First-time Employers

Lord Willetts Excerpts

Friday 1st November 2013 Commons Chamber

[The Minister for Universities and Science (Mr David Willetts)]

I congratulate my hon. Friend the Member for Macclesfield (David Rutley) on bringing this important subject to the House’s attention. May I also say how much I appreciate the opportunity to work with him on the challenges facing AstraZeneca in his constituency? He has worked incredibly hard to secure a strong and vigorous future for the Alderley Park site, and he knows that the Government will work with him on that to ensure that his constituency remains a successful and vibrant centre of enterprise.

That leads me to small businesses, which are indeed vital to our economy. We want more people to start a business and more businesses to grow, and taking on the first employee is a vital step in growing a business. Let me explain some of the ways we are supporting small businesses. We are improving their access to finance, lowering their tax burden and ensuring that business support is simpler, more joined-up and easier to access. Those are the challenges my hon. Friend has just set us, and they are absolutely the right ones for us to tackle.

We can see the progress that has been made already in my hon. Friend’s constituency. From May 2010 to September 2013 there were over 1,200 business start-ups in Macclesfield, and 330 in the 12 months to September 2013. In fact, the start-up rate for the Cheshire East local authority area in the 12 months to September 2013 was higher than that for both the north-west and Great Britain as a whole.

As my hon. Friend said, one of the big challenges facing start-ups is employing staff for the first time. Let me set out what we are doing to help businesses meet that challenge. Often what people worry about in business is the complexity of what they have to do and the fear of getting it wrong. There are all the words we are familiar with: the “burden” of red tape, the “minefield” of regulation and the “barriers” they face as they try to grow and, in particular, take on their first employee. That is why we are committed to making the regulatory experience for business a better one. We are reducing the number of new regulations being introduced through the one-in, two-out rule. We are tackling the existing stock of regulations through the red tape challenge, which has identified over 3,500 regulations for reform, with almost 2,000 to be scrapped or reduced. We have introduced a small and micro-business assessment, which builds on the micro-business moratorium, to which my hon. Friend referred, providing exemption from new regulation for businesses with up to 50 staff if there is any evidence that they will result in disproportionate burdens that could impede growth.

I think that business is starting to feel the benefit of those initiatives. The FSB’s “Voice of Small Business” survey has reported a reduction in the burden of regulation felt by its members. Some 20% reported that regulation was a barrier to growth in 2012, but this year the figure had reduced to 17%. Its members also felt that regulatory costs are reducing, with 21% stating that regulatory costs were a burden in 2012, down to 18% this year. Although we are moving in the right direction, the perception of the burden of regulation remains high, and my hon. Friend made some important points about communicating what we are doing.

Let me turn briefly to employment law. We know that bad regulation can harm businesses and that the fear of regulation, even though it is often misplaced, can damage growth. That is why we launched the employment law review at the start of this Parliament. It has taken a systematic approach to testing our employment laws, addressing misconceptions and tackling real barriers to ensure that our labour market is flexible, effective and fair.

Our employment law reforms are starting to make a difference for employers. A 2012 CBI-Harvey Nash employment trends survey stated that there had been a 10 percentage-point improvement in perceptions of employment law since 2011. Our reforms cover the whole lifecycle—from taking on a person, to managing a work force, to letting people go.

We have increased the qualifying period of unfair dismissal from one to two years, as employers told us that they needed more time to make sure that they had made the right hiring decision. We also recognised business concerns about employment tribunals, so we sought to dispel myths about them. We have introduced fees to employment tribunals and streamlined the process, including judges sitting alone in unfair dismissal cases.

We recognise, however, that getting the rules right is not enough on its own; employers need to understand them. Last year, we launched a simple online tool to help first-time employers understand minimum legal requirements when they take someone on. In referring to the online tool, I am aware of my hon. Friend’s remark that there were 100 Government or Government-related sites where such information was available. Through the Government’s excellent gov.uk initiative, we are trying to make the process far simpler, with a big reduction in the number of dispersed sites with separate access and different types of data.

The “Employing staff for the first time” tool sets out the six things employers need to do when employing staff for the first time: how much to pay someone; how to check whether someone has the legal right to work in the UK; how to carry out a criminal records check; insuring oneself as an employer; advising employees on their terms and conditions; and registering with Her Majesty’s Revenue and Customs. Each should be a straightforward and simple process. The tool currently gets about 11,000 visits a month. It is highly rated in terms of user engagement and we will continue to promote it.

I turn to tax measures to support businesses taking on staff. They are important to reduce cost and make tax simpler. Again, we have put measures in place. We have increased the employer national insurance contributions threshold by £21 a week above indexation. That returns more than £3 billion a year to employers, including the micro-businesses to which my hon. Friend referred. As a result, all employers are now £150 a year better off for each employee earning above the threshold.

From April 2014, every business will be entitled to a £2,000 employment allowance to reduce their employer national insurance contributions bill each year. That will support businesses that aspire to grow by hiring their first employee or by expanding their work force. I am confident that my hon. Friend, like many Government Members—and, I hope, Opposition Members—will be actively promoting that important measure when it comes into force in April next year.

The allowance will be very simple for businesses, which will only need to confirm their eligibility through the usual payroll process. Up to 1.25 million employers—one third of all employers—will benefit, with around 450,000 taken out of paying employer NICs altogether. More than 90% of the benefit of the allowance goes to small businesses with fewer than 50 employees.

We have continued to simplify the tax system overall and made a commitment in the autumn statement 2012 to a target to reduce the annual cost to business of tax administration by £250 million by the end of the spending review period. Since April 2013, all unincorporated businesses have had the option to use cash basis accounting to calculate their tax liability. They will also be able to use the flat rates to calculate some types of expenses if they wish, rather than having to calculate actual amounts. It is estimated that up to 3 million businesses will be able to benefit from this simplification.

HMRC has taken steps to support small and medium-sized enterprises that need help in getting their tax affairs right. SME error and failure to take reasonable care contributes just under £6 billion a year to the tax gap. HMRC is increasing its educational support by tailoring and targeting its initiatives at key business lifecycle points, and SMEs can now manage their contact details and view tax liabilities and payments all in one place.

I hope that I have been able to convince my hon. Friend that we are working hard to make life easier for people hiring staff for the first time. I assure him that we continue to work with the FSB and other organisations to consider proposals such as the very imaginative ones that he has brought to the House. I am pleased to say that the Government are already doing what he proposes on apprenticeship-sharing, although he would like to go even further. We have introduced apprenticeship training agencies so that small employers who are unable to commit to the full term of an apprenticeship are still able to take part in the apprenticeship programme. ATAs act as the employer and place the apprentices with host small and micro-businesses. This approach of group trading associations and apprenticeship training agencies is something that our party worked on in opposition. I well recall the work with the Minister without Portfolio, my right hon. Friend the Member for South Holland and The Deepings (Mr Hayes), who is now safely ensconced in the Prime Minister’s office. It is good to see these initiatives coming to fruition.

My hon. Friend referred to the growth vouchers programme, which will enable micro and small businesses to take part in a randomised control trial that will test what advice might help these firms to grow. One of the areas on which they can be offered advice is expanding their work force and taking on new employees. We will be watching to see exactly how this works and will bear in mind the further proposals that he has made.

I believe that we are making it easier for people to start and grow a business. We are providing information and advice to help people to take on employees. We will continue to listen to small businesses and to my hon. Friend’s imaginative proposals on help for them. He is absolutely right about the importance of banging the drum for small businesses, and his excellent speech gave us increased enthusiasm for that task. I am very grateful to him.

Question put and agreed to.