National Insurance Contributions Bill

Lord Newby Excerpts

Monday 14th March 2011 Lords Chamber

Even assuming that the Government are correct in targeting just by reference to the reliance on the public sector—in the current climate of savage job cuts in the public sector, that is not unreasonable—their regional approach is missing too much of the target. Each region and country of the UK has pockets of deprivation, high unemployment and a high reliance on public sector employment, as well as areas of prosperity and high employment. To limit the holiday on a regional basis is too crude. The Government need either considerably to fine tune the approach, with the bureaucracy that that would entail, or to lift the excluded region prohibitions. This is what fairness demands. I beg to move.

[Lord Newby]

My Lords, I have made clear in the past my criticism of the Government’s cuts to regional expenditure. Therefore, I welcome the fact that this measure potentially puts back the best part of £1 billion into regional development. It is not the traditional way in which it has been done. Arguably, if it works, it will be more effective because it follows the market absolutely rather than the views of regional development agencies. Therefore, it could be an effective way of getting money back where it is needed.

I found the first of the arguments of the noble Lord, Lord McKenzie, about fairness quite perplexing. To argue that the measure is unfair because it excludes the more affluent parts of the country is to argue that regional policy is unfair because it excluded or did not give much preference to the wealthier parts of the country. It is true that there are wards and constituencies in London that are extremely poor and that have high levels of unemployment—that has been the case for a very long time and throughout the history of regional development—but it has not been seen in the past as a reason for not giving additional support to the north, where the problems are even greater. The difference between the problems of Newham and those of Sunderland, Liverpool and Barrow is that Newham is in a buoyant labour market within a travel-to-work area that is doing very well compared with the rest of the country. Many communities in the north are in labour markets and travel-to-work areas where there is simply no way to get a job very easily. That is the essential difference between the excluded regions in the south and those in the north.

The noble Lord spoke about simplicity. While he might have been right to castigate the Minister for using administrative arguments in dealing with the first amendment, he is doing exactly the same here. He cannot argue that a man or a company cannot be given a benefit in Newcastle just because, two and a half years down the line, they employ someone in London. That argument does not stand up.

New businesses have been set up in the past predominantly in excluded areas. Therefore, if his approach were adopted, one would expect a large number of new businesses to be established in London and the other excluded regions. What assessment have he and the Labour Party made of the cost of such an extension of the area? I know that he—and, indeed, I—are not absolutely convinced that £940 million is the cost of this programme, but no doubt he has a view as to what it is likely to be. I suspect that the cost of extending the provision will be double what is in the estimates already, which means a potential cost of another £940 million. Even if it is £500 million, has the noble Lord contemplated that? How does that extra expenditure fit into the Labour Party’s commitment, under the Fiscal Responsibility Act, to halve the deficit over the next four years?

[Lord Sassoon]

I am very grateful to my noble friend Lord Newby; he has done my job admirably on these amendments. However, I start by returning to fairness. The reason for the Government introducing the holiday is their belief that it is fair that people and regions that have become overdependent on public sector jobs are given additional help as the economy has to rebalance. I therefore agree completely with my noble friend. It is clear that the noble Lord, Lord McKenzie, means to misconstrue the purpose of the Bill.

We in the Government are doing other things to lift the burden of national insurance contributions on businesses right across the country, notably by raising the threshold by £21 per week above indexation from 6 April 2011 and by reducing corporation tax rates. Those very considerable measures are benefiting businesses right across the country, reversing the damaging effect of the Labour Government’s jobs tax. This particular measure is not about fairness across the country in that sense but about fairness to those regions that, under the previous Government, became overdependent on government employment. This is a way of targeting resources to enable new businesses to grow in those regions.

My noble friend Lord Newby went on to ask the noble Lord, Lord McKenzie, about the additional cost of the scheme. The Government estimate that if the scheme were to go national it would increase the projected costs of the scheme by about 70 per cent, so my noble friend is completely right that this could be a significant additional expenditure. He has made the point that I was not going to make, although he is quite right; it is yet another example of Labour’s unfunded spending promises.

As for other issues on the excluded regions, the reason why Greater London, the eastern and the south-eastern regions are excluded is principally because the proportion of the population in public sector employment in those regions is lower than in any other parts of the UK. Also, in addition to my noble friend’s point, noble Lords might wish to be reminded that during the public evidence session on the Bill, 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 that the formation of now businesses would not be harmed significantly if the holiday was not available in these regions. The Government agree with that assessment.

There is then the question of having pockets of deprivation with high claimant count in particular parts of the excluded region. The Government of course acknowledge that areas smaller than regions have particular concentrations of needs. That is reflected in our looking for more efficient mechanisms than this one for addressing those more local needs. For example, my right honourable friend the Chancellor of the Exchequer announced earlier this month that the Budget will introduce new enterprise zones across parts of Britain. Those zones have great potential but need that extra push from the Government and local communities working together. Such enterprise zones would be expected to be far, far smaller than regions. There are other, fairer and more appropriate ways of dealing with the issues which the noble Lord, Lord McKenzie, raises perfectly reasonably. They just do not happen to have anything to do with this holiday, which is about dealing with an unbalanced economy as far as dependence on public sector jobs is concerned.

In conclusion, the holiday is targeted specifically at regions and countries with the highest proportion of public sector dependence. It is there to encourage new businesses to start up and to take on employees in those areas. I will not be drawn into updating now on the take-up—there will be other occasions for that—but one would expect it to increase over time. We will no doubt discuss a little later today the form of reporting that is appropriate. Expanding the holiday to the whole country would undermine the very purpose and rationale of the policy. I ask the noble Lord to withdraw his amendment.