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First-time Employers

Volume 569: debated on Friday 1 November 2013

Motion made, and Question proposed, That this House do now adjourn.—(Greg Hands.)

I am grateful to Mr Speaker for granting this debate and I am glad to see the Minister for Universities and Science, my right hon. Friend the Member for Havant (Mr Willetts), in his place. My right hon. Friend is a good friend to Macclesfield, and continues to provide support and advice on the long-term future of an AstraZeneca site at Alderley Park, which is much appreciated. I realise that this might not be the most popular slot in the parliamentary timetable, but, despite that, several Members have shown their support for this very important subject, including my hon. Friends the Members for Bury North (Mr Nuttall), for Bedford (Richard Fuller), for Worcester (Mr Walker) and for Vale of Glamorgan (Alun Cairns).

We often discuss in this House ways to increase employment, or support small businesses, or support large businesses for that matter. What we do less often is talk about the very smallest businesses—the one-person companies, the sole traders, the freelancers. We also tend to debate more often those issues that affect existing businesses, rather than those that are yet to exist. Today, I want to focus on how we can get more people to see running their own business as a viable career option—in particular, how we can encourage them to believe that employing their first member of staff will be easier than they think and also rewarding.

I am not particularly talking about business people with a family history of self-employment or entrepreneurialism, nor am I talking about those who have friends to call on for free advice. The debate today is to give voice to people who have set up a business against all the odds, from scratch. Is there more we can do to help them grow their business? Vitally, are we confident that the target audience for any help is actually aware of the assistance that is available? A little-appreciated fact is that the vast majority of UK businesses currently employ no one at all.

For some, that makes sense. Not everyone needs an employee for their business model to work, but for others there are barriers in the way to taking on a first employee who could help a business to grow. I would like to look at what those barriers are now, acknowledge the progress that is being made in tackling them and then suggest possible areas for further action—most notably in improving how we get the message across that support is out there for everyone, not just for those with family and friends with business experience. I am keen for children in schools in Macclesfield—and across the country—to believe that one day they can run a business and employ people if they want to, and that a Government will be there to help them, advise them and support them—not stifle their ambition and get in their way.

Let us start with the facts. The latest figures from the Office for National Statistics confirm that we are experiencing record self-employment: 4.2 million people work for themselves—some 14% of all those in employment. At the moment, self-employment is more common for men and for older people, but the dynamics are changing. The number of women in self-employment is rising fast. In Macclesfield, the percentage of women in self-employment is the highest in the north-west, and the number of young people across the country who want to set up their own business is high. One survey suggests that up to 70% have at least the ambition to set up their own enterprise, while the Prince’s Trust has found that up to 30% of young people actively expect to be self-employed.

This is good news. We need more first-time entrepreneurs, but we should be enabling those entrepreneurs, wherever possible, to take a step into what is often the unknown and become first-time employers too. Despite enthusiasm for being in business—we are currently enjoying a record number of businesses in the UK—relatively few take on an employee. The longer a sole trader is in business, the less likely they are to want to take someone on. The British Chambers of Commerce found that sole traders who have been operating for less than six months have far greater ambitions to take on staff than those who have been operating for more than two years. Why are these early hopes dashed? Why are their initial aspirations being dampened?

There was a time when it was unusual for people to have their own home or to own shares, until right to buy and public utility share offers made those steps into the unknown massively easier to take. The aim of those initiatives was not merely to shift ownership from public sector to private sector, but to shift ownership to a wider part of the population than had previously enjoyed it. Many of the people who bought their council house or took part in the utility share subscriptions had no family history of holding such property. They did not have friends who could tell them how to go about it. The success of the sales, though, showed that the ambition was there, but something had held people back, be it the tangible issue of cash or the intangible psychological and perhaps cultural issues that can act as a barrier to realising aspirations.

Some 75% of businesses currently employ no one beyond their owner. That is not to say that none of them hires freelance or agency services, such as an accountant or marketing campaigners, but 75% do not have a payroll of their own. It is not a step that their owners have taken, but if they did, it would lead to yet lower unemployment. In the light of this, David Frost of the British Chambers of Commerce has said that the key questions are: how many of these companies are interested in employing people, how do we identify them, and how we can encourage them to take the huge leap needed to become an employer?

“The first action,”

says Mr Frost, and I agree with him,

“must be to reduce the size of the leap required.”

There is indeed a leap, as I discovered recently when, with the help of the Federation of Small Businesses, I conducted a straw poll on social media asking what prevents entrepreneurs from taking on that vital first member of staff. Respondents suggested a number of barriers that can loosely be grouped, as I suggested a moment ago, as psychological or tangible. I had respondents who specifically used the word “fear”—“Fear of getting some minor issue wrong and being taken to the cleaners by the employee, fear I will get sued, fear I have to pay maternity leave when I can hardly afford to stay afloat, fear of all the legislation that is pro-employee and against employers” and so on. There is also frequent use of negative terms: “overwhelmed”, “crippling”, “uncertain”, “totally confusing”.

The sources of fear, among many, were being sued for breaches of employment law and, for some, the prospect of dealing with Her Majesty’s Revenue and Customs. It turns out that the British Chambers of Commerce found similar real and perceived barriers in a far more detailed survey of sole traders in 2011. It seems that more needs to be done to show potential employers what HMRC and other public bodies can do to help new businesses, or signpost other sources of help, such as Citizens Advice, not least the East Cheshire citizens advice bureau, which tweeted to me on this very subject. There are also excellent courses available from local chambers, such as the Macclesfield chamber of commerce, which I have been fortunate enough to attend. Support is available from websites such as smarta.com .

As Lord Green has pointed out about UK Trade & Investment, and Lord Young has highlighted about Government business services in general, the problem is not that the support is not there but that the target businesses often do not know about it or do not feel it worthwhile trying to find it. I have been told that there are over 100 public sector websites providing bits and pieces that will help in setting up a business. Surely a more focused message would be a better approach and improve the prospects of success.

Respondents, both to me and to the BCC survey, raised the cost of regulations, red tape and restrictions. There is a feeling that time is money, and that the opportunity cost of the time required for performing an employer’s duties could actually cause a business to shrink, not grow. Respondents mentioned a raft of issues that concern them, and the BCC has called for exemptions for the smallest businesses from such requirements. I recognise that complete exemption is probably asking too much but, as with workplace pensions, perhaps there is scope to allow the smallest businesses significant lead times in complying with regulations through phased implementation. Some commentators have also pointed to the possibility of extending the current three-year micro-business moratorium on new regulation and making it a three-year rolling moratorium with potential opt-ins. This would be important for new businesses and particularly for potential new employers going forward.

The employment allowance of £2,000 will clearly be a big boost, slashing or eliminating the national insurance liability of a business taking on a first employee. Similarly helpful is the Government's deregulatory commitment to "one in, two out". We need to be clear: regulations designed to protect people in employment should not be so onerous that they cause potential employers to shut off the option of providing employment. Deregulation at the EU level is the next step forward, and I welcome the Prime Minister's commitment to that through his business taskforce.

There is more work to do, but it is worth reminding ourselves that real enthusiasm exists about the prospect of being able to hire an employee if—I emphasise “if”—barriers are removed. The will is there, if not always the ability—perceived or real. So, what else could be done? One option is exploring "de-risking" measures more fully. The Institute for Public Policy Research and the FSB are examining several ideas to de-risk the hiring process for small firms, including the idea of appointing intermediary bodies to support employment. Instead of the small business bearing the whole risk, these bodies would directly employ the individual and place them with a host business, effectively leaving small businesses to provide work and pay wages. As the Minister will know, this model is already being used by apprenticeship training academies, and it could be extended to other categories of employee, such as the long-term unemployed, for defined time periods.

Apprenticeships have been one of the great successes of this Government. In fact, in many situations, apprentices are an ideal first employee. One of the respondents to my survey suggested that apprentice sharing between small businesses could also be explored.

I understand that growth vouchers, which were announced in the Budget and are being taken forward by the Minister’s Department, could be used to help small businesses expand their work force. I would be grateful if the Minister provided any insights on how the vouchers could be used as a vehicle for encouraging employment growth among the businesses we are discussing today.

Several respondents suggested that small businesses can, and of course do, utilise freelancers instead of employees. This may well be a solution for a number of businesses, but the fact that a business says it has taken on a freelancer understandably does not always mean that Her Majesty’s Revenue and Customs will agree. If HMRC believes a business has actually taken on an employee, it will clearly want to take action. Some businesses feel that there could be greater certainty in current employment relationships and that this lack of clarity dampens their own aspirations to grow.

The Adam Smith Institute has suggested that radical legislation is needed to enshrine the right to declare oneself freelance or self-employed. The clear risk in this situation is that employees may feel pressured into declaring themselves self-employed by employers. Commentators have suggested that one avenue that could be explored is allowing a certain limited number of employees to self-certify as self-employed. They argue that this could lead to greater clarity for both businesses and workers, and improve flexibility in the labour market.

The Minister will know that Lord Young has urged the Government to bang more of their own drums. Where there is help available, it should be communicated as effectively as possible to potential employers. The signposts for those who are thinking of taking on staff need clearly to say "straight ahead", rather than "diversion ahead" or "no entry". An engaging communications campaign could help. It should signpost the help and how-to guides on offer. It could be as simple as a leaflet in the next HMRC mailing; it could be a higher-profile campaign, such as "I'm in" for workplace pensions. It is good to see that HMRC has been moving in this direction recently. There is a new video on YouTube detailing what needs to be done to become a first-time employer. It is a useful video, but it has been watched fewer than 300 times. We now need to help more businesses know that it and other advice is available.

But this not just about public bodies. We should recognise the importance of business-to-business communications too. The work of websites such as that of smarta or the banks that provide small business advice needs to be encouraged. We should more fully engage with business about how best to communicate to business and create one-stop shops for would-be employers. There is some very good practice: the FSB, for example, provides a 24-hour helpline to business, with guaranteed advice, from just £120 a year.

Enthusiasm clearly does exist about the prospect of being able to hire an employee in many micro-businesses. The FSB recently found that small-business confidence is at a record high, and there are clear ambitions to take on staff—if barriers are removed. The will to set up is there, the will to employ is there. There are, as I have highlighted, options for further action. We now owe it to the tradition of progressive Conservatives to redouble our efforts to ensure that the will finds a way. The Minister, I know, is a great torchbearer for this tradition, and I look forward to hearing his response.

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.

House adjourned.