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National Insurance Contributions Bill
|©Parliamentary copyright||Prepared 8th December 2010|
Publications on the internet
National Insurance Contributions Bill
National Insurance Contributions Bill
The Committee consisted of the following Members:
Sarah Thatcher, Committee Clerk
† attended the Committee
Mr David Hanson (Delyn) (Lab): I welcome you to the Chair, Mr Howarth. We have also spent some time together in Committee over the past few weeks on various measures, and I am very content to see you back in the Chair. I hope you enjoy this Committee and its deliberations.
There was a smidgen of opportunity for me not to talk very much after 4 o’clock, but, having seen the Government majority troop in from the Committee corridor, that smidgen has now passed, and I may well continue my discussion of these matters for a few moments. So, as ever, I congratulate the Government Whip on maintaining his troops on time and on budget.
Before the Committee adjourned for lunch, we were discussing amendment 1, which seeks to ensure that we exclude the exclusions from the Bill, so that London, the south-east and east regions are part of it. We had a full discussion on those matters, and I do not wish to detain the Committee having jested about it for too long. I can only sum up what has been said by quoting individuals who believe that the Government have got it wrong. On occasion. the Government expect the Opposition to say that they have got it wrong, and I have tried to point out the Opposition’s concerns in a constructive way.
In June, when the proposals were first announced, Mr John Bridge, the chief executive of Cambridgeshire chambers of commerce, said that the move to exclude his region would put his region and his region’s businesses at a disadvantage:
I could not concur more with Mr Bridge. His argument goes to the heart of the arguments made by my hon. Friends the Members for Luton South and for Luton North. I understand the Minister’s wish to exclude those regions and an argument could be made, although I do not agree with it, that areas such as Lewisham, West Ham and Walthamstow may be attracted to the honeypot that is central London for employment purposes. That is not an argument that I accept, but it is an argument that the Minister has made.
I find it more difficult to accept that, as Mr Bridge has said, businesses in those regions may be disadvantaged by the national insurance opt-out being in place in other regions close to their places of employment, work and business, but not in their region. My hon. Friend the Member for Luton South put that very clearly in his contribution to the Committee, as did my hon. Friend the Member for Luton North. Towns such as Northampton, which is just up the road from Luton in business terms, will benefit from the new start-up business. Before we move on from these amendments, the Minister has to answer that point about the edges of the regions.
Matthew Hancock: Despite that discourtesy, I will continue to make my point. I represent a seat in the east of England. As the shadow Minister, who is not paying attention, should recognise, I have consulted businesses in my constituency very broadly. Those businesses recognise the need to get to grips with the deficit, and, therefore, that infinite money is not available for the scheme. They also recognise that the eastern region has public sector employment of less than 14%, which is one of the lowest proportions of public sector employment. They therefore accept the argument that the scheme is targeted at areas with high public sector employment, which will be most affected by the cuts caused by the Labour party’s woeful management of public finances.
I do not think that the hon. Gentleman was present for the whole debate. Had he been, he would have heard that, of the top 100 constituencies for public sector employment, 23% are in London, the south-east and the east. Many of them are in London and, indeed, in his own region. There are high levels of employment not only in seats that elect Opposition Members, but in seats that elect hon. Members from his own party. It is woeful if the logic of the Government’s proposal for the national insurance opt-out is to target public sector employment by making the scheme available to regions other than London, the south-east and the east, because they represent the almost quarter of constituencies with the highest level of public employment. That would miss the target.
I recognise that the Minister may have concerns in relation to the amendment, but, if it is the case that he is targeting the areas with the highest public employment, it is incumbent upon him to look at the top 100 or 200 seats with public employment. The amendment suggests the top 350 seats. The Minister could devise the scheme in ways, based on postcode, that look at those areas of high public sector employment, rather than adopt a blanket approach that completely discards such areas.
Kelvin Hopkins (Luton North) (Lab): I mentioned in my speech this morning that Luton North has one of the highest levels of public sector employment, but that is not the point that I want to make. Long travel distances are just not possible for many lower paid workers with families. They need employment in their own localities. Travel to town centres in areas of inner London and some parts of my own constituency is significant to the budget of lower paid workers. They need jobs near to where they live.
Mr Hanson: Indeed. If we are to adopt the agenda of localism that the Government seek to approve, surely it would be sensible to base it on a local basis without that conflict. The Minister does not have to listen to me—as I said earlier, I have a political agenda, even though I am offering him the hand of friendship. He could, however, listen to his hon. Friend the Member for Basildon and Billericay (Mr Baron), who asked him on Second Reading whether he could
“revisit the Government’s decision to exclude businesses in the south-east from the national insurance holiday? Otherwise, it could be seen to discriminate against local entrepreneurs there and hit the areas that need higher employment.”
“If the scheme cannot be extended to an entire region, does the Exchequer Secretary accept that there will be pockets of that region, such as my constituency, that would benefit massively from it? The area has historically had very low new business start-up rates”.
The hon. Member for Portsmouth North also thinks that she will benefit from the scheme, so much so that, on 2 December, she went to the trouble of tabling a question asking the Exchequer Secretary what estimate he had made of the revenue forgone from the national insurance contribution scheme in the Portsmouth city council area. If the hon. Lady were on the Committee, I suspect that she would support the amendment that we have tabled stating that the Secretary of State should look at the matter by local authority area, because she would be able to make the case for Portsmouth. She might be able to explain to the Exchequer Secretary any difficulties at the dockyard as well as problems for businesses, the loss of public sector employment and difficulties at Hampshire county council. Why, she may therefore ask, can we not look at Portsmouth authority as one of the areas for the scheme?
We have had a good discussion and I do not want to labour the point too much, because we have made our issues clear. Having taken some indication from you, Mr Howarth, and Mr Brady, on the likelihood of a clause stand part debate, I just wish to ask a couple of questions that are separate to the amendments. They are linked to them in general terms and the Minister might want to consider them, too, in relation to the clause as a whole. We have had a good discussion and I anticipate that we may not have a clause stand part debate.
The Chair: That might be helpful at this point. I am of the opinion that the relevant matters have been discussed during the debate. I am informed by the Clerks that that is the case. I do not propose to have a clause stand part debate on that, so if the right hon. Gentleman wants to, I will allow him a little latitude.
The Minister knows that we are trying to remove the Greater London, south-east and eastern regions from the exclusion. He knows that under clause 4(4), the relevant period for the scheme commencing is 22 June 2010 to 5 September 2013. At the moment, the Greater London, south-east and eastern regions are excluded under that scheme, which is why I am relating it to this issue.
I accept that it is an unlikely event, but if the Minister had not convinced his hon. Friends today, and I convinced my hon. Friends that we wished to vote against clause 4 in its entirety because of the absence of those three regions, could he tell the Committee what would happen to those 1,100 businesses that he indicated have already taken part and have already applied to take part in the scheme from 22 June 2010? That is an unlikely event, because I am not advocating that my hon. Friends should vote against the clause, but—and this is an important point for me, as an MP for nearly 19 years—Parliament is an important place. The Government have started the scheme, issued publicity about the
In the unlikely event of me, when I was a Minister, introducing a Bill, spending taxpayers’ money, bringing forward investment, and providing a scheme that gave promises before we even had a Second Reading in the House of Commons, I suspect that the current Minister would have been making points of order against me in the Chamber in front of the Speaker of the House of Commons. I would like him to give me some indication of his view about what would happen if the scheme did not progress and was not approved by both Houses of Parliament.
We are all paid to scrutinise the Bill. We are paid to give an endorsement, on behalf of our constituents, to the Bill. I just venture to suggest to the Minister that it might have been better if he had started the scheme on a date subsequent to the authorisation of the House, at least on Second Reading, before running it for a similar period of time in the next two to three years. He is, in a sense, just testing the wishes of Members who say that we should retrospectively approve something. If we are into the area of retrospective legislation, there are a number of occasions when we have been criticised for potentially thinking about it, never mind doing it. I would, therefore, welcome an explanation from him on that point.
As part of the consideration of the amendments to date, I am still not satisfied with the answers that the Minister gave to my hon. Friend the Member for Walthamstow in the evidence session. I would welcome it if the Minister gave some clarity about how many he expects to take up the scheme and over what period of time. We have been told today that approximately 1,100 people have applied for the scheme to date. We have a figure of 400,000 prior to the commencement of the scheme with employers, and we have a figure of 800,000 people, from memory, who will take up the scheme in that three-year period. I would welcome it if he examined that for the Committee today, before we approve the clause and approve the opt-outs of the regions that we are concerned about, and told us what his curve trajectory is on that. How many does he expect in the first year, and how many in the second and third years? I would welcome information about the modelling he has undertaken to look at which regions will potentially take up the offer. Even within the regional take-up, I am not yet clear whether he expects the north, the constituency of the hon. Member for Central Devon in the south-west, the north-east and places such as Hexham, Lancashire, or Scarborough and Whitby, for example, to take up the national insurance holiday. What is his trajectory?
Part of the debate on this amendment, and future amendments, concerns the dividing of the cake, its time scale and the Minister’s trajectories. He has made great play of the fact that in Greater London, the south-east and eastern region, the scheme will involve a major take-up and cost a considerable amount of money. Has
Suppose that £940 million of expenditure is allocated, and after 18 months or two years we have invested only £300 million in the scheme because that was the take-up. I would be concerned if there was only one year left in which to invest the other £640 million but my constituents, and those of hon. Friends in West Ham, Luton, Walthamstow and Lewisham, had not had the benefit of the scheme. There is scope to look at that issue, and as a precursor to a later discussion I would welcome more details from the Minister about the trajectory he outlines.
My hon. Friend the Member for Walthamstow mentioned a point that she raised in Committee on Thursday that the Minister had promised to write to her about—she may wish to ask further questions about that. That material is relevant to today’s debate, but it might not be to the debate on Thursday afternoon. If the Minister was not able to respond to my hon. Friend about the point she made last Thursday, it is important that he outlines what those concerns were to the Committee. I commend the amendment, and I would welcome clarification on those points from the Minister.
The Exchequer Secretary to the Treasury (Mr David Gauke): It is a pleasure to serve under your chairmanship, Mr Howarth. I am grateful for the points raised by the right hon. Member for Delyn. The first half of his remarks covered ground that was perhaps familiar from this morning. Given that my response will also be familiar, I will spare the Committee a response on all those points.
One point was not stated this morning as clearly as it might have been. The right hon. Gentleman argues that we should be looking at levels of public sector employment across constituencies, and the hon. Member for Luton North said that his constituency has one of the highest levels of public sector employment. When looking at constituencies as opposed to regions, and therefore a smaller sample, we must acknowledge that there is some uncertainty in the statistics. I have seen statistics suggesting that both Luton seats have levels of public sector employment that are slightly below average. I do not dispute that other figures are available, and I do not doubt that the hon. Gentleman has seen other statistics. Those I have seen contain some margin of error, because the sampling size is small. One of the difficulties we encounter if we try to look at such matters on the basis of constituency is that there is a danger of inaccuracy.
Kelvin Hopkins: These are statistics from the Library and I was surprised when I found them and I asked the Library why that was the case. It is about the employment in the area. There is a large general hospital, two very large colleges and much of the industrial employment is in Luton South. That is reason for the disparity.
Mr Gauke: I am grateful. The numbers I have seen are from the Office for National Statistics but it acknowledged that there is some uncertainty about its numbers as well. Some of the constituency numbers look somewhat strange. For example, of the two Norwich constituencies, one has a much higher level of public sector employment than the other. I do not know Norwich well enough to know whether that is likely to be true, but it does not look right. There is this uncertainty over constituencies as well as the border issue, which the right hon. Gentleman touched on, and the fact that people will travel long distances to work and so trying to target this on employment in particular locations does not seem entirely sensible.
The right hon. Gentleman asked what will happen if the Bill fails. That is a point that I touched on this morning in relation to the amendments. If the Bill fails, those employers who have benefited from the scheme and have not paid the national insurance contributions that they would otherwise have had to pay would have to pay that outstanding amount. All of them were informed that that was the case because all of this was subject to the Bill receiving Royal Assent. Everyone was notified of that. It would be a great pity if that happened, given the right hon. Gentleman’s comments in support of the Bill.
As for the principle, if we had waited for Royal Assent before we commenced doing anything on this, we would not have been able to help those businesses starting since 22 June. As we want to encourage private sector employment and we are now seeing growth in private sector employment, I make no apologies for this Government wanting to act quickly to help businesses and to provide businesses with that opportunity. But it is all subject to Royal Assent and if the Committee and the House refuse to let the Bill go forward in its current form, those businesses that have benefited will have to pay the money back.
Mr Hanson: This is a very important point. If the Committee accepted our amendment for London, the south-east and the eastern region it would change the whole nature of the potential for the scheme. It would change the nature of the £940 million that he has put in place, even if it were the same figure across the board. It would change the nature of the advertising and everything else. I just hope that the Minister thinks about this for future occasions. I would have been lambasted as a Minister had we not even had a Second Reading. In my 19 years in the House, I cannot think of a single time when expenditure has been incurred before a Second Reading.
Mr Gauke: The consequence of the approach that the right hon. Gentleman sets out would have been that businesses would not have received the help. Some businesses might have delayed starting up. There are people in employment today who would not be if we had followed his approach. It is not by any means unusual when we are talking about a benefit, or something that is helping people within the tax system, for it to be announced at one point and legislated for later. I dare say that there was even an example or two of that in our Finance Bill just a few weeks ago: it is not unusual.
This is a measure that is helping businesses and we are pleased to be able to do that. As the right hon. Gentleman suggests, the House may take away some of
Gavin Shuker (Luton South) (Lab/Co-op): Is not the real issue that the Minister said earlier that the reason for not accepting amendments was that we did not necessarily have the right to change fundamentally a scheme that had already been started? Is not that the area of contention? I may be new to the House but I do not believe that we are just going through the motions in this Committee.
Mr Gauke: My argument is not that the Committee does not have the right to do change the scheme—the Committee is perfectly entitled, if it so decides, to scrap the holiday altogether or to change the regions—but that it would have to do so bearing in mind the consequences for certain businesses that have responded to this opportunity. They would have to pay back the money that they would otherwise have paid in tax, and that would have certain consequences. If that is what the Committee wants to do, it is perfectly entitled to do it, but we do not think it would be advisable. Withdrawing a benefit such as this one, which enables start-up businesses to get up and running with a reduced tax burden, would be a strange position for the Committee to take.
Heidi Alexander (Lewisham East) (Lab): I thank the Minister for giving way. Does he have any concerns that the decision to initiate the scheme prior to legislation passing suggests an attempt to disregard the House, its Members and its procedures?
Mr Gauke: No, I do not. The House and the Committee is entitled to amend the legislation, but we wanted to move quickly and to be on the side of businesses. We wanted to provide this benefit at the ideal time—when there was private sector growth. We want businesses to start up and do well. Had we followed the approach that nothing could be done until legislation had been passed, it would have been a great pity.
Matthew Hancock: I was not a Member of Parliament before the election, so perhaps the Minister could advise me. Is it not true that the changes to alcohol taxation in the former Labour Government’s last Budget, only eight months ago, were announced and implemented immediately and only legislated for in the following Finance Bill?
The Chair: Before the Minister responds to that, I must say that I have allowed rather a lot of latitude to avoid the necessity for a clause stand part debate, but I do not think that the Minister should be tempted down that road.
Mr Gauke: I shall resist the temptations of alcohol, Mr Howarth, however near to Christmas we may be. There may be Budget resolutions with Budgets, but full scrutiny happens some months afterwards, as a matter of course. My hon. Friend is right to draw the Committee’s attention to that.
May I turn to modelling and take-up? We have published details but it might be helpful for the Committee to examine this point. The right hon. Member for Delyn rightly makes the point that we have a long way to go from the take-up at the moment of 1,100 businesses to the 400,000 that we hope for by the end of the process. As Mr Mitha suggested, we anticipate that as time goes on knowledge of the availability of this scheme will spread, and there will be greater understanding from professional advisers in particular. As people reach the end of the accounting year and seek advice, more information will be available.
It may be helpful to the Committee if I state the anticipated costs of the policy over the next few years —£50 million for 2010-11, £230 million for 2011-12 and £180 million for 2012-13. That results in a total cost of £940 million. That gives some indication of the likely profile. As expected, the cost starts relatively slowly and picks up over the course of 2011-12 and 2012-13. That is what we anticipate and more information will be published on that.
Let me turn quickly to the issues raised by the hon. Member for Walthamstow. I apologise for the fact that she does not have the letter that deals with them, although I think that it is about to be sent to her. She raised the issues of the methodology and, in particular, the behavioural effects, so let me attempt to address the substance of her points and to clarify those issues.
There could be direct behavioural effects of business fragmentation, with companies with many staff setting up multiple separate entities to avoid being affected by the limit of 10 employees and so on. However, as a result of our compliance plans, we do not expect there to be a lot of such behaviour, which one could describe as equivalent to avoidance. Such direct effects are a consequence of the way in which the rules are set up, but they will be somewhat limited. Those are the behavioural effects that the hon. Lady asked about, and the cost would involve a relatively small amount of money.
It would be hard to model the policy’s indirect dynamic effects, such as enabling the provision of jobs that otherwise would not have existed or encouraging more start-up businesses, so we have not done so. If there is a significant dynamic effect, it is unlikely to be very expensive, because we will receive more tax revenue, which we would not otherwise have received. However, that is not what we have modelled in the numbers that the hon. Lady referred to in her questions last week. I hope that that distinction is clear.
Stella Creasy (Walthamstow) (Lab/Co-op): I am exceptionally disappointed that we did not have this information before this sitting, and it would have been fair to provide it. From what the Minister says, my original points on Thursday are true, and the scheme has a very great dead weight. The Minister is saying that we can ascertain only that there will be £10 million of direct benefit, or £10 million of cost to the Exchequer, as a result of introducing the proposal. He cannot actually guarantee the indirect stuff that he is talking about and he cannot show us any workings out to show where it comes from. Is he saying that he cannot provide any information beyond that in the original memorandum that he put
Mr Gauke: I refer to the answer that I gave my hon. Friend the Member for West Suffolk, and reiterate that there is a degree of uncertainty as to what the dynamic behavioural effect will be. That is not what we have modelled: we have looked at possible fragmentation behaviour—people forming two businesses rather than one to benefit from the full policy. The policy will help those who are starting up a business because it will reduce their tax burden and enable them to get through the difficult years. There is some uncertainty—this is why we have not covered this in the scorecard—about how policy will change things.
I will make sure that the hon. Lady gets the full letter, which explains things in greater detail, later today. I am sorry that she did not get it before today’s sitting, but I am keen to set out the essence of it. We accept that there is a degree of uncertainty about the dynamic and behavioural effects, but reducing employment costs will have a positive effect. Indeed, research by the Federation of Small Businesses has indicated that the reduction in labour costs is the single factor most likely to make the difference between taking on an extra member of staff and not doing so, and that has been cited by 60% of small businesses surveyed. We are not making bold or unsubstantiated claims as to the behavioural effect, but we will be monitoring and evaluating the policy to improve our understanding. With those comments, I hope that the clause will stand part and that the amendments will be withdrawn.
Mr Hanson: I am grateful to the Minister for his response. I share the disappointment of my hon. Friend the Member for Walthamstow that the figures are not there, but it is about time that we came to some conclusions on these matters. I will not force a vote on the issues to do with employment, public sector employment or local authority areas—we may return to those on Report—but I will press the Minister on the inclusion of London and the south-east and east regions. My hon. Friends the Members for Lewisham East, for Walthamstow, for Luton North and for Luton South, have made strong arguments in favour of their areas, and it is important that we reflect the fact that the scheme needs to operate on a universal basis across the United Kingdom to benefit all businesses.
I hope that the hon. Members for West Suffolk and for Watford, in particular, will consider their constituents when they vote on this issue. I want to give them a little reminder of those issues; I am sure that they will vote in the way that they want but we will be taking an interest in how they vote, particularly the hon. Member for Watford. I am grateful for the clause stand part debate, but I want to press amendment 1 to a vote if the Minister refuses to accept it.
Good afternoon, Mr Howarth, and may I say how pleased I am that you are in the Chair? The Committee always seems much warmer when you are presiding over our proceedings; I do not know why that might be.
Amendment 9 probes the Minister on the design of clause 5 in respect of the exclusion of charities from the national insurance holiday, and the reason why the Minister has chosen to do that. The Minister said during the evidence session last Thursday that the Bill
“would not include charities that do not have a business element…It is not specifically designed to help charities, but to help the wealth-creation sector”.––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 47, Q167.]
I am slightly surprised that the Minister has taken that line, because charities are important players in our economy. Although they may not be out to make a profit, they are often enterprising institutions—and employing institutions, hiring various staff in many different cases—and they deserve our support and encouragement.
Kelvin Hopkins: That is of particular concern in my constituency, where I have had meetings with charities that are under considerable pressure at the moment. Whatever one thinks of the big society proposed by the Government, if it ever comes to pass, charities would expect to play a big role in it. They are, however, going to be discriminated against, because they would not have the lower employment costs advantage of small businesses.
Chris Leslie: Indeed, and it would be quite useful if the Minister would elaborate on the specific wording of clause 5(6), because there are certain definitions of “new business” that are allowed to qualify for the national insurance holiday. To what extent are charities able to be defined within that particular categorisation?
We have some 140,000 charities in the UK as a whole, and I am told that some 5,000 new charities start up each year, so something in the order of 2 or 3% of the total quantum of charitable institutions are new start-ups, which could mean that there are several thousand charities nationwide that might feel that they could benefit from the national insurance holiday arrangement, but are not evidently able to do so from the provisions as set out in the Bill.
Charities have, as I have said, a clear social benefit, as we can all obviously understand, but there is an economic benefit to their work as well. Many young people will find that the first step on the career ladder, either through work experience, training or some other activity, might be through a charitable gateway. We should be encouraging charities to start up, and it would be wise to frame the legislation in such a way that would benefit the voluntary and charitable sectors. It is a shame, as my hon. Friend has said, that charities, which are already suffering the rather sinister ironies of the Prime Minister’s big society, are having their funding slashed by local authorities up and down the land and, unless I am mistaken in my interpretation, probably will not be included much in the scope of the Bill.
Richard Harrington (Watford) (Con): I am grateful to the hon. Gentleman for giving way and for his usual erudition. He has, however, probably not had that much experience in the charitable sector—I hope that I am wrong. From what the hon. Gentleman is saying, one could argue that what we are doing here is, in a way, in the charitable sector, because it has great social benefits, as he has said. Having worked in the charitable sector, I know that charities receive many other benefits such as tax-free status and that most charitable start-ups do not actually have employees at all. Many of the employees that the hon. Gentleman has mentioned—work experience people, for example—do not work the hours or receive the salary to attract national insurance. His point is very much a red herring. Given that everything is about money, and that the Government are helping charities in many other ways, it is not relevant to include the charitable sector within the Bill.
The Chair: Order. Before the hon. Gentleman continues, let me say that interventions should be brief and to the point. They are not an opportunity to make a mini-speech. I would be grateful if Members would bear that in mind before they consider further interventions.
Chris Leslie: It was an interesting intervention. I had not actually thought about new Members, and whether they would be classed as new start-up businesses in some circumstances. I suspect that our constituents
However, I disagree with the hon. Gentleman’s point that charities do not, by and large, take on some of those characteristics. As with new start-up companies, a new start-up charity may have a number of part-time or full-time employees, and the national insurance holiday may make a big difference. I am not so sure about other tax benefits that charities have. As I understand it, charity shops, for instance, may get tax benefits relating to exemption from non-domestic rates. There are, of course, VAT provisions—sometimes charities have the capability to reclaim elements of VAT—but I think that they have to cover some of the costs on certain purchases. I accept, however, that tax benefits are available to the charitable sector.
Chris Leslie: Indeed, and I am grateful for that point. Nevertheless, most new start-up charities that employ a small number of individuals would probably say, “Yes, please” to the national insurance holiday, were it available to them. Charities that are thinking about starting up, and that are looking at the costs and expense of staffing their activities, could be deterred from hiring the desirable number of extra staff. I presume that the national insurance holiday is partly designed to act as a carrot that draws new endeavours into employing new people, but that may no longer be the case.
I want to ask the Minister the following specific questions. What is the logic of excluding the not-for-profit sector in this way? Is there a reason why he has focused only on the “wealth-creating sector”—as he defines it—as, supposedly, the for-profit sector? In many ways, I think that the not-for-profit sector can also help with the general prosperity and wealth of the country at large, but that is a bit of a moot point. In the Minister’s view, if we were to accept the amendment and the clause were to be extended to charities, what would be the cost? Has the Treasury been able to put a broad estimate in place about that? Cost may be one reason why the Minister does not want to extend the parameters of the clause. If so, what would that cost be? My most specific question is that, as I understand it, in charity law, a charity is either a trust, an association, or a company limited by guarantee. In the latter case, would that third form of charity find itself eligible under the Bill as drafted, particularly under clause 5(6)(a)? Obviously, the provisions of the income tax Acts and corporation tax Acts may well apply to a charity which is a company limited by guarantee.
Gavin Shuker: I declare an interest because I am a trustee of a charity called City Life Church Luton. In the past five or six years, I have been struck by the number of charities that have considered whether they should move to being a company limited by guarantee as part, or for all, of their working. Surely the Bill could have a knock-on effect on that.
Chris Leslie: Indeed. My hon. Friend makes a very good point, not least because he declared an interest. I am not sure that he needs to declare an interest unless he is to be involved with a new established charity, but it reminds me that I ought to declare an interest as a trustee of Credit Action, a charity that provides debt advice and education, and of the Consumer Credit Counselling Service. Neither is a new charity, so that may be slightly otiose, but it would be helpful if the Minister addressed those points.
New charities in qualifying areas are eligible for the holiday if carrying on a trade, vocation or business. Amendment 9 would extend eligibility to new non-trading charities in qualifying areas. That would not support our objective of encouraging new entrepreneurs to set up in business in areas with a high proportion of public sector employment.
The Government value the contribution that charities make to society, and they preside over £3 billion-worth of support for charities each year. We have heard one example from my hon. Friend the Member for Watford, gift aid, which is very substantial and is worth £1 billion a year to charities. There are various other reliefs and exemptions. To extend the policy to charities would complicate the scheme and would impose additional administrative costs. Any ensuing benefit is likely to be limited since we estimate that relatively few non-trading charities employing staff are likely to be set up over the holiday period. That point, again, was made by my hon. Friend the Member for Watford. We expect the costs to be relatively modest—I am clear with the Committee about that—but that is not the objective of the scheme. We help charities in other ways.
We recognise the valuable contributions made by charities, but we do not think that extending the NICs holiday is the best way to achieve our objective. The policy is focused on promoting enterprise. Adding complexity to the scheme by extending it to non-trading organisations would provide little benefit to charities, and we do not believe that it would be a sensible option. There are other, better things that we can do to help charities.
One point that I should make is that charities are employers, and they will, therefore, benefit from the increase in the employers’ national insurance contribution threshold. As we discussed this morning, we will do that for 2011-12. That is an example of the Government reducing the tax burden on charities from the position that we inherited.
Chris Leslie: I am listening carefully to the Minister, but I am not sure that I agree with him. He implies that charities are not part of the enterprise sector of the economy. I am sure that he did not mean to say that; and I am sure that he, like me, believes that charities can be enterprising, too. Has he given any consideration to other parts of government—whether it be the Ministry of Justice, the Cabinet Office or elsewhere—which are encouraging charities, social enterprises and other new not-for-profit enterprises to come forward and take on various public sector activities? Those may well involve new start-ups, and yet, for some reason of which I am not clear, they are excluded from the definitions that might entitle them to the national insurance holiday.
Mr Gauke: The hon. Gentleman disagrees with something that I am not entirely sure that I said. I did not say that charities are not enterprising; I said that this policy would support entrepreneurs in those regions where public sector employment is high or, to put it another way, where the private sector is weakest. We are trying to help the private sector in those areas where it is weakest. That is what this is about. Of course, charities play a valuable role, which, as constituency MPs, we all recognise, but we do not believe that such a policy would be the right way forward, especially as the Committee has endorsed a regional approach.
That is the test, as opposed to the legal structure that applies to the charity. I do not claim by any means to be an expert in charity law, but as long as the charity, whether it is a trust, an association, or a company limited by guarantee, is a trade, profession or vocation, it would qualify.
Chris Leslie: Not at all. I am wondering about the 240 staff waiting to pick up the phone at the HMRC call centre while the steady trickle of applications comes through. If they receive a telephone call from a charity that says that it is a company limited by guarantee, does that charity need to provide extra evidence that it is also a trade, profession or vocation? I doubt very much that a normal business would have to provide that evidence. Its simple existence as a start-up would be sufficient. Is there a separate burden that would fall upon a charity if it disclosed its charitable status that would not necessarily fall on a for-profit company? It is a genuine question.
Mr Gauke: I take the question in the spirit in which the hon. Gentleman asks it. I can understand that if a charity rang HMRC and said, “We are a charity” as opposed to, “We are a company that is set up to make a profit”, the test I described earlier about being a trade, profession or vocation, would clearly be applicable. HMRC and the charity would have to establish whether the activity itself constituted a trade, profession or vocation. I do not think that that is particularly unusual. It runs throughout the tax system, and HMRC officials will be very familiar with it. I suspect that charities will be familiar with it from having trading and non-trading arms. I suspect that the hon. Gentleman may be more familiar with the matter than I am. Indeed, the hon. Member for Luton South may be an expert, given his position as a trustee.
“My colleague has just passed me the information—we have rejected 54 of the 1,100-plus applications that we have received so far.” ––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 39, Q131.]
Mr Gauke: It is a fair question. My understanding is that they were all rejected either because they were created before 22 June or they were in one of the excluded regions. If I am wrong about that, I will make sure that I correct the record. The information I have seen suggests that that was the reason. Who knows? Inspiration may come to me soon if I am wrong. Subject to those points, I hope that I have provided some useful clarification and that the hon. Gentleman will withdraw his amendment.
Stella Creasy: I wanted to speak on this amendment as someone with quite a lot of experience of the charitable and voluntary sector both locally and nationally. I know I am not alone among Members on either side of the House in being involved in this and not necessarily sharing the view that the hon. Member for Watford takes. My concern about the amendment, and the reason why I think it is important, goes to the heart of the Bill and what it is there to do.
If we are talking about a job creation scheme, we need to look at where jobs are created within our economy. My contention is that the Government are missing a trick by excluding any sector that we know has a capacity for job creation. In fact, over the past seven or eight years, the sector in question has shown a tremendous capacity for job creation. That is why, going back to my earlier comments, it is so important to get the evidence on which the proposals have been put together and why I am so disappointed that today we have not had the evidence on how the modelling of behaviour was undertaken. Behaviour varies in different sectors of the economy, and any other economist doing modelling on behavioural work would agree. My professional background is in psychology, which is why I am particularly interested in behaviour models. There are further complexities that Governments could and should look at when dealing with such technical policies.
There is also the question of the model of take-up. I would like to point out to the Minister that on Thursday I was given the commitment that I would get more details on the background of the model relating to the 400,000 businesses that he thought the policy would affect. I have looked at the impact assessment and the information I requested is not in there. Although it will have to be done after the debate today, I again ask for that information to be supplied. All of us want good evidence-based policy making, rather than policy-based evidence making; that has perhaps been a critique of policies in the past.
The charitable sector is important because charities in Britain have done a tremendous amount over the past 10 years to grow. Members said earlier that they were unsure about the issue, so it will be helpful in making the case for not ignoring the voluntary sector to look at some of the evidence. Evidence from the “UK Civil Society Almanac” tells us that nearly 700,000 people work as paid employees in the voluntary sector, so it clearly creates jobs. The sector accounts for two out of every 100 employees. If we compare that with the 7 million employees in the public sector and the 21 million in the private sector, it is a comparatively smaller amount of people, but it is no less important an area at which to look. It has also grown tremendously; the almanac tells
The almanac also tells us that staff are 20% of the costs of small charities, which are comparable with the businesses that we are talking about in the Bill. Those costs include national insurance. Critically for the provisions of the Bill, the average wage of those working in the voluntary sector is around £22,000, so any changes to national insurance contributions would make a substantial impact.
Heidi Alexander: My hon. Friend has spoken eloquently about the growth over the past few years in the charitable sector. Does she agree that if the current Government’s policies on the big society are successful, employment in the charitable sector should increase? With the new models of public service delivery, one might think that the services that the public sector provides would go out to community and voluntary groups. Would an NIC holiday be important for those new organisations’ viability in their first few years?
Stella Creasy: My hon. Friend makes a good point, which I want to come on to, because if nothing were to change, ceteris paribus, what would happen with the voluntary sector’s long-term growth trajectories and why would the policy impact on them? I also want to look at the impact that the big society might have on some of the figures. The most crucial thing about what my hon. Friend has just said is that the majority of people who work in the voluntary sector are women, and the majority of people who will be affected by public service cuts will be women. The voluntary sector, therefore, is a growth area of the economy, and one in which some of those who will lose their jobs in the public sector may well seek employment. That is why looking at how we can make taking on those people an attractive proposition for charities is a crucial issue for our economy and, indeed, for the families of those concerned.
To return to a point that I made this morning, many of the people who live in Walthamstow who will be disproportionately affected by the Government’s cuts work in the public sector and, judging by my surgeries and the people who come to see me on an almost daily basis now, they are women. Only yesterday, the entire inclusion support service for the speech and language therapy centre in Waltham Forest came to see me about the fact that they have all been put on redundancy notices. My conversation with them was not only about how they represent themselves within that employment process, but about whether they could set themselves up to provide that service, which is what the big society at its best may mean. That is why excluding such people and organisations is a remission that the Government should correct by supporting the amendment. If they agree to the amendment and state clearly that they want charities involved in the start-up business, the Government would put down a marker on the importance of the voluntary and community sector for job creation.
It is worth looking at the figures for the birth and death of businesses—my right hon. Friend the Member for Delyn gave some earlier—and putting them in the context of the charitable sector. Last year alone, 51,000 new businesses were put together in London, but 55,000 fell. Considering that 5,000 new charities are created and registered every year, albeit nationally, and that many of them are small organisations with two or three employees at most, the impact of working with the charitable sector to increase employment could be substantial. That is another reason why I return to the question of the evidence. I am disappointed that the documents to which we have had access—I accept that we may not have seen some of the modelling—show that the role of the voluntary and community sector has not been analysed and that its impact has not been understood.
I have, however, asked the National Council for Voluntary Organisations for its opinion. It is keen for the amendment to be agreed to, and with good reason. Its model of the possible impact of extending the national insurance holiday to new charities—I return to ceteris paribus and what we know at the moment, as opposed to the impact and incentive that policies based on the big society could create for charitable start-ups—estimates that the amendment could generate an additional 2,500 or so charities. Obviously, its estimations are based on models of rough data, but looking at the charitable almanac and at what organisations are setting up in what sectors, the NCVO thinks that there could be a national insurance bill of about £1.7 million. Crucially, that excludes London and the south-east, and one of the reasons that we are so keen to see London and the south-east benefit from some of the proposals is that nearly 40% of the charitable and voluntary sector is based in London and the south-east.
The Minister mentioned bodies in the charitable and voluntary sector that may be trading bodies. I want to say a little bit about the concept of what it means to be a trading body, because having worked in charitable and voluntary organisations, I know that that is a complicated question to ask of them, and with good reason—because of they way in which they operate. Some 40% of charitable and voluntary organisations that he may want to benefit will actually be excluded by his geographical divisions, so I ask him to think about that. If he included London and the south-east, NCVO calculates that that would mean an additional 1,200 new charities every year. They would be start-ups, not existing charities. It would also mean two to three more jobs per organisation.
The amendment is not a sideline issue. It is fundamental to how such schemes could generate jobs, and that is even before we get to the impact of the big society. If the big society is about rolling back the state and allowing communities to organise services and suggest proposals for how they are not only run but delivered, helping the voluntary and community sector to take advantage of it will be absolutely key. I am concerned that under the current proposals, deliverers from the private and voluntary sectors could compete to run services, with private sector delivery organisations having an edge over the voluntary sector because of the costs that they deal with as a result of being able to access the exemption. Voluntary and community organisations would not necessarily be able to do that.
One challenge is about what constitutes a trading body. Again, that point concerns how voluntary and community organisations work. I appreciate what the
As someone who comes from a community and co-operative background, I welcome the potential behind the ideas that surround the big society to enable co-operatives—such as the one that I mentioned earlier when I spoke about inclusion services—to be set up and to involve employees as well as users in the direct delivery of services. However, that would create a complicated model for how things are done, and unless the legislation makes it clear that those organisations would be able to access the scheme, and that the national insurance holiday would apply to them, they will not apply for it. It would be confusing for those 240 employees, in terms of whether or not those organisations would be eligible.
Such a move would have the unintended consequence of pushing charities and voluntary sector organisations to be more commercial, rather than encouraging the charitable and voluntary aspects that the big society, at its best, tries to tap into. This is about a collaborative approach. When organisations work with the people they serve and with the local public sector—whatever might be left of it—they can deliver all sorts of benefits to a community.
I urge the Minister to include the amendment and avoid such complications, and make it easier for charities and voluntary organisations to be part of both job creation and public service delivery. If he does not, the risk is that the over-complexity of the scheme will mean that those organisations that other Departments are desperately encouraging into service delivery will not get a starting handle. Those of us who care about the charitable and voluntary sector are sympathetic to the need to make it easier, rather than harder, for charities to contribute to service delivery in a local community. I hope that the Minister will look again at the concept of a non-trading organisation, and at the nature of the voluntary sector and how it is expected to grow in years ahead. I hope that he will accept the amendment.
Gavin Shuker: To be frank, I looked through the amendments to the Bill and this one did not seem the most compelling. However, as I have listened to the debate, I have swung behind the amendment: it is potentially a crucial aspect of the Bill, and we must provide more light on the matter and explore it in greater detail.
Put simply, we do not come to the House to administer schemes: we come to legislate, to change the way that the country is governed, and to make a difference to individual communities. We explored that matter earlier. Across the country, charities are making a real difference in their own way. We would struggle to find anyone who would want to say that there are terrible aspects to charities. However, a charity is an employer. Many charities across the country employ staff, and they have to comply with health and safety regulations and ensure that proper procedures are in place. We require that in the legislation that we have laid down over successive years and successive Parliaments. Often, we require charities to go through a pay-as-you-earn scheme. We take taxes from employees, and require employers to
As has been said, this legislation will offer perverse incentives. Imagine, for example, a local council looking to outsource services. It regrets doing that, but it accepts that that is part of the current landscape. Potentially, commercial companies could have a significant advantage over a charity that has been set up to provide the same services. There will also be changes in behaviour. I will speak from my own experience: my right hon. Friend suggested that I did not necessarily need to declare an interest, but I realised that, because of a change in the way in which our charity is structured, we would be included in the legislation if the amendment were passed, so I will just declare that more fully.
One of the key growing pains of the charity of which I have been a trustee is that—as budgets have increased and we have been able to take on more staff time—we have had to take the plunge and make the transition from having someone who was self-employed, and providing services to the charity at a time of their choosing without a set number of hours, to employing that person and paying employers’ national insurance. There is currently a disincentive to move to that arrangement, because it involves a significant step up. On top of the money that the charity pays to an employee, it must pay a significant chunk—12 or 13%— of employers’ national insurance on top of that.
I believe that the legislation could change behaviour. For a new charitable organisation setting up, having that initial period where staff can be moved into new roles without the organisation having to pay a whole load of national insurance up front, and being able to plan for the bumps that are inevitable when it comes to setting up a new venture, would be really beneficial. As a trustee of a charity, I have spent a lot of time poring over charitable budgets and trying to work out what is possible. If there is an increase in the dead-weight costs to charities as employers, they cannot go and sell more product to cover them, because that option is not available to charities. The only option is to trim somewhere else.
As someone who has been employed by a charity, in some years I have reduced my pay in order to make a more sustainable budget for the charity. I have taken a pay cut to cover the additional costs arising from the change of employment. It is not the case that if a charity takes on an increase in national insurance contributions, that will not have a knock-on effect for its employees. They may very well have to step up and take a cut in order to cover the additional cost. When we are looking at setting up new charitable organisations—let us be honest, we all fully expect to see more of them in the coming years—we need to be able to tell a strong story about our notion of the social good that comes from the charitable sector, and I believe that the amendment would do that.
I also have concerns about the ambiguity over what is a charitable body or organisation. None of us immediately jumped up to say that we were experts in charity law when that issue was discussed previously, but we are the Committee that is looking at how we word the legislation
One of the other points that the Minister made was that the charitable organisations that would be included would be few in number, and therefore there was no particular reason to include them in the legislation. In many ways, that argument serves another purpose, which is to prove that, while the additional costs may not be great, the additional benefits for a new charitable venture that is starting out could be great.
I declared an interest before as a trustee of a charity. We are coming up to our budget-setting period for 2011 and we are looking at how we employ our staff and the amount of money that is available. I can tell the Minister and coalition Members that these are tough times, not just for business but for the charitable sector as we look at how we respond to rising costs, including the VAT that we pay on the things that we have to buy and consume as a charity, the additional costs of inflation—many employees will not receive an inflation-related pay rise this year—and additional needs caused by the cuts that are coming to our public services.
In the charitable sector, part of our core identity is to step up and serve even when there is no direct financial benefit to the organisation for doing so. In fact, it is quite the opposite—it is 180° in the other direction. At a time when pressures on budgets are very tight, we hope that the charitable sector will expand to provide new and innovative models for delivering public services—for example, in working with offenders, patients and people with drug and alcohol problems—and, more broadly, to be the social glue that holds together individuals and societies as the Government pull out of local communities. I do not believe that the Bill necessarily sends the right signs in that regard.
The amendment is very sensible. I said at the start that it was not necessarily the one that jumped out at me, but it is the one that I feel very strongly about. It would make a real difference to our charitable sector and we would do ourselves a huge service to include it in the Bill.
Richard Harrington: You correctly reprimanded me before, Mr Howarth, for making an intervention the size of a speech. I shall now try to make a speech the size of an intervention to balance things up.
There were one or two points in previous speeches that I felt I should comment on, and perhaps explain the reason why I do not feel that the amendment is a good thing. First, I congratulate the hon. Member for Walthamstow on quoting Latin. It is the first time that I have heard that done in these proceedings, although—to be a bit pompous about it—we were actually taught
The hon. Member for Luton South made the point that that many charities have changed dramatically and become part of the public sector. That is certainly true in my constituency of Watford, much known and loved by the right hon. Member for Delyn, who seems to enjoy mentioning it on any occasion—I am very grateful for that. Mencap is a very good example. When my late father was in charge of it some 30 years ago, 95% of its income came from voluntary contributions and 5% from different organs of state. That has completely reversed. However much we all support charities, and for all that they are excellent institutions with social benefits—and are, actually, a very efficient way of spending public money—they get plenty of benefits.
Gavin Shuker: Does the hon. Gentleman accept that under the proposals, if two new enterprises—one a company and one a charity—were established within the qualifying period and fulfilled all the other criteria, the company would be at an advantage over the charity for, say, bidding for a contract for local public services delivery?
Richard Harrington: I am tempted to say ceteris paribus, but all other things being equal and in an ideal world the hon. Gentleman would be right. Unfortunately, it is not an ideal world, and all institutions have to make choices. There are plenty of advantages to being a charity. I hope that there will be more in the future, and I am sure that the Government are looking at that. The national insurance holiday is specifically targeted at individuals setting up small businesses, and no one has ever set up a charity with the same motives for setting up a business. The thought process is not about labour costs at the beginning being lower: it is about the good cause.
Stella Creasy: I am little confused by the hon. Gentleman’s assessment of how charities operate, how they start and how they start delivering services. Does he not see that within the big society agenda, which is very much about voluntary and community organisations starting up as businesses to deliver services, the £2,000 that they might save, which is the average given in the explanatory notes, could be fundamental as to whether they are able to bid for a contract and deliver it?
Richard Harrington: That is a valid point, but there are many other reasons why charities would be set up, and there are other advantages of having the status of a charity, such as corporation tax, VAT, rates and many others. The £950 million national insurance holiday programme is a different kind of project. It deals with the situation we have at the moment and with getting people to set up small businesses. It is not a particularly important point for charities in deciding whether to go ahead or not.
Gavin Shuker: The hon. Gentleman says that the national insurance holiday would not be a factor in setting up a new charity. Would he concede that it might be a factor in determining whether to take on new employees of a charity or in choosing the structure for employing someone within a charity?
I am indebted to my hon. Friend the Member for Walthamstow who told me that one third of all voluntary organisations have fewer than 10 employees, so there is a vast number of organisations that could qualify were they within the Government definition. I should, perhaps, declare an interest as I am a non-executive director of a small training organisation that would certainly fit into that category. Such organisations are often working on small margins. They have difficulty in sustaining themselves financially, but they do valuable work. Any assistance that they can get in difficult times such as these would be valuable. I strongly support the amendment tabled by my hon. Friends on the Front Bench.
I was, for eight years, a member of the Public Administration Committee, and charities and the third sector were a big interest. I and others argued that there are some supposed charities that are not really charities. I am talking about private—public—schools, which have always had charitable status essentially to give them a public subsidy. That is not appropriate. If they were deemed to be purely business organisations, which is what they really are, that subsidy could easily be used to help genuine charities. That is a controversial view, and it is obviously not the official policy of my party. I only wish that it were, and I shall continue to press that point. Support of that kind for small organisations that do immensely valuable work is important.
The hon. Member for Watford made the strong point that these days many supposed charities are heavily dependent on public money—on local authority grants, and so on—much of which is non-statutory. Local authorities are under pressure and they will withdraw some of those grants, thereby putting those small bodies under pressure. I have a general scepticism about the big society taking over from professional public services in any case, but that will make the situation even worse. I have had meetings with voluntary sector and third sector organisations in my constituency and in the constituency of my hon. Friend the Member for Luton South, and they are seriously worried about their future, because of cuts to their funding coming from pressure on local authorities. Any assistance that can be given to small organisations that are starting up would be right.
Stella Creasy: On that point, does my hon. Friend agree that, for small groups of former public sector employees clubbing together to create social enterprises to bid for services, such as the women who came to see me at my surgery yesterday, such measures could be precisely the thing that makes a difference to the contracts
Kelvin Hopkins: My hon. Friend makes a first-class point. In these difficult times in which small groups of people are doing precisely that and trying to set up organisations to fill gaps in social provision, she is absolutely right—in the best of all possible worlds there would be public provision, but such things are not being provided by public authorities. For people setting up such groups, something of that sort will be the difference between success and failure.
My final point is on the constant reference to the wealth-producing sector. I do not accept that dichotomy. All organisations may produce social value of some kind. It is suggested that a burger bar, or something even less health-promoting, is somehow wealth-producing, whereas a charity that looks after people with, say, drug problems is not. Which is the more valuable to society? I suggest that the voluntary sector one is more valuable. We have far too many burger bars and, in fact, we are the fattest people in Europe, partly because we eat too many burgers. I do not personally, although I could do with losing a pound or two. I do not accept that dichotomy—voluntary organisations and public services produce value for society, be it in material terms or in service terms. They also produce employment, which is fundamental, and the income from that employment goes into society and produces demand for other goods and services, too. So I do not accept the idea that there is a wealth-producing sector on which the rest of us somehow depend.
Mr Gauke: I shall briefly respond to the debate for a second time. We have had a number of interesting contributions. The hon. Member for Luton South said that initially he was not attracted by the amendment and that he was more persuaded as he heard the arguments. I fear that he may have provoked some competition on the Opposition Front Bench. The hon. Member for Nottingham East felt that he was one up on the right hon. Member for Delyn as a consequence of that. I may be being unfair: I suspect that he was more persuaded by the hon. Member for Walthamstow, regardless of the Latin content, and that it had nothing to do with either of them.
We all want to help charities in our constituencies, and I understand why hon. Members would argue that charities are employers, but so are local authorities, so is the public sector and so are individuals when they employee a nanny, a chauffeur or a butler. I suspect that not many of us here do that. [ Interruption. ] I can only think of one right hon. Member who employs a butler, and he is not on our side any more. We have to think about the purpose of the scheme and what we are trying to achieve: strengthening the private sector in those regions where it is not as strong as we need it to be if we are to have private sector-led growth in the years ahead.
We all want to help charities. There are other things that we are doing for charities, some of which are long standing, such as gift aid, but we are looking at ways in which we can improve that. There is a transitional fund to help charities and so on that we have announced. The Government remain committed to finding ways to help charities. The question is not, “Do we want to help charities?” but, “Is this the right mechanism for doing
Mr Gauke: As my hon. Friend the Member for Watford pointed out, we have to look at this in the round. There are various policies that advantage charities, and rightly so. The policy under discussion is aimed specifically at private sector employers. The circumstances involved will be very limited. I am saying not that it will never happen, but that we would see direct competition between the two in pretty limited circumstances. Even then, there is a host of other things that we do for charities that we do not do for private sector businesses. Consequently, although I appreciate the nature and the intention behind the amendment, I urge the hon. Gentleman to withdraw it because it is not consistent with what we are trying to do in the Bill.
Chris Leslie: I heard what the Minister said. I am glad that we have had a good debate. I am not convinced that he has satisfactorily described the test as set out in subsection (6) and how it will or will not apply to certain charities. That is an important point. I also feel that the provisions in the Bill discriminate against charities. That is the kernel of the argument that my hon. Friends have put. We may wish to return to the matter, but I now press the amendment to a vote.
Clause 5 provides the definition of “starting a new business”, and, helpfully, the Bill’s explanatory notes cover a range of issues relating to how that would be applied. From the evidence sessions and the explanatory notes, we know that HMRC will undertake the policy and operate it manually, and it also intends to allocate around 240 members of staff for the scheme’s operation.
Broadly, the key issues I want to test the Minister on are, compliance, enforcement, and what happens if there is fraudulent use of the term “starting a new business”, which escapes both compliance and enforcement. However simple we make the scheme—and we are making it simple—it is still complex in relation to assessment of eligibility and ensuring that people who complete the forms and applications do so in a way that is not fraudulent, either by accident or by design. There is also the issue of ensuring that circumstances do not change once the scheme is up and running.
I will deal with applications first. The explanatory notes give several examples of individuals who could apply for the scheme and would be ruled as either accepted under clause 5, or not accepted. I will briefly read out two such examples:
“Roy carries on a business as a carpenter with two employees. He is offered a job working for a larger business and accepts, closing his own business and releasing his employees. He doesn’t enjoy his new job and leaves after 3 months. He begins to carry on his old business as a carpenter, and re-hires his former employees. This is not a new business as, within the six months prior to it starting, Roy carried on another business consisting of the activities of which the business consists.”
“Sam is a publican, running a pub in a small village. He wishes to retire and sells the pub as a going concern to Tom, who takes over the trade and continues to employ the pub’s staff. Tom is not carrying on a new business, as the whole of the trade he is now carrying on was previously carried on by Sam.”
The Minister expects 400,000 businesses to apply for the scheme over the period of three years, and he has said that of the 1,100 businesses that have been brought into play, 54 have been rejected so far. I accept that the scheme is new and there may have been some rejections because of its novelty, but if I project that percentage on to the 400,000 businesses, we are talking about a 5% rejection rate. Therefore, over the three years, on the Minister’s current projections, about 20,000 businesses will be rejected. That assumes that the staff of 240, who will be processing the approved schemes and approving schemes based on information that they have received, will also be working quite hard to look at rejected schemes or schemes that are likely to be rejected because people have misunderstood the scheme’s application. They may have applied either because they have misunderstood it, or—in a small minority of cases—because they think that it might be a way of getting this information fraudulently.
I am interested in the Minister’s assessment of the likely level of rejections over the three years, and whether he believes that 20,000 is an appropriate ballpark figure based on experience to date. What does he believe will
This may be somewhere in the mists of the Bill, and I may have missed it, but I hope that the Minister can help. Let us suppose that a fraudulent application is made and the scheme operates under clause 5, and HMRC subsequently discovers on compliance checks—the other important point—that a fraudulent application has been made. I cannot see in the Bill the level of penalty for a fraudulent application to the scheme. What would the level of tariff be in the event of a fraudulent application? Normally, a Bill will contain tariffs that are applicable to fraudulent applications.
I mention that because there are three stages. In addition to the initial application and the initial rejection, there could—this is not a slur on HMRC—be occasions when individuals slip through the net and an application that seemed correct on paper does not seem correct in operation. My question concerns not only the Minister’s assessment of the workload, of the rejection rate and of the level of detail of the scrutiny of initial applications among the 400,000 based on the rejection rate to date, but what the compliance activity will be with the 240 staff in HMRC. How often and under what circumstances will HMRC revisit a business to ensure that it is what it says on the tin and that it operates accordingly? With 240 staff and 400,000 applications—matters could be dealt with, as it says in the explanatory notes, “manually”. Does “manually” mean visits to the businesses, paper assessment, or returning to a select few businesses three months or six months afterwards to ensure that they are doing what they said in relation to the new employee? Does the Minister want to consider restrictions on that in due course? If a business is found to be fraudulent, what are the penalties?
In the event of an application being made for a business, and HMRC rejecting the application I am not clear what the appeal mechanism is for companies who might, within this very complex but simple pattern of eligibility, feel that they are eligible and feel aggrieved at HMRC’s decision. What is the appeal mechanism outside HMRC?
Those matters essentially concern the definition of a new business. They are not strictly issues that we are amending; they are more about the implementation of the scheme. Before we endorse the clause, it is important to have some clarity from the Minister on those three key issues and on the penalties that might apply in the event of an individual acting fraudulently.
Mr Gauke: The right hon. Gentleman is right to highlight that issue. When we are developing policy in such areas it is all too easy to forget the realities of administration, how the scheme will work in practice and how HMRC will be able to cope with that. There is a temptation in a Committee such as this to address great issues of policy, which may be relevant but which do not get to grips with the administration side. We must administer this scheme properly, which is one of the reasons why we are keen to keep the provisions as simple as possible. We have debated various matters today, but we intend to keep the scheme simple and
We must look at how businesses or potential applicants might seek to abuse the system. There may be innocent applications or misunderstandings about how the system works, and we are keen to keep such problems to a minimum. We want genuine new businesses to take advantage of the holiday if they are eligible, and we do not want them to be deterred by a complicated process. Where possible, HMRC will take account of the fact that new employers have many other duties and obligations. It will seek to operate the scheme through a compliance regime that is not unnecessarily intrusive and does not discourage genuine applicants.
More generally, our strategy is to use a “check now, pay later” approach to stop error and fraud throughout the tax system. We are keen to ensure compliance and to stop error and fraud in the most cost-effective way. Assistance will be given in the early pre-return stages to help with simple errors. Where people are tempted to break the rules, HMRC’s strategy will be to address those who are not taking enough care through targeted risk assessments and the use of profiling, to ensure that serious abuse and manipulation are identified and acted on. An individual employer can benefit only for the first 10 employees and by up to £5,000 per employee. That cap is to prevent large sums being made available and providing an incentive for fraud.
It is possible, indeed likely, that there will be some fraudulent applications. If someone incorrectly applies for the national insurance holiday and makes an incorrect return, at the end of the year they will be liable for that, based on the understatement of their national insurance contributions. A regime exists for national insurance contributions, and this scheme would fall within that. The penalties for an incorrect return will be no different to those that apply within the general workings of the national insurance contribution regime. That is how it will work, and I hope that the right hon. Gentleman takes some comfort from that. There is no separate penalties regime in the Bill because the scheme fits with an existing regime. However, he was right to highlight that point. We seek to keep the scheme as simple as possible and discourage fraudulent claims from being made on the basis that large sums of money will be available.
The right hon. Gentleman also asked about the appeals regime for the scheme. [ Interruption. ] To be fair, it is not as clear as it might be for those who are not familiar with the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and the equivalent Act in Northern Ireland. I understand that clause 8(6) and (7) deals with the appeals process although, as I say, the right hon. Gentleman could be forgiven for not appreciating that. That, however, provides a mechanism that I hope is helpful to him.
Mr Hanson: I shall resist the temptation to ask the Minister whether he can explain to the Committee what that appeals procedure is, and I will perhaps look up the 1999 Act and the mechanism in due course.
In other words, it does not matter for how long that person is employed and whether full or part-time: the simple fact that they are a person means that they count against the quota of 10. The amendment seeks to refine the definition of the single qualifying employee, so that several individuals in aggregate might comprise the equivalent of a full-time employee.
We argue that, rather than going on the head count alone, it might be more convenient for a business to ensure that it benefits properly from and maximises the national insurance holiday by taking several part-time employees together if they add up to a full-time equivalent. As the Bill is drafted, several part-timers might do the same job, under the same terms of contract, as a single full-timer, but, by virtue of the fact that they work fewer hours each, their new start-up employer might not be able to qualify for as much of the national insurance holiday as other start-ups that immediately employ 10 full-time staff.
That is not a very likely scenario in many start-up circumstances, but the rationale behind the amendment is that many start-ups will employ gradually and will take on part-time staff. Some of those might go full time, but, in order to ensure that the national insurance holiday regime has the maximum benefit for such firms, we felt that it was important to ask the Minister why we could not take into account part-time employment and avoid the penalisation of firms that only take on part-timers. If that flexibility was in place, it might give a better incentive for a new start-up to employ a higher number of individuals. For example, if by taking on 15 part-timers, a firm could gain the same benefit as an equivalent new start-up taking on 10 full-timers, it would help people back to work. We want to see the maximum number of people given that first step on the ladder.
I should like to see many more people in full-time employment but it might be preferable if a greater number of people had the opportunity to take part-time employment, whether they are mothers coming back into the workplace having taken time off to have children, or young people starting their careers and perhaps looking for part-time employment to support the increasing cost of their student fees, for example. There may be any number of reasons why we want to encourage part-time employment opportunities. It would seem a more sophisticated approach if the Bill could allow the flexibility for new firms to take account of the fact that on aggregate they would qualify and be able to maximise the benefits not just for 10 head-count employees but for 10 full-time equivalent employees.
Kelvin Hopkins: The Government’s intention is to try to press or even force women with children—younger than the previous Government would have encouraged—to take up employment. Many of them, probably the majority, would want part-time employment and pursuing this policy would make such part-time employment less likely. I strongly support what my hon. Friend is saying. Indeed, I have five members of staff, only one of whom is full-time.
Chris Leslie: Indeed. My hon. Friend hits on a reality of the modern work force that is not quite captured in the framing of the Bill. Although it might be convenient for the administration of the large establishment bureaucracy that is Her Majesty’s Revenue and Customs, as circumstances change, we should not design legislation for the Treasury’s benefit; it should be designed around the convenience and the realities of the employment market and the small businesses wanting to start up. They would certainly find it far preferable to be able to maximise the national insurance holiday in that way. I would not regard our proposal as particularly difficult to administer. Most organisations are aware of the concept of full-time equivalence for a member of staff. They can understand that. It would not be beyond the wit of HMRC to issue guidance as to how various part-time arrangements might together comprise a full-time equivalent arrangement.
The lack of flexibility in the Bill seems to echo the sense in which the shadow of disadvantage is still cast upon the whole part-time labour market more generally. We know that in many circumstances part-timers can be at a disadvantage even though, as I am sure the Minister will confirm, under employment law, part-timers are entitled to receive the same treatment as equivalent full-timers, unless there is an objective justification for not doing so, in terms of bonuses, benefits, sick pay, maternity leave and so forth.
Gavin Shuker: Does my hon. Friend agree that in other aspects of our taxation system we take account of the fact that there are a variety of different working practices, with a smaller or larger number of hours for how we define part-time and full-time working, for example? Therefore all those things should be taken into account when deciding whether the amendment could help the Bill.
Most small businesses would want to ask that question. Indeed, I suspect that it will be many of the inquiries to the 240 eager HMRC staff, who will be waiting by their telephones for the massed ranks of new start-up businesses to phone the hotline number. They would find it useful to have the flexibility to help those small business start-ups.
I would be grateful if the Minister would explain why the Bill does not currently have that flexibility and whether he foresees a particular cost in providing it. Although I am arguing that new small firms should be allowed to maximise the national insurance holiday, and that allowing the aggregation of part-time employees may involve an extra cost, I cannot imagine that it would be a particularly significant amount. Perhaps the sophisticated models in the “House of National Insurance” in the Treasury division that the Minister presides over have the ability to spit out the number from an Excel spreadsheet. I would be grateful if he would tell us what that might be.
Mr Gauke: The hon. Gentleman appears to be concerned that limiting the holiday to the first 10 employees could disadvantage a new business with a large number of part-time employees. To some extent, that returns to the remarks I made about the previous amendment—we must look at how the scheme will work in practice and how it will be administered, and we must keep complexity to a minimum for the purposes both of employers and of HMRC. That is why we have tried to make the rules on qualifying employees as simple as possible.
The amendment would increase the complexity of the legislation, without helping new businesses. Most new businesses are unlikely in their first year of business to take on a large number of employees; we estimate that a typical business hires an average of two employees in its first year. That will come as no surprise given that on a number of occasions we have debated our estimate that there will be 400,000 employers and 800,000 employees.
Only a few thousand new firms per year are likely to employ more than 10 workers, which is less than 2% of the firms it is thought will benefit from the scheme. We have set the number of employees to whom the holiday can apply at 10, which ensures that employers with part-time staff are not penalised and can take full advantage of the holiday.
In the evidence session to which the hon. Member for Nottingham East referred, Priyen Patel from the Federation of Small Businesses was correct to conclude that going down the route suggested would add to the complexity for employers because the national insurance contribution system does not distinguish between full-time and part-time staff. It is based on earnings paid to a single person holding a single employment. Therefore, we would immediately have a problem in defining full-time staff for the purposes of the holiday. We would have to
The amendment could potentially create incentives for new businesses to make full-time employees work part-time, in order maximise the NIC holiday savings. We want to avoid such incentives. For example, an employer could reclassify some of their existing employees as part-time by reducing their hours while retaining their wage level so as to include 20 rather than 10 employees in the holiday. It is possible that we might see some distortive behaviour in such circumstances.
In conclusion, the limit of 10 employees is not an issue that has been raised by employer representatives, or others, when commenting on the holiday. I reassure Opposition Members that the amendment is unnecessary because the number of employees to whom the holiday applies is already generous when compared with the numbers of employees likely to be taken on by a new business.
Mr Gauke: If employers were conscious that that was a problem and if they could envisage a number of circumstances in which they thought, “If only we had the flexibility”—the word used by the hon. Member for Nottingham East—“to have more than 10 employees if they are part-time workers,” and if those were circumstances that employers’ representatives felt were likely to occur often, I think we would have had some form of representation from them, but it does not appear to be a concern for them.
Chris Leslie: This is dancing on the head of a pin. Although the witnesses from the principal employer organisations mentioned that there could be a complexity issue, the Minister has to acknowledge that they both also indicated that they would be in favour of the flexibility to count part-time employees in that way. He needs to acknowledge that they assented to that concept.
Mr Gauke: I return to the point I have just made: it is not something that anyone has made any representations to us about. It is something that would add—quite significantly, I think—to the complexity of the administration both for HMRC and for employers, for the reasons that I set out. Most businesses that will benefit will be taking on one, two, three, or four employees. The limit of 10 is not likely to affect very many of them.
Kelvin Hopkins: I am still concerned about that point. It may just be that the Bill is not high profile, and that subsection of the Bill is not high profile. Is the TUC aware of the proposal? I imagine that it might want to make representations along the lines that some Opposition Members have been making.
Mr Gauke: I am not aware that we have had any representations from the TUC on this point; I will certainly let the hon. Gentleman know if I have. The key point is that the amendment would increase the
Stella Creasy: I am a little perturbed by the Minister’s argument that because he has not had representations on a particular point the point is not valid, not least because no formal consultation, which would normally generate those sorts of points, has actually been carried out on the proposals. The impact assessment that has been published says that the draft legislation was available to businesses and advisers on the website. That is obviously not as thorough as a process of consultation. When it comes to such technical points, it would be fair to say that just because they have not been raised formally so far does not mean that they are not valid.
Mr Gauke: We believe that the amendment would add significantly to the complexity of the scheme, given the typical profile of new businesses, which is that they tend to take on one, two, three or four employees in their first year. A limit set at 10 employees provides some flexibility for part-time workers. Returning to the earlier debate, we think that it is necessary to have a limit, because otherwise the incentives for fraud become greater and the scheme will become less well targeted. For those reasons, we do not believe that the amendment would add to the scheme anything significant to help employers, but it would add significant complexity, and I ask the hon. Gentleman to withdraw it.
Stella Creasy: I had not planned to speak to the amendment but, like my hon. Friend the Member for Luton South, one becomes inspired when listening to the debate and to the arguments about what the issues might be. [ Interruption. ] “Inspired” is a strong term, I know. The Committee has already been enlivened by the varying definitions of how one might use Latin terms in economics, and I am sure that inspiration on the technical restrictions around national insurance is but a heartbeat away for all of us.
My main concern comes again from my experience of working in organisations, employing people and looking at some of the margins one deals with, particularly in small-scale organisations. I was disappointed by the Minister’s approach, not least because, for a starting point, we have not had evidence about what the cost-benefit analysis of such a proposal might be. It is, therefore, very hard for us to judge whether it would actually increase substantially the administrative costs of the scheme. He talked about 240 tax advisers waiting, willing and able to encourage businesses to take up the scheme, but it seems churlish to preclude the idea that full-time equivalency could be a useful category for employers to think about when they start a business. Drawing on my own experience with a small, not-for-profit business in the charitable sector—I continue to press this point—when we set up projects, we would take on people for a certain amount of time. We would, therefore, increase the number of employees who were technically on our payroll on a three or six-month contract for a particular project.
As I have said, I talked to a group of women yesterday, and I have also spoken to another group of public service workers who face redundancy, about how they
The legislation is not only about job creation, but job sustainability. Helping organisations to be flexible about how and when they employ people is critical, not just to create jobs but to create opportunities for people to sustain employment and gain experience. They may not end up as a long-term employee of any of the new start-up businesses, but the more opportunities that people have to work, the more their careers are advanced and the more attractive their CVs are to employers.
Setting a limit on the total number of people who could be affected by the scheme, rather than the total number of positions, inadvertently prevents the flexibility that might help employers bid for contracts—several such opportunities will emerge in the near future, as we have discussed—and it might stop them thinking about how they might employ someone on a part-time basis. One of my concerns, particularly as the representative of an area in which a lot of people work flexible hours in the public sector, is that, as those jobs diminish, they will not look for just any job, but one that fits their family and life commitments. That kind of flexibility is critical to those people, wherever they may be.
I appreciate that I represent an area that is excluded from the scheme and that that may not be of concern to the Minister. I am sure that I am not alone, however, in representing a group of people who are at risk of losing their jobs and who seem to be the target, when he talks about job creation in the public sector, of the legislation. They would want to work part time and would therefore fit into the category of tipping an employer over to 10 or 11 people for a particular project, such as running child care or social care provision within a local community. They would inadvertently be hampered by the legislation, so I hope that the Minister will look more favourably at how the amendment could be introduced and what its implications would be.
At the very least, I hope that the Minister will commit to getting more evidence from his Department, because today’s debate has been informed, above all, by limited evidence about the policy and how it might work. I do not know whether that is because of the lack of formal consultation with a wide range of organisations, including trade unions and small businesses, on the technicalities and various permutations of the provision, as opposed to its overall principle. The impact assessment does not even consider what the impact might be of expanding the limit to the positions rather than the people. We are asking reasonable questions and it is a pity that we have to ask them on the basis of a conditional analysis of what might happen rather than the evidence needed to make good decisions.
Kelvin Hopkins: I strongly support the arguments put by my hon. Friend the Member for Nottingham East. I do not buy the argument about complexity. Millions of people work part time and have their national insurance and employers’ contributions deducted. Not collecting them seems no more complicated—in fact, it is probably less complex—than collecting them, so I do not think that that is an argument. I suspect that the trade unions have not been consulted. Some employers may not even realise that their representatives have not picked up the point properly. It ought to be debated and brought out more in our debates, perhaps on Report and beyond. I hope that that will happen.
Those who will be affected by the job opportunities that might be lost are people with young families, and one would expect that they would primarily be women. There is a very large group of people who will need part-time employment to survive—students. If the Government get their way on Thursday, and I hope that they do not, hundreds of thousands of students will need part-time employment, but many job opportunities might be lost to them because of how the Bill is drafted. I very much hope that we can win the argument and the Government will eventually relent.
Gavin Shuker: I want to return to one of the basic premises of what we are here to do, which is produce a Bill that not only administers a scheme, but has a social benefit. That was recognised in the explanations about why we would apply the blanket relief to some parts of the country and not to others. The argument was also advanced when we looked at the different constituencies that might benefit—the local authorities or areas with high or low rates of unemployment or public sector employment.
Clearly there is a social benefit in allowing businesses to make use of their relief in whatever way they see as most appropriate. Each business will look at the task it is trying to fulfil and its balance sheet, and choose an appropriate way of carrying out its duties and tasks. It is beyond me why a business employing part-time employees should be penalised, and potentially be able to claim, say, only half the amount of a full-time business employing the same number of employees. The amendment could rectify some of the problems.
The Minister said that there would be a need for an additional amendment to change the amount of the cap per employee—a percentage by which to reduce the £5,000. I am new to the House but it does not strike me as being beyond the wit of anyone to come up with a way of doing that. One potential way to do it would be to cap the amount that any business could claim at £50,000. That route would allow full relief equality—as it were—across different businesses and start-ups, so that each was entitled to claim the same amount based on the number of employees and hours, and the amount of money paid.
I do not feel that the case against the amendment has been made fully, and we need to take it forward on Report. I recently heard the story of a group of women who lost their jobs in the previous major recession. They lost their cleaning contract and used that as an opportunity to club together to form a new business, and they grew out of that recession. I do not know the exact numbers involved, but if there were more than 10 of them and they were working part-time, I would view it as a social good if they could claim full relief like a start-up company that had only 10 full-time employees.
We have increasingly looked at the impact of legislation to ensure that it does not disadvantage certain groups that have been historically disadvantaged by the labour markets, such as women, people with small children or other people who would not necessarily find work or a job. If the Government are serious about getting more people into work, they should take the amendment seriously as well.
Mr Gauke: In a way, I am grateful that Opposition Members have become so enthusiastic about this policy—a tax cut—that they want to apply it more widely than we feel able to do. One idea floated this morning was that we should apply this nationally and, to keep things within budget, perhaps have fewer employees. Now the argument is that we need to lift the cap and have more employees. The evidence that we have shows that, of the various start-up businesses that are likely to benefit from the scheme, less than 2% are likely to employ more than 10 workers.
So does the amendment address a particular problem that is likely to pinch a great deal or cause considerable disadvantage? No. What are the consequences of the considerable additional complexity of those phone calls between employers setting up a business and HMRC, which we talked about a moment or so ago? There will be more points to go through. How many employees? How many part-time? How many full-time? How do you prove whether someone is part time rather than full time? At the moment the national insurance contribution system is not set up to make a distinction between the two. We would have to introduce all of that just to solve a problem that will not occur that often. For those reasons—I think I have made the point very clear—we cannot accept this amendment, and I urge the hon. Member for Nottingham East to withdraw it.
Chris Leslie: This has been a useful debate. My hon. Friends the Members for Luton North, for Luton South and for Walthamstow articulated far more effectively than could I the important changes that have occurred in the labour market, which are not particularly well reflected in the framing of the legislation. I get the impression sometimes that the Minister, perhaps unwittingly, is articulating a tired stance on behalf of a Treasury that is slightly weary of anything that does not fit within its computations and its limited world view. Although it may be convenient for the customers or for the businesses of this country, something cannot be done if it is too difficult or if it does not quite fit in the neat little boxes that HMRC considers applicable.
Stella Creasy: Does my hon. Friend agree about how frustrating it is that we do not have all the evidence—we do not even have the various models—to make the assessments that the Minister has made of the cost-effectiveness of the policies? The impact assessment always presumes that 10 employees would be the cut-off point. It does not talk about whether it might be five or 15. It does not give us any of the analysis on which that is based. That is frustrating in terms of the amendments and how we make decisions.
Chris Leslie: In terms of the amendment, it is relevant, as my hon. Friend the Member for Walthamstow has pointed out, that there has not been a full consultative process for the Bill. Perhaps I am a little harsh on HMRC and on officials at the Treasury, but it is said from time to time that they take the producer interest a little too seriously and see things from the perspective of what is easy to administer, rather than what is beneficial for consumers and businesses.
I suspect that the reason we do not have full information on this particular amendment and this particular clause is that the scheme’s design was included in the Conservative party manifesto. The poor old officials at Her Majesty’s Treasury had the scheme foisted upon them and had to retrofit their arrangements around the hare-brained ideas of the Chancellor of the Exchequer.
Matthew Hancock: The hon. Gentleman cannot have it both ways. He cannot argue both that there has been no consultation and that there has been a general election fought on policies including this one.
Chris Leslie: I certainly can make that argument. In the hon. Gentleman’s mind it may be that there was massive worldwide awareness of the small print that was included in an addendum to an appendix to a sub-paragraph of the Conservative party manifesto on the way in which this scheme would run, but I suspect that many people were not aware of the issue that we are addressing today—whether part-timers or full-timers should count among the first 10 qualifying employees. Now that Her Majesty’s Revenue and Customs has to make the scheme a reality, it quite naturally resists anything that may go beyond this.
It may be that the Minister has shone a light on the fact that this will probably be a scheme of small benefit to a very small number of employers because it is just for new start-ups and not for existing employers. In this case, it will not affect that many employers, which is a great shame. I would like to see this relief benefit the widest number of new firms and employers. We have already mentioned the excluded regions, but we feel that there could be cases—as my hon. Friend the Member for Walthamstow said—of new start-ups that are on the margins. They might have more than 10 qualifying employees, but they would fall short of maximising the relief that could otherwise accrue to them if the flexibility were available in the Bill.
We urge the Minister not simply to cut and paste what might have been drawn up by his right hon. Friend the Chancellor in that half-hour meeting at which they were penning the Conservative party manifesto on the back of an envelope, but to spark the enterprise, initiative and innovation that exists in some deep recesses within the Treasury. They have the capability to design a scheme that is flexible, that can suit today’s modern labour market and that can help those firms that want a sophisticated mix of part-time and full-time employees, so I urge him to think again. I suppose that I am coming to the conclusion that we should press this issue to the vote.
Chris Leslie: I have a few brief questions for the Minister. The clause specifies the appropriate amount. We have already debated the sum of £5,000, which is a round figure that was probably thought up in haste before the general election. Nevertheless, that is the amount that is in clause 7. There are a number of cases that could cause some head-scratching in the Treasury when it comes to defining the relevant earnings that may or may not come under the sum that is set out in subsection (4). For example, there is the issue about defining the principle place, as set out in subsection (3), where the employed of the new business undertake their employment activities. Not all employees are static; some are mobile, such as hauliers, taxi drivers and indeed seafarers, as the Minister will recall.
The humble mariner, under subsection (5), who may set off for a voyage from one part of the country to another, or from one part of the European Union to another, may cause some difficulty for the 240 members of HMRC staff sitting at the end of the hotline ready to pick up the telephone. When the seafarer’s employer rings up and says that their employee will embark from a port in Yorkshire such as Kingston upon Hull, and set sail for the east of England, maybe for a coastal area of a constituency of one of the members of the Committee—perhaps not in West Suffolk, but my geography is not what it was—
Matthew Hancock: The hon. Gentleman has just made an eloquent case about how employment in some parts of the country and in some jobs is not specific to a location. Does that not completely hole below the water line, if he will excuse the pun, the Opposition’s argument that a regional system is invalid? It supports exactly the argument that the Minister was making all morning in response to requests for an overly complex and overly localised geographical system.
Chris Leslie: Quite the contrary. The Bill draws a line somewhere vaguely down the middle of the country, and bisects our great nation into two qualifying and non-qualifying areas, but I am not sure that those non-static issues of employment are such a simple matter. If the hon. Gentleman will bear with me on my voyage,
Kelvin Hopkins: Might the definition of such an employee’s place of work be where the ship is registered? If it is a coastal ship that is registered in London and it departs from Kingston upon Hull with another ship that is registered in Hull, would the employees on one ship be granted the tax cut and the others not? Where are the definitions?
I am perturbed not only by those voyages by sea, but by other employment activities that may cross over the boundaries between different qualifying regions. Take the humble ice cream purveyor in his or her van, who drives around different parts of the country, perhaps including tourist destinations. How on earth would that new budding small enterprise be able to apportion the amount of time that they have spent in those places, in order to work out whether they qualify for the national insurance holiday? I accept that it might be quite difficult for more than two or three employees to fit in the van, but the Committee can imagine examples—better than those that I can produce off the top of my head—of circumstances that force these questions of the Minister. How are we defining the principal place? Who will arbitrate over what is or is not the principal place of employment? Is that a decision for the normal national insurance appeals arrangements, or is it left to executive officers in Her Majesty’s Revenue and Customs? How can the regional element apply, particularly to seafarers, mariners and others who are mobile?
Mr Gauke: Let met see if I can address the hon. Gentleman’s concerns. I think that he will find that it is a little simpler than he fears. Essentially, the test is this: where is the principal place of business for that employer? So long as it is not within the excluded regions, all employees will benefit from the NICs holiday, in accordance with the various rules that we are discussing. They might travel around, but it is not necessary to apportion the amount of time spent in excluded regions and in other regions.
The hon. Gentleman alighted upon the example of mariners, and I know that he has an interest in that area, because we seem to find ourselves debating seafarers regularly—I am pleased that he has managed to leave Iceland out of the debate.
The reference to mariners in clause 7 relates to apportionment according to time, rather than location, in the sense that a mariner may go out on a fishing expedition, for example, and some of that period might fall within the holiday period and some of it might not. In those circumstances, the payment the mariner would receive for the entire voyage would need to be apportioned. That is what that provision is about. There is no need to
There is a right of appeal against the decision on where the principal place of business is. Clearly, that point needs to be established by the employer and HMRC. It is one of the reasons why it is easier to do that with broad regional boundaries, rather than by constituency or local authority. The process will therefore be easier because it will generally be obvious where the principal place of business is. It will be, for example, the shop, office or depot from which the business is conducted or controlled, and there is HMRC guidance on that.
Stella Creasy: One of my concerns with the regional variation is that people might put up name plates for offices in northern cities but practise is the south of the country, probably because of the nature of their business, whether it is consultancy or a type of industry that requires travelling. Has the Minister thought about how the 240 employees who at the moment are doing light-touch regulation might deal with those instances that would essentially constitute fraud under the proposed scheme?
Mr Gauke: The hon. Lady is entirely right to highlight that as a concern that we need to address. It is a question of fact, and we had the debate earlier about the penalties available, within the national insurance contributions scheme. She is absolutely right that it would be fraud if someone provided false or misleading information that stated that their business was located somewhere it was not. It is a question of fact and something that needs to be policed, and it is absolutely right that we should do so. Subject to assessing where the principal place of business is, I hope that I can reassure the hon. Member for Nottingham East that there will be not be enormous complexity in working out where a mobile employee is, because it is the location of the employer that is the test. With those comments, I hope that clause 7 can stand part of the Bill.
Chris Leslie: I hear what the Minister says. The onus will clearly be on the Government and the Treasury to ensure that that is administered as successfully as possible. I simply wanted to probe a number of those points. I am grateful to the Minister for taking the time to set out his views on the matter.
Kelvin Hopkins: The Minister made much play with the word “complexity” when debating a previous clause. Complexity arises with clause 7 simply because of the arbitrary geographical divisions in relation to where the Bill, once enacted, will apply. He would do well to look again at those divisions and simplify the Bill, and in so doing he could overcome some of the complexity about which he is so concerned.
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