Session 2013-14
Publications on the internet
National Insurance Contributions Bill
National Insurance Contributions Bill
The Committee consisted of the following Members:
Chairs: Mr Gary Streeter , † Sir Alan Meale
† Dakin, Nic (Scunthorpe) (Lab)
de Bois, Nick (Enfield North) (Con)
† Dinenage, Caroline (Gosport) (Con)
† Evans, Chris (Islwyn) (Lab/Co-op)
† Fuller, Richard (Bedford) (Con)
† Gauke, Mr David (Exchequer Secretary to the Treasury)
† Gilmore, Sheila (Edinburgh East) (Lab)
† Mahmood, Shabana (Birmingham, Ladywood) (Lab)
Maynard, Paul (Blackpool North and Cleveleys) (Con)
† Morris, Anne Marie (Newton Abbot) (Con)
Paisley, Ian (North Antrim) (DUP)
† Reid, Mr Alan (Argyll and Bute) (LD)
Robinson, Mr Geoffrey (Coventry North West) (Lab)
† Rudd, Amber (Hastings and Rye) (Con)
† Rutley, David (Macclesfield) (Con)
† Smith, Julian (Skipton and Ripon) (Con)
† Vaz, Valerie (Walsall South) (Lab)
† Wright, David (Telford) (Lab)
David Slater, Kate Emms, Committee Clerks
† attended the Committee
Witnesses
Stuart Adam, Senior Research Economist, Institute for Fiscal Studies
Mike Cherry, National Policy Chairman, Federation of Small Businesses
Public Bill Committee
Tuesday 19 November 2013
(Morning)
[Sir Alan Meale in the Chair]
National Insurance Contributions Bill
8.55 am
The Chair: I have a few preliminary things to tell the Committee. Would Members switch off their electronic devices, or at least put them in silent mode? As a general rule, I and my fellow Chair do not intend to call starred amendments that have not been tabled with adequate notice. The required notice in the Public Bill Office is three working days, so amendments should be tabled by the rise of the House on Monday for consideration on Thursday, and by the rise of the House on Thursday for consideration the following Tuesday.
Not everyone is familiar with the process of taking oral evidence in Public Bill Committees, so it might help if I go through how this is done. The Committee will first be asked to consider the programme motion, on which debate is limited to half an hour. We will then proceed to consider motions to report written evidence and to allow the Committee to deliberate in private in advance of the oral evidence sessions, which I hope we can take formally. Assuming that the second of those motions is agreed, the Committee will then move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back into the room and our oral evidence session will begin.
(1) the Committee shall (in addition to its first meeting at 8.55 am on Tuesday 19 November) meet—
(a) at 2.00 pm on Tuesday 19 November;
(b) at 11.30 am and 2.00 pm on Thursday 21 November;
(c) at 8.55 am and 2.00 pm on Tuesday 26 November;
(d) at 11.30 am and 2.00 pm on Thursday 28 November;
(2) the Committee shall hear oral evidence in accordance with the following Table:
(3) proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 3; Schedule 1; Clauses 4 to 14; Schedule 2; Clauses 15 to 20; new Clauses; new Schedules; remaining proceedings on the Bill; and
(4) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 28 November.—(Mr Gauke.)
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Mr Gauke.)
The Chair: Copies of the written evidence that the Committee receives will be made available in the Committee Room.
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Mr Gauke.)
8.58 am
The Committee deliberated in private.
Examination of Witnesses
Stuart Adam and Mike Cherry gave evidence.
9.2 am
The Chair: We will now hear evidence from the Federation of Small Businesses and the Institute for Fiscal Studies. I remind Members that questions should be limited to the scope of the Bill. Please stick to time which, as we have already said, is very rigid indeed. We are scheduled to finish at 9.45 am. I hope that I do not have to interrupt anybody mid-sentence but I will, if necessary.
Mr Cherry and Mr Adam, will you briefly introduce yourselves to the Committee?
Mike Cherry: Good morning. I am Mike Cherry, the national policy chairman for the Federation of Small Businesses, which represents about 200,000 members.
Stuart Adam: I am Stuart Adam, senior research economist at the Institute for Fiscal Studies. I generally work on the analysis of tax and benefit policy and its economic effects.
Q 1 Shabana Mahmood (Birmingham, Ladywood) (Lab): I welcome both witnesses to the Committee and thank them for giving evidence today.
I would like to start by looking at projections for take-up of the employment allowance. Both witnesses will know that the allowance is the successor to the regional national insurance employers’ holiday, which was projected to reach 400,000 businesses, but in the end was taken up by 25,000. The Government have suggested that they expect up to 1.25 million businesses to benefit from the new employment allowance, with a take-up of about 90%. Do you agree with those projections?
Mike Cherry: I do not see any reason why those projections should not be realistic, on the basis that the method by which the Government are implementing this is much easier and simpler. The problem with the national insurance contributions holiday was always that small businesses, in particular, experience a time delay before they recognise that something is out there. The process requires effective communication, which did not happen as it should have done. The way this is to be implemented will mean that, almost by default, most
businesses that pay national insurance contributions on the employer side will be able to avail themselves of the allowance.Stuart Adam: I do not think that the new allowance actually has that much in common with what it replaces; it is much simpler and more across the board. It will be much easier for firms to know that it exists and that they are entitled to it. In some ways, the question for me would be the opposite: given that the Government say that this will be a fairly simple box-ticking operation in the payroll process, who are the 10% they do not expect to take it up and why is that?
Q 2 Shabana Mahmood: That was my next question, so may I ask whether Mr Cherry has a view about why we might not hit 100%?
Mike Cherry: You will always find businesses that still do not understand what may be out there or how to do things, and that is always a problem. It does require effective communication, as I said, and we shall be playing our part in making members aware of what is available to them.
Q 3 Shabana Mahmood: We will come back to effective communication in a few minutes.
At what point would you be able to say that this allowance was a success and money well spent?
Mike Cherry: I would expect well over half to be money well spent. Again, if you go back to your original figures, we had such poor take-up of the national insurance contributions holiday allowance purely because of bad communication and the restrictions imposed. We had always advocated that something far wider needed to be available, especially to small businesses, so that they could take advantage of what was on offer.
Stuart Adam: For my part, to what extent you think it is money well spent largely depends on how good you think the idea is in the first place. A lower take-up would mean that less money would be spent on it, so if you thought this was a terrible idea, 0% take-up would be brilliant. However, if you thought this was a fantastic idea that would transform the economy, anything short of 100% would be a lost opportunity.
Q 4 Shabana Mahmood: What measures should be used to quantify or evaluate the policy’s impact on the economy?
Stuart Adam: Estimating the impact will be difficult, because you want to know what this does to employment and so on, but there is really no way of knowing what would have happened to employment among small businesses and so on without the policy. For an ideal experimental evaluation, you would want randomly to select some to qualify and some not to qualify, and then see what happened to employment in those two sectors. That is not happening, perhaps for perfectly good reasons, but that means that it will be difficult ex-post to say how much employment, or any other outcome you care to pick, changed as a result of the policy.
Q 5 Shabana Mahmood: Mr Cherry, I think that some of your members told you in a survey that they would expect the allowance to have a positive impact on jobs, with some jobs created as a result. After the allowance has been introduced, will you do any follow-up work to see whether that remains the case?
Mike Cherry: It is difficult for us to quantify the exact impact of a single initiative. It does add—our members have asked for this for a long time—to a raft of initiatives. We saw that with the capital allowance increase in the previous autumn, and we now see this coming through for April 2014. I think that this raft of measures will encourage greater confidence in the economy more generally, and that that will stimulate growth. It will enable business to get on with the job it is supposed to do and, I hope, create jobs. This simple initiative is warmly welcomed.
Q 6 Shabana Mahmood: You spoke about effective communication in the context of the previous national insurance scheme. What do you think the Government need to do to ensure that this scheme will be well understood and taken up in large numbers by the business community?
Mike Cherry: Effective communication. It is a singular issue that Government are not particularly good at. Business organisations will always try to play their part in making their members aware of developments, but the Government have a role to play in communicating to a wider business community than the organisations can touch themselves.
Q 7 Shabana Mahmood: Practically, how best should the Government be getting the message out there? What do you mean by “effective communication”?
Mike Cherry: Often that means a simple letter to the business. It could mean a constant drip feed of where to access the information, whether that is through the gov.uk website or by other means, but it is not just a one-off communication. Whatever the initiative, the Government need to give a constant feed of information to help businesses out there to understand and take things up.
Q 8 Julian Smith (Skipton and Ripon) (Con): Good morning. I have a question particularly for Mike Cherry. I am keen to hear your comparison of the scheme now being proposed by the Government with other schemes that have been discussed in the past year or two—specifically ones focusing on new employees of small businesses. It seems you feel that this is simpler, so I am interested in your thoughts on the advantages of this proposal compared with other types.
Mike Cherry: The problem with the national insurance contributions holiday idea was that it was quite prescriptive. It did not apply to the south-east of England, which represented a substantial geographical area, so it ignored many deprived areas in the south-east that would have benefited from such an initiative. We always maintained that it should apply to all small businesses and throughout the whole country. That would have made it much easier for businesses to understand what was available to them, but that did not happen.
The other suggestion we made was that the Government considered a lower rate of national insurance contributions for small businesses. We welcome the current initiative as a much simpler approach that is completely broad brush, going across the whole spectrum of businesses, meaning that it is much more likely that businesses will be able to take it up in the first place.
Q 9 Julian Smith: You have beaten me and other MPs about the head several times—I seem to remember that Scarborough was the worst situation—but I assume that you are quite happy and excited now. What is your organisation going to do to promote the measure? You acknowledge that the Government have delivered, so what will the federation do specifically to help businesses to take advantage of this?
Mike Cherry: We have various means by which we can get information out to our members. First and foremost, our brief goes out just about every week to all those members who sign up to receive it. That gives brief indications of where members can access information, so it points them to websites such as gov.uk or wherever the information may be. We also have our First Voice magazine, which goes out bi-monthly to the whole membership. We have our regional magazine that goes out on alternate bi-months, and we also have our business network magazine that complements First Voice. We therefore have a raft of means of doing that, and we also make our 33 regions and 194 branches aware through the membership and staff sides. We have many means by which we can get information out, and we just hope that, after reading and understanding what is out there, our members can take up this sort of initiative. As I said, there is often a time delay, so making it simple and easy to access something and take it up is the best possible way to take things forward.
Q 10 Julian Smith: Can you confirm that the Federation of Small Businesses is pretty happy with the proposal?
Mike Cherry: I can indeed, Julian. It is a raft of proposals, although it is not the end. We look forward to seeing that increased in the future.
Q 11 Anne Marie Morris (Newton Abbot) (Con): This question is for Mike and Stuart. I will focus on the exclusions—those businesses that will not benefit. There are probably three groups. As we are short of time, I will put them together. I would like your comments on the clarity and whether we will be able to decide clearly which are excluded and which are not, and secondly on the appropriateness of excluding these particular groups.
The first group is a miscellaneous collection, but it principally includes businesses which provide personal services—your gardener or your housekeeper. The second group is public sector businesses, and the third is connected businesses or connected charities of which only one can take the benefit—a choice has to be made and there has to be an election. Without necessarily having to comment on all three categories, what do you feel about the ability to make this work? Is there clarity on who is excluded? Is it appropriate and right that these groups are excluded? Maybe we can start with Stuart.
Stuart Adam: To my mind, you have put your finger on whether there are risks to this policy working as intended and where they are. To put it another way, if I were worried about avoidance, where might I look for it in this policy? How easy it will be in practice for the Revenue to draw and police these boundaries is outside my area of expertise. If I were asking a tax adviser about this, I think I would ask about those areas.
The rules on connected companies and connected charities to some extent build on rules in the existing system. I do not know how successful it is at the
moment in drawing those boundaries. Clearly, it puts more pressure on those existing areas. I do not know if the same is true when it comes to drawing the boundaries between domestic and non-domestic employment. I do not know whether that is something which is done elsewhere in the system, or whether this is an entirely new distinction which will have to be drawn. They will have to deal with situations such as my hiring a nanny who works for an agency that may not have very many nannies as employees. Will there be some way to distinguish that they are in effect my employee and so on? As for how difficult it would be, there is clearly potential pressure there. I cannot imagine it being a really serious problem, but the extent to which it is a problem at all would be a question for a tax practitioner rather than for me.As for whether you would want to restrict the allowance to exclude those groups, I think that there are different cases. The connected companies rule really speaks to the heart of the policy’s intention. If you are going to provide it once per employer rather than once per employee, as with the employer NICs threshold in general, then presumably you have to somehow define “an employer”. Again, I can see where the policy rationale may come from in the argument for excluding domestic personal services employment. However, who exactly you want to favour with this policy is a political decision, rather than one where I would want to take a view on its being inherently better or worse.
Mike Cherry: With such a simple initiative as this, the Government, with a very broad brush, tend to try to put in barriers after announcing something which should be very easy and simple for people to take up. Without referring to this specific case, with which I am not fully au fait, I think that it needs to be simple and easy. If connected businesses are businesses in their own right, and as long as you ensure that they are not deliberately trying to take extra advantage, then you need to be very careful about how tightly you draw those definitions or boundaries. If it is a simple initiative, it needs to be available to as many as possible.
Q 12 Anne Marie Morris: Stuart, perhaps I could come back and ask you whether you think that there is any economic reason—or what you think the policy reason is—behind those particular groups of exclusions. It is pretty obvious in the case of the connected category, but do you have any thoughts regarding the public sector and personal services?
Stuart Adam: Not really. You would want to ask the Government about their rationale for including certain groups and excluding others.
Q 13 Anne Marie Morris: Mike, may I press you on the appropriateness? I hear your message about simplicity, but what about appropriateness? I understand that, as you said, you are not necessarily au fait with the detail, but can you think of any particular reason why personal services, for example, should be an excluded group?
Mike Cherry: Not off-hand, no.
Q 14 Sheila Gilmore (Edinburgh East) (Lab): The Government have indicated that the allowance is a permanent tax cut. Do you think that that is a good idea?
Stuart Adam: If you think it is a good idea, you think it is a good idea. It is not obvious why it would only be a good idea for a couple of years, say.
Q 15 Sheila Gilmore: Do you think it is better in this format?
Stuart Adam: Yes, if this is something that you want to do then it would make sense to do it as a permanent policy. I have never been fond of things like sunset clauses. What I am keen on and would argue for in this case, as in almost all others, is post-implementation reviews: having a look in a year or two’s time at how well it is working and seeing whether you want to tweak it or whether it has been a disaster and you should get rid of it. If, in principle, you think this is a good thing to do, I cannot think of any reason why you would not want it to be permanent.
Mike Cherry: Two things on this one. First and foremost you need to ensure that whatever is on offer is simple. We have been calling for a long time for tax generally to be made much simpler. So this is an initiative. It is a welcome one but overall we would be asking for tax to be much simpler rather than to have initiative after initiative. Secondly, we are always calling for Government to get out of the way and to reduce taxes, and to let businesses get on with the job, just grow themselves and create the jobs that we need. This is part of something that goes towards that, but by no means all.
Q 16 Richard Fuller (Bedford) (Con): I am interested in ways we can encourage businesses, particularly small businesses, to pay the living wage. At the moment the Government subsidise people on low incomes through the tax credit system, but increase the price for companies employing them through national insurance. The Bill will reduce that. What is the merit of having a second box that companies can tick to say that they comply with a living wage against which there would be a higher figure than £2,000 for the employment allowance? What figure would have a significant impact in encouraging businesses to comply and say they were a living wage employer next to that box?
Mike Cherry: I think you have two very different issues here. The first and foremost is to reduce the tax burden on small businesses in particular to allow them to create growth and jobs. The second one is whether you impose a living wage, which we are against. We are in favour of the national minimum wage for those sectors and geographical areas where they have to compete against others who inevitably pay that sort of level. But if you look at our recent surveys they clearly show that the majority of small businesses not only pay above the national minimum wage, they pay at or above the living wage. It should be down to a business. By stimulating growth, confidence and the economy generally, you will end up with businesses being able to afford to pay more and get more take-up of the living wage if that is your intention. It should not be imposed.
Stuart Adam: They are two quite separate polices. In so far as the employment allowance will result in somewhat higher wages being paid to employees of the qualifying businesses, it might help increase wages to some extent and therefore progress towards the living wage, although the policy is somewhat less targeted at lower earners
than just increasing the existing threshold would be. I have no problem at all with the idea that you have some sort of box-ticking or certification whereby employers can say, “We are a living-wage employer.” Whether you should associate that with particular tax advantages is a bigger and more difficult question. I am not sure whether that was quite what you were getting at. It seems somewhat separate from the employment allowance.Q 17 Chris Evans (Islwyn) (Lab/Co-op): Looking at this as the replacement for the national insurance holiday, for which take-up was sketchy in parts—particularly in my area in Wales, and in Scotland, the north-east and Northern Ireland—do you think this new employment allowance is really just a sticking plaster on a far wider issue? I am looking here again at some of the changes which will cost the taxpayer an estimated £1.73 billion a year by 2017-18. Do you think that this is just the tip of the iceberg and that we should be looking more at tax reform and simplification, rather than initiative after initiative?
Stuart Adam: I would certainly argue for broader tax reform and simplification. Those who know the work that we did for the Mirrlees review will not be surprised to hear that. I do not think that that directly speaks to the question of whether this is worth while; this is basically a fairly straightforward tax cut, which is always a nice thing to do if you can afford it. There is a question of whether this is the best use of money that you can find, but the answer to that largely depends on your political priorities. I do not see in what sense it is a sticking plaster per se, any more than cutting the basic rate of income tax or the main rate of VAT is a sticking plaster: it is a tax cut.
Q 18 Chris Evans: I will tell you where I come from with it being a sticking plaster. There is talk of it being a permanent tax cut. Anyone who has been around business or in politics for a number of years knows that there is no such thing as a permanent tax cut. The world does not work like that. I am concerned that the measure might work for two or three years, but we could be sat here in the next Parliament talking about how to put the tax cut back up. We have used reliefs in the past, such as the national insurance holiday, which was not taken up in places where there is traditionally high public sector employment, and I have mentioned those areas as well.
Whatever political persuasion we are, we want to see small businesses thrive and, in particular, we want to see small businesses take more people on. The question I come back to is this: does the Bill tackle the barriers that you see small businesses having in taking new people on?
Mike Cherry: I do not think that the Bill necessarily tackles the barriers, but it does help put an initiative in place that small businesses will very much welcome. If you look at our statistics, 29% say that they would increase staff wages, 28% said that they would take on additional staff, 25% said that they would spend it on new machinery and equipment, and 21% said that they would spend it on improving staff training. There are some significant benefits that are coming through from this initiative that our members are telling us that they will take up.
Overall, I agree totally with Stuart. Reform and simplification of the tax system is long, long overdue. Something really needs to be taken to that so that we
almost start with a clean sheet of paper and say, “What do we want going forward?” That, however, is probably too much to ask.Chris Evans: What I am trying to get at—
Q 19 Chris Evans: Sir Alan, I will tie my question up. What I see is that we are stuck in a maelstrom of incentive after incentive after incentive. We are sticking our fingers in the wind, and sometimes it is working and sometimes it is not working. I am concerned that we are in the middle of another incentive, rather than going at the base of the problem. When I talk to business people, their problem is with corporation tax. For every £1 they make, they are paying 23p to the taxman. Is the Bill just an initiative, or is it something that tackles the central problem?
Mike Cherry: It is unrealistic to just look at corporation tax, because it does not apply to unincorporated companies or sole traders. We need to see something that we have been advocating for some time: the Government need to take a step back and look at a small business administration. The business bank is starting up and that could bring everything together and look into the medium and long term, if possible, rather than us having this “initiative-itis”, as I call it, with short-term political measures.
Q 20 Caroline Dinenage (Gosport) (Con): Mike, a minute ago you talked us through some percentage statistics on how businesses thought that they could best use the tax relief. Clearly, its purpose is to increase the number of people in employment. What percentage of employers do you really think will use it to take on new employees or to increase wages? How many will just use it to increase profit margins?
Mike Cherry: It is clear from our survey that 29% of our members are openly saying that they would increase staff wages and 28% are saying that they would take on additional staff. This is just one of a few initiatives that the Government have announced. I mentioned the capital allowance increases, and we are already beginning to see some benefits coming through from that. That will be further enhanced by the survey that we have sent out to the whole of our membership, which is under way as we speak. The results will be announced in March, and we will be drilling down into some of the figures so that we can see some of the benefits coming through, I would hope. However, it really does mean that you need to be helping small businesses. This is one of the initiatives that the Government have put in place at the moment. It is simple, it is easy, and our members are saying very clearly that they will do several things with the extra money in their pockets, rather than just increase their profits.
Q 21 Caroline Dinenage: We can all specify small businesses we have spoken to in our constituencies—I have had a small business since I was 19 years old—so we all have a finger in the air-type ability to judge what we think is going to happen. However, obviously you have a huge database of businesses that you speak to on a regular basis and the ability to collect a huge amount of statistics. On the whole, is it your view that, particularly as far as small businesses are concerned, the initiative is a good thing that is to be warmly welcomed?
Q 22 Nic Dakin (Scunthorpe) (Lab): When the Government have, on occasion, withdrawn support, they have said that the support they were giving was a dead-weight—in other words, that things would have happened anyway. I am interested in how we can judge whether the policy is good value for money and what would happen without it. You have both suggested that the two outcomes we might look at are more jobs and higher pay for those in jobs. How might we determine whether, after a period of time, the policy represents good value for money for the taxpayer?
Mike Cherry: It is incredibly difficult, as I think both of us mentioned earlier, to quantify that from our survey results, records, or anything like that. I think I mentioned that this is part of a raft of initiatives that the Government are introducing that is definitely beginning to restore more confidence to the general economy. Our past two surveys have shown that very clearly. Our economic surveys of quarter 3 results show that members are looking to grow and that their aspirations remain high. They are looking to invest more, and they are certainly looking to take on more people and to create more jobs. It is those sorts of barometers by which we can judge what the economy and our members are doing. Part and parcel of that is obviously what the Government are doing to stimulate and help small businesses. The measure is one of a raft of initiatives that we warmly welcome, and we are beginning to see some of the results.
Stuart Adam: Clearly we would expect the policy to do something to increase employment and wages. The interesting question is how much but, as I was saying before, that is going to be very difficult to tell. To some extent, you can look at historical evidence on how much tax cuts, or even cuts in particular taxes, increase employment or wages. However, this is a slightly different policy from anything that has been implemented in the past, in that it is one per employer, rather than one per employee. It is therefore much more focused not only on the small business sector, but on the small business sector as defined in a particular way, with respect to employment and payroll.
Looking ex-ante based on previous evidence is going to be only a limited guide. Ex-post, it is going to be very hard to know what change, if any, is caused by this policy, particularly given what Mike is saying about a number of other policies that are being implemented around the same time.
Q 23 Nic Dakin: Mr Cherry, you said earlier that 29% of your members expected to see increases in wages paid and that 28% expected to undertake greater employment. Is it reasonable for us to come back in a year or two to see whether those percentages have been realised?
Mike Cherry: You can certainly do that. The question I would raise would be whether you could then say that that was an exact result of this particular initiative.
Q 24 David Rutley (Macclesfield) (Con): I want to focus on the recent FSB survey. Apparently, 28% of respondents to one of your surveys this year said that the allowance would be a positive help to them. Does that bode well for the success of the scheme? Is 28% a good figure?
Mike Cherry: I think it is a substantive figure, to be honest. It is always difficult when you put out surveys to know what sort of response you are going to get on any particular initiative. It goes across the whole board, however, as when we look at our quarterly economic surveys, we can see the results coming through at the moment. We are certainly saying that this is to be welcomed.
Q 25 David Rutley: To build on that, one of the key messages coming out of here is the importance of communication. Clearly there has been some focus from others on what the Government will do to communicate this. I wonder whether you know not just what the FSB is doing, but what organisations such as the chambers or the Institute of Directors might be doing to look towards April and to get behind the scheme.
Mike Cherry: You would have to ask them that but obviously, from talking to them, as we do, they are also very willing and able to put information out to their respective memberships.
Q 26 David Rutley: A final question about communication. We all realise it is difficult with small businesses, but there are new opportunities through digital communication and the like. Has either of the two witnesses come up with examples of other countries and Governments that have been particularly good at communicating with small businesses? Is there anything we can learn from them?
Stuart Adam: I am afraid that is way outside my area of expertise. I am not expert in Government communication, and I have not looked much at other countries’ practices, either.
Mike Cherry: I do not have experience of the exact details of how other countries communicate with their business communities.
The Chair: We are rapidly running out of time.
Q 27 Ian Swales (Redcar) (LD): This is probably a question for Mr Adam. Clause 11 attempts to deal with tax and national insurance avoidance by oil and gas workers offshore, which is estimated as being worth £80 million to £90 million. Do you think the Bill will successfully close the loopholes?
Stuart Adam: I am sorry to be unhelpful, but that is way outside my area of expertise. I know nothing about it.
Ian Swales: I guess the FSB has nothing to say on that matter; okay, fine.
Q 28 Julian Smith: May I press Mike on the issue of communication that David Rutley mentioned? I believe that the Government have put together a suite of measures ranging from tax to deregulation to apprenticeships—a whole set of positive proposals—but my one worry is that we are not communicating about the good stuff that we are doing as fully as we could. What one or two things do you think would be helpful from the Government—and from Her Majesty’s Revenue and Customs, which communicates most to businesses—to signpost more effectively the excellent schemes, policies and proposals that are on offer for small business?
Mike Cherry: First and foremost, the Government have a problem, as I mentioned earlier. We have concerns that the Government need to take a step back and look into the medium term. Our “Enterprise 2050” paper clearly shows that there are 891 initiatives, grants and supports out there for small businesses. To be fair, a Government with that number of initiatives have a huge problem communicating them all. Equally, that gives businesses a tremendous problem of even knowing what is out there, let alone trying to avail themselves of it.
Use the business organisations, which are more than happy to help you, but also make sure that the gov.uk website is clearly signposted. The Government could communicate by using HMRC a lot more than previously. HMRC is perfectly able to communicate with every single business that is registered for PAYE. That medium is not best used at present, although now that real time information has come in, you always get a bounce back and an acknowledgment once you have filed your weekly or monthly return.
Q 29 Julian Smith: Do you think that HMRC would be a good means of signposting completely non-tax-related proposals?
Mike Cherry: It is something that could be looked at. As I said, you have the gov.uk website, which should be the one that everybody goes to. However, if you have ever tried to get through the HMRC website, it is an absolute nightmare. I would suggest you avoid it like the plague unless you have to go through it and find something very specific.
Q 30 Julian Smith: Have you polled your members on which Government site they use most frequently?
Mike Cherry: We survey our members on where they get help from. I do not think that we have carried out a survey on specific Government websites, but we make members aware that gov.uk is the one that is supposed to be used.
Q 31 Richard Fuller: May I go back to Mr Cherry on the living wage? My point was about not compelling companies, but incentivising them. Many of us want to reduce taxes on our small businesses because, through their ingenuity and creativity, they create the wealth that pays for the public services that the rest of the country can enjoy. The Bill is a welcome step towards achieving that, but I am trying to find ways in which we can cut taxes for your members more. However, the quid pro quo has to be that they react like that 28% that said that they wanted to increase wages.
The coalition Government have done a good job of increasing the tax threshold for employees. How would you like to see this £2,000 change over the next five years? Should we look to increase that year on year—from £2,000 to £3,000, to £5,000 and to £10,000?
Mike Cherry: That would be very welcome, but from the Government’s perspective, I am sure that they would want to see a commensurate increase in jobs and the wages paid to individuals, especially at the lower end.
Q 32 Richard Fuller: But my point is about whether you can give the Government confidence that they will see that.
Mike Cherry: It is difficult to say at this stage; only time will tell. As a colleague said, a review in a couple of years’ time might be useful.
Q 33 Anne Marie Morris: Mike, one of the challenges is to make this simple to use. Clearly, the PAYE changes will make life easier. As the Government have not yet clarified exactly how this will work, other than that it will be the first deduction that they will make, how would you like to see it implemented? What are the two or three things you would like to see in the process that would make it easy for a small business to use?
Mike Cherry: To be absolutely candid about that, we do not pay anything until we hit £2,000. I imagine that that would be perfectly easy to do under RTI as that goes forward. As soon as your employer’s level hits that £2,000 in the year, that is when you start paying. Below that, you should not need to pay any employer’s national insurance contribution. The Government should be able to recognise that, through RTI, so that you do not pay that bit of the national insurance contributions.
Stuart Adam: I do not have much to add to that but, if I may, I will go back to your question that I ducked, but perhaps should not have done, on the rationale for excluding domestic employment—personal services and so on. My underlying answer is still that if you want to
know what the rationale is, ask the Government. However, other things being equal, giving a relief for one set of employers but not another clearly introduces an unwelcome distortion into the tax system.If I were to speculate as to the reasons why the Government might have wanted to do that, I could think of two possible candidates. The first is that if you thought that, as a result of the tax incentive, domestic employers would be less likely to take on an extra person, or that people would be less likely to become domestic employers in the first place, you would get less dead-weight in return for the money you were spending. The other is if you think that there are benefits to wider society from small business activities and employment that you do not get from domestic employment. Whether either of those is actually true, and whether either is the Government’s rationale, I still do not know.
The Chair: Thank you very much. That brings us to the end of this morning’s session. May I thank the witnesses on behalf of the Committee?
Ordered, That further consideration be now adjourned. —(Amber Rudd.)
9.44 am
Adjourned till this day at Two o’clock.