National Insurance Contributions Bill

The Committee consisted of the following Members:

Chairs: Mr Graham Brady  , Mr George Howarth  , † Jim Sheridan 

† Alexander, Heidi (Lewisham East) (Lab) 

† Bingham, Andrew (High Peak) (Con) 

† Birtwistle, Gordon (Burnley) (LD) 

† Brown, Lyn (West Ham) (Lab) 

† Campbell, Mr Gregory (East Londonderry) (DUP) 

† Creasy, Dr Stella (Walthamstow) (Lab/Co-op) 

† Gauke, Mr David (Exchequer Secretary to the Treasury)  

† Goodwill, Mr Robert (Scarborough and Whitby) (Con) 

† Hancock, Matthew (West Suffolk) (Con) 

† Hanson, Mr David (Delyn) (Lab) 

† Harrington, Richard (Watford) (Con) 

† Hopkins, Kelvin (Luton North) (Lab) 

† Leslie, Chris (Nottingham East) (Lab/Co-op) 

† Opperman, Guy (Hexham) (Con) 

† Shuker, Gavin (Luton South) (Lab/Co-op) 

† Stride, Mel (Central Devon) (Con) 

† Vickers, Martin (Cleethorpes) (Con) 

† Williams, Stephen (Bristol West) (LD) 

Sarah Thatcher, Committee Clerk

† attended the Committee

Public Bill Committee 

Thursday 9 December 2010  

(Morning)  

[Jim Sheridan in the Chair] 

National Insurance Contributions Bill

Written evidence to be reported to the House 

NI 06 Forum of Private Business 

NI 07 Her Majesty’s Treasury 

9 am 

Clause 8 

Making of deductions or refunds 

Chris Leslie (Nottingham East) (Lab/Co-op):  I beg to move amendment 11, in clause 8, page 5, line 10, at end add 

‘; which will aim to process all such applications within a three month period’. 

The Chair:  With this it will be convenient to discuss 

New clause 5—HMRC staffing  

‘HMRC will ensure that the staff dedicated to the administration of Part 2 of this Act are additional employees and not taken from other tasks necessary for the continuation of the other functions of HMRC.’.

Chris Leslie:  Good morning, Mr Sheridan. What a pleasure it is to be in our third Committee Room during the short course of this Bill. 

Amendment 11 proposes to address the issue of the efficacy and efficiency with which applications for a national insurance holiday should be processed. It is a simple and, I think, perfectly formed amendment, and given our discussions in the evidence session, it is also entirely unobjectionable. During those discussions, the assistant director of Her Majesty’s Revenue and Customs, Mr Mitha, was quizzed about not just the volume of applications that had so far been made, but the trajectory, given that 400,000 applications are eventually expected. It was clearly felt that HMRC potentially had the capability to process any applications and inquiries within a relatively short space of time. Nevertheless, I, in my humble experience, and many hon. and right hon. Members will know—from the processing of passports or Child Support Agency casework, on which we have had cause to make inquiries in the past—that, from time to time, the best intentions of Departments can sometimes fall short of the reality. Therefore, we feel that it is prudent to ensure that a gold standard of service can be achieved by HMRC in respect of this particular national insurance holiday. 

The amendment suggests that HMRC should aim to process all applications within a three-month period. Mr Mitha said: 

“I would be disappointed if we were not able to turn them around far more quickly than three months.”—–[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 28, Q99.] 

Given that businesses themselves are quite wary of the bureaucracy involved in dealing with Government, the form-filling processes can make them feel as though they are being distracted from their core activities. The amendment gives the Minister an opportunity to rise to the challenge and fly the flag of efficiency on behalf of his Department, and accept the fact that businesses want speedy processing of applications. 

Of course, it would be good practice to give a verbal undertaking. If the Minister wishes to set out the convention that he will guarantee that all applications are processed within a three-month period it would go some way towards addressing our concern. However, it would be far better to enshrine the matter firmly in legislation so that the standard is clear. Let us call it a citizen’s charter in the best traditions of the former Prime Minister, John Major. I not talking about a cones hotline but proposing that a commitment to the rights that businesses can expect should be contained within the Bill. It would be good practice and would set expectations. As students of management theory know, it would be a SMART initiative—specific, measurable, achievable, realistic and targeted. 

Kelvin Hopkins (Luton North) (Lab):  I strongly support my hon. Friend’s amendment. Does he agree that if the proposal is not accepted, some of the attraction of the scheme to small employers might be lost? Indeed, delaying employing new people could mean that the scheme is nowhere near as effective as it might be. 

Chris Leslie:  Indeed. There are already worries that the target of 400,000 applications may be quite ambitious, especially given that we have had only 1,000 applications to date. If the current trajectory were to continue, it would mean only about 80,000 applications over the course of the scheme, which would be woefully short of the ambitions that Ministers have enunciated, so it is an important matter. There are no costs associated with the amendment, so I can see no reason to resist it, and it would give a clear target for all those involved in the administration of the scheme to focus on. 

New clause 5, with which the amendment has been grouped, relates to the staffing dedicated to the task in hand and would ensure that those 

“dedicated to the administration of Part 2 of” 

the Bill 

“are additional employees and not taken from other tasks necessary for the continuation of the other functions of HMRC.” 

During the evidence session, I recall hearing that HMRC’s national insurance complement has 3,000 or so staff, and 240 of them—I may be wrong on the figures, but it was roughly that proportion—would be set aside for undertaking the national insurance holiday. I calculated that that was some 6%. My maths is not that acute this morning, but to set aside 6% of the current national insurance team is quite a chunk of the work force. My anxiety is, therefore, that redeploying those individuals

may have an adverse affect on other elements of national insurance processing activities for either employers or employees. 

In the evidence session, officials were upbeat about that impact, as I would expect them to be; most senior managers tend, quite successfully, to gloss over the impact of redeploying staff. Those on the front line, however, know full well that one could not magic away that number of staff without having an effect on some other part of the national insurance system. I must, therefore, press the Minister to tell the Committee in more detail from which tasks those staff will be drawn. Will a particular unit of activity in the national insurance team be closed down, diminished or halved, or will the pool of 240 staff be accumulated by skimming a couple of dozen here or there from different tasks across the organisation? 

The new clause sets out our anxieties about the adverse effect on the administration of other national insurance processing tasks and seeks, therefore, to ensure that the scheme will be administered by additional employees. That is an important task and could merit the assurance that there will be additional staff, so as not to diminish the work of the rest of HMRC. 

More generally, we have already had a few doubts. I do not want to use the word “sophistry”, but I suspect that there is anxiety in the trade unions representing HMRC staff and others, who feel that although there have been reductions in the head count across HMRC in many different ways, announcements have proclaimed that extra investment or extra head count will be dedicated to particular tasks, without making it clear from where the resources will be found. For the sake of clarity, openness and honesty, it is important that the Minister tells us from what other tasks those staff will be drawn. If he can assure us that they will be additional staff, that would be satisfactory. That is the purpose of new clause 5. 

The Exchequer Secretary to the Treasury (Mr David Gauke):  It is a pleasure to serve under your chairmanship, Mr Sheridan. 

With amendment 11, the hon. Member for Nottingham East appears to want to ensure that HMRC has a three-month target to guarantee the turnaround of an application. I assure him that amendment 11 is unnecessary, as HMRC is currently processing all applications within 48 hours and the vast majority of applications are submitted online, so the initial checks are automated. That means employers receive an immediate response confirming whether they are eligible for the scheme on the basis of the information provided. If the employer is eligible, they can start withholding employer national insurance in respect of eligible employees. HMRC has processed approximately 1,100 successful applications since the scheme started and has rejected a further 54, as we have already heard. 

Chris Leslie:  This is excellent news—48 hours is wonderful. What a fine service. Will the Minister, therefore, confirm that there is absolutely no harm in accepting the amendment? 

Mr Gauke:  As the hon. Gentleman knows, it is not customary to place such aims in legislation—that is the wording that he used. Putting an aim in the legislation

adds very little, and he does not say what the consequences of failing to meet it are. It is not usual to use legislation for such purposes. 

The hon. Member for Luton North is right to say that substantial delays in processing would be a disadvantage to the scheme, unless there were very good reasons for it, such as doubt over the application. Only a couple of days ago, hon. and right hon. Members argued that we should delay implementing the scheme altogether until Royal Assent. I take the hon. Member for Nottingham East’s point, but the amendment does not add anything to the legislation. 

New clause 5 seeks to ensure that staff administering the holiday will be additional employees. The hon. Member for Nottingham East is concerned that HMRC employees should not be taken away from their existing work to administer the holiday. The implication of the new clause is that a team of 240 people should be dedicated to that specific task, but the proposal is unnecessary. Concerns about administration are unfounded. HMRC is able to administer the holiday without adversely affecting other activities. The staff needed to administer it will be from a range of areas, such as compliance, customer contacts and operations, so HMRC will use existing staff with expertise in those areas. 

HMRC has devised new processes for dealing with the holiday, and staff have been trained in them. Incorporating additional steps in day-to-day caseworking means that it has not been necessary to employ new staff. That is the best use of HMRC resources and provides flexibility to allocate more resource to the holiday as the need arises. 

Chris Leslie:  I am grateful to the Minister for the help he is providing to the Committee by giving at least a broad indication of where the 240 staff will come from; he mentioned compliance and customer contacts. Could he expand on what “compliance” means? Obviously, there are tasks to be done to ensure that businesses, employers and employees comply with the law on the collection of tax. If fewer staff are dedicated to that activity, will it have an impact on revenue, for example? 

9.15 am 

Mr Gauke:  I do not intend to be diverted into a general debate on HMRC policy and spending review proposals, but I say to the hon. Gentleman that we intend to devote more resources to tackling evasion and criminal fraud, and dealing with avoidance. We will strengthen capability in those areas, which will involve expanding the number of staff and promoting greater use of technology. Over the four-year period, we believe that we will be able to strengthen substantially the compliance capability of HMRC, including any issues related to this particular holiday. For the reasons that I addressed in earlier debates, we do not see that as likely to be a problematic area, but we will monitor it. 

I also have a point on staff numbers. In the past five years or so, we have seen the staff of HMRC reduced from 93,000 to 66,000. The argument made by Labour when it was in government was that there were opportunities to find efficiency savings within HMRC over that period. 

I hope that the hon. Gentleman is satisfied with the reassurances that I have provided, and I hope that he will withdraw his amendment and not press new clause 5 to a division. 

Kelvin Hopkins:  I rise to support the amendment proposed by my hon. Friend the Member for Nottingham East. I am not convinced by the Minister’s suggestion that this will not have much of a resource implication for HMRC. I am plainly in the minority, but I am concerned about the cut in HMRC’s headcount given that we have such a vast tax gap and that a substantial number of billions of pounds have simply not been collected because of a lack of resources. 

In recent weeks I have spoken to the representative of the senior officers of HMRC in the Palace—I have to declare an interest, although not a pecuniary interest, because I am a member of the Public and Commercial Services Union support group within the House. I believe that there must be a resource implication, and I do not think that is a bad thing. This is a good scheme and it should be resourced. 

One suggestion that I have, which I made at the public evidence session, is that increasing the number of tax inspectors would be a tremendous benefit in bringing in more revenue. Tax inspectors collect many times their own salary. It depends on the tax: for VAT it is relatively low at only five times their salary, but for income tax, and particularly for corporation tax, we are talking many millions of pounds and a multiple of many times the salary of an individual tax officer. An increase in the number of tax officers would bring in more revenue, which would more than cover the additional resource cost of the scheme and which could be used in other areas of public spending. 

The Minister has twice said that he is pleased that I am in favour of a tax-cutting scheme. I am one of those people who want to see employment generated, and, unusually, this is a scheme designed specifically to generate employment. So, in that sense, it is very good. Given £1 billion to spend, however, I would want to find a way to maximise the employment generation potential of that sum, and it might be that some other scheme would promote more employment. I want to see not either/or, but both. For the benefit of the economy and of us all, we need to generate much more employment—unemployment is now at 2.5 million. 

If we bring down unemployment, all of our problems will begin to disappear, particularly the deficit problem about which the Government are so concerned. I am primarily concerned about unemployment, and this scheme is about reducing unemployment. My suggestion for increasing the number of tax officers would also reduce unemployment, both directly, because more tax officers are appointed, and indirectly, because it would make possible the generation of employment elsewhere in the economy. 

Mr Gauke:  I note the points made by the hon. Gentleman. In the spending settlement for HMRC, over the spending review period £900 million will be focused on specific areas in which HMRC believes it can significantly increase its yield. That will involve employing more tax inspectors in particular areas. I also note the hon. Gentleman’s argument that lowering the amount of employer’s national insurance contribution that needs to be paid is likely to create jobs. That, if I remember rightly, is a somewhat different position from the one his party took at the general election. 

Chris Leslie:  I am grateful to the Minister for taking the time to address some of the issues. I am not entirely in agreement with him that amendment 11 is unnecessary.

I think it would be harmless to put it into the Bill, but we have aired the issue and we may return to this in a different form on another occasion. 

My hon. Friend the Member for Luton North made some important points on new clause 5. It is necessary to start asking about the resources available in HMRC, not just for addressing the tax gap but in relation to the conditions and the activities to which staff are allocated. One question that needs to be asked, which perhaps can be answered on another occasion, is whether all those who are going to be redeployed and transferred will be on a different contract or will retain their present contractual arrangements, albeit in a different line of activity. I presume that it will be a redeployment scenario and they would not be laid off and rehired again on lesser terms. Those are important issues that we can raise on another occasion, as they matter to the people who will administer the scheme. I am glad we have had the opportunity to discuss this. I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Clause 8 ordered to stand part of the Bill.  

The Chair:  We now come to a series of questions on clauses 9 to 15. I may, with leave of the Committee, group the questions on clause stand part for consecutive clauses rather than putting the question separately for each clause. It would be helpful if Members could indicate whether there are any clauses that they would like to debate separately. 

Chris Leslie:  I wanted to make a couple of points on clauses 9 and 10. I am more than happy to make them simultaneously if that would help the Committee. I leave it to your good judgment, Mr Sheridan. 

Clause 9 

Retention of records 

Question proposed, That the clause stand part of the Bill. 

Chris Leslie:  This is a simple set of points. The clause deals with the retention of records by those making applications under part 2 of the Bill. As I understand it, it is designed to ensure that the burden of retaining records is fairly light touch, but it is still quite a long clause. There are no explicit penalties for failure to retain records, although I assume that the reference to schedule 4 of the 2001 regulations means that the suite of penalties that might apply in other cases will not apply in this case. 

I also assume that the wording of subsection (4) means that electronic records are sufficient. I should be grateful if the Minister could clarify that and also explain why the period of three years has been chosen for the retention of records. Many companies may find it slightly inconvenient to retain records for that length of time. Obviously, we want to strike the balance so that there is good record keeping but the requirement is not burdensome for businesses, because there are costs involved in the administration of the paperwork involved in those schemes. If the Minister could clarify those points, I would be grateful. 

Mr Gauke:  On compliance, clause 9(5) relates to the powers in schedule 36 to the Finance Act 2008 that enable HMRC to check tax compliance, and it extends the powers in that schedule to enable HMRC officers to check compliance with the holiday legislation. That is rather similar to the debate—perhaps the word debate exaggerates the brief discussion that we had—on penalties on Tuesday afternoon. Essentially, the arrangements that apply for record keeping generally will apply in this context, as far as the NICs holiday is concerned. What we are careful to do in subsection (3) is ensure that the general NICs record-keeping requirement proposed for employees does not overlap with the requirements in relation to the NICs holiday in the clause. As far as any penalties are concerned, the general regime applies to national insurance contributions. There is not, therefore, a separate regime. 

Chris Leslie:  There may be more that the Minister can discover on the point that I am looking at. Specifically, what are those penalties that may befall a company that goes through the application process and then, for some reason, does not keep its records in the form required? What are the potential suite of penalties that could befall applicants in that particular case? Obviously, they would be lighter than in other cases, given the disapplication of schedule 4 of the 2001 regulations. 

Mr Gauke:  The point is that those are not new penalties. There are financial penalties for failing to keep records. On the hon. Gentleman’s specific point, electronic records can be sufficient and there is no need to keep paper records. As for the time period, it is always the case that there is a need for a time period in which to keep records that apply to the scheme. The EU state aid rules set a maximum amount that can be received over a three-year period, and that is why we have a three-year period for the scheme. 

Chris Leslie  rose—  

Mr Gauke:  I will certainly give way for what I hope will be a lengthy intervention. 

Chris Leslie:  I can try, within the bounds of the latitude of the Chair. If it would help the Minister, I am happy with the points in his answer on the three-year rule. My concern is with the specific description of the nature of the penalties that may apply to applicants in this particular case, because the wording of the clause is such that it is slightly different from other penalties that apply in other national insurance arrangements. If it would help the Committee, I am more than happy for the Minister to write to us with more information on that point, if that is easier. 

Mr Gauke:  As I said, there are financial penalties. There are fixed penalties for failing to keep records. If the hon. Gentleman would like the specific amounts, I am happy to confirm the details to him in writing, but as I said it is a matter of financial penalties in those circumstances. 

Kelvin Hopkins:  I have some points about record keeping. I am sure that I am not alone among hon. Members in having constituents come to me with problems with HMRC, and indeed other institutions, because of a failure to keep records or bad advice from bookkeepers

or even, sometimes, accountants. I am concerned on this point because instructions about record keeping should be precise so that small business people, who are not necessarily sophisticated in administrative matters, know what they must do to keep proper records. I hope that HMRC will ensure that its records are correct, too. Again, I am sure I am not alone in having had a ping-pong exchange of correspondence in the past with constituents with small businesses and HMRC over a disagreement about information about something that has happened where proper records have not been kept. 

9.30 am 

Records must be kept by the business people concerned. Often small business people in, say, the building industry are not trained in administration—indeed, I am not a trained accountant, and I dread the thought of having to administer a small business myself—so we must provide clear instructions and advice about the requirements. On a different point, I may be a bit of a dinosaur but I like paper records as well as electronic records. 

Mr Gauke:  Far be it from me to accuse the hon. Gentleman of being a dinosaur in either his love of paper records or his politics. I share his concerns about ensuring that the right type of record-keeping requirement is placed on small businesses. When the Finance Act 2008 was being passed, I suspect that I made similar points as a lead for the Opposition during the lengthy debates that we had on the subject. We must get those powers right, and the requirements placed on small businesses must be proportionate and reasonable. 

It may help the Committee if I point out that the guidance on HMRC’s website—apologies to the hon. Member for Luton North, but it is on the website—clearly sets out the record-keeping requirements on businesses and employers in such circumstances. The hon. Gentleman is correct that we must be careful not to place undue demands on businesses, but HMRC needs to have accurate records in order to be able to monitor and ensure accurate compliance with our requirements. 

Question put and agreed to.  

Clause 9 accordingly ordered to stand part of the Bill.  

Clause 10 

Anti-avoidance 

Question proposed, That the clause stand part of the Bill. 

Chris Leslie:  The clause describes the circumstances in which new businesses may be tempted to pursue avoidance arrangements, and essentially it warns them off doing so. It is a strange clause, and I have never seen one drafted in such terms before: is it a standard form? It simply states that anybody who is considering doing anything that may avoid compliance with the rules on these arrangements needs to beware. The clause lacks clarity, which makes me slightly anxious. The Bill does not specify whether a court or HMRC will be the judge of what is, or is not, an avoidance arrangement. Who will be the defining arbiter in such cases? 

I am also concerned that a business could inadvertently fall foul of the clause and that its activities could be interpreted as avoidance if it picks up a trade where another company has left a patch of business behind. As my right hon. Friend the Member for Delyn described in an earlier debate, specific arrangements prevent one

person from picking up a trade that has been left behind by a former partner. In circumstances around the edges, I worry about the inadvertent consequences for businesses. 

The issue of businesses that are undertaken through a franchise arrangement is not properly described in the legislation or explanatory notes. A new start-up business may seem an easy concept to imagine, but many firms purchase a franchise as a way of starting up their entrepreneurial career. One need only look at websites advertising the sale of franchises to see the sort of business opportunities that are available to new start-ups. The other day, I googled retail and food franchises, and there were franchises for sale for Burger King, McDonald’s, Smoothie Fresh, Shakey’s and Perfect Pizza—should any hon. Members wish to start up a new business in that line of work. It occurred to me that there is a risk for a new start-up entrepreneur who may go down the franchise route and fall foul of circumstances in which the business could be described as an existing line of business and, therefore, it may not be classified as a new start-up. I would be grateful if the Minister could address the scenarios relating to franchises, because that issue has not yet been elaborated on in the explanatory notes or in the legislation. 

Mr Gauke:  I am grateful to the hon. Gentleman for raising questions about anti-avoidance strategy. It is important, given the reasonably valuable relief available here, that we take measures to prevent avoidance activity. 

The hon. Gentleman queries the type of clause and its mention of “main purpose”, which is essentially a test of whether the arrangement is artificial. During his sabbatical from the House, it became increasingly common for clauses along these lines, which ask what the main purpose of the activity was—if it was avoidance, that activity would be ineffective—and the clause is therefore not particularly unusual. It is right that we prevent the situation where a person enters into artificial transactions that are aimed primarily at qualifying for the holiday rather than genuinely carrying on a business. If we did not do so, the cost could be considerable without achieving any of our policy objectives. We hope that we do not have to use it at all, but we recognise that this relief is valuable, and we need to ensure that it is targeted in the normal way. If we need to use it, we are likely to discover that through normal compliance activity. 

The hon. Gentleman asked about a right of appeal. There is a right of appeal to an independent tribunal, if the business does not agree with HMRC’s decision. I note that he has been looking at websites for Burger King franchises and so on, and I am sorry if that indicates that the hon. Gentleman is making another career change. Although not everything has gone as well as he might have liked over the past few months, that would be a pity and a great loss to the House. I can assure him, however, that if a genuinely new business is set up under a franchise it would count as a new business for the purposes of the holiday. I hope that my remarks satisfy the hon. Gentleman and that they will dissuade him from setting up a Burger King, whether it is in Nottingham or elsewhere. 

Kelvin Hopkins:  Obviously, in all legislation to do with taxation in a broad sense, anti-avoidance is an important component. It crossed my mind that trying

to avoid tax cuts would be peculiar, but this is obviously about avoiding excessive claims. It emphasises the importance of proper record keeping, so that small employers do not inadvertently, or possibly deliberately, claim more cuts than they are entitled to. We debated the problem of part-time employees in a previous sitting, and one can imagine all sorts of complications at local level with companies starting up, closing down and starting up again. That happens frequently in the small business field, particularly in construction, as I know from my own constituency. Again, precise records need to be kept so that there is no doubt and so that small business people do not fall into a trap where they might be prosecuted for tax avoidance. 

Question put and agreed to.  

Clause 10 accordingly ordered to stand part of the Bill.  

Clause s 11 to 15 ordered to stand part of the Bill.  

New Clause 1 

Annual Report by HM Treasury 

‘Her Majesty’s Treasury shall, following Royal Assent, determine and publish the total budget of the scheme and provide an annual report to Parliament which will set out—(a) the total sum of business expenditure saved under the secondary contributions holiday for each of the years of the scheme’s operation;(b) by constituency—(i) the number of businesses availing themselves of the secondary contributions holiday;(ii) the number of employees designated qualifying employees under the scheme; and(iii) the total expenditure saved by businesses under the scheme,(c) an assessment of whether the scheme should be reapplied by employment sector rather than geographical region.’.—(Mr Hanson.)

Brought up, and read the First time.  

Mr David Hanson (Delyn) (Lab):  I beg to move, That the clause be read a Second time. 

The Chair:  With this it will be convenient to discuss 

New clause 6—Consideration of extension of scheme to contain existing businesses—  

‘The Treasury shall, by a date no later than six months after Royal Assent, review the operation of the regional holiday scheme under Part 2 of this Act to assess if it should apply to existing businesses employing—(a) less than 20 employees, or(b) having a turnover of less than £500,000 per annum.’.

Mr Hanson:  I welcome you back to the Chair, Mr Sheridan. 

The two new clauses are designed to prompt the Minister to report on aspects of the scheme, and to give him the flexibility to look at varying it if the take-up is not what he has suggested. New clause 1 suggests that it would be in everybody’s interests if we set a budget for the scheme, as I have said in previous sittings. The budget should be known before the scheme commences and it should be adhered to for the scheme’s duration. 

The Minister has helpfully indicated that he expects the budget to be £940 million over the three years of the scheme, but that is a Treasury projection of the possible expenditure on the scheme. As we discussed earlier, that projection could be underspent or overspent. In a time of fiscal tightening and economic difficulties, it is important

that the Treasury sets a figure for the total amount of money to be spent on the scheme and that it is published beforehand, so that the excellent Treasury forecasts on the likely expenditure are not overshot. 

I have served on a number of Committees over the past few weeks and, on the Savings Accounts and Health in Pregnancy Grant Bill Committee only two weeks ago, the Financial Secretary argued that we should save £500 million on child trust funds because the country cannot afford them. On this Bill, we will spend an estimated £940 million over three years, but that is an open-ended commitment. If the scheme takes off and there is a massive pick-up in the regions outside London, the south-east and east, there might be an additional cost over and above the £940 million that the Treasury would have to absorb. 

I am sure that the Treasury forecasts for HMRC are fairly accurate—we may undershoot or overshoot—but we are being asked to legislate and give authority to an open-ended scheme. Given the fact that the scheme will attract excellent publicity, that HMRC will work hard on it, and that we have appointed 240 extra staff to administer it, it is perfectly possible that the scheme will take off and that we might spend £1.3 billion in its three years, rather than £940 million. That would be a £400 million liability on the Treasury, but it is not considered relevant to the Bill. 

9.45 am 

It would be helpful to state in new clause 1, as we have done for other Government schemes, “Here is a pocket of money. It’s worth £940 million, that’s our benefit. It does not now cover London, the south-east and the east because we discarded that. It covers the other regions of the United Kingdom. It will operate for three years, but if the scheme runs out of money, it runs out of money.” We would then know exactly what it is. 

There may be a perverse effect. If the scheme has a fixed budget, and people know that, it might generate greater interest and speedier take-up because it is time-limited. The previous Government introduced the car scrappage scheme, which had a fixed budget and we knew what it would cost before it started. It drove forward the sale of cars because people knew that the money would run out quickly. Instead of undershooting on the cost of the scheme, fixing the amount of money beforehand would ensure that the total amount was spent in the three years. 

At the moment, I do not know, and the Minister cannot tell me today, on 9 December 2010, whether at the end of the period, on 5 September 2013, we will have spent £600 million on the scheme, or £1.3 billion. 

Matthew Hancock (West Suffolk) (Con):  I have been listening carefully to the right hon. Gentleman’s argument, but I do not understand something that he has just raised. He said that by 2013 the Government will have spent £600 million on the scheme, but is not the key point that renders the new clause inappropriate that we are discussing a tax cut, not a spending project? It is different from the car scrappage scheme or other spending projects. It is a tax cut, and in this country tax cuts are organised through the tax code and people adhere to it. How much tax is raised is a consequence of the tax code, rather than being limited or schematic. 

Mr Hanson:  We can argue about the definitions, but the Minister has set out in the Bill an estimated cost of £940 million. 

Matthew Hancock:  But as I understand it, it is absolutely standard for the Treasury to put forward what it expects to raise in taxation. The key insight that is missing from the new clause, which makes it inappropriate, is that the project is not a spending one; we are debating a change to tax. 

Mr Hanson:  However we define it—we could debate the matter for many hours—the key issue on which the hon. Gentleman should reflect is that the Minister said that the scheme will have a net cost to HMRC of £940 million over its period. 

Dr Stella Creasy (Walthamstow) (Lab/Co-op):  Perhaps we can shed some light on why it is necessary to set some parameters for the scheme, which is essentially what the new clause would do. I am grateful to the Minister for finally responding to my concerns about the evidence base for the policy, but his letter raises more questions than it answers, not least because it says that the Government cannot quantify either the cost to the Exchequer or the net benefits. Would it not be wise to set some parameters and say that they believe that the tax cut will have an equivalent cost of £940 million, but that they cannot be sure so that will be the maximum benefit or cost that they are looking for? The alternative, as he said, is that they may not lose anything, but they may gain something—they simply do not know. 

Mr Hanson:  I am grateful to my hon. Friend, and I am pleased that the Minister was able to respond before the Committee reported. I am flexible about this, but the key point is that I want the Minister to be able to tell the Committee and the House that an element of resource is allocated to the scheme, however that is done, that either drives forward applications, or at least enables the Minister, at the end of the scheme, as my hon. Friend the Member for Walthamstow said, to stand up on 5 September 2013 and say what the net cost of the scheme has been. In new clause 1, which would require a total budget to be determined for the scheme, I am trying to persuade the Minister to indicate now the limits of the scheme, so that we can drive it forward and assess its net cost to the Exchequer, and the public at large. 

Kelvin Hopkins:  My right hon. Friend is making a good point. An alternative might be that if the allocation he is talking about has not been used up at the end of the period, the scheme might be extended until such time as it is used up. 

Mr Hanson:  I am grateful to my hon. Friend for that suggestion. I have tried to be positive in this Committee—I do not know whether the Minister feels that I have been, but I have tried. We have welcomed the scheme and the fact that it is positive, and we have tried to extend it to Greater London and the south-east for the reasons that have been discussed. In new clause 1, I am

simply saying that we need to think about the possible parameters of the scheme, as my hon. Friend the Member for Walthamstow said. 

We will now probably have Report in the new year. I would be happy if the Minister set out the parameters on Report. If I were in the Government, I would want to know what the net cost of the scheme will be at the end of three years, and I would want to budget for it. However the net cost is determined—the hon. Member for West Suffolk has experience in these matters—it is important that it is set out. The scheme has the potential to be an unending commitment, depending on its take-up. 

Complex matters are involved. If individuals are employed under the scheme, they will pay income tax; therefore, there will be different aspects across the Treasury as a whole. However, at some point, the Minister needs to set out what he believes the net costs of the scheme will be. Not paying national insurance for new employees will result in a loss of revenue for somebody, and therefore we need an assessment of the cost. 

Heidi Alexander (Lewisham East) (Lab):  Does my right hon. Friend agree that publishing an annual review, as the new clause suggests, would give the Government a means to compare the costs and benefits of the scheme with other job creation schemes that have been run by Governments in the past? Clearly, we are all concerned about the creation of new jobs and getting people into work. Having a review published annually would give us some more concrete evidence so that, in future, when we are determining the best possible policies to adopt in creating jobs, we will have something that clearly sets out the costs and benefits. 

Mr Hanson:  I am grateful to my hon. Friend for that contribution. She backs up the point that I am making. I will move on from the first part of the new clause and leave that thought in the Minister’s mind. It is good budgeting practice for the Government to know and to set out exactly what the net cost to the Exchequer will be, and to ensure that they do not overshoot or, indeed, undershoot it. 

Dr Creasy:  If the Minister is unconvinced, perhaps he should consider his own words. He said to me in a letter that 

“£940 million is a large sum of money to allocate for an uncertain benefit.” 

Is not the new clause all about ensuring that we have more certainty about the benefits or otherwise of the policy and are able to respond accordingly? 

Mr Hanson:  My hon. Friend puts her finger on why I introduced the new clause. I simply want to get from the Minister the net cost to the Exchequer at the end of the period. Can we set it now so that we know exactly what it will be? Indeed, there may be a net benefit—but at least we would know what it was. Having a time-limited funding element rather than simple timed funding might in itself drive forward the success of the scheme for the future. 

The rest of new clause 1 would simply do what I can do anyway, but the Treasury would be able to think about it before I do it. I am capable of tabling questions in one, two or three years’ time asking the Treasury how

much has been spent, in how many constituencies, where the businesses are, how many people are affected and what is the outcome of the scheme. It might save the Minister a great deal of red box time—many questions to be answered on many issues—if he simply says, “Yes, I will publish the information to show exactly what is happening.” 

I happen to know the constituency of Delyn reasonably well—very well, in fact. In my constituency, one business might avail itself of the scheme during the three-year period. It might employ one person. Next door, in the constituency of Alyn and Deeside, there might be 10 businesses employing 10 people as a result of the scheme. We need that information so that we can assess where the scheme has been used. 

Returning to the Tatton experience, nobody in Tatton may take up the scheme, but lots of people may do so in Manchester, Central, which is not too far away. It would be helpful to know how the scheme operates in practice. Every hon. Member would want to know how the scheme is undertaken, particularly given that the Minister has said that he seeks to use it to support certain objectives, such as helping areas facing challenges because they are affected by public sector job losses. 

If all the funding ends up being spent in the county of Cheshire alone, the scheme will not have been of benefit. We need to know factual information across the board, because that would help. 

I can table a question in a year’s time, asking for a breakdown by parliamentary constituency and the Minister will either have to answer or avoid it. Dealing with the matter now would save us the wait. The Minister could deal with that now. I am happy for him to consider new clause 1 and bring back his own procedures in due course. [Interruption.] Crowds outside are cheering. The students are already here, by the sound of it. 

Heidi Alexander:  It’s for you. 

Mr Hanson:  I am grateful to my hon. Friend. [Interruption.] I will quit while I am ahead, as the hon. Member for High Peak says. 

It would help to have the information. Whether or not the Minister provides it in response to new clause 1, it would be useful for him to agree today to publish the impact of the scheme annually, by constituency or by sub-region, or however he wants to do it, so that we know exactly how many people and businesses are involved and what expenditure has been saved. 

Subsection (c) provides not for a commitment from the Minister, but for him to consider whether he should re-apply the scheme by employment sector, rather than by geographical region. He would make that assessment as part of the assessment of the scheme. When he and the Treasury and HMRC assess the scheme, they might see that certain regions were not using it as the Minister hoped they would. He might want to encourage new businesses to commence in areas, even—dare I say it?—in the London, south-east and east region, with particular employment shortages in new businesses. Unlikely though it seems, there might be a need—for example, in London—to promote the interests of plumbers, electricians and other small new businesses. The Minister might want to consider applying the scheme by employment sector, rather than by geographical region. 

New clause 6 would not commit the Minister to do anything other than assess the scheme after six months from Royal Assent. The new clause asks him to do so to see whether he should widen its application to existing businesses either employing fewer than 20 employees or having a turnover of less than £500,000 per annum. If we take that with new clause 1, the Minister can set an overall budget. The application of the scheme to existing employers or businesses with a turnover of less than £500,000 would allow the Minister to extend on a regional basis it in the event of low turnout or take-up elsewhere. He said that 1,100 people are taking the scheme up. If there was a lower turnout, under new clause 6 he could examine whether the scheme should apply to existing businesses. 

The Minister can take my word on that positive suggestion for the holiday period, but he might want to listen to some of his hon. Friends on that point. On Second Reading, the hon. Member for Newton Abbot (Anne Marie Morris) said: 

“I suggest that the Treasury urgently considers extending the provision to micro-businesses. I cannot see why micro-businesses should not be covered across the country rather than in regions.” 

The hon. Member for York Outer (Julian Sturdy) said: 

“I fear that we might be slightly short-sighted in limiting access to expansion to new firms alone, and in allowing new firms to claim it only during the first year of their business operations.” 

The hon. Member for Meon Valley (George Hollingbery) said: 

“Will the Minister consider taking powers to himself that allowed him not just to exclude areas, but to keep a register of those he felt could be excluded, therefore allowing some flexibility? Should labour markets deteriorate markedly in certain areas, he could then revisit his decision and decide to support certain areas.” 

The Minister could listen to the hon. Member for Dundee East (Stewart Hosie), who said: 

“did they consider extending it to existing businesses with very small work forces of one or two people”?—[Official Report, 23 November 2010; Vol. 519, c. 195-214.] 

In the Second Reading debate, three hon. Members from the Minister’s own party and a Member of another party—not a Member of the Opposition—spoke on this matter, suggesting that it is not just the Opposition who think that he might want to consider that proposal but people from his own party. 

10 am 

My contention is quite simple. The Minister should publish a budget—show the success of the scheme on a factual basis, by publishing that information. He should take a power to himself to consider applying the measure to individual sectors, even if he does not necessarily use that power, and he should take the power to consider applying the measure to new businesses, even if—again—he does not necessarily use that power. He would then have the powers, in case he needs to use them, to ensure the success of the scheme as a whole. 

Having made those comments, I commend new clauses 1 and 6 to the Committee. 

Mr Gauke:  The new clauses are motivated by a commendable wish to encourage transparency and to ensure that proper consideration is given to how the holiday operates in practice. However, I want to set out why I think they are unnecessary. 

First, as I explained in the evidence session, there is no budget for the scheme, as such. Businesses can be confident that there is no budgetary constraint and that the holiday will continue as proposed, regardless of how many applicants there are. It is very important that we offer that certainty. As I said on Tuesday, if a business found that suddenly the holiday was no longer available because the budget had been used up, that would damage employers’ confidence in the scheme. 

It is also right to highlight the point made by my hon. Friend the Member for West Suffolk that this is, after all, a tax cut and not an item of spending. Moreover, it is worth putting this tax cut into context. We are talking about £940 million over the course of the next three years. That is not insubstantial, but we have to put that in the context of the fact that the Government raise approximately £50 billion a year through employers’ national insurance contributions. The estimate of £940 million has been scrutinised and verified by the independent Office for Budget Responsibility and it means that we will raise £940 million less than we would otherwise have raised. 

It has been asked what would happen if the take-up is enormous and we have far more businesses taking this measure up in respect of far more employees. That scenario would suggest that we would have identified a successful dynamic effect and, as a consequence, more people would be in employment and paying income tax, employees’ national insurance contributions and VAT. It would also suggest that the Burger King franchise in Nottingham being run by the hon. Member for Nottingham East was doing extremely well and that he was employing more people—[ Laughter. ] It would actually be a good thing for the Revenue if take-up were enormous. So the suggestion that enormous take-up would somehow cause great difficulties for us is not correct. The expected costs of the scheme were set out in the policy costing documentation in the Budget 2010. 

Kelvin Hopkins:  It is an excellent idea to retain flexibility, as my right hon. Friend the Member for Delyn on the Front Bench has said. However, it is much more likely that there will be an underspend rather than an overspend. It is my belief that the Government’s policy will lead to a serious downturn in the economy, because of savage cuts in public spending, and an increase in unemployment, which will affect the ability to generate more jobs. So making the scheme more generous and applicable to the areas that are currently excluded might be necessary to help generate more employment in the economy when we enter a serious downturn. 

Mr Gauke:  I note the rather gloomy assessment by the hon. Gentleman. I am sure that if he made a representation to the OBR, it might be persuaded by his economic expertise. However, the fact is that the independent OBR has said that the economy will continue to grow throughout the next few years. 

The Government are committed to increasing the transparency of tax policy making and of the tax system more generally. To that end I am happy to undertake to provide, to the House and to the public, updates after the end of the tax year on the operation of the scheme, including information at regional level,

although the precise requirements set out in new clause 1 could raise legal issues, for example on confidentiality of taxpayer data. 

New clause 6 would require the Treasury to conduct a review of the holiday no later than six months after Royal Assent, considering specifically the case for extension to certain types of existing business. However, the passing of time will make no difference to the policy objective of targeting support on those considering setting up new businesses. Nor will it make a difference to the objective of targeting assistance on those countries and regions most dependent on public sector employment, as opposed to “employment sector” as suggested by new clause 1. Indeed, it is unclear what is intended by “employment sector”. 

The impact assessment commits the Government to reviewing the policy as evidence becomes available, and I am happy to repeat that commitment. Formal evaluations will be disseminated in the usual way. With these reassurances, I hope that the right hon. Gentleman will withdraw the new clause. 

Mr Hanson:  The new clauses were intended to probe. The Minister has undertaken to publish an annual assessment of the take-up of the scheme on a regional basis and I will hold him to that commitment. I am happy to look at that information in due course. I hope he will also reflect on the fact that HMRC, the Treasury and the Minister should make an ongoing evaluation of the effectiveness of the scheme. I hope the points we made in these amendments about the extension to new businesses or to existing small businesses, sectoral employment and the different regions will be kept under constant review by the Treasury. 

The point that my hon. Friend the Member for Luton North made about the underspend is the one I am most concerned about. We could have an overspend on this budget, but equally we could have an underspend. If the Government have allocated a sum of expected resource to this scheme, I would want to see that resource met by 5 September 2013. It is a fluid situation and the Minister should keep it under review. With his assurances—and given that not only will he keep it under review, but I will too—I beg to ask leave to withdraw the motion. 

Clause, by leave, withdrawn.  

New Clause 4 

Publicity and promotion of the Secondary Contributions Holiday 

‘Her Majesty’s Treasury will ensure that all HMRC literature, websites, publications and correspondence relevant for new businesses contains website links to information relating to Part 2 of this Act for the duration of the scheme.’.— (Chris Leslie.)

Brought up, and read the First time.  

Chris Leslie:  I beg to move, That the clause be read a Second time. 

The new clause is self-explanatory. As we said in the evidence session, we are anxious that the national insurance holiday should be promoted with more vigour. We suggest, therefore, that HMRC literature and communications relating to new business should

have a link to the HMRC website so that we encourage as many people as possible to apply. I should be grateful if the Minister could address that point. 

Mr Gauke:  The hon. Gentleman is concerned to ensure that HMRC’s published literature and web-based guidance contains website links to information relating to part 2 of the Bill on the duration of the holiday. I assure him that the new clause is unnecessary, as HMRC’s published literature and web-based guidance already contains website links to information relating to part 2. Let me further assure him that this guidance will be maintained for the duration of the holiday. I hope that reassurance will persuade him to withdraw the new clause. 

Chris Leslie:  Clearly it is important that we find a way of flagging up to potential new businesses the availability of the holiday. By virtue of being new businesses they may not be well versed in the current arrangements for national insurance paperwork. With the Minister’s assurance that he is working hard to push the scheme proactively, I beg to ask leave to withdraw the motion. 

Clause, by leave, withdrawn.  

Ordered,  

That certain written evidence already reported to the House be appended to the proceedings of the Committee.—(Mr Gauke.)  

Question proposed, That the Chair do report the Bill to the House. 

Mr Gauke:  I ask the indulgence of the Committee for a moment, to thank you, Mr Sheridan, and Mr Brady and Mr Howarth for your guidance and assistance during the Committee. I also thank the Clerk, the Hansard reporters, the police, attendants and officials for their considerable assistance over the past three sittings. I thank Opposition Members for their thorough scrutiny of the Bill. Although by the looks of it we shall complete our proceedings in three rather than four sittings, that is not for lack of proper scrutiny on both sides of the Committee. We have done the Bill justice. 

I thank the right hon. Member for Delyn for, by and large, extending the hand of friendship and being cautious about the use of the boot of hostility. I thank the hon. Member for Nottingham East for sharing with the Committee his potential career plans—I wish him luck in whatever franchise he wishes to establish. I thank Opposition Members for the thoroughness of their scrutiny. I note that all the Back Benchers among them came from Luton or London. There was a time when my party seemed somewhat focused on the south-east of England but, at least in this Committee, that seems to be the case for the Opposition. 

I thank the Whips, the hon. Member for West Ham and my hon. Friend the Member for Scarborough and Whitby, for their efforts in ensuring everything has run smoothly. We have managed to get through the process, despite travelling around various Committee Rooms over the past few days. The mood in the Committee has remained warm even when the actual temperature was not. 

I thank my hon. Friends from the Back Benches, representing all parts, of England at least, who assisted me. I am grateful for their assistance, and in particular for the help of my hon. Friend the Member for Burnley in his role as Parliamentary Private Secretary. 

Although the Bill has controversial areas, it has been warmly welcomed. I am pleased that the Committee and the House recognise the importance of keeping national insurance contributions low for employers, in order to encourage employment. On that note, Mr Sheridan, I thank you and all Members here. 

Mr Hanson:  I concur with the Minister’s response. I welcome my hon. Friend the Member for Luton South to this important part of the proceedings. This is my fourth Treasury Bill in the past six weeks and, for consistency’s sake, it is the fourth Bill that has left Committee without any amendments. My success as Opposition spokesman is something to be built on in future. “Things can only get better,” as was once said. 

I join the Minister in thanking you, Mr Sheridan, and Mr Howarth and Mr Brady for your chairmanship. I thank Dr Thatcher and her team for their work in clerking the Committee. I thank Hansard reporters, who do an exemplary job, and the police and the badge messengers. I also thank the HMRC officials; they are invisible to this room, but I know they have taken a great interest in the proceedings. I thank my hon. Friend the Member for West Ham, the Whip, and her counterpart the hon. Member for Scarborough and Whitby. We look forward to our next Bill, which will be coming up shortly. 

Lyn Brown (West Ham) (Lab):  Within weeks. 

Mr Hanson:  We have a few weeks before the next Bill, which is quite amazing. I also thank my hon. Friends from Luton and the Greater London constituencies, who have spoken in support of our objectives. 

Of the four Treasury-related Bills that we have debated in the past few weeks, this has been the most friendly and constructive. I hope that the Minister will take the points that have been made in Committee and reflect on them. We have made them not to create a political divide but to say that there are ways in which he can devise a scheme that will, hopefully, benefit more people and succeed in the objective of creating employment. I give notice to the Minister that we will return to some of these matters on Report, especially the exclusion from the measure of London and the south-eastern and eastern regions. Between now and the festive season, I hope that the Minister will read the excellent coverage of these matters in Hansard and reflect on them. 

I thank you, Mr Sheridan, and the Minister and his team. I also thank Government Back Benchers for their contributions. It is always a pleasure to be voted down with such smiling faces. 

The Chair:  I add my thanks on behalf of Mr Howarth and Mr Brady for our constructive and friendly proceedings. 

Question put and agreed to.  

Bill accordingly to be reported, without amendment.  

10.16 am 

Committee rose.