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Employment Allowance (Excluded Persons) Regulations 2020

Volume 802: debated on Tuesday 3 March 2020

Motion to Approve

Moved by

That the draft Regulations laid before the House on 16 January be approved.

Relevant document: 3rd Report from the Secondary Legislation Scrutiny Committee

My Lords, I draw the House’s attention to the fact that the Secondary Legislation Scrutiny Committee described this instrument as an “instrument of interest” in its third report of 30 January.

This draft legislation will allow the Government to target the national insurance and employment allowance at those businesses that need it most. Employers pay class 1 national insurance contributions on their employees’ earnings above the secondary threshold, set at £8,632 this year. That is charged at 13.8% and contributes the largest business tax by revenue in the UK.

The employment allowance was introduced in 2014 to help businesses with employment costs and to encourage businesses to grow and hire more staff. It is claimed by more than 1 million employers to reduce their employer NIC bill by up to £3,000. Since its introduction, it has taken 590,000 businesses out of paying NIC altogether.

I remind noble Lords that the employment rate is at an all-time high of 76.2%. Since 2010, youth unemployment has halved and 3.7 million more people are in employment. This is a nationwide phenomenon. In the past year, three-quarters of employment growth was outside London and the south-east.

At present, all businesses—from greengrocers to Goldman Sachs, butchers to Barclays and pubs to Primark—can receive a relief from the Government of up to £3,000 off their total employer NIC bill. Big businesses get the same benefit as small ones. However, for larger businesses, that £3,000 is a small amount relative to their total employment costs, and is therefore unlikely to encourage them to take on more staff. It is right to target the support at smaller businesses for which this £3,000 makes a difference to the cost of doing business. It is for this reason that the Government decided to restrict the employment allowance to smaller businesses in the 2018 Budget, which means that, from April 2020, only businesses with an employer NIC bill below £100,000 will be eligible for the employment allowance. More than 99% of micro-businesses with fewer than 10 employees and 93% of small businesses with fewer than 50 employees will remain eligible for the employment allowance. Around 80,000 employers will lose the employment allowance. This constitutes just 8% of businesses currently receiving it, all of which have a wage bill above £700,000 a year.

Targeting the employment allowance at smaller businesses means that it falls under EU de minimis state aid regulations, which relate to small amounts of aid that can be given without notifying the European Commission. Most businesses can receive up to €200,000 of de minimis state aid cumulatively in a three-year period. Under the de minimis regime, to claim the EA, businesses need to notify HMRC annually as part of the existing claims process and confirm that they can receive the employment allowance without exceeding their cap. After consulting widely, we removed the requirement to specify exactly how much state aid businesses receive, to make it easier for them to claim the reformed employment allowance. As the Prime Minister announced, we will develop our own separate and independent policy on subsidies when the transition period has ended. We will have a modern system for supporting British business in a way that fulfils British interests.

I hope that noble Lords will agree that while the employment allowance aids small businesses, giving large businesses with a wage bill of £700,000 or more £3,000 off their NIC bill is not good value for money. The Government have committed to go further with their support for small businesses. As the Government look to level up across the country, this reform will raise more than £1 billion over the course of this Parliament to fund vital public services and target support for small and medium-sized businesses.

I am grateful for the House’s consideration of these regulations and for any points that noble Lords may like to make.

My Lords, I will be extremely brief. I am supportive of this change. It seems appropriate that the employment allowance is focused on the smallest businesses. I fully accept what the Minister says: that small businesses will be far more motivated to take on additional staff than any large business by this—in effect—grant.

On reading this, it seems that one of motivations is to make sure that the employment allowance is covered by only the de minimis regulations in the EU. Am I correct that it is the Government’s long-term policy focus to direct this aid towards small businesses, and that this is not just an accommodation to what they see as an EU framework—in other words, that it portends the future? Can the Minister give us any further assurance that any money saved will be redirected into the small business community?

My Lords, the Explanatory Memorandum states:

“The purpose of this reform is to target the Employment Allowance to support smaller businesses.”

It directs us to Employment Allowance: Excluded Persons Regulations 2020, a document published in January this year, which repeats that statement:

“This reform is designed to focus the Employment Allowance at the original intended beneficiaries: smaller businesses.”

This is rubbish. You have businesses that can currently claim this £3,000, you have a very large group of businesses whose NI bill is less than £100,000—for which the rules will not change one iota as a result of this SI—and you have another group in the £100,000-plus category that will get nothing. It may be the Government’s intention to focus on smaller businesses, but this SI has no such effect. In fact, the sole impact of this SI is to save the Government money. I do not mind this, and the statutory instrument is perfectly reasonable. I just do not like the fact that false claims are made in this document. Unless the noble Lord is able to give me the assurance that the noble Baroness, Lady Kramer seeks, it seems improper to claim that taking money from one group while doing nothing about another somehow focuses more money on the group that you are not going to change.

I have another problem with this; well, it is not a problem, but I would value it if the noble Lord would write to me because I completely misunderstood it. The document of January 2020 goes into more detail about the allowance and cross-references it with the 2018 Budget, which is great. It sets out that the estimated one-off impact on administrative burden is £9.2 million for 1.2 million businesses. I have a bad habit of dividing one number by another, and this works out at £7.67 a business. Even at the national minimum wage, you get only 53 minutes of a person’s time for that. If the one-off impact of the administration is 53 minutes’ work, one then moves on to the next paragraph, numbered 7.7. Here the ongoing administrative burden for 1.2 million businesses is £600,000, which works out at 50p a business, which is 3.4 minutes at the national minimum wage. I am sure I have misunderstood this, but perhaps the noble Lord would have his officials write to me explaining where those figures came from.

I thank noble Lords for their comments. I think I can answer the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, together with regard to our commitment to supporting small businesses. It is very much our intention to do this. We have a manifesto commitment to increase the employment allowance. On the issue that he raised, I hope that by freeing up some of the money that is frankly not particularly benefiting larger business, we will have some flexibility to help those at the lower end. That is very much our policy, and I hope we will hear more about this in the Budget, which I of course cannot forestall.

I turn to the noble Lord’s technical comment about burdens, and certainly commend him for his forensic analysis of those numbers. I will write if I get this wrong but I genuinely think that we are trying to make claiming this a bit easier. We are removing the need to list de minimis state aid. Therefore, to fill this form in—I hope—needs only a few minutes, as his arithmetic would indicate. However, I will write to him formally if I have got the wrong end of the stick, because I am not as well informed as he is on that item.

These regulations make important changes by restricting eligibility for the employment allowance to businesses with an NIC below £100,000. They enable the Government to target support at small and medium-sized businesses which need it most. As I have mentioned, they will raise £1 billion over this Parliament to fund public services and to continue to support small businesses. I commend these draft regulations to the House.

Motion agreed.