Employment Allowance (Increase of Maximum Amount) Regulations 2020

Lord Wei Excerpts

Tuesday 5th May 2020 Lords Chamber

[Lord Wei (Con)]

My Lords, I add my support and welcome this measure, which, as has been said before, is incredibly important at this time, when many are worried about their job security and a global and national crisis is upon us. My questions are about whether it is enough. This measure was proposed as part of a manifesto by my party, the Conservative Party, not that long ago. But given the circumstances and what has transpired in these last few months, the world has changed tremendously and may never be the same again. I therefore have a number of questions about how this can be thought through, revised or built upon to meet the challenges that we face this year and in the coming years.

The living wage, which this is designed to complement, is certainly very welcome. Moving forward, however, the question is not, as it perhaps was last year, how we increase the wages of workers in an economy that is seemingly near full employment, but how we keep people in employment and support the process of work being carried on.

One of my questions, especially given the remarks just now about state aid, is whether this policy has been designed primarily for a different age—one in which state aid is driving what we are doing. Given that next year and moving forward we may have more flexibility about state aid, I wonder whether we should think about what we actually need this year and in the coming years, as we try to come out of these crises—both the health and financial ones—and design in a more integrated way not just this employment allowance policy but others relating to it.

Why are we focusing just on small business employment and not thinking about measures to support those in self-employment and freelance positions? Is there anything in this, or anything we can add to this, that would support the many freelancers out there—particularly in the light of the Government’s stance on IR35, which I am worried is slightly anti-entrepreneurship in its thinking?

While I welcome the measures to incentivise businesses to retain employees, I wonder whether we are limiting this, and whether our view of the world, which relies on millions of small businesses continuing to employ people, limits our ability to generate future employment through entrepreneurship and self-employment. Of course, we must not forget that much employment in this country is, for better or worse, with those larger businesses. My concern is that this measure, just at the time we need it, bypasses many of the larger employers out there, which literally right now are thinking about whether to keep on hundreds or thousands of employees.

Related to this question is the furlough. I am sure that there is, and will be, much debate and discussion about what we do with this quite expensive measure and how we avoid the cliff edge. I wonder whether the allowance—I would love to know what my noble friend the Minister and the Government are thinking on this—can be used to create financial incentives for employers to retain and even hire workers, at a time when we need people to carry on. Especially when restaurants and many businesses will be not full but empty, there will need to be some mechanism by which we enable people to continue to work and be supported, potentially financially, by the Government. I am not sure that the current furlough system—efficient as it has been built to be—necessarily solves this problem, because it will happen many months after the event. Could the employment allowance be redesigned and built into something that is more “business as usual”, using the systems that we have, to ensure that employers retain employees beyond the initial furlough?

I will make a final point about the general principle of charging NI. I know that, in previous years, there was discussion about merging our different taxes. NI seems a very obvious one. We ought to simplify the tax system and be honest with our citizens about what tax is being paid. There is a danger in using things such as this allowance on an ongoing basis in the long term: given all the allowances out there, it makes it even harder to unravel the system and make it simpler.

At the end of the day, if you level with people—whether they are freelancers, businesses or individuals—and tell them how much tax they owe, then try to simplify things to reduce the paperwork and the cost associated with collecting the tax, you may have a better system that will allow us to rebound as we move in to the next phase, with higher employment and fewer incentives to game the system. So, while this allowance is welcome to alleviate some of the pressures which employers are facing, do we now need to think bigger? This is not just about Covid and the immediate financial impact but how we can think longer-term about building a more resilient economy and a tax system that complements it. The crisis gives us a chance to think deeply, not just in a knee-jerk way, about what systems we need moving forward. What thinking—if any—has there been about simplifying the tax system and how does this work with it?

Finally, with Brexit coming, what are the plans to remove ourselves from the straitjacket of state aid? We are in emergency circumstances. Many countries around Europe are either not following the rules or have been given exemptions. Are we pursuing means by which our country can have greater flexibility to help our workforce and our businesses as we move forwards?