff and qualify for a holiday. In those circumstances, it would be perfectly possible to say that every small business in the designated areas could employ an additional person and qualify for the holiday, so that the scope of the scheme is extended but keeps within the expenditure envelope already set aside for it. Whether that is possible will depend on whether the scheme works as intended. The only way we will know that is if we have a report as set out in these amendments.

[Lord Sassoon]

My Lords, we certainly agree that generally tax policy-making and the effects of tax measures should be more transparent. It is for that reason and because of the commitments given in another place, which I shall run through in a moment, that we do not believe that Amendment 17 is necessary. However, we completely share the commitment to transparency. Therefore, it may be helpful to the Committee if I echo the undertaking given by my honourable friend the Exchequer Secretary in another place to provide Parliament and the public with updates after the end of the tax year on the operation of the scheme, including information at regional level, although the precise requirements set out in the amendment could raise legal issues, for example on confidentiality of taxpayer data.

The factual report that we envisage would cover, regionally and nationally, the number of new businesses applying, the number of applications rejected, the number of qualifying employees for whom a holiday has been claimed and the amount claimed. The main difference between the commitment that the Government have made and this amendment is that the latter would require a constituency level breakdown even though the scheme is regional in England and will not cover every English constituency.

I remind the Committee that during proceedings in Committee in another place, amendments put forward with the aim of altering the holiday to a constituency basis were discussed at some length. My honourable friend the Exchequer Secretary said then that the Government do not believe that a constituency-based scheme is either appropriate or feasible. Since we have a regional scheme including the whole of Wales, Scotland and Northern Ireland, it does not seem logical to provide a constituency level breakdown even if it was possible to do so. A regional scheme and a regional analysis at the end of each tax year will be available for scrutiny. Therefore, we do not think that it is necessary to enshrine that in an amendment to the Bill. I refer to Amendment 18—I said Amendment 17 at one point, and will come to that in a moment.

A technical point in the amendment refers to a budget for the scheme. For the avoidance of doubt, businesses can be confident that there is no budgetary constraint. The holiday will continue as proposed, regardless of the number of applicants. The expected costs of the scheme were set out in the policy-costing documentation at the time of the Budget last year.

Amendment 17 is aimed at providing flexibility to modify the holiday. As I have explained, the Government want to target available resources on the regions most dependent on public sector employment. We want to do so in the way that we have discussed at length with regard to the qualifying businesses, the numbers of employees and so on. However, introducing flexibility to change the details of the scheme, as proposed in the amendment, would increase uncertainty for those who might potentially benefit and would risk inhibiting decision-making for those who need to know with some certainty what the holiday permits. I hope that I have provided considerable reassurance on the questions of transparency and of the ability of the House to scrutinise the way that the scheme will operate in practice, and that noble Lords will withdraw their amendment.