National Insurance Contributions Bill

Mel Stride Excerpts

Tuesday 23rd November 2010 Commons Chamber

[Mr Hanson]

The Minister has confirmed that. Tomorrow’s business leaders who want to start businesses in the constituencies of Oxford East, of Luton North, of Lewisham East, of Canterbury, of Southampton, Test, of Eltham, of West Ham, of North Thanet, of Hackney North and Stoke Newington, of Tooting, of Islington North, of Dulwich and West Norwood, and of Brighton, Kemptown will miss out. I mention those constituencies specifically because they are in the top 10% in the country with the highest percentage of public sector employment.

As the hon. Gentleman knows, there are 650 constituencies. His policy is supposed to help compensate for possible loss of employment in the public sector. Those concerns have been reflected today, and I pay tribute to the hon. Members for Portsmouth North, for Meon Valley and for Basildon and Billericay, who have defended their constituencies and raised their concerns about how the policy will be applied.

If there is to be a holiday, it can be applied in different ways. It could be applied regionally, as the Minister has done, or on the basis of unemployment levels or regional levels of public sector employment per constituency, instead of the blanket regional approach that the Minister has chosen.

[Mel Stride (Central Devon) (Con)]

The shadow Minister has heard that rolling the scheme out across the entire country would cost an additional £660 million. Will he explain whether he would propose to raise that by increasing our deficit, by cutting expenditure—in which case what expenditure would he cut—or by raising taxes, in which case what taxes would he raise?

[Mr Hanson]

That is a fair and valid point. Yesterday, in reply to a parliamentary question, the Minister emphasised the cost of the scheme for the regions covered. My purpose today is to challenge the Minister’s logic for allocating the resources for the payment holiday to the regions that he has selected, because that distribution does not necessarily reflect the level of deprivation or public sector employment. The cake that the Minister has allocated may be sliced in several ways, but he has sliced it to exclude the constituencies represented by my hon. Friends in London and those who represent seats in the south.

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[Barry Gardiner (Brent North) (Lab)]

The Exchequer Secretary commended the first part of the Bill by saying that it was fair, that it was progressive and that it supported the poorest in society. In so commending the first part of the Bill, he damned the second part, because he could not say that the second part of the Bill was fair, progressive and supported the poorest in society. That is the essence of the Opposition’s argument this evening.

The second part of the Bill is incoherent in principle and in practice and, worse than that, it is ineffective in practice. Let us look at the fundamentals. Who is it that leads us out of recession? I am happy to make common cause with Members on the Government Benches and say that it will be the private sector, in particular small and medium-sized enterprises, that will lead us into the growth that this country badly needs. Why is it, then, that the holiday provision is given precisely in those areas where private sector growth has been proven year after year not to take place?

We know, and it has been a cause of problems to us, that it has been in London and the south-east that small businesses set up and grow. That has been the engine of the private sector in our economy, yet instead of seeking to use that to advantage, the second part of the Bill is incoherent in principle because it denies that region the holiday and because it denies those potential businesses the benefits that will be made available in parts of the country that have been proven not to be able to utilise them, and therefore not to be able to bring us out of the recession and be the engine of growth that we all want.

The hon. Member for Sevenoaks (Michael Fallon) made the point that to extend the holiday to London and the south-east would cost £660 million. Of course, there will be a cost to the scheme, wherever it is put in place, but presumably that cost is seen as an investment to achieve the growth and dynamism in the economy that will return that investment multiplied to the Exchequer. Yet £660 million is not being invested in the very parts of our country where we know from experience that the private sector is most likely to give the maximum returns to the public purse. That is incoherent.

Now let us look at whether the measure is incoherent in practice. The Budget documentation quoted in the explanatory notes to the Bill states:

“The Government’s strategy to support private sector enterprise in all parts of the UK aims…to encourage the creation of private sector jobs in regions reliant on public sector employment, through reducing the cost to new business of employing staff”.

Yet we have heard this evening that that is not the case. There are parts of London and the south-east that are far more reliant on public sector employment than parts of the country that will receive the benefit from the holiday. That is incoherent and wrong.

My hon. Friend the Member for Lewisham East (Heidi Alexander) made the pertinent point that the Bill was unfair in another respect, and one can only marvel at that unfairness coming from the Conservatives. The unfairness is that the Bill is anti-competitive. My hon. Friend presented the straightforward example of two companies alike in all that they do, except that one will get a £50,000 benefit in its first year of operation which is not available to the other—and that from the party which believes in free markets and in abolishing anti-competitive practices? How can those on the Treasury Bench put that forward as a coherent philosophy?

[Mel Stride]

Does the hon. Gentleman accept that the purpose of the holiday, as we are calling it, is to try to compensate for a reduction in the size of the public sector in certain parts of the country, rather than targeting it specifically, as he and other Opposition Members seem to be suggesting, at areas of higher unemployment?

[Barry Gardiner]

The hon. Gentleman suggests that what the Government are seeking to do is compensate in some way for the decimation that they believe they will cause to employment in those areas. We share a belief that the Government’s cuts will have that decimating effect on employment in those areas. Where we differ is that the hon. Gentleman believes that the measures will in some way compensate for that, whereas I am pointing out that in other parts of the country, precisely in those areas where they are not to apply, they would have a greater effect in boosting the economy.

The hon. Gentleman may say that the measures will have a marginal effect in mitigating the increases in unemployment which he knows will come from his Government’s policies. I do not believe, and I am confident that he does not believe, that they will totally compensate for those. But the most important thing is to get our economy moving again; after all, that is why we are making those public sector cuts in the first place. If we are focused on economic regeneration, we must seek to make that investment where we know it will achieve the maximum return.

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[Mel Stride (Central Devon) (Con)]

The hon. Member for Brent North (Barry Gardiner) referred to the regrettable consequences of Government policy in terms of unemployment. I believe that, in large part, the entire Bill is regrettable because it introduces rises in national insurance for employers and employees, on businesses, at a time when we look to them for growth, as the hon. Gentleman rightly points out. But the reason for that is the policies pursued by the previous Government. Because of the hour, I do not intend to rehearse those this evening, save to point out that we have ended up in a situation where the interest alone on the money that we owe is £43 billion a year—more than we spend on education and defence. That is a national disgrace.

I welcomed my right hon. Friend the Chancellor’s Budget of 22 June, particularly the balance that he struck between seeking reductions in expenditure and accepting that we have to raise certain taxes. He weighted it far more towards the former than the latter, which has to be the right policy. The hon. Member for Brent North is right: the Office for Budget Responsibility itself has said that 500,000 jobs will be shed as a consequence of the fiscal consolidation in the public sector, and PricewaterhouseCoopers has suggested that perhaps another half a million private sector jobs will go as a consequence of that. We need to create jobs in the private sector.

According to the Treasury, in the past six months 300,000 jobs have been created in the private sector, so the capacity is there. It was as inevitable as it was regrettable that national insurance would go up. Labour first started talking about increases in national insurance as far back as the latter part of 2008. Of the three major taxation streams going into the Treasury, national insurance is the second most significant. In fact, in 2009-10 £150 billion was raised from income tax, £96 billion from national insurance and £70 billion from VAT. National insurance is efficient to collect, and in 2011-12 we will raise £9 billion as a consequence of the increases. In my opinion and that of many economists, the rise was totally unavoidable.

I wholly welcome one aspect of the Bill—well, not so much the Bill but the secondary legislation that will be enacted later—and that is the increase in the threshold for employers’ national insurance to £21 per week above indexation. I welcome that because it will take some of the pressure off our employers.

National insurance, however, is not a good tax; as we know, it punishes those who employ people rather than taxing the earnings from straightforward investment, which does not employ people. I urge the Government’s Front Benchers to make sure that, when the recovery gathers pace and we start to get the deficit down, national insurance for employers and employees should be right at the top of the list of taxes that we seek to reduce.

I welcome the national insurance holiday, about which much has been said in this debate, and particularly its targeting of new businesses. It should reach about 400,000 new businesses and about 800,000 new employees. I say that as somebody who set up his own small business, starting from scratch 20-odd years ago, and built a company both here and in the United States. One of the most important and fragile moments of a company’s growth is that very starting point; that is when a company is most vulnerable. The help will be hugely welcome.

To my horror, I have found myself being slightly persuaded by the right hon. Member for Delyn (Mr Hanson), as he started to open up the discussion about whether the holiday should apply across the entire country or whether, as I think he was suggesting, it might be applied in a different way, to pick up areas in the south-east, Greater London or the eastern region that might value the help more than other parts of the country. I would like to think that Government Front Benchers might think about that aspect a little further, although I suspect that when we start to try to cherry-pick small parts of the country, we will end up with a highly complex and potentially very expensive scheme. However, I would like to think that we might consider the matter in Committee.

I also welcome the fact that this is retrospective legislation that applies to companies set up since the emergency Budget in June, and that it is not prescriptive in the sense of requiring a certain type of employment in order for companies to qualify. There was a scheme in the 1990s to get the long-term unemployed back into work that was not nearly as successful as it might have been had it not been so prescriptive.

I am pleased that the Government, in recognising the importance of business, also set out in the Budget reductions in corporation tax in steps from 28% down to 24% over the period of the comprehensive spending review, with the small business rate falling to 20%. That will give us one of the lowest levels of corporation tax in the G20, and the fifth lowest in the G7.

I have some concerns about the national insurance holiday. We must ensure that we avoid so-called recycling whereby, for example, companies set themselves up as apparently a new business although they have been operating before, or come into the market as a new business and then close down and rebrand themselves. I note that clause 5 deals with that issue. My plea is that we do not make the whole operation unduly onerous and complicated for businesses that wish to take advantage of the scheme. My hon. Friend the Member for Chichester (Mr Tyrie) spoke in particular about the importance of keeping complexity down. The tax code in this country now runs to 11,000 pages. We have enough complexity—we do not need more.

The Bill also deals with EU regional funding constraints. Under articles 107 and 108 of the treaty on the functioning of the EU, companies are not permitted to receive more than €200,000 in state aid over a three-year period, given the regionality of the way the scheme works. Clause 8 seeks to handle that. Again, it is imperative that whatever information HMRC requires from those companies is kept to the minimum so that the system is not bogged down in red tape.

[Chris Leslie]

Has the hon. Gentleman had an opportunity to look at the regulatory impact assessment describing the steps necessary to implement the NI holiday, which is estimated on the Treasury’s own figures to cost £22 million? A lot of companies will have to use manual processes instead of the software that they had used to pay their national insurance, and it will require 240 extra staff at HMRC to administer the scheme.

[Mel Stride]

The hon. Gentleman adds to my point. Indeed, I believe that the cost to HMRC will be £12 million, and the cost imposed on business is estimated at £75 million. I accept that that is a large amount of money in the context of a scheme that is effectively injecting £940 million. It is therefore most important that we keep complexity and red tape to an absolute minimum.

It is important to ensure that this incentive is well advertised, given that it is permissive in allowing companies to apply for it but is not necessarily automatically granted. The HMRC material refers to advertising it on Business Link websites, and so on. If we are to get up to 400,000 businesses involved—1,000 are involved at the moment—we will have to advertise this nationally with a push to ensure that it is taken up. In particular, we need to ensure that we lower the proportion of so-called dead-weight businesses that are taking it up—in other words, those that would have employed additional people even in the absence of the scheme. It is really important that we give this a wholehearted push.

I welcome the national insurance holiday provisions in the Bill. I agree with my hon. Friend the Member for York Outer (Julian Sturdy) that it is important to consider other aspects such as encouraging lending and getting the Bank of England issuing credit condition surveys in which it talks about the banks lending again. We also need to cut back on red tape. This is a big opportunity to get back to a culture that is positive about new business. I should like us to have the kind of culture that we had in the 1980s, when we were open for business and companies were being set up. That is when I went out there and set up my business and created wealth and employment for people. That is the aspect of the Bill that I wholeheartedly welcome.