National Insurance Contributions Bill

Michael Fallon Excerpts

Tuesday 23rd November 2010 Commons Chamber

[Michael Fallon (Sevenoaks) (Con)]

I am not alone in finding that a rather disappointing response—an untypically disappointing response. Part 2 of the Bill introduces something that the Labour Government never introduced in their 13 years in power, yet the minute we introduce it, they say: “Well, it doesn’t really go far enough”. We have heard 25 minutes of “We want a better Bill, but we never backed it”. Labour has still not proposed to make this provision part of its own policy, yet it wants it extended to other parts of the country.

Unlike the Labour party I welcome part 2, comprising clauses 4 to 11, just as I welcome any reduction in the burden of taxation on small businesses, even if it is described—rather unfortunately, I think—as a “holiday”. Only in the weird and wonderful world of Her Majesty’s Revenue and Customs could the process of allowing a business to keep more of its own income and turnover be described as some sort of holiday. I rather regret that this phrase has now crept into the legislation. Small businesses pay too much tax, so anything we can do to reduce that burden has to be helpful. Why? Because the bulk of private sector job creation has come, and will continue to come, from small companies. Sadly, it is large companies that continue to reduce their costs, to strip out unnecessary manpower and to outsource various functions, while it is small businesses that have been, and will be, the engine of job creation.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Is not the main engine for job growth among small and medium-sized enterprises the expansion of existing SMEs rather than the creation of new ones, although of course that is an important engine as well? Does the hon. Gentleman favour the extension of the measure to new employees of existing SMEs? As he may know, and as I know from personal experience, starting a business involves a number of risks, and obviously this is one of the factors. An established SME could probably do much more with the “holiday”.

[Michael Fallon]

I was about to suggest that the measure might well be extended. It is true that job creation comes from existing small businesses, although it also comes from new ones. I think that we can find some common ground in that regard.

I have three main reasons for supporting the Bill. First, I believe that it is the right way to help small businesses. It is not the only way, but I do not think that the other ways that have been tried in the past—grants, loans, business link services, and a great deal of bureaucracy—are nearly as effective as allowing small businesses to keep more of their own money, and to employ more people more cheaply. Given that a Government cannot create jobs, this is the easiest, simplest and most effective way of encouraging businesses to take on more people.

My second reason for supporting the Bill, which is directly relevant to the intervention from the hon. Member for Swansea West (Geraint Davies), is that it is clearly future-proof. I note that the Opposition do not oppose it, either in principle or in detail; indeed, they want to extend its provisions throughout the country. If it turned out to be spectacularly successful—and none of us in the House knows yet whether it will—its provisions could be extended. At present, the scheme applies only for the first year of a new business, it is open for only three years, it applies only to the first 10 employees, and it applies only to the regions that we have been discussing.

If we discovered that the Bill really did encourage the creation of more jobs and did not divert employment from existing businesses, it would be perfectly possible—once the economy had recovered, we had closed off the deficit that we inherited, and more money was available—to extend the scheme in different ways. It would be possible, for example, to apply it to the first two years of a business. It can take longer than a year for a very small business to establish itself. It would be possible to keep the scheme open for the whole of the current Parliament, matching the reductions that are sadly necessary in public sector employment to encourage private sector employment alongside it. It would also be possible to apply it not simply to the first 10 employees but to, say, the first 20 or 30. I see nothing particularly magical about the step change involved in employing that 11th person. And yes, if the scheme really was working, it might well prove desirable and cost-effective to start extending it to some of the other regions. I note that the three excluded regions contain the south-east—my own region—East Anglia and London, which currently contain half the number of all our small businesses. If small businesses had already been successful in those regions, perhaps, if costs allowed, it might be possible to extend the scheme in four or five years’ time if it worked particularly well.

[Stewart Hosie]

The hon. Gentleman said that there was no step change between the 10th and 11th employees, and he was right. However, there is a huge step change for a sole trader taking on his or her first employee. Does the hon. Gentleman think that, if the scheme were rolled out in the way that he suggests, it should be rolled out to existing sole traders taking on their first employee, which involves a huge commitment?

[Michael Fallon]

I am not sure whether someone would remain a sole trader in those circumstances, but it is true that becoming responsible for someone else’s payroll is often the most difficult step for those who are self-employed or trading on their own account. I certainly think that we should explore that possibility further.

The third, and final, reason why I support the Bill is an entirely different one. The Bill is quite rare in that it recognises the rights of non-workers. I have never forgotten an encounter I had when I was representing a north-east constituency. It occurred at the height of the engineering recession of the early 1980s, when the jobcentre manager in Darlington said to me, “There’s plenty of work about, Mr Fallon, but very few jobs.” What he meant by that was, of course, that the labour market had fossilised. So many restrictions and costs were involved in hiring extra labour that it was too expensive and too risky for firms to take on more staff. Of course, the previous Conservative Government addressed that through a range of liberalisations that tackled areas such as employee rights, access to tribunals and restrictive practices, and I think that a Government need to do that every few years. They need to look again at the balance between those who are fortunate enough to be in the labour market and enjoying the various job protections that this House has given them successively over the years and those who are excluded from the labour market, because those who are excluded have rights too. If we make it increasingly difficult for companies to fire people, then we inevitably make it increasingly difficult for companies to hire people. If we build in unlimited awards for various types of discrimination—sexual discrimination, for example—we discourage firms from employing more women. There is a balance to be struck therefore, and I think that needs to be reassessed every few years.

Small businesses in my constituency tell me that at present they will do almost anything they can to avoid taking on new people, partly because of the difficulty of getting rid of them if they turn out to be unsuitable or unreliable or if they are not prepared to work hard enough, and partly because of the administrative costs piled on them by the last Labour Government through, for instance, needing to check student loan repayments, child care reliefs and immigration status. When we consider measures such as those in this Bill, we need to be thinking all the time about how we can make it easier for businesses to employ people.

This is a short Bill, and it would be wrong to overstate its effects. It must be considered in the context of the other measures to help small businesses, such as the reduction in their corporation tax rate, which I welcome, and the extension of the guarantee scheme. I suspect that the Bill will prove to be successful however, and, if so, I hope that it will be the start of a much wider and deeper process of removing the barriers to growth, such as the thicket of regulation our small businesses have to struggle through and the heavy burden of taxation that still inhibits too many of them. I welcome the Bill.