Monday, 28 February 2011.
National Insurance Contributions Bill
Good afternoon, my Lords. If there is a Division in the Chamber while we are sitting in Committee, we will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Debate on whether Clause 1 should stand part of the Bill.
My Lords, presumably the Minister hopes that the Committee stage of this Bill will not be as protracted as another Bill that has been before the House over the past few weeks, and I think that I can give him that assurance. However, we want to debate whether Clause 1 should stand part for the obvious reason that this is by far the most significant clause in what is an important Bill.
As the Minister will appreciate, we support the increase in national insurance contributions but our proposals were very different. He must recognise that, during the course of the detailed discussion on the clauses of the Bill that we will have this afternoon, we will identify some of those points of difference. We hope that he will be in a position to answer some of the questions that were adumbrated in general terms at Second Reading and will be dealt with in rather more detail today.
To put the Bill in context, there is a difference in perspective between the Government’s strategy and the one that my party would pursue. The Minister and the Committee will recognise that last year there were three consecutive quarters of growth followed by a quarter of negative growth, which looked marginal when the first set of figures came out but rather more serious following the subsequent revision. We are concerned about the impact of the Bill and of the Government’s general strategy on the broader economy.
We would put jobs and growth first. That is why we are concerned that the increase in national insurance contributions will prove to be difficult for growth and particularly for the protection of employment, given that the increase in NICs is being supplemented by a very significant increase in VAT. Expert opinion identifies that the increase in VAT could result in the loss of three times as many jobs as might be lost by anything to do with national insurance increases, which were the subject of considerable debate at the last general election.
We are concerned that there is no protection for those earning less than £20,000 per year. We would have sought that protection by raising the primary threshold. The Government are imposing increases without fully increasing the secondary threshold for employers. That presents obvious difficulties. Can the Minister confirm that employers will suffer nearly £1.5 billion extra in terms of commitment of resources as against rather modest savings on the secondary threshold? The Minister will say that the secondary threshold is not meant to compensate for the impact on employers because personal tax allowances will help to some degree. The trouble with that argument, which the Minister vouchsafed to the House at Second Reading, is that it takes no account of the balance on personal tax allowances, namely the very severe benefits cuts and loss of income to many of the less well-off in our society. That is why the Bill needs to be put in that broader context.
We are concerned that the Bill is being promoted against a background of government policies that threaten the recovery. We had some indication of the difficulties just before Christmas. That coincided with adverse weather conditions, which was the reason given by the Chancellor of the Exchequer at the time and looks pretty threadbare now. One cause of anxiety about the recovery is the cuts in public expenditure, which will lead to significant job losses and a severe loss in confidence among employers and consumers. The Government propose—something that they criticised the previous Administration for—to increase national insurance contributions, but they have also increased VAT and have other strategies on the economy that are the source of great anxiety.
We look at the Bill in the context of the importance of growth in the economy and strengthening employment. Declining employment, when people lose their jobs, reduces demand severely in the economy and does enormous damage to the Government’s receipts from their various forms of revenue gathering. That is why we shall be using this Committee session for detailed examination of the Bill. However, we wanted to make this series of comments on whether Clause 1 should stand part because of its significance in the Government’s wider economic strategy, on which this side has very serious doubts. I hope that the Minister will be able to give some response. I beg to move.
My Lords, I am grateful to the noble Lord, Lord Davies of Oldham, for confirming that the Committee might move more expeditiously through this Bill than some other recent Bills.
I think that the noble Lord said that I would understand why he opposes Clause 1 standing part of the Bill, but I could not quite work it out and I am even more confused now that he says that the Opposition support the 1 percentage point increase, which is the import of Clause 1. However, I guess that I will eventually get used to the way that the House operates on these things. If the purpose of this discussion is to put the Bill into a bit of context, I am certainly very happy to do that.
The Government face the twin challenges of dealing with the inherited deficit and getting the economy growing again. In this wider context, the Bill goes to the heart of those challenges. I have repeatedly said that the recovery is likely to be choppy, and so it is proving. It is not easy to stimulate growth while bringing the deficit under control. The case of national insurance exemplifies the dilemma and the challenge. The 1 per cent increase in national insurance produces revenue of the order of £9 billion to £10 billion, which is necessary to deal with the deficit. Although we will put 70 to 80 per cent of the weight of deficit reduction on spending, nevertheless increases in taxation will bear part of the burden. Therefore, we start by accepting some of the changes that the previous Government proposed. We do not know what they had in mind on VAT. There were strong indications from Ministers in the previous Government that had they been returned to office they might well have increased VAT.
In the context of national insurance increases, offsetting measures that go hand in hand with the Bill—although they are not in the Bill—will increase the secondary threshold by £21 a week and the primary threshold and the lower profits limit by £24 a week. This will significantly offset the rises in the Bill. The increase in income tax personal allowances and the reductions in the basic rate limit and in the national insurance upper earnings and profits limit will, as a combined package, go a substantial way towards offseting the effect of the national insurance rises. Compared with the plans that we inherited, employers will be more than £3 billion better off next year, and that figure will rise in future years. As I said, we are fully compensating for the £9 billion increase in labour taxation that the rate rise represents.
The threshold rises will mean that the burden that the Government add to labour costs will lessen, and there will be more to share between employers and employees so that both will benefit. As a result of the way in which we are doing this, some of the benefit will be switched from national insurance contributions to income tax, so the net rise in national insurance contributions payments will be compensated for by a larger fall in income tax payments. Employers will be better off in respect of employees earning up to £20,000, while employers who have staff among the highest earners will pay more in national insurance contributions.
We are agreed that the 1 percentage point increase is appropriate. Where we diverge from the analysis of the noble Lord, Lord Davies, is in seeing the proposed increase as a significant tax on jobs at a time when the recovery needs to be encouraged and bolstered. That is why we have made the offsetting increases in limits, and the increase in the income tax personal allowance. I am grateful to the noble Lord for enabling us to start our discussion by putting the Bill in a wider context, because that is important. Having explored the issue, I hope that we will now move on to the detailed points that he intends to raise.
My Lords, of course, I am grateful to the Minister for his general response. He referred to choppy waters, but choppy waters can be uncomfortable and people in boats can feel unwell in choppy waters. We are concerned that those waters may have sufficient movement to swamp many people. We are worried about the rate of job loss and the loss of income among many sectors of our community, which will be reflected in the overall state of the economy. Indeed, we may already have seen signs of that. The Minister is fully entitled to adopt his optimistic stance at this point but I hope that his words do not come back to haunt him given that his Administration’s proposals may lead to excessive job loss. We think that it is easy to read the signs of the very great difficulties that we shall face on the employment front and, therefore, in the economy.
The Minister will also know that there is a difference in perspective between my party and the Government. Other significant Governments in the world—not least that of the United States—take a rather different perspective on what needs to be done in policy terms in relation to the present position as compared to the policy that he has adumbrated. Nevertheless, I am grateful that the Minister has been as constructive as he always seeks to be in response to my opening remarks. As we get into closer detail on the Bill, I do not have the slightest doubt that he will enjoy being even more constructive.
Clause 1 agreed.
Clause 2 agreed.
Clause 3 : Increased product of additional rates to be paid into National Insurance Fund
1: Clause 3, page 2, line 5, leave out ““50”” and insert ““75””
My Lords, I shall speak also to Amendment 2. Amendment 1 seeks to probe why 50 per cent, rather than, say, 75 per cent, of the product of the additional primary rate and additional class 4 percentage rate form part of the health service allocation. Amendment 2 poses the same question for a 100 per cent—the existing percentage—allocation.
The main features of the contribution system are helpfully set out in appendix 2 of the Government Actuary’s Department report on the Social Security Benefits Uprating Order 2011. For the NHS allocation it sets out, as partly provided for in the Bill, the rates of 2.05 per cent of earnings between the primary threshold and the upper earnings limit and 1 per cent of earnings above the UEL. From April 2011, the UEL, as we have just heard from the Minister, has reduced and the primary threshold has increased. That would appear to mean that for any given level of earnings, the 2.05 per cent of the allocation will be lower because the band is narrower, and the 1 per cent will be greater because the starting point is lower. However, overall, with constant earnings, this part of the NHS allocation would appear to be reduced. Similarly, the constant 1.9 per cent NHS allocation from employer contributions would appear to be less because it starts from a higher secondary threshold. The same issue arises in respect of class 4 contributions.
Given that GAD assumes the number of jobs to be the same next year as this year, with earnings increasing by just 2.1 per cent, what estimates have been made of the overall NHS allocation? Will the Minister let us know the estimated figure for the current year and how this would change if the percentage of the additional rates applied was variously 75 per cent and 100 per cent? These issues are important in seeking to understand the projected outcome on the National Insurance Fund in the context of the funding that has been allocated to the NHS. On this matter, in responding to the Second Reading debate, the Minister said:
“I hope it is completely clear to noble Lords that nothing in the Bill affects in any way the commitment to increase NHS spending in real terms in each year of this Parliament. We can afford to do this without additional funding from national insurance contributions”.—[Official Report, 2/2/11; col. 1429.]
Anyone who followed the debate in another place, which I will not replicate today because there will be other opportunities, will understand why the Government are effectively failing in this pledge; I refer to the switch in funding to cover social care budget shortfalls, the consequences of the VAT increase on the NHS given the inflation in the costs of treatment, and the costs of the reorganisation.
Perhaps the Minister will tell us, if the Government are to struggle to reach their NHS spending commitment, where the money will come from if the moneys allocated from the National Insurance Fund are not to be used. Will he also let us know how the additional moneys retained in the National Insurance Fund and not allocated to the NHS have contributed to its balance, which is projected now to be £53 billion by 2015-16? Clearly, if the NHS allocations were greater, the balance of the fund would be less and the investment income less—but what would the other ramifications be? We probe with these amendments. I beg to move.
My Lords, I hope that I did not give too much encouragement with my remarks on Clause 1 to indicate that I would be in too accommodating a mode this afternoon. As regards the two amendments, I find this split of the proceeds between different allocated funds rather confusing and arcane. The relevant questions are the big picture ones asked by the noble Lord, Lord McKenzie of Luton, about the impact, if any, on NHS funding.
The point is that although for government accounting purposes—which are important—the moneys need to be allocated, the allocation does not and will not have any impact on NHS funding. It is absolutely not part of government policy to cut NHS funding automatically if, for example, global conditions lead to a reduction in national insurance contribution receipts. The Government would simply make up any shortfall from lower than expected national insurance contributions from other sources.
Even though the noble Lord questions it, the overriding commitment is the one that has been given on National Health Service spending. The amendments do not have any bearing on how much the NHS will have to spend because if the money does not come out of one fund it will come out of other sources of general government expenditure. We are maintaining the level of national insurance contributions allocated to the NHS and taking the additional revenues from rate rises to the National Insurance Fund. That is what is happening here although, as I have said, it will not have any impact on the NHS but merely maintain the previous level of funding. However, putting the additional revenue into the National Insurance Fund will help to ensure that plans for the payment of pensions and other contributory benefits will be sustainable in the long term. Through that funding we can protect pensioners by the new triple lock that guarantees a rise in the basic state pension every year in line with earnings, prices or by 2.5 per cent, whichever is the greater. In ordinary circumstances we would expect contributions to rise broadly in line with earnings, and therefore to rise in real terms.
Under the Government’s proposals, we expect allocations to the NHS to rise in real terms in a typical year. I do not have the breakdown of the split under different percentages. I could get my calculator and work it out but the main point, as I have tried to explain, is that the split itself is not relevant. We are maintaining the allocation and ensuring that the National Insurance Fund continues to grow, and National Health Service expenditure is protected by the commitments that the Government have given in their broader expenditure plans. I hope that I have adequately explained what is going on and that noble Lords will withdraw the amendment.
My Lords, I thank the Minister for his reply. Of course we will withdraw the amendment; as he knows, that is the practice in the Moses Room. I understand the broad thrust of his point about funding for the NHS, but we shall have to agree to differ on the Government’s performance in that regard. We shall have the opportunity to debate that fully on other occasions.
The Minister said that in the event of a shortfall in contributions, the Government would make up the difference. One point that I was probing concerned the respective levels of the NHS allocation for the current year and for the year we are about to enter. I accept that the Government are preserving the 1 per cent and 2.5 per cent rates. However, the bands on which they are operating are changing; the bands for next year will mean that the UEL is reducing and the primary threshold is increasing. All other things being equal, if there were constant earnings between the two years, you would expect a lower contribution to the NHS allocation than was the case before the changes were introduced. With great respect, I do not think that the Minister has fully responded to that point—but it looks as if he may be about to do so.
I apologise for not responding earlier, but I see that the noble Lord has the Government Actuary’s report, from which the Committee can see that the NHS allocation for 2010-11 will be about £20.5 billion, and pretty much the same for 2011-12. The figures in appendix 6, towards the bottom of page 25 of the GAD report, show that the expectation is £20,608,000,000 for 2010-11 and £20,437,000,000 for 2011-12. That is after the bands change; the amount is very close.
I had not reached that appendix, so I thank the Minister for those figures. I accept that they are very close. Nevertheless, there is a reduction year on year. Had more than 50 per cent been allocated, the outcome would have been different. It is not just a matter of comparing one year with the next. Dealing with the rates is one thing, but if the bands are changed there will be consequential effects in subsequent years as well.
I will press another point that I raised concerning the impact on the balance of the National Insurance Fund. The actuary’s report shows an increase to some £53 billion over the years to 2014-15. The effect of not allocating more to the NHS is to build up that balance, which will also have implications for the investment in the fund. If more were allocated to the NHS, what would be the effect, other than reducing that balance and changing the investment income?
I remember in the past seeking answers from officials on what happens to that balance. I was told that it was partly invested back in gilts and that one could not use it for other expenditure, but I never clarified how the two answers sat together. Perhaps the Minister will say what would be the consequences of a greater allocation to the NHS and the long-term impact on the fund, given that its balance is due to increase over the next few years after a period when receipts are less than payments? Will the Minister also bear in mind contributory benefits, because it is in the mind of the noble Lord, Lord Freud, that these will feature less prominently in the universal credit system than they do currently.
My Lords, clearly, if there was more in the fund, a greater part of NHS expenditure could come via that route, but I am not clear that there would be any significant consequence in terms of the outcomes we are talking about. NHS expenditure will be determined by the allocation that has been given in the spending review. The noble Lord may quibble about the nature of the numbers and what is covered by them, but they are set out with great clarity in the review. For this purpose we are talking about some relatively simple arithmetic in terms of what would happen if there were to be any shortfall. If there is a surplus, funds that do not go to the NHS go to the National Insurance Fund; that is what has led to the considerable current balance. We are talking about a process where a fund has accumulated over the long term and we need that surplus, although it is predicted to fall, in order to fund future pensions.
In summary, one way of looking at it is that in the short term a high balance will help to tackle a deficit. Indeed, as the noble Lord heard from his officials in the past, and as has been explained to me, that balance is invested with the Commissioners for the Reduction of the National Debt.
Amendment 1 withdrawn.
Amendment 2 not moved.
Clause 3 agreed.
Clause 4 : Holiday for new businesses
3: Clause 4, page 2, line 13, after “started” insert “and throughout the period when the appropriate amount is deductible or refundable”
My Lords, I beg to move Amendment 3 and to speak to Amendments 8 and 9. The purpose of this group of amendments is to probe a little the boundaries of the national insurance contributions holiday. As I think we made clear at Second Reading, we see merit in the scheme as an incentive to encourage employment by new businesses but wonder whether the parameters of the scheme are driving a bureaucracy that will considerably lessen its impact.
We acknowledge that the wider the scheme is drawn, the further the resources have to go but the level of take-up referred to when this was debated in the other place suggests that the Government are falling far short of their anticipated take-up. Without praying in aid the report that is due to come more officially in due course, perhaps the Minister might give us some update on the take-up to date. The scheme has effectively been under way for something like nine months. Is the expectation that this incentive will still reach 400,000 businesses over the relevant period? By limiting the holiday to new businesses, the complexity of the legislation inevitably increases as it has to address the avoidance possibilities of people recasting an existing business as a new enterprise. We will come later to the validity of the excluded regions but we accept that if they are to be part of the scheme, the boundaries of the non-excluded regions must be secure.
The purpose of Amendment 3 is straightforward: to secure that,
“the principal place at which the new business is carried on … is not in any of the excluded regions”,
not only when it is started but “throughout the period when” the benefit of the holiday is being enjoyed. There is an argument that the requirement should be satisfied throughout the relevant period, but if that were imposed you would not be able to grant the holiday and the benefit of the cash flow until the end of that period.
Amendment 8 seeks to probe why six months has been chosen as the cut-off point in determining whether a business has effectively been recycled. The Minister might explain why that is considered a more appropriate period than, say, the 12 months that the amendment suggests. Perhaps he would also take the opportunity to expand on some of the terms in Clause 5. A business is not a new business for that clause’s purposes if a person has, within the defined period, carried on a,
“business consisting of the activities of which the business consists”.
That might be abundantly clear in many circumstances but not, we suggest, in others. Will a retail business—say, a grocery store—conducted in one part of a non-excluded area consist of the same activities previously carried on by that person if the business were a retail business in a different location selling the same type of products? What if the product range were different—children’s clothing, say—but trading were from the same location and, possibly, under the same name?
The purpose of Amendment 9 is to test whether there is any leakage of the benefit of the holiday where P genuinely starts a new business which is run alongside an existing business of P. In part, that depends on whether it is a single business or there are two or more separate businesses. Organising an expansion as a branch of an existing operation would presumably not be a new business; organising via a separate company or partnership could be. What, in the arrangements in the Bill, would prevent employees being employed by the new business with some recharge to the other businesses? Does Clause 6(1)(a) require employment wholly for the purpose of the new business?
I would not expect the Minister necessarily to respond in detail to all of these points this afternoon. They are raised to highlight the fact that focusing on new businesses and having excluded regions complicates matters—sometimes, I suggest, considerably. It certainly complicates the legislation, notwithstanding the general anti-avoidance provisions of Clause 10, which we thoroughly support. It will inevitably be the case that when boundaries to a scheme are set down, there are those who will seek to circumvent them. I am not sure whether the Government have been wise in offering so many of these opportunities.
My Lords, I apologise if my newness to the institution shows in my bobbing up at the wrong time. I wish to make a couple of small comments on the amendments in this group, although my comments are less about the detail and more, in a sense, about questioning the underlying principle.
For all of us, the notion that new business can be stimulated to be a fountain of growth and of new jobs is obviously highly desirable, so an effective take-up of the programme would, I suspect, be met with pleasure on every side of the House. However, given the potential for a review period as we move through the Bill, might it not be good to keep in the back of one’s mind that even new jobs that come from existing businesses can be valuable, even if the take-up does not reach the targets of the initial programme? It strikes me that that would not be a failure, given that economies are volatile and take-up can take time but that jobs are beneficial even if they originate from business that is already under way. It might be important to ensure that this whole category of issues is critical in any review that might come one year after the initiation of the programme so that the Government can consider whether they would be wise to expand the categories in order to achieve the underlying intention of the Bill.
My Lord, those two interventions go to the heart of why it is necessary to strike a difficult balance—this is where judgments have to be made—between, on the one hand, providing some tight and suitable anti-avoidance provisions and, on the other, ensuring that we do not make it excessively difficult for people to take up the holiday in the Bill. Of course we need to ensure that the scheme is affordable. That is why it has been targeted at new businesses, with a cap on the number of employees. Yes, we want to stimulate and encourage employment right across the areas of economic activity, but to do so through an across-the-board national insurance holiday would be extraordinarily costly. That is why we have come up with a scheme that is targeted in this way. On the other hand, as has been pointed out, we need to have appropriate anti-avoidance provisions.
When I first saw the amendments in this group, I had considerable sympathy with Amendment 3, which seems to be aimed at ensuring that new businesses that benefit from the holiday must not only have their principal place of business in an area that is not excluded but remain outside the excluded areas for the entire period during which holiday deductions or refunds are claimed. The amendment seeks to prevent a new business that relocates to an excluded area from enjoying any further holiday. The Government certainly agree with that objective. In fact, the Bill already provides that if the new business, having made a successful application for a holiday, relocates to an address within an excluded area the holiday will cease automatically.
The necessary provisions are found in Clause 7, which provides for the appropriate amount of secondary class 1 contributions that a new business can deduct or request to be refunded under the holiday. The appropriate amount is calculated by reference to a qualifying employee’s relevant earnings. Clause 7(3) provides that:
“‘Relevant earnings’ are earnings paid to”,
an employee who is employed,
“for the purposes of the new business, at any time during the holiday period when the principal place at which the business is carried on is not in any of the excluded”,
areas. Therefore, if a new business were to move to an excluded region, any earnings paid to a qualifying employee would cease to be relevant earnings and there would be no appropriate amount to be deducted or refunded, so the protection sought by the amendment has already been provided within the Bill.
However, it might be worth noting that the amendment would go further than the current protection. If accepted, it would mean that a new business that decides not to operate the holiday in real time, but instead to claim a refund later, would not be entitled to that refund if it relocates its principal place of business to an excluded area at any time before the refund claim period expires. Clause 8(5) provides that an application for a refund can be made up to four years after,
“the day on which the last deduction could be made in respect of the qualifying employee”.
At the risk of going into excessive detail, the main intention of Amendment 3 is covered, and, as I say, it might inadvertently go further than its strict intended purpose.
Amendment 8, if accepted, would amend Clause 5 so that the period for which an individual must have ceased carrying out a similar previous business would increase from six to 12 months. The Government believe that that would present an unnecessary restriction on individuals who set up new businesses. I return to my noble friend’s point: we are trying to encourage people to set up businesses. This is clearly a matter of judgment, but we concluded that six months would be an appropriate gap to defer any mischief by individuals who may try to game the system by closing an existing business and starting another. Our view is that extending the gap to 12 months would deter genuine businesses from being started. For example, someone who used to own a hotel but bought a restaurant instead might be prevented going back into the hotel business if the restaurant business did not succeed. We would not want to deter such perfectly genuine attempts at starting businesses in succession by having too long a period.
I have gone on for some time on these amendments. The noble Lord, Lord McKenzie, was kind enough to say that he did not expect me to answer all his points in forensic detail. I was interested in his analysis of Amendment 9, on situations where he thought that there were still loopholes. I will ask officials to look at whether that is so, but I do not believe that it is. Amendment 9 would amend the definition of a “new” business in Clause 5 so that anyone with an existing business would not be able to benefit from the holiday where they also set up a new, unrelated business. The Government believe that that would be an overly restrictive measure. While I am assured that the anti-avoidance provisions are sufficient, the noble Lord makes one or two specific points, which I will ensure are checked out.
In conclusion, we have made sure that the holiday has been carefully targeted. Yes, as is recognised, there need to be anti-avoidance provisions and although it is helpful to be reminded of some of the key ones I believe, having looked at the amendments, that they go beyond what is necessary to achieve the purposes which I think we broadly share.
Again, I am grateful to the Minister for his response. I would like to reflect a little on what he said on Amendment 3 and the application of Clause 7(3) but we see the import of that response. Of course, I shall not press any of these amendments this afternoon. I agree with the noble Baroness, Lady Kramer, about the take-up of the scheme as conceived; if it does not use the resources and if there is a view to possibly recasting it, the value of new jobs for existing businesses is certainly something that the Government might consider including. I entirely accept, as we all would, that you have to strike a balance on the cost of these things and on where you draw the line. I would hang on to my point and spend a little time trying to bust the anti-avoidance provisions. By and large, I think they are pretty secure. The more targeted it is, the greater the risk of avoidance arrangements and people trying to take the benefit of something which is not intended. Obviously, the broader the scheme, the less likely that is to happen. In the interim, I beg leave to withdraw the amendment.
Amendment 3 withdrawn.
4: Clause 4, page 2, line 24, leave out “Greater London,”
My Lords, I shall speak also to the other amendments in this group. As we discussed at Second Reading, and as was pursued in another place, we have concerns that the national insurance holiday is targeted by crude geographical area and not by any more objective assessment of need. These amendments variously look to remove Greater London, London, the south-east and the eastern region as excluded regions. As we have just discussed and as we shall discuss further under the next grouping, there are practical ramifications and administrative costs in excluding certain parts of the UK from the benefit of the holiday.
The Government’s chosen method of targeting is to look at those areas with the greatest reliance on public sector employment and to do that at regional level. Given that the RDAs are being abolished—that is about to be debated in another place—and that different economic groupings are being established through LEPs, can the Minister say on what basis the analysis has been undertaken at a regional level? We certainly acknowledge that the scale and speed of cuts in public spending will have devastating effects on unemployment, both public and private. If the basis of targeting is reliance on public sector employment, perhaps the Minister can say a little more about how this measure is determined.
For example, does the Minister accept that direct employment in the public sector is only part of the story? Parts of the private sector are as heavily reliant on public expenditure as perhaps those in the public sector that provide direct employment. That can be for a combination of reasons, including previous outsourcing of functions of central or local government and the reliance on public sector construction contracts. For instance, the Building Schools for the Future programme would have provided significant employment opportunities. For example, we know that the Government have been recruiting via agency companies in order to keep head counts down. Perhaps the Minister can say whether those arrangements are included as part of the public sector.
Another issue to consider is the extent to which spending cuts are borne fairly and proportionately across areas. In devising this policy, what analysis was undertaken of how spending cuts are being borne across the country? Have the Government sought to differentiate between front-line and other staff? We certainly accept that levels of public sector employment are one measure of vulnerability to spending cuts, but by taking a regional perspective the Government are averaging out high reliance on the public sector in some parts of the excluded regions. Debate in another place highlighted a number of constituencies in the excluded regions which were in the top 10 for public sector employment. These include Oxford East in the south-east, Lewisham East in London and Luton North in the eastern region. It was highlighted that Newham has a public sector employment rate of 33.6 per cent but is excluded from the holiday, whereas Macclesfield, with a rate of 11.8 per cent, is included. The Government’s approach does not recognise differences within regions and could be giving rise to significant deadweight costs. However, at a regional level, London has a higher employment rate than three regions which are not excluded. It is difficult to see the sense in that.
The east of England is the region that I know best. Currently, the east of England business start-up rate is below that of London, the south-east and some international comparator regions. The region requires a skills base that better meets the needs of regional businesses. It is also underperforming in terms of levels of GVA compared with London and the south-east and has a marked east-west split in economic performance. Workplace earnings vary acutely, with workers employed in Suffolk, Norfolk and Southend-on-Sea being the lowest paid in the region. Despite the region’s overall high employment rate, areas of high and persistent unemployment remain. This has a major impact on levels of deprivation and health inequalities. While some districts in the region are among the most prosperous in the country, 11 districts are rated among the most deprived in England.
The February labour market statistics are very worrying, particularly the 66,000 increase in the unemployment rate among 16 to 24 year-olds. It appears that the benefit of the holiday is simply not available to some of the worst affected areas. Two of the top 15 constituencies in the UK with the highest unemployment rates are denied—both Luton constituencies, ranked 168th and 269th, are excluded. A detailed analysis of deprivation data suggests the same picture. Some areas of greater affluence are included in the scheme ahead of others with greater levels of deprivation.
We accept that public sector employment is in some measure a proxy for vulnerability to spending cuts and that an incentive for private sector businesses can help. It is also accepted that if there are to be geographical exclusions and inclusions, the broader these are the less likelihood there is of displacement activity. However, the scale of the exclusions fundamentally calls into question the fairness of the policy as cast. I beg to move.
My Lords, I rise to speak because I grew up and have spent much of my political life in Greater London. Like most Londoners, I would defend to the last any opportunity or benefit that might come to London. However, I recognise that if areas such as Greater London, the south-east and the eastern region—I know the latter region less well—were included in this scheme, they would suck up the overwhelming majority of funds that the Government could make available. At a time of great prosperity that might not matter, but at present those of us who live in the better-off regions have to be conscious of how seriously difficult life can be in other parts of the country, particularly those which are losing a significant number of public sector jobs and are dependent on those jobs.
In recognising the situation in places like London and the south-east region, where I hope there will be many new start-ups that would have happened under any circumstances and therefore do not need this extra support, we should also recognise that there are areas of serious deprivation and that the Government should look at programmes that, for example, will work with the mayor and the Greater London Assembly to make sure that the capacity is there to generate new business start-ups, particularly in areas of deprivation where training and job opportunities have not reached the necessary levels. This is an important part of the picture, but we must find mechanisms to come to the aid of the pockets of deprivation in areas of affluence. I understand that this programme deals with areas that have pockets of affluence amid more general poverty and job shortages. We must we find a way to ensure that, through the collective network of programmes, areas of deprivation, no matter where they are, have a mechanism to stimulate an effective future.
My Lords, I am very grateful to my noble friend Lady Kramer for answering the main thrust of the questions put by the noble Lord, Lord McKenzie. This measure does need to be targeted. It cannot be targeted in a way that picks out pockets of deprivation—of which there are a significant number in London and elsewhere. However, the basis on which we came up with the holiday includes a relative regional effect. Of course, if we were to sweep away all the geographic exclusions, the thrust of the holiday, which will be to have a relative regional effect, would disappear. On the other hand, as my noble friend says, unlike other measures, this would not be an appropriate measure to target in a subregional way—that would not be feasible.
We have gone with a broad regional analysis. The simplest way to explain the basis for doing this is through the numbers for public sector employment as a percentage of total employment by region. The latest available data when the policy was formulated showed that against a national UK average of 25.1 per cent public sector employment, the three lowest regions were the south-east with 22 per cent, London with 22.5 per cent and the eastern region with 23.1 per cent. That was the principal basis on which the exclusions were made.
My noble friend made the critical point that I was going to make about cost and targeting the money. If the three excluded regions were included, that would increase the total cost of the holiday by some two-thirds. To put it another way, out of the total holiday cost, two-fifths of the benefit of the holiday would go to those regions that are least dependent on government employment, and only three-fifths would go to those regions that are more dependent—in some cases considerably more—on government public sector employment. At the heart of this measure is the belief that the funds available should go to the regions that most need them on this metric.
Indeed, the evidence in the public evidence session on the Bill supported that. For example, representatives from the Federation of Small Businesses and the British Chambers of Commerce made it clear that the south-east is more resilient than the rest of the UK and new business formation would not be significantly harmed because the holiday was not available in these regions. It is worth reminding the Committee that all new and existing businesses in the south-east will benefit from the increase in the employer national insurance contribution threshold and in the reduction in corporation tax rates. Therefore, considerable benefits go to the region through our wider package of measures.
There were questions about the different definitions of regions and so on. The LEPs do not have geographic boundaries that equate to the regions and, in theory, could cross the regional boundaries that we are using. In effect, they are groupings by local authority boundary. Yes, there are other ways of doing it. We have taken the regions as defined for the purpose of public sector employment, which we think is the most cost effective way of targeting the benefit.
I thank the Minister for that response and the noble Baroness, Lady Kramer, for her contribution. I do not think that we will totally see eye to eye on this issue. The noble Baroness referred to better-off regions, but that does not address the point that regions are not homogeneous. For example, there are huge disparities across the eastern region, but because of areas of particular prosperity in aggregate the area is counted out. As a result, those areas where there is deprivation and high unemployment lose out. I agree that it is to be hoped that there are other arrangements which would enable jobs to be created via one mechanism or another, but I believe that the regional focus is producing unfairness in the scheme.
The Minister said that the measure could not operate at a sub-regional level. I am not quite sure why not. Exactly the same rules will apply. There simply will be a different set of boundaries and descriptions. He referred to the fact that all businesses are benefiting from the national insurance changes to the threshold and corporation tax deductions. I guess that they are all equally suffering or all suffering from the impact on consumer demand of the VAT increase. But that is probably a debate for another day. I do not think that we will make progress on this issue. Accordingly, I beg leave to withdraw the amendment.
Amendment 4 withdrawn.
Amendments 5 to 7 not moved.
Clause 4 agreed.
Clause 5 : Starting a new business
Amendments 8 and 9 not moved.
10: Clause 5, page 3, line 32, leave out paragraphs (b) and (c)
My Lords, Amendment 10 focuses on the inclusion within the term “business” of “property business” and “investment business”. Section 263(6) of the Income Tax (Trading and Other Income) Act 2005 includes a UK property business and an overseas property business within the definition of “property business”. This would seem to open up the possibility that the principal place at which a new business is carried on is overseas with subsidiary business activities in the UK. Obviously, those overseas operations would not be within an excluded area.
Furthermore, even if those subsidiary activities were in the excluded regions, the national insurance holiday would still seem to apply. I ask myself whether this was what was intended. I looked again briefly at Clause 7(3), which the Minister prayed in aid in response to an earlier amendment. If you have a business where the principal place of that business is outside the excluded region, but nevertheless there are employees operating in excluded regions, what in the Bill would stop a holiday applying to them? Having just argued that I do not want any excluded regions, I might seem to be arguing against myself. However, in terms of the integrity of what is proposed here, it may be that I am missing something. Perhaps the Minister would respond to that. Even if the subsidiary activities were in the excluded region, the national insurance holiday would, I suggest, still seem to apply. There seems to be nothing which precludes a new business being carried on in any of the excluded regions or indeed for the national insurance holiday to be available to employees based in the excluded regions so long as the principal place at which the new business is carried on when it started is not in any of the excluded regions. Is that how the Minister reads the legislation?
The principal place at which the business is carried on will often be very clear, as the HMRC’s very helpful note suggests. However, for an investment business or a property business, it might be much less certain. The core of such businesses might be based on the judgment of a few individuals; it would not necessarily be where the portfolios, especially investment portfolios, are located or indeed where the back-office functions are located or where the contracts for the investments or property portfolios are executed. Where the business is primarily carried on could be quite nomadic or easy to place in a favourable location, perhaps where the guiding minds of the business meet periodically to receive investment reports and make decisions about changes to the portfolio. Does the Minister have a view on this? The noble Lord may feel able to say that it has to be determined on a case-by-case basis and I accept that that may be so. Would he accept that this probing amendment highlights a layer of potential complexity which is introduced into the scheme again by having excluded regions? I beg to move.
My Lords, in relation to what we are trying to achieve through the holiday scheme, it is important to create employment. The question of the nature of the activity which is being engaged in is one where again we want to be as permissive as we can be, consistent with the nature of the scheme. Although the noble Lord raised a number of other points going back to the question of boundaries between excluded and non-excluded regions, what we are principally talking about in the amendment is the type of trade or business which the activity is engaged in.
In that context, as well as making the general point that what we are focusing on is maximising employment growth from a broad range of sectors, it might be worth saying a word or two about what property business includes. It covers activities including property rental, land rental and furnished holiday lettings; for example, I believe that the holiday could be particularly valuable in relation to furnished holiday lettings which, of course, would typically operate in rural areas and often provide employment where there are not other significant job opportunities. I would certainly like to think that the noble Lord, in proposing this amendment, was not intending to remove businesses from relief if that could, for example, prevent people or discourage people from providing holiday lettings, furnished cottages, apartments and so on.
Similarly, on investment business, the Government’s view is that making investments and deriving profits from them is no less inherently a business than buying and selling any other tradable item. As the noble Lord says, there will be case-by-case determination by HMRC if there are questions about the validity of the trade or of boundaries.
On the question of boundaries, the figures I quoted earlier were from the annual population survey statistics. I believe that, technically, the policy was founded on the national accounts statistics—which I could read out if the Committee was interested—which present the same picture. Indeed one set of numbers supports the other, but the annual population data, which I read out, gave a greater breakdown by the subregions. They present a similar picture, but I am advised that we looked at the national accounts statistics in coming up with the policy. This goes back, as the noble Lord said, to the question of a business being located in one place but jobs being created somewhere else. For simplicity, it is the place of the business that determines eligibility, so there could be some jobs located elsewhere, for which there is a benefit. This is true of all types of business and there is nothing particular to property and investment. If a business employs staff, they are likely to be located in or close to the main place of business. That issue is not strictly related to these particular amendments. As I have explained, the Government would not want to see perfectly valid and valuable categories of business—whether in property or investment—being excluded from the creation of good and worthwhile employment in the targeted regions.
In view of that explanation, I hope that the noble Lord will withdraw the amendment.
I thank the Minister for his response. We propose to withdraw the amendment. The purpose of framing the amendment and focusing on property and investment business is to highlight again the particular conundrums that arise in respect of businesses of that nature, which often—particularly for smaller businesses—would be controlled by one person or two people. Where that business is principally located would often be where that individual or individuals are, and the substantive back-office-type operations could be completely separate and different. It just highlights the sort of problems that come from having these definitions and having to guard the boundaries of them.
The Minister has confirmed one point that surprised me when I happened upon it. He has confirmed that so long as the principal place at which the new business is carried on is not in any of the excluded regions, other parts of the business could be carried on anywhere including in the excluded regions, and if the employees in the excluded regions happened to be part of the first 10 they would be eligible, or count towards, the national insurance holiday. I see nodding from the Box—perhaps I have been going on too long and they are nodding off—but, if that is right, it looks a bit daft in terms of the definitions we have been probing this afternoon.
I beg leave to withdraw the amendment.
Amendment 10 withdrawn.
11: Clause 5, page 3, line 35, at end insert—
“( ) a non-trading charity”
My Lords, from the perspective of opposition I always rather approve of Bills starting in our House, the upper House. It gives us a first shot at the Minister and a chance to develop our own argument without in any way having been influenced or prejudiced by any discussions elsewhere. In opposition and in government I often found it quite a challenge with Bills starting in the Lords because Members come well informed, with their own perspective, and set the scene which is then followed elsewhere.
On this occasion, however, the amendment that we want to press the Minister on with regard to non-trading charities was dealt with extensively in the other place in Committee but I must say, and I hope the Minister will bear this in mind, we did not think the response of the Government on this issue was particularly convincing. It seemed to rest on why the Opposition were introducing charities to a Bill which is all to do with the wealth-creating sector. That may reflect a rather narrow perspective on what is called, and should be defined as, wealth in our society, but I will not go into too many philosophical—not to say economic—arguments on that.
What it does raise for us, however, is a very odd perspective indeed. As we understand it, the Government in their more benign moments are extolling the virtues of the big society—that we are all in it together and we can all contribute to it in our various ways. Among those various ways there is no doubt at all that there is an expectation, and indeed a hope, that what will be generated is greater activity by those who work in charitable activities, rather than other more formal wealth-creating organisations or public institutions.
The Government, of course, need this encouragement. After all, they are about significantly reducing the public sector. I know that the noble Lord will say—I am almost word perfect on these matters—that that is because of what they have inherited. There is never a suggestion that what the Government have inherited has perhaps nothing to do with the deficit of the last Government but is an inheritance of the philosophy with regard to society; namely, that big government is bad and small government, by definition, is inevitably better.
Small government means that functions are not going to be carried out for people with various needs by government, and those needs are going to be unrecognised. It is not often that Ministers present themselves entirely in that harsh light, although on occasion I must say there are notable exceptions to that kind generalisation. Ministers expect tasks to be done, not by public institutions but supported and sustained by public revenues. In other words, they want someone else to do it.
I recognise, of course, that wealth creation is of enormous significance to our society at all times, but particularly in the present economic situation. However, the idea that we should exclude the active contribution of other institutions seems to me to require a pretty substantial defence. Why so? Why should a non-trading charity not fit within this framework? Why are we not inclusive on the institutions that can contribute to the nation’s welfare and the employment of individuals? Why are the Government saying that in this respect, as far as charities are concerned, there is no room in the inn? That does not seem to be based upon any economic perspective, nor one outstandingly of cost, but upon the presumption that here we have a measure that is overwhelmingly concerned with business and the wealth-creating area.
I am very far from decrying that; I am all in favour of that which encourages new businesses to develop and flourish. However, I cannot see why one should just slam the door in the face of those developments which will contribute to the common good but are non-trading charities. If the noble Lord is just going to fall back on the stance that was presented in the other place, I can only say to him that sufficient time has elapsed to consider the responses made at that time. They were unsatisfactory on that occasion to many Members, certainly to my side of the committee considering the matter in the other place. They appear manifestly unsatisfactory to us at this stage and I hope that the Minister can give a response to these points.
My Lords, I have a factual question to ask the Minister on this. During my life, I have been involved in setting up one or two charities where the legal basis of the charity has been a company limited by guarantee which has then got charitable status, so that we have been filling in returns to Companies House as well as to the Charity Commission. What I do not understand is: if a charity’s legal basis is corporate and that charity is then employing staff, whether trading or not, why does it not mean that it would be covered by the normal income tax and national insurance rules?
My Lords, in answer to my noble friend Lord Newby’s point, my understanding is that there is indeed no distinction within the normal income tax and national insurance rules but that it is all a question of trading versus non-trading. I believe that is a test which is independent of whether it would be a company limited by guarantee with share capital, a partnership or anything else. If I am wrong on that point, I will correct myself but my understanding is that the question is independent of the structure of the business.
That trading/non-trading question—to express the issue in another way—goes to the heart of what we are trying to achieve by this holiday: an objective to encourage new businesses and new entrepreneurs and for those individuals to set up businesses, as we have already discussed, in areas with a high proportion of public sector employment. It is not that it could, in a wider sense, be a good thing to provide all sorts of other benefits to worthy causes, including non-trading charities. The fundamental purpose of the Bill is to encourage new entrepreneurs to set up businesses. In that context, if those business activities are structured and are charities, it is important and quite appropriate that the trading activity should benefit from the holiday in the Bill.
Of course, the Government value the important work that charities do. I heard the noble Lord, Lord Davies of Oldham, talk about the Government in their benign moments valuing the big society. We value the big society at all times. Therefore, by extension, this is indeed a benign Government and I am grateful to him for recognising that. Nevertheless, very tough choices have to be made, benign or otherwise. One of the choices we have made is to continue to provide substantial support to charities. So the total relief which charities and charitable giving get are something of the order of more than £3 billion each year. Of course, charities will also benefit from the increase in the employer’s national insurance contribution threshold.
We certainly do not forget charities in many other ways. They are a critical component of the big society. For a scheme that is intended to target a particular direction, we believe that it is appropriate for the holiday to apply to, say, a new charity business, which may be setting up a charity shop or an entrepreneurial activity, but that it should apply only in those particular circumstances. I am sure the noble Lord did not intend this, but the tone of his remarks sounded, at some points, as if we were depriving charities of something. It is not that charities in regions of the country, whether the eligible regions or the excluded regions, are being deprived of anything that they now have; it is simply that, with the resources that we now have, we believe that it is appropriate and indeed the purpose of the Bill to encourage the setting up of new businesses in areas with a high proportion of public sector employment.
I am grateful to the Minister. I was looking at Hansard and I see that the framework in which I used the word “benign” for the Government was extremely limited and confined. I think I am unlikely to use that adjective again in our debates. It was a one-off.
I appreciate that charities enjoy various advantages for the work that they do across the range of the taxation system. Here is an opportunity which the Government seek to encourage. Of course, I recognise the prime purpose of what they define as the wealth-creating sector but surely the Minister should appreciate how limited the opportunities are for legislation. Certainly, as a Treasury Minister, he will know that although the Treasury is in an advantageous position compared to other departments, when it can identify available resources—the Minister shakes his head and is engaging my sympathy at this stage, but I will not use the word “benign” again—it is not replete with opportunities to legislate any more than any other department. With its Bills, it is in some degree of competition.
Here is a very modest little Bill with a clear objective. I do not decry the clear objective, the main purpose, of the Bill. I am merely saying that within the framework of that main purpose, not a great deal is necessary to provide some opportunity for non-trading charities. I merely say that it is recognised on all sides that charities always have an important role to play, but this Government are placing increasing emphasis on the third sector in those terms. Therefore, it ill behoves them to take a negative view on what they can do to help within the framework of this modest little Bill.
Of course I shall withdraw my amendment today, but I am by no means certain that we have seen the last of this issue.
Amendment 11 withdrawn.
Clause 5 agreed.
The noble Lord, Lord Brougham and Vaux, told me that we were going to have a comfort break. Is this so, or shall we carry on?
Clause 6 : Qualifying employees
12: Clause 6, page 3, line 43, leave out “10” and insert “5”
The Minister will be somewhat shocked by the fact that I am being constructive at this juncture. We have a later amendment that asks the Minister to address himself to a modest change to the Bill, which he might define as an extra demand on resources, so I am being constructive with this amendment. Given the fact that we know that the vast majority of new businesses in their first year employ not many more than two persons, I think that the Government may be excessive in their proposition of 10. I suggest five against a background where the Minister will already have sniffed the air and decided that there must be an ulterior purpose. Indeed there is. As he knows, with the later amendment I want to talk about apprenticeships and to extend the definition a little more.
We think that the vast majority of new businesses will benefit from what is on offer from this measure if we restrict it to the first five employees. We have tabled the amendment to see whether the Minister agrees with us.
It is a pity that Amendment 14 is not grouped with these two amendments as they clearly fall together. While everybody supports promoting apprenticeships, it seems to me that the Bill is simpler than what the noble Lord proposes. While it is a good thing to promote apprenticeships, if I am starting up a new business and am not necessarily going to employ apprentices, I could envisage a situation in which I might well employ 10 people. I raise this while declaring an interest. I formed a community interest company a year ago, which will start trading in this coming financial year. It is likely to be based in Birmingham. I do not know whether the company will qualify for this measure, given it was formed but not trading last year, but we will be employing both part-time and full-time people in the area of education and sport. It may well be, if we are successful, that we will be employing more than 10 people within three years. If some of those are coaches or if some of them are already qualified as teachers, they will have skills. They will be working for us where they would not otherwise be working in an area covered by the Bill, but technically they will not be apprentices.
I think that you would lose the opportunity to encourage companies which are employing people who would not be eligible for apprenticeships by reducing the limit down from 10 to five. Of course, if the limit stays at 10, Amendment 14 has virtually no impact because the number would go up only from 10 to 12. Therefore, partly in a self-interested sense—I have no idea whether our company would qualify and this is not the reason that I am doing it—it seems to me that you may damage employment prospects by these amendments in a way that is not really intended.
My Lords, as ever, I am grateful to my noble friend Lord Newby for pointing out some of the logic of what the Government are proposing. But in this case it is not principally to accommodate up to 10 employees that we have put the limit where it is. We recognise, as the noble Lord, Lord Davies, says, that the average number of employees that businesses typically hire in their first year is around two. Yes, it would be nice if a business, such as that which my noble friend Lord Newby may be starting, pushes up against the limit. We would welcome lots of that.
We have set the limit at 10 rather than five for two reasons. It would enable more flexibility to accommodate staff turnover, so that although most new businesses employ only two employees in their first year, those two employees may often be different and come and go on a temporary basis. This is a way of accommodating a rolling number even if at any one time there might be only two, three or four employees. Nevertheless, within the period of the holiday, we allow 10 within the Bill.
On a similar point, we need to think about part-time employees, a point to which we will come later. Certainly, it might have been helpful if a number of these amendments had been grouped. This is the Government’s proposed way of addressing the issue of part-time employees without the need to introduce potentially complex definitions of eligible employees based on full-time equivalents. For example, some employers do not remunerate their staff by reference to the number of hours they work, but they might be remunerated according to the amount of work that they produce—piecework. Again, providing for up to 10 qualifying employees ensures that employers with part-time staff or with staff whose hours are not predictable are not disadvantaged and that such employers can take full advantage of the holiday.
As I anticipated, the noble Lord, Lord Davies, is thinking about where savings might be made in order to extend the scope of the scheme in other directions. It is perhaps worth saying that because of the distribution of new employers’ staff numbers, restricting the number of eligible employees from 10 to five would make a disproportionately small reduction in the cost of the scheme. That is not the main reason, as I have explained, for resisting the amendment. The benefit of the amendment would not be anything like what it might seem on the face of it—relevant to the headline numbers. On that basis, I would ask the noble Lord to withdraw this amendment.
My Lords, I will certainly withdraw the amendment, although I am not sure that I entirely accept the arguments made against an amendment that I have not yet even moved. I am afraid that the Committee will have to endure that burden in a moment when I come to apprenticeships. I accept the Minister's point that the number of new employees is likely to be very limited, despite what the noble Lord, Lord Newby, said about his ambitious proposal. I wish him well in personal terms while preserving strict neutrality towards the Bill.
The number of new companies will not be as extensive as he indicated. The Minister is right to call in aid that point, and to refer to the limited savings represented by the amendment. I hope that it will be accepted in the spirit in which it was intended, namely as preparatory to the marginal addition to the Bill contained in the next amendment. I beg leave to withdraw the amendment.
Amendment 12 withdrawn.
Amendment 13 not moved.
14: Clause 6, page 3, line 45, at end insert—
“( ) A new business which offers apprenticeship opportunities which are taken up during the period of the holiday period shall be allowed to extend the number of qualifying employees to 12.”
My Lords, apprenticeships are a good thing. I know that I will get nods from all sides of the Committee when I say that. We have made progress in recent years and it is important that we make greater progress. One dimension that ought to worry us all is unemployment. It is a potentially greater problem across wide ranges of our society but unemployment visited on young people is a particularly pernicious burden. We should not be surprised if we have difficulties with the attitudes of young people to our society if it is impossible for them, whatever their talents, to land a job. Apprenticeships are an important way in which people can come within the framework of work, and I suggest that our modern society will reflect rather more the significance of old-style apprenticeships.
When I say “old-style”, I refer to our great and glorious industrial past. A predecessor of mine in Oldham used to boast of there being 20,000 engineering employees in plants in the Manchester and Oldham area, and of hundreds of apprenticeships being available. Young people streamed out of education—in some cases, they might have been better advised to stay on to earn different qualifications—into guaranteed opportunities as apprentices in those big engineering works. Those days are long past; we all appreciate that. However, what may be becoming more significant in our society is the development of skills and crafts that mirror a period prior to the great industrialisation. I refer to small-scale businesses and crafts that often do not need many full-time employees to justify an apprentice who in his or her turn learns their role. That is of very great importance.
In all my time when I was greatly involved in further education, one thing that drove me to distraction was our inability to sell work experience in relation to the education experience in college. This was particularly true for young women. There might be a course leading to a career with the cleanest, most attractive technology imaginable—for example, providing the electronic back-up for pop groups, which should lighten up the heart of every youngster—but one would see engaging in those activities exactly the same proportions of men to women and boys to girls as we had in our traditional pattern in the world of work. We have to move away from that.
Apprenticeships, particularly those in small companies relating to the operations that we are defining in the Bill as worthy of support, potentially provide opportunities to break the mould of some dated employment practices. The Minister will tell me that this is a limited Bill and that the gains that will come from it are necessarily limited when viewed against the broader perspective of the Government’s policies. I recognise that all too clearly but the Bill nevertheless seeks to help a particular sector of small businesses. We should surely try to link that to the importance of developing apprenticeships in our society and, accordingly, I beg to move.
My Lords, apprenticeships are certainly important to this Government. Since the noble Lord, Lord Davies, has talked about them at some length, as he may know, it was National Apprenticeship Week three weeks ago. I met electronic engineering apprentices working on the rebuilding of Blackfriars station and its railway bridge. It was enormously encouraging to see the enthusiasm of those apprentices, who fully understood how their apprenticeships could be the start of a very worthwhile and remunerative career path and that they had a very supportive employer—a much bigger employer than in the scheme we are discussing. However, when I asked them whether their south London schools had encouraged them down this path, it was depressing to be told that there had been absolutely no mention of apprenticeships as a route to go down on the part of those schools. Therefore, I can see that there is work to be done on fully encouraging young people to take up apprenticeships, but it will not be for lack of government money. In 2011-12, we will provide £799 million for apprenticeships in the 16 to 19 age range, which is an increase from the £780 million in 2010-11. This money will fund 230,000 apprenticeship places for that age group. Therefore, the importance of apprenticeships is absolutely not lost on me.
Apprentices and their national insurance are covered by the Bill in the same way as any other employee. On previous amendments we have talked about the number of employees that small businesses typically take on. That is a critical point. The ceiling that we have left in the Bill of 10 employees provides sufficient headroom to take on apprentices. A feature of apprentices is that there is not normally the turnover that we talked about and it is not a question of part-time work. One or two apprentices being taken on by a business should be accommodated within that headroom limit of 10. We think that is a sufficient and appropriate way to accommodate what I completely agree is a critical part of the thrust needed to rebuild the nation’s workforce with the appropriate skills base for a thriving economy in the 21st century. With that explanation, I again ask that the noble Lord follow the convention of withdrawing his amendment.
Amendment 14 withdrawn.
15: Clause 6, page 3, line 45, at end insert—
“( ) A new business shall be able to treat two or more part-time employees, up to the value, in terms of hours worked, of a full-time employee, as a single person for the purposes of the relief available.”
My Lords, to a certain extent the Minister has already pre-empted this and given us a response which will be, I think, that in a sense there is room for part-time workers within the headroom that the count of 10 will provide. Nevertheless, I will seek to pursue the argument.
The technical note issued by HMRC in August adds some clarification on the maximum number of qualifying employees. In particular it makes clear that employees earning below the secondary threshold—that is the start of national insurance obligations—still count towards the 10, even if they are part-time or casual employees. Even if there is no employer national insurance due and no benefit from the holiday, they still count against the number 10.
The purpose of this amendment, which I accept would need some tidying up to be acceptable, is to enable part-time employees to be aggregated when determining the first 10 employees of a new business. It may well be that individual part-time employees do not earn above the secondary threshold so that, irrespective of their employment, a holiday would not produce a benefit for the new business, but it may allow the eleventh or twelfth employee to be counted in and the employer to enjoy the benefit of the holiday. Clearly there would need to be rules about what counts as part-time, and who gets added to whom, as it were, to determine a full-time equivalent, and what happens if a part-timer leaves, but these should be capable of being drawn up fairly simply.
Part-time working has been an increasing phenomenon of the UK labour market in recent years, although it dipped slightly in the last quarter to December 2010. Over the last year, it has increased by some 8 per cent for men and over 1 per cent for women. Nearly three-quarters of those employed part-time are women. Job sharing, especially for women, is an increasing way of balancing caring responsibilities with work, and a removal of the default retirement age, which we thoroughly support, will lead possibly to older people working longer but on a part-time basis.
Taking on part-time workers in the early stages of a new business could help lower risk to the business and increase its survival rate. There is clearly a tension between this and having full-time employees who could generate a benefit from the national insurance holiday. Being able to aggregate part-time employees on this basis would go some way to ameliorating the tension between those two positions. I beg to move.
My Lords, I want to speak particularly to this amendment because it is, in a sense, a real request. Part-time working and job sharing are really important. The Government have done a great deal to promote, indirectly, part-time work through, in effect, a pupil premium that now goes down to the age of two. This for many women means that there is a form of very attractive childcare available from the age of two, even for disadvantaged families, making part-time working far more feasible than it might have been in the past. The culture, however, needs to change, and it seems to me that this Bill, because it resists using the language of part-time work and job sharing, falls into that ongoing trap of not challenging the culture and pushing that change forward. Part-time work is often seen as a temporary accommodation, and as the lowest skilled work—that is not always true, but it is the general image—rather than as something that can be embedded permanently into the way that a company functions.
I will give a simple example. When I was on the board of Transport for London, we had to put together an urgent and complex project to introduce the congestion charge. The managing director role to achieve that required all kinds of complex engineering and marketing skills and was done as a job share. Two highly professional people who preferred not to work full time managed an exceedingly complex project with very tight timelines and carried it through brilliantly. It was a very good example of how many jobs lend themselves to a job share or part-time structure without it being career limiting. It would be great to see the Bill—and all other legislation—used to open up that potential and possibility, and to underpin the language of part-time work.
The Minister says that with 10 posts there will be scope for part-time work, but more explicit recognition and underpinning of part-time work and job sharing would be exceedingly valuable, and no additional costs would be attached to the programme.
My Lords, I echo my noble friend Lady Kramer’s view of the importance of job sharing. I, too, could introduce a small reminiscence. I have had job-sharing personal executive assistants working for me, and I know that the arrangement can work extremely well. It gives people who, for example, have children, more opportunities to work. I have seen this in action and I and the Government encourage it.
The difficulty in this Bill is that they will be working in the technical framework of tax and national insurance legislation. One feature of the NICs and tax framework is that there is no distinction in the HMRC construct between full-time and part-time work. Therefore, we decided that the way to accommodate this was through the relatively high limit on the total number of employees. Putting together a construct for this piece of national insurance legislation that distinguished between full-time and part-time staff would be enormously challenging. This was recognised in the public evidence session by the Federation of Small Businesses, which concluded that it would add complexity for the employers who were affected.
There is nothing here that discourages part-time employees, and the 10 employee limit should fully accommodate the likely demand, except in the very marginal case of the few thousand firms—perhaps 2 per cent—that would be restricted by the limit. Again, I ask noble Lords to withdraw the amendment.
My Lords, I will certainly withdraw the amendment in due course. I am grateful to both noble Lords who have spoken. The noble Baroness, Lady Kramer, spoke with authority and passion about the importance of part-time work and of job sharing. She made a hugely important point about cultural change and recognising that part-time work is not simply temporary work in low-level, low-paid jobs. As she explained, very senior job shares will increasingly form part of the system.
I accept what the noble Lord, Lord Sassoon, said about the difficulty of constructing this within the Bill, and I take the point about NICs and the tax system not making a difference between part-time and full-time employees. We will have some debates tomorrow on the Pensions Bill, and on the attempt to get some aggregation of people in part-time jobs for national insurance purposes so that they get credited at least for pension purposes—but that is a debate for another day.
I recognise that the level of 10 employees gives some headroom to deal with this, although I am disappointed that the Minister could not explicitly cater for part-time workers if for no other reason—it is not really the one that I had thought about—than to push the issue of the cultural change that is needed so that we properly value and encourage, where appropriate, part-time working and job sharing. I beg leave to withdraw the amendment.
Amendment 16 withdrawn.
Clause 6 agreed.
Clause 7 agreed.
Clause 8 : Making of deductions or refunds
16: Clause 8, page 5, line 32, at end insert—
“( ) HMRC will ensure that all staff dedicated to the administration of deductions or refunds under the terms of Part 2 of this Act are additional employees and not taken from other tasks necessary for the continuation of the other functions of HMRC.”
My Lords, I have no doubt that Amendment 16 may cause a slight flurry in the dovecotes. I hope that the Administration recognise that we are seeking to guarantee the success of the scheme by offering protection for the administrative resources devoted to it. However, I also see significant figures in the Treasury, not least the Minister himself, looking somewhat askance at the fact that we might have in public statute a definition of who should do the job of the Inland Revenue with regard to this issue.
This is a probing amendment and I do not expect the Minister to accept it on this occasion, although in due course he may be persuaded. The intention is to identify one obvious factor. We fully recognise that the public service is under considerable challenge at present, that lots of posts will be lost and that an awful lot of people are under pressure. Yet this scheme not only requires additional resources but has particular complexity built into it. There is no doubt that the Bill would be regarded as a matter-of-course administrative exercise if it covered all regions of the country and the excepted areas were brought in. We all appreciate the complexity and difficulty of the position, and the amount of resources that will be required to ensure that the scheme works. Of course we share with the Minister the ambition that this will prove to be successful. However, there are clear administrative implications. I am sure that the Minister has thought about these very seriously and will give me all the reassurances that I could possibly want.
It is a high bar to be able to give the noble Lord, Lord Davies of Oldham, all the reassurances that he could wish for, but I will attempt to give him some reassurance. The way in which HMRC is going about administering the holiday is that it has devised new processes for dealing with the holiday alongside the other day-to-day tasks in its casework. Additional steps have been incorporated already in its day-to-day caseworking, so it has not been necessary to employ new staff. The training has already been done. It shows how HMRC is able to adopt a flexible approach to allocating its resources as and when schemes in tax and national insurance change. HMRC staff have been engaged in this work since September. It would not be possible to use new employees, if that was being suggested. I understand the probing nature of this discussion but using new employees would not technically work as staff are already trained and running the scheme alongside their other responsibilities without the need to employ additional staff.
I hope that the noble Lord has the reassurances he seeks, such that he might be minded to withdraw Amendment 16, as I think he said that he would.
I am grateful to the noble Lord. I feel somewhat encouraged. I did not have the slightest doubt that the issue was expressed entirely in his own words and was not drafted for him by a senior official. If that had not been the case, I would have had a few doubts. I am very grateful for the response that he gave. I beg leave to withdraw the amendment.
Amendment 16 withdrawn.
Clause 8 agreed.
Clauses 9 and 10 agreed.
After Clause 10
17: After Clause 10, insert the following new Clause—
“Consideration of extension or modification of scheme
( ) The Treasury shall, by a date no later than six months after Royal Assent, and then again after a further 12 months, review the operation of the regional holiday scheme under Part 2 of this Act to assess if it should be reapplied to different areas of the country.
( ) If a recommendation is made to extend or modify the application of the scheme, the Secretary of State shall bring about such changes by order, to be subject to the approval of both House of Parliament.”
In moving Amendment 17, I shall speak also to Amendment 18. They clearly have the same thinking behind them; namely, the scheme’s advisability in circumstances where we recognise the challenge that the Bill presents. The noble Lord was good enough to indicate a moment ago the administrative arrangements that have been put in place regarding the Bill. It needs to succeed and we need to be able to identify its success. As we have indicated, we have real reservations about certain parts of the operation, particularly the concept of the exempted regions.
Therefore, we want a full evaluation of the virtues of the scheme. Amendment 17 proposes that we should get an early report from the Treasury on its operation and Amendment 18, which is linked in the discussion, proposes that there should be a full report on the impact of the scheme. The measure has its exempted regions, but it has a highly specific and particular approach to an important issue, which is bound to affect particular areas. As the exemptions have been made on a clear identification of where the economic need is for this stimulus—that is why the stimulus is partial rather than national—it is only right that we are in a position to evaluate whether that strategy proves to be successful. Amendment 18 seeks a report that will give us the fullest evaluation of a scheme that has its controversial elements as well as carrying a principle to which the Opposition also subscribe. I beg to move.
My Lords, I support the principles behind these amendments. This is a very specific scheme and it should be possible to tell whether it has worked. If it does not work—we hope that it will—the Treasury will be in the happy position of not forgoing revenue that it had expected to forgo. There would be an unused pot, as it were. If, as I fear may be the case, the scheme as outlined does not yield the number of new jobs that the Government hope, it would be very useful, after a year, to see how—to the extent that funding is available for job creation in the regions—it might be more effectively deployed.
As I mentioned at Second Reading, an obvious extension to the scheme would be to provide a modest ability for existing businesses in the designated regions to employ additional staff and qualify for a holiday. In those circumstances, it would be perfectly possible to say that every small business in the designated areas could employ an additional person and qualify for the holiday, so that the scope of the scheme is extended but keeps within the expenditure envelope already set aside for it. Whether that is possible will depend on whether the scheme works as intended. The only way we will know that is if we have a report as set out in these amendments.
My Lords, we certainly agree that generally tax policy-making and the effects of tax measures should be more transparent. It is for that reason and because of the commitments given in another place, which I shall run through in a moment, that we do not believe that Amendment 17 is necessary. However, we completely share the commitment to transparency. Therefore, it may be helpful to the Committee if I echo the undertaking given by my honourable friend the Exchequer Secretary in another place to provide Parliament and the public with updates after the end of the tax year on the operation of the scheme, including information at regional level, although the precise requirements set out in the amendment could raise legal issues, for example on confidentiality of taxpayer data.
The factual report that we envisage would cover, regionally and nationally, the number of new businesses applying, the number of applications rejected, the number of qualifying employees for whom a holiday has been claimed and the amount claimed. The main difference between the commitment that the Government have made and this amendment is that the latter would require a constituency level breakdown even though the scheme is regional in England and will not cover every English constituency.
I remind the Committee that during proceedings in Committee in another place, amendments put forward with the aim of altering the holiday to a constituency basis were discussed at some length. My honourable friend the Exchequer Secretary said then that the Government do not believe that a constituency-based scheme is either appropriate or feasible. Since we have a regional scheme including the whole of Wales, Scotland and Northern Ireland, it does not seem logical to provide a constituency level breakdown even if it was possible to do so. A regional scheme and a regional analysis at the end of each tax year will be available for scrutiny. Therefore, we do not think that it is necessary to enshrine that in an amendment to the Bill. I refer to Amendment 18—I said Amendment 17 at one point, and will come to that in a moment.
A technical point in the amendment refers to a budget for the scheme. For the avoidance of doubt, businesses can be confident that there is no budgetary constraint. The holiday will continue as proposed, regardless of the number of applicants. The expected costs of the scheme were set out in the policy-costing documentation at the time of the Budget last year.
Amendment 17 is aimed at providing flexibility to modify the holiday. As I have explained, the Government want to target available resources on the regions most dependent on public sector employment. We want to do so in the way that we have discussed at length with regard to the qualifying businesses, the numbers of employees and so on. However, introducing flexibility to change the details of the scheme, as proposed in the amendment, would increase uncertainty for those who might potentially benefit and would risk inhibiting decision-making for those who need to know with some certainty what the holiday permits. I hope that I have provided considerable reassurance on the questions of transparency and of the ability of the House to scrutinise the way that the scheme will operate in practice, and that noble Lords will withdraw their amendment.
I am grateful to the Minister; half a loaf is better than none. The extent to which he defined how far he was able to go in response to the amendment was some consolation. I appreciate his remarks. I am well aware of the fact that no one in Committee is particularly concerned about constituencies. I am also well aware that the issue was raised in the other place, where concerns were extensive. The Minister will forgive me for seeking to identify that this might be the basis for a degree of transparency that would be welcomed by all those who are directly answerable to the electorate. I am grateful for his response and beg leave to withdraw the amendment.
Amendment 17 withdrawn.
Amendment 18 not moved.
Clause 11 : Interpretation of Part 2
Amendments 19 and 20 not moved.
Clause 11 agreed.
Clauses 12 to 15 agreed.
Bill reported without amendment.
Committee adjourned at 5.54 pm.