National Insurance Contributions Bill

Public Bill Committee, 2 December 2010.

Jim Sheridan (Labour, Paisley and Renfrewshire North)

Before we begin, I shall read out a brief introductory statement and make a few preliminary announcements.

Members, if they so wish, can remove their jackets during the Committee meetings. Would all Members please ensure that mobile phones, pagers, etc. are turned off, or switched to silent mode, during the Committee meetings?

As a general rule, I and my fellow Chairs do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period in Public Bill Committees is three working days. Therefore, 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 on Tuesday.

Not everyone is familiar with the process of taking oral evidence in Public Bill Committees, so it might help if I briefly explain how we will proceed. The Committee will first be asked to consider a programme motion on the amendment paper, debate about which is limited to half an hour. We will then proceed to a motion to report written evidence and then to a motion to permit 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 has been agreed to, 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. If the Committee agrees to the programme motion, the Committee will hear oral evidence this afternoon.

On the question of the programme motion, the amendments tabled in the name of the hon. Member for Scarborough and Whitby (Mr Goodwill) are intended to remove the names of organisations that are not able to send representatives. Since the amendments were tabled, two further witnesses have had to drop out because of the bad weather: Hampshire Chamber of Commerce, which was due to replace Southampton Chamber of Commerce in the original list; and the East London Small Business Centre. That leaves Wenta alone in the second panel.

Therefore, in order that amendment (b) on the amendment paper should reflect the current situation, I suggest that the Whip moves it in amended form—namely, leaving out Cambridgeshire Chamber of Commerce, Southampton Chamber of Commerce, Portsmouth Chamber of Commerce, London First and East London Small Business Centre.

David Hanson (Labour, Delyn)

May I welcome you to the Chair, Mr Sheridan? The Opposition are content with the proposed amendment.

Jim Sheridan (Labour, Paisley and Renfrewshire North)

Good afternoon. Thank you for coming along. We will now hear oral evidence from the British Chambers of Commerce and the Federation of Small Businesses. For the record, please introduce yourselves to the Committee.

Jim Sheridan (Labour, Paisley and Renfrewshire North)

Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill and we must stick strictly to the timings of the programme motion that the Committee has agreed. I hope that I do not have to interrupt mid-sentence, but I will do so if need be.

David Hanson (Labour, Delyn)

I welcome both witnesses to the Committee.

My opening question is to Mr Patel and Mr Hughes in turn. Do you feel that a payment holiday for new businesses and, generally, for businesses with fewer than 10 employees is a good idea?

David Hanson (Labour, Delyn)

Do you have a view as to whether the absence of London, the south-east and the eastern region is positive or detrimental to the overall acceptability of the scheme and the positive nature of the scheme that you have expressed for both your organisations?

David Hanson (Labour, Delyn)

The Government have argued that this scheme is to support areas where there are high levels of public sector employment that will be hit by redundancies and job losses. Statistics show that 23 of the top 100 constituencies for public sector employment are in London, the south-east and east. How do you think your members in those areas will react when they are defined, according to the Government’s own definition, as a high public sector area yet they will not be able to apply to a scheme that will help with deprivation and advance the Government’s stated objective. Do you have any views on that?

David Hanson (Labour, Delyn)

Do you have any view as to the competitive nature of the proposal in relation to those regions, particularly on the borders of regions where there could be companies on one side of the border that qualify and companies on the other that do not but which are operating in the same market?

David Hanson (Labour, Delyn)

Just one final question from me, because I know that other colleagues want to come in. Do you have any current awareness of the total amount of resource the Government have put into the scheme for your members as a whole? I am interested in whether, if you had that awareness, you would use that resource in a different way to help support your members.

David Hanson (Labour, Delyn)

The scheme will cost an amount of money; the Government have estimated between about £900 million and £1 billion. The potential amendments that we have included could increase the resource and divide it in different ways. If that resource was available to you to plan for supporting small businesses and chambers of commerce generally, would you would think of using it in a different way?

David Hanson (Labour, Delyn)

Just out of interest, have you made any representations to the Government in the development of the scheme about those issues? Have you put them on the table?

Mel Stride (Conservative, Central Devon)

May I clarify something that I think you both said earlier? You recognised that to roll the scheme out to the other three regions, which are currently proposed to be exempted, would cost about £650 million out of a scheme that will cost about £940 million in total. Are you saying that in your view, taking into account the fact that we have to get the deficit down and the needs of those three regions, it would not be a good idea to spend that additional £650 million in that way?

Mel Stride (Conservative, Central Devon)

The national insurance holiday is basically permissive, in a sense, rather than prescriptive. In other words, companies have to actively apply for it, rather than being given it when they set up, which then brings into play this whole issue of how it is advertised and marketed as a scheme. My concern, or one of the concerns that I might have, is that we don’t get the message out effectively, so I would very much value comments from both of you on how you think we should ensure that new start-ups are very aware of what is on offer here.

Mel Stride (Conservative, Central Devon)

On that point, do you think that using LEPs—they are emerging now—Business Link, and so on is a good enough channel to get the message out? Or do you sense that there is something wider that needs to be done here?

Chris Leslie (Labour, Nottingham East)

Thank you for your comments so far. I am interested in picking up the question about the awareness of the scheme among potential new businesses. I would normally ask whether any of your existing members had made inquiries with you, but I assume not because new businesses would not yet be your members. Would it be a good idea to require all communication, literature, websites, mailings or whatever, that HMRC has with new business start-ups to have a clearly marked section or a link to a website to market and promote the scheme?

Chris Leslie (Labour, Nottingham East)

I do not know whether sufficient thought has been given to the design of the scheme and its promulgation to make people aware of it. You made a point about minimum wage advertising, and I do not know whether enough has been put into that. Have you seen the suggestion in the regulatory impact assessment that apparently 240 HMRC staff are to be dedicated to the promotion and administration of the scheme? Do you have a sense of whether that is sufficient or whether, in your experience, getting through to HMRC and getting information for your members has always been sweetness and light and straightforward? Have there been difficulties for your members in the past with similar schemes?

Chris Leslie (Labour, Nottingham East)

Would your organisations be willing to be contracted to do some of that marketing and promulgation?

Chris Leslie (Labour, Nottingham East)

Do you think the NI holiday proposal will create jobs? Economists talk about the dead-weight cost of money that will go into business, which would have already created those jobs anyway. Will it create extra employment?

Chris Leslie (Labour, Nottingham East)

Would it be a more flexible design of a scheme if, rather than accounting for even the person on the smallest number of part-time hours, businesses were allowed to aggregate somehow to allow the full-time equivalent? So, essentially, they would not be penalised for having lots of part-timers. Obviously, new start-ups will not necessarily take on full-time staff straight away, but they might lose out on some of the NI holiday relief, simply by virtue of having part-timers. Do you think that there should be a proposal that would allow the full-time equivalent in aggregation to count, in order to maximise the relief?

Matthew Hancock (Conservative, West Suffolk)

Does the fact that this scheme is designed to apply to new businesses mean that communicating it—and, I think we all agree that communicating this is an important part—would, in a sense, be easier? That is because when a new business comes to interact with the tax system for the first time, the scheme applies, which is rather unlike the minimum wage legislation, where you have to talk to existing businesses that have already been implementing the bureaucracy in a certain way. The first time a business asks, “How do I have to comply with the tax system?” is the point at which the Bill will have an impact on it.

Matthew Hancock (Conservative, West Suffolk)

My other question is on the savings on administration. Both of you have mentioned how complex it is to comply with the tax regime. Have you made any estimates of the positive impact that this will have in terms of reduced bureaucracy for start-up companies? I appreciate that they will still have to pay some taxes.

Matthew Hancock (Conservative, West Suffolk)

So you do not think that it will make it easier for new businesses to comply with the tax system, because this is one less tax that they will have to comply with.

Gavin Shuker (Labour, Luton South)

Mr Patel, you said that the previous plans before the election would have cost 57,000 jobs. Do you have that information by region?

Gavin Shuker (Labour, Luton South)

Okay. How many jobs would this cost in the east, the south-east and London?

Gavin Shuker (Labour, Luton South)

But you would accept that it is a proportion of that 57,000?

Gavin Shuker (Labour, Luton South)

Would you accept that this policy would be detrimental to new businesses starting up in the east, the south-east and London?

Gavin Shuker (Labour, Luton South)

Assuming that the whole country cannot benefit from a blanket holiday, at what level should the exemption apply? Should it be at regional level, LEP level, constituency level or local authority level?

Gavin Shuker (Labour, Luton South)

Do you think that all the measures before us will have a significant effect in terms of rebalancing the economy in areas with high public sector employment?

Gavin Shuker (Labour, Luton South)

Are you confident from what you have heard from the Government and from your previous experience of other schemes that we have seen in recent years that there will be effective analysis of the data as the scheme goes through?

Gavin Shuker (Labour, Luton South)

Finally, it sounds from your answers as if you believe that these initiatives can be welcomed, but will not make a significant difference to rebalancing the economy in the affected areas.

Mel Stride (Conservative, Central Devon)

I want to go back to the issue of the potential complexity of the scheme’s administration for employers that take it up. The impact assessment suggests there will be £75 million of cost across the companies that might be expected to take this up. Do you feel that, in the context of the various things that companies are doing in terms of tax administration, and so on, this is potentially a highly administratively onerous scheme? Or is it at a low level? Where would you place it? To the extent that it is onerous, how might it be made less so?

Mel Stride (Conservative, Central Devon)

As I understand it, the Bill creates a need for employers to establish that there is no contravention of EU regulations in terms of regional subsidies being applied. No company is allowed to have more than £200,000 over a three-year period as a result of being in one region rather than another. Can you comment on that? Do you think many companies will be caught up in that? Do you think it is something that all companies will have to think about and, therefore, will be onerous in terms of the administration?

Mel Stride (Conservative, Central Devon)

Do you suspect that it may be a sort of tick-box form that states that such businesses do not need that particular scenario?

Richard Harrington (Conservative, Watford)

I am sure that hon. Members on both sides of this table would agree that both of your organisations help business a lot, and they also help us, in Parliament and in our constituencies, to understand small businesses. I refer to those of us who have not spent most of our career in business—I have, by the way.

Would I be fair in summarising both of your positions on the national insurance holiday as thinking that it is a good thing, which would provide a boost in certain regions, but that for someone wanting to set up a small business, it would be just one of a number of factors? Those include rent, business rates—a huge burden on anyone considering opening a shop or any other form of business—national insurance, income tax, corporation tax and a whole series of taxes and obstacles to business. Is it your view that the national insurance holiday would be only a small part of the total decision—not a fundamental consideration—for somebody looking to set up a business? So in an area that does not have it—which would include my constituency, because it is in the eastern region—it will not have the effect of making people decide not to set up a business.

Richard Harrington (Conservative, Watford)

Obviously, I hope that, in the future, significant reductions in other taxes and bureaucracy will be a major boost to small businesses.

The hon. Member for Luton South asked you several questions, and you mentioned the modelling that you have done of the number of jobs—I think it was 57,000 or 53,000—that would have been lost under the employer tax regime as proposed by the previous Government. I understand how you can model that from existing businesses, but the hon. Gentleman went on to ask you whether you could model the number of jobs that would be lost in regions that did not have the new national insurance holiday—the east and London, for example. I cannot see how that would work, because it is trying to predict who would not set up new businesses. You kindly offered to send him the figures, but I do not understand how you could do that—[Interruption.]

Jim Sheridan (Labour, Paisley and Renfrewshire North)

Order. Mobile phones are interfering with the sound. They may be on silent, but please take them away from the microphone.

Andrew Bingham (Conservative, High Peak)

You said earlier that business would only employ on demand, and that you do not actually think this would make them employ somebody. Have you not had any feedback from members suggesting that if it was a marginal decision as to whether they would employ somebody or not, this would give them the little bit extra that would make them employ somebody—for instance, if a new business wanted to employ a new salesman or wanted to expand?

Andrew Bingham (Conservative, High Peak)

Yes, that is exactly what I mean—a trigger. We are talking about getting the message out, which a few of us are concerned about. I am not sure how closely your organisations work with smaller accountants. Business start-ups do not go to the big boys—the PKFs of this world—but to Mr Bloggs accountants in the high street, and they are the key people to get this message across. As someone said earlier, the first person every new business probably needs, apart from a sympathetic bank manager, is an accountant. Do you work closely with accountants in your organisations to make them the message carriers?

Andrew Bingham (Conservative, High Peak)

I take your point, but a micro-business—as they are called now—may not have time to read the trade press and so on. The two people they always see are the bank manager and the accountant, who is often part of a small business himself.

Heidi Alexander (Labour, Lewisham East)

I have a brief question relating to survival rates of small businesses. My constituency in south-east London has a higher than average number of firms going out of business within the first year or the first two to three years. What information do you have about regional variations in survival rates and how do you assess the exclusion of London, the south-east and the east from the proposals? Do you see connections between this national insurance holiday and survival rates?

Heidi Alexander (Labour, Lewisham East)

I would not have thought that those businesses would necessarily be employing 10 people in their first couple of years. But I know how close to the breadline very small businesses in parts of London can be when they are setting up. I also recognised what the chairman of the Federation of Small Businesses said previously about many businesses in the south-east working below capacity—which was what was driving my question—and the calculations that businesses make about whether they can continue. I just wondered whether the national insurance holiday would have some effect.

Heidi Alexander (Labour, Lewisham East)

But surely new businesses become existing businesses at some point?

Kelvin Hopkins (Labour, Luton North)

You have heard from my colleague, my hon. Friend the Member for Luton South, about Luton being a special case. It is an area that has significant economic difficulties in a region that is relatively prosperous, so the boundary problem affects us.

I am more concerned about the point that you made earlier about demand and that what really matters, above all, is the level of demand for the services from small businesses. They depend on individual consumers, other larger companies and, indeed, the public sector for their demand. They are all going to be cut and, as of yesterday, I understand, bankruptcies are up and consumption is down, and you will be much more savagely affected by that than can be compensated for by marginal changes in the tax regime. Is that a fair assessment?

Kelvin Hopkins (Labour, Luton North)

Would it help if whatever scheme is put in place was better targeted? Rather than on a simple regional basis, it could be targeted, perhaps, on a local authority basis, so that somewhere like Luton could be more fairly treated, and a more prosperous area of the south-east—the Surrey heartlands or whatever—would not get the same cash benefit.

Kelvin Hopkins (Labour, Luton North)

In the 1970s, and possibly before, Labour Governments had much more substantial and generously funded regional policies than have existed ever since. Is it not in your interests to lobby Government to introduce much more regional assistance of the kind that was produced by former Labour Governments, which would help business and moderate unemployment, particularly in those areas of highest unemployment?

Jim Sheridan (Labour, Paisley and Renfrewshire North)

If colleagues have no further questions, it just leaves me to thank our witnesses for coming along. I’m sure your evidence will be very much appreciated in the forthcoming sessions. Have a safe journey home.

Jim Sheridan (Labour, Paisley and Renfrewshire North)

I invite our next witness, the representative from Wenta, to take a seat. For the record, will you introduce yourself to the Committee?

David Hanson (Labour, Delyn)

Thank you, Mr Pichon, for your memorandum and for coming to the Committee today. I want to focus on the issue of the national insurance holiday, which is my main concern. In your memorandum you said:

“this is a divisive and almost unworkable scheme that will be expensive to introduce and to monitor.”

Would you like to expand on that for us?

David Hanson (Labour, Delyn)

There will be a range of discussions on a number of alternative models for the distribution of the scheme, as opposed to the current model before the Committee. There will be, for example, the model of a universal scheme across the whole United Kingdom. There will be the model of a scheme that applies to specific local authorities. There will be a model that applies across the country in areas of high public sector employment that might lose jobs. There is the model that applies across the country in areas of high unemployment. Amendments have been tabled that reflect that. Do you have a particular view on whether or how the Committee should approach any of those potential solutions, as opposed to the current model?

David Hanson (Labour, Delyn)

If you were the Minister—I would not want to impose such burdens on you—would you simply extend the scheme to cover every region of the United Kingdom?

Gavin Shuker (Labour, Luton South)

First, I congratulate you on being from Bedfordshire and Hertfordshire; it is a very nice part of the world, as I understand it. One reason why we want to speak to experts in their field is to get a picture of what it is like locally, where they are. Can you explain to the Committee what kind of variation there is between different areas of Bedfordshire and Hertfordshire, in terms of public sector employment, unemployment and that kind of thing?

Gavin Shuker (Labour, Luton South)

Will these proposals help new businesses to start up in the areas of deprivation that you have talked about?

Gavin Shuker (Labour, Luton South)

You have differentiated between certain local contexts within Bedfordshire and Hertfordshire. Would you say that that remains broadly true across the entire east of England, and that there is a lot of diversity?

Gavin Shuker (Labour, Luton South)

What kind of proposal do you believe would really help those areas? Is it a national insurance holiday?

Gavin Shuker (Labour, Luton South)

Looking at the proposals we are considering in this Committee, do you believe they fulfil the criteria of a long-term and consistent approach to taxation for business, national insurance and so on?

Matthew Hancock (Conservative, West Suffolk)

I have a couple of brief questions. You said that you did not think any new businesses employed anybody. You say in your written evidence that that is in the first few months, but this proposal is for the first few years. Do you therefore reject the analysis that was just confirmed by the British Chambers of Commerce and the Federation of Small Businesses that 800,000 employees will be positively affected by the proposal?

Matthew Hancock (Conservative, West Suffolk)

But you don’t dispute the number across the country?

Matthew Hancock (Conservative, West Suffolk)

Okay. In your written submission you said that the best thing would be to abolish employers’ national insurance contributions completely.

Matthew Hancock (Conservative, West Suffolk)

National insurance raises £95.5 billion. How would you square that circle?

Matthew Hancock (Conservative, West Suffolk)

If you were to abolish it completely then you would have rather a large hole in the finances.

Matthew Hancock (Conservative, West Suffolk)

So we should treble corporation tax in order to abolish national insurance?

Matthew Hancock (Conservative, West Suffolk)

You have said that employers’ national insurance should be abolished, and here is a proposal to do so in a limited area. But then you describe that proposal as a turn-off. How do you square that circle?

Richard Harrington (Conservative, Watford)

Chris, thank you very much for this paper. Unfortunately, some of us received it quite late. Having just read through it, I feel I should press you on what I fear is a major inconsistency in it. I am not arguing for or against it, but half your paper calls for the abolition of the employers’ contribution to national insurance. We referred to it during the election as a job tax, and I accept the basic premise of this. But the other half of your paper refers to organisations in Watford, which I am familiar with, and elsewhere that you sit on. The main complainants seem to be people who rely on public funds to operate, CVS being a good example. I feel there is an inconsistency there. That links with the holiday that the Government have announced, because many people in Government—in fact, many people on both sides of the House—would, in principle, be in favour of reducing taxes as much as possible to incentivise business.

The Government, as you know, were faced with the biggest debt in history, and all of the other problems. There is already a big tax burden on business, and it would seem to me that, although the holiday has imperfections—regional imperfections being one of them, which we are discussing today—fundamentally, in the short term, it was all that could be done, because of our burden of debt. Do you agree with that statement?

Richard Harrington (Conservative, Watford)

On the narrow example of the holiday, the established figure is that to extend it to the whole country would have cost an extra £650 million. That money would have come, if I can localise it, from those very organisations—such as CVS and the others —that you mentioned. That is the problem that the Government had.

Kelvin Hopkins (Labour, Luton North)

First, I found your paper really interesting. It was one of the most interesting papers I have read for a long time. I agreed with much of it, and, as you say, it was thought-provoking. The point that you make is that shifting the burden of taxation from employment to profits and to incomes would help generate employment. Generating employment would reduce the level of benefits paid out and increase the level of tax paid in, which would help reduce the deficit and boost the economy in many ways. That is very helpful, and I must say that I do not find much with which to disagree. Is your basic argument that marginal tax incentives unfairly distributed across the country will not help very much?

Kelvin Hopkins (Labour, Luton North)

You also make the point—this is a point that I made—that the voluntary sector is currently in a state of meltdown. That is not going to do much for the big society, is it?

Kelvin Hopkins (Labour, Luton North)

The voluntary sector is akin to small business in many ways, because voluntary organisations operate like small businesses in many ways.

Kelvin Hopkins (Labour, Luton North)

Have you looked at what other countries do in terms of taxation? The successful ones, such as Scandinavia, probably do it very differently to us.

Stella Creasy (Labour, Walthamstow)

I want to follow up on the discussion about the voluntary sector, because one of the things that we are also expecting in the next couple of years is for some new voluntary sector organisations to be organised—the talk of the big society is about exactly that. Could you talk us through your experience of what makes voluntary organisations develop, and whether you think any of these proposals will help or hinder that?

Stella Creasy (Labour, Walthamstow)

To be clear, I meant the practical aspects of actually setting up a voluntary sector organisation to work in a local community, in terms of having staff, managing budgets and things like that. Do you think that some of these proposals will help or hinder that?

Stella Creasy (Labour, Walthamstow)

Do you think that if this proposal for an NIC holiday were applied to new voluntary organisations and new charities, that would be beneficial?

Stella Creasy (Labour, Walthamstow)

What about a not-for-profit voluntary organisation?

Stella Creasy (Labour, Walthamstow)

You would not see any difference?

Stella Creasy (Labour, Walthamstow)

You would not differentiate between the private sector and the voluntary sector in this capacity, in terms of whether it will have an impact on employment rate?

Stella Creasy (Labour, Walthamstow)

The other thing that your note says is that:

“There are many businesses that are on the brink of closure”.

What do you think we could be doing to support those businesses that are on the brink of closure? Are there things that we could do on national insurance that might help or hinder them?

Stella Creasy (Labour, Walthamstow)

What are the sizes of the firms that you are talking about? On average, how many employees do they have?

Stella Creasy (Labour, Walthamstow)

So they are the sorts of businesses that this new start-up holiday would apply to if they were new, but because they are existing, it will not. In terms of the jobs in your local area and the small businesses that you are working with, do you think that it is more likely that we would be able to generate jobs within those organisations or by saying, “Let’s start again”?

Stella Creasy (Labour, Walthamstow)

No, I’m trying to understand from you. One of the ideas behind this proposal is that it will encourage businesses to take on employees in new start-ups. I am trying to understand the other areas where we might be losing employees.

Stella Creasy (Labour, Walthamstow)

I am trying to get your sense of this as well.

Mel Stride (Conservative, Central Devon)

You mentioned that you felt that this policy was unfair, because it is treating different regions of the country differently. There is some element of consensus across the various parties here in Westminster that regional policy is important, and that parts of the country need a bit of extra help compared with others. Inherent in that approach of regional policy is the fact that by definition you will treat some parts of the country differently from others. Are you, therefore, against regional policy per se? Is that fundamentally what is driving your objection to this policy?

Mel Stride (Conservative, Central Devon)

So you would be against any form of regional policy—this or any other. It would make no difference how it was framed: it would fundamentally be wrong.

Mel Stride (Conservative, Central Devon)

One thing that has confused me is that on the one hand you seem to be arguing that this particular policy in the Bill is not going to make a huge difference to employers—in other words, it is not really conferring any particular benefit, as such—but you seem to be extremely keen to have it along with everybody else. Why would you want something that is not actually—

Martin Vickers (Conservative, Cleethorpes)

My thoughts are similar to those of my colleague Mr Stride, and to some extent you have answered the point I was going to make. I am still slightly confused about your views on whether it should apply to the whole country or only to certain regions. It is interesting to note that you would gladly take anything that is on offer, even if you think it is of minimal value. You have mentioned LEGI and objective 1; over the years we have had enterprise zones, assisted area status and endless initiatives from Governments since pre-war days, all of which have distorted the market to some extent. Are you actually saying that you want a complete free market and you do not want any handouts at all?

Jim Sheridan (Labour, Paisley and Renfrewshire North)

If there are no further questions, I thank our witness for coming along. If your objective was to be thought provoking, you have certainly achieved it. So thank you for bashing through the weather to come here and have a safe journey home.

Jim Sheridan (Labour, Paisley and Renfrewshire North)

I now invite representatives from the Treasury and HMRC to take their seats. Thank you for coming along and being so patient. Again, just for the record, could you introduce yourselves?

Chris Leslie (Labour, Nottingham East)

Good afternoon, gentlemen. Thank you for coming to the Committee. Mr Owen, am I right in my understanding that, for the annual changes to national insurance—the indexation for employers— the indexation amounts are typically publicised and announced, roughly speaking, in the autumn period?

Chris Leslie (Labour, Nottingham East)

Have we had that announcement in the autumn forecast issued by the Chancellor last Monday?

Chris Leslie (Labour, Nottingham East)

Is there a plan for the date when it will be announced?

Chris Leslie (Labour, Nottingham East)

Could the Minister confirm when shortly will be?

Chris Leslie (Labour, Nottingham East)

Do I need to wait till we get into the Bill proper next Tuesday to know whether you are planning to pursue the normal practice of the Rooker-Wise amendment? I know that is more related to personal income tax indexation, but that was a retail prices index tradition. I think it was written into statute, was it not?

Chris Leslie (Labour, Nottingham East)

Mr Owen—actually I do not know whether this question is to you or Mr Mitha, but I ask it of the relevant person—the regulatory impact assessment of the Bill suggests that 240 extra staff will be taken on to implement the national insurance holiday. Is that figure correct?

Chris Leslie (Labour, Nottingham East)

From where will they be taken? What tasks?

Chris Leslie (Labour, Nottingham East)

So 240 staff out of how many will deal with this?

Chris Leslie (Labour, Nottingham East)

So quite a chunk. Which specific elements of response to employers will be diminished in order to create that unit of 240?

Chris Leslie (Labour, Nottingham East)

But it would be impossible to take 240 people into this new task without adversely affecting some of the responsiveness to employers on other NI inquiries, would it not?

Chris Leslie (Labour, Nottingham East)

So how will you measure whether there will be any adverse impacts?

Chris Leslie (Labour, Nottingham East)

So over the three years of this scheme you will be able to track employer satisfaction and that information will be published?

Chris Leslie (Labour, Nottingham East)

But Mr Gauke, you are happy to publish that tracking information so that we can see the impact of the redeployment on employer NI satisfaction issues generally?

Chris Leslie (Labour, Nottingham East)

Were they uprated by the consumer price index or retail price index?

Chris Leslie (Labour, Nottingham East)

Which is, Mr Owen?

Chris Leslie (Labour, Nottingham East)

And the announcement is—

Chris Leslie (Labour, Nottingham East)

Okay. Thank you.

Chris Leslie (Labour, Nottingham East)

In terms of the application process and the new unit that is being created, what will be your target for turning round a decision when a new business applies and for letting it know that it qualifies?

Chris Leslie (Labour, Nottingham East)

How many have you turned round so far?

Chris Leslie (Labour, Nottingham East)

And your aim over the lifetime of this holiday is how many?

Chris Leslie (Labour, Nottingham East)

So you are not really on course to reach that 400,000 level?

Chris Leslie (Labour, Nottingham East)

Would it be out of order to set yourself a three-month target for guaranteeing a turnaround of an application to a decision?

Chris Leslie (Labour, Nottingham East)

What are your plans for advertising and disseminating information on this scheme?

Chris Leslie (Labour, Nottingham East)

I know that some of the team at the Institute of Chartered Accountants in England and Wales have recently written about another national insurance holiday or similar schemes in the past in quite sceptical terms, particularly when thinking about the fact that a lot of hurdles have to be jumped. Are there echoes of such a scheme? Are you confident that your 400,000 will be reached? Are you confident, for instance, that by the end of this calendar year, you will have reached a certain proportion? What will that figure be, and what lessons do you think can be learnt from the scheme that ran in the past?

Matthew Hancock (Conservative, West Suffolk)

Earlier, we heard from two of the country’s leading business organisations—the British Chambers of Commerce and the Federation of Small Businesses. One said, “I have no doubt some start-ups will be incentivised to take on new people.” The other said that, in some of their work, “60% of small and new companies had said that a cut in employer taxation would trigger them to take on more people.” Mr Gauke, could you explain what impact you think that the national insurance holiday will have on generating new jobs?

Matthew Hancock (Conservative, West Suffolk)

Is that two extra employees per employer?

Matthew Hancock (Conservative, West Suffolk)

The flip side of more jobs being created through tax breaks, of course, is that if you put taxes on employers up, they might take on fewer people. The FSB mentioned their estimate that the so-called jobs tax would have cost 57,000 jobs, and the Bill is part of the process of trying to reverse that. Do you agree with that assessment? If not, do you have a separate Treasury assessment?

Matthew Hancock (Conservative, West Suffolk)

Finally, we have heard a lot this afternoon about the fact that there is a regional breakdown in the coverage of the NICs holiday, and there were questions about whether it would be better to be more targeted. The employers’ organisation said that that would make it more complex. Have you made any assessment of how far people travel in order to work? For instance, I know that lots of people from my constituency travel to Cambridge, which is in a different county. Have you made an assessment of how much the ability to work somewhere different from where you live ameliorates the impact on pockets of high public sector employment?

David Hanson (Labour, Delyn)

Could I just ask, as my first question, what is the net cost to the Exchequer over the period of the scheme?

David Hanson (Labour, Delyn)

Have you set a cap on that net cost? If, for example, 500,000 businesses took up the scheme would the Exchequer put a £940 million cap on the top of the scheme?

David Hanson (Labour, Delyn)

If, let’s say, two years downstream the scheme appeared on current estimates to be costing £1.3 billion as opposed to £940 million, would it continue into its third year or would it be capped at £940 million?

David Hanson (Labour, Delyn)

Other schemes that have been designed to help stimulate the economy, such as the car scrappage scheme, have taken place over a defined period of time, using a defined resource and within a defined market, whatever that market might be. I am interested in what the logic is behind having effectively an open-ended scheme—based on the estimates, I accept—that could cost more or less than the £940 million. What is the logic behind that assessment?

David Hanson (Labour, Delyn)

But the point I’m making is that in your answers to my written questions you have estimated that the cost of including London, the south-east and the eastern region in the scheme would be an extra £660 million. In theory it would be possible, therefore, to have a scheme that cost around £1 billion, which was available to the whole of the United Kingdom but which was operated over a shorter period of time. There is no bar to that, is there?

David Hanson (Labour, Delyn)

What it the logic for excluding London, the south-east and the east?

David Hanson (Labour, Delyn)

If I said to you that 23 of the top 100 constituencies for public sector employment are in London, the south-east and the eastern regions, or if I said that, at 9% in November 2010, London has the highest unemployment of any region in the United Kingdom, is there a logic to excluding those regions? Part of the logic for this measure is that public sector employment is potentially one of the areas of loss; another part of the logic was unemployment. We could go through the deprivation index or a number of other measures that suggest that there are very severe pockets of unemployment or deprivation in which people do not necessarily have the ability to travel to other areas, or, indeed, are within the criteria that you have set for other regions being included.

David Hanson (Labour, Delyn)

Did you cost or develop any alternative scheme, either at official level or at ministerial level, before settling on the scheme that excludes London, the south-east and the eastern regions? Did you look at other options and models?

David Hanson (Labour, Delyn)

I have just one final question. We will return to all of these issues in detail over the next week. In the event of the take-up not progressing at the rate you have anticipated, would you consider expanding the scheme to London, the south-east and the eastern region?

David Hanson (Labour, Delyn)

A final, final question from me then on existing businesses. This is obviously for new businesses. Did you in preparing this scheme undertake any costings or did officials make any proposals for consideration by Ministers in relation to existing businesses of a certain scale, in terms of numbers of employees, turnover and time in business?

David Hanson (Labour, Delyn)

The focus was on it but did you ask for any coverage?

David Hanson (Labour, Delyn)

It would only be expensive, Minister, if you had an open-ended commitment. If you fixed a budget for it, you could apply this scheme in any number of ways.

Gavin Shuker (Labour, Luton South)

I just want to talk practically about the application process and what happens when the form or the online submission comes to HMRC. What checks are run on those applications?

Gavin Shuker (Labour, Luton South)

We all definitely welcome the fact that it is a quick and easy process at your end. The key thing when it comes to part 2 of the Bill is that you check the business address and the postcode. Does that mean that you have a postcode file of those which are eligible and those which are not?

Gavin Shuker (Labour, Luton South)

So you have a list of excluded postcodes, which at that point would filter a business out of the pool.

Gavin Shuker (Labour, Luton South)

It strikes me that it would be possible to change those postcodes right the way down to the individual 15 households of a postcode, which would make a business eligible or ineligible. Is that correct?

Gavin Shuker (Labour, Luton South)

So you are saying that the costs of the scheme would vastly increase if you had to work out all the different postcodes.

Gavin Shuker (Labour, Luton South)

I suppose what I find confusing about that is that I can understand how the costs of the scheme could increase in other areas, such as publicity about which areas are affected and in working out which areas should be included, but I am surprised that the practical aspect of a form coming in and you performing a postcode check would be significantly more expensive.

Gavin Shuker (Labour, Luton South)

Finally, if I may ask the Minister a question. It has been said that if the scheme were to work on a smaller basis than by region, it would be too complicated. In your evidence, you described it as more difficult to administer. Can you give us a summary—a couple of paragraphs—as to why it would be too complicated, or too difficult, to administer on the level of constituency or local authority?

Gavin Shuker (Labour, Luton South)

Obviously, you are a Member of Parliament in Hertfordshire, which would be exempted from the scheme. Have you had contact with any local businesses or people who are thinking about starting up businesses—either praising or condemning the scheme?

Mel Stride (Conservative, Central Devon)

Just looking at the national insurance holiday and the issue of tax avoidance and evasion, what sort of scope is there for that to occur in terms of companies starting up, then shutting down and rebranding, and so on? What kind of measures might be taken to ensure that that did not happen? What effect would any complexity in those areas have on costs to HMRC and to the applicants?

Mel Stride (Conservative, Central Devon)

On the national insurance thresholds, there has, for some time, been a dislocation between the threshold levels kicking in for national insurance and for income tax. So, from the point of view of the employees, you have the anomaly that, over a range of increasing income, you actually get diminishing marginal tax rates. Is that an issue that you sought to address in any form in the changes? If so, what impact do you think the Bill will have on that?

Heidi Alexander (Labour, Lewisham East)

I have questions in two different areas. First, the Minister has spoken a lot about pockets of deprivation, and I contend that there are significant swathes of London that are heavily reliant upon the public sector. The boroughs of Lambeth, Southwark, Lewisham and Croydon have 185,000 people employed in the public sector between them—and that is a larger public sector work force than in Tyne and Wear. You have talked about the distortive effect of businesses potentially moving areas if the scheme worked on a finer grain. For me, however, that would be a good thing in that part of London, and I wonder what you would say about that.

Heidi Alexander (Labour, Lewisham East)

How do you view the inconsistency that London can, of course, apply for the regional growth fund, but new start-ups in London cannot benefit from the NICs holiday? That is recognition that there is a problem that needs to be tackled, and yet the Bill, if it moves into legislation, will not enable new businesses to benefit from that.

Heidi Alexander (Labour, Lewisham East)

In your mind, are the regional exemptions about cost or complexity?

Heidi Alexander (Labour, Lewisham East)

Mr Mitha, you said that you have had 1,100 applications so far and that there will be initial compliance checks. How many people have you rejected at the first obstacle? Have you had a number of applications from people who are not eligible?

Kelvin Hopkins (Labour, Luton North)

I think I had better ask the Minister this question, although I am sure that I would get interesting answers from the HMRC representatives. We have a tax gap between the tax that should be paid and the tax that is actually paid. Legitimate estimates put that figure at some £120 billion a year, which is a vast sum of money. A small dent in that would make this scheme easily affordable, it could cover the whole country and the administrative costs, and pay for much more besides. Could you not usefully target the tax gap?

Kelvin Hopkins (Labour, Luton North)

A proportion of the tax gap is not just avoidance, evasion or criminal activity: it is simply that HMRC does not have enough resource to collect the taxes. There is a fair chunk, even of the £42 billion, for which there is not enough resource to collect. I am told by tax officers, just as I was told many years ago by tax officers, that every additional tax inspector collects many times their own salary. Is there not a case for substantially increasing the number of tax officers, and recruiting and training them? They will all collect many times their own salary and solve a lot of those problems.

Kelvin Hopkins (Labour, Luton North)

I have written to the Treasury about this in the past, and it constantly comes back with the argument “Oh, well, we want to economise by reducing the head count of tax officers.” It is utterly irrational when cutting tax inspectors will result in less money being collected, rather than in money being saved. I found this with VAT inspectors at local level 12 years ago when I wrote to Gordon Brown about it and I received the same answer. More recently I have spoken to the senior representatives of the senior tax officers in HMRC—not just the Public and Commercial Services Union, which I am very close to as well—and they did not disagree with my analysis that many of the staff were overworked and underpaid; that there were not enough of them; and that with many more staff they would do a fantastic job and really close this tax gap very substantially. Not only would it solve this problem, but it would start to reduce the deficit, which I am sure would be helpful.

Kelvin Hopkins (Labour, Luton North)

I hope that compliance capability implies more tax inspectors too.

Stephen Williams (Liberal Democrat, Bristol West)

I have a couple of questions on the policy imperatives behind clauses 4 and 5. Is the policy imperative to incentivise start-ups, or to incentivise start-ups taking on extra employees?

Stephen Williams (Liberal Democrat, Bristol West)

Presumably, you are trying to get a double benefit for this incentive. Would you have looked at simply exempting existing businesses taking on an extra employee?

Stephen Williams (Liberal Democrat, Bristol West)

Just a question on who would be eligible. Clause 4(1)(a) implies that it would be a sole trader or a partnership, but clause 5(6)(a) mentions corporation tax. Would limited companies come within the scope of this provision as well?

Stephen Williams (Liberal Democrat, Bristol West)

My final question is on clause 5(6) again. How joined up is this with other start-up incentive schemes? I used to advise businesses on the Enterprise Investment Scheme and the Enterprise Management Incentive when I was in practice, and I endorse what was said earlier; I am sure that accountancy firms up and down the country will be writing to their clients at the moment and organising breakfast seminars to get them through the door so that everyone benefits from the scheme. All the current income tax and CGT incentive schemes exempt other activities, particularly non-trading activities. Yet, under subsection (6), a property business or an investment business would qualify, which is a departure from existing incentive schemes. Why is that?

Stella Creasy (Labour, Walthamstow)

I have a question for each witness, but I am conscious that Mr Owen has not been asked something for a while so I shall start with him. I am looking at the back of his memorandum about national insurance and doing some of my own sums. Will you talk me through first the pre-behavioural and post-behavioural Exchequer impact? It appears to suggest that, for the £940 million, you are only going to get £40 million worth of jobs. That is quite a lot of dead weight in the scheme, is there not?

Stella Creasy (Labour, Walthamstow)

But, with this measure, what you are looking at will cost the Exchequer only an extra £10 million in the first year. You have projected that. I have been doing some sums while I have been waiting, and I calculate that as about 2,000 extra jobs. If you were, as an alternative, to spread that £940 million over the three years—about £300 million over the course of one year—and put it into another scheme such as the future jobs fund and paid people £25,000 a year, you could get 12,500 jobs. Would that be a fair estimate in terms of the cost of the scheme?

Stella Creasy (Labour, Walthamstow)

But the chart suggests that the scheme will cost the Exchequer only an extra £10 million in national insurance contributions that would have been made. That is what you are projecting. There is a question about how you are using the funding in each year.

Stella Creasy (Labour, Walthamstow)

But in terms of our understanding the direct impact of the policy, that £40 million is the only direct impact that you can predict, is it not? You are hoping that other things will happen as a result.

Stella Creasy (Labour, Walthamstow)

But you cannot be sure.

Stella Creasy (Labour, Walthamstow)

But we can be sure of the impact of other policies aimed at creating jobs, like the future jobs fund, and of what money spent on those would deliver in numbers of jobs. The calculation equates to about 2,000 extra jobs. Alternatively, you could use that money to create a larger number of jobs and you could predict that with more accuracy.

Stella Creasy (Labour, Walthamstow)

Is it possible for you to be absolutely confident that this will generate more than 2,000 jobs in the first year? That is what the calculation suggests to me.

Stella Creasy (Labour, Walthamstow)

The £10 million would represent about 2,000. If you are paying a £5,000 premium in national insurance, that would represent about 2,000 jobs. That is the £5,000 each year that you are not getting into the Exchequer as a result of the holiday.

Stella Creasy (Labour, Walthamstow)

Yes.

Stella Creasy (Labour, Walthamstow)

The Minister says that this is about new start-up businesses and job creation, but that is not what you have just said. You have said that this is about changing people’s use of the national insurance scheme, and where that might then influence and excite businesses.

Stella Creasy (Labour, Walthamstow)

That you put forward in the memorandum.

Stella Creasy (Labour, Walthamstow)

It would be incredibly helpful if you could write to the Committee setting out what actual impact you expect—you have predicted and analysed this policy—in terms of generating jobs. If the proposals are about generating jobs, as the Minister has set out, we need to understand better, because that calculation implies a very high cost for introducing this scheme in relation to what you actually get out of it.

Your comments on compliance lead me to my second batch of questions, which are for Mr Mitha. I want to go back to the point about the number of businesses that have applied so far. You are looking at about 1,100 in the first quarter. So if we said roughly 1,500 a quarter, on that kind of trajectory over the next three years, you are looking at about 18,000 businesses being part of the scheme. You are talking about a target of 400,000. How are you expecting to get from 18,000 to 400,000? That is a very low trajectory to go for.

Stella Creasy (Labour, Walthamstow)

I appreciate that. The modelling that you have done, on this current trajectory, means that only 18,000 businesses will be part of this. What is the model that you have and where do you expect the increase to come? Is it at a particular time of year, or a particular experience? Can you give us a little detail about where you predict that it will come from?

Stella Creasy (Labour, Walthamstow)

I am a little concerned that you use the term “reckon”. Do you have any research or evidence on which this policy is based to justify that target of 400,000?

Stella Creasy (Labour, Walthamstow)

One of my concerns is that the previous witnesses have all said that this will not influence whether people take on new employees. You do not have any modelling to the contrary that means you can reach that 400,000 target.

Stella Creasy (Labour, Walthamstow)

So where did the 400,000 come from?

Stella Creasy (Labour, Walthamstow)

May I ask, just as I asked your colleague, for a note to the Committee? Could you publish the evidence on which that target is based? On the current trajectory, I have great concerns that you are not going to reach it, so it would be very useful to get the data on which you based that target.

Stella Creasy (Labour, Walthamstow)

So the model that you put together—not the reckoning—will reach the 400,000 target?

Stella Creasy (Labour, Walthamstow)

What proposals do you have for action along the way if you are not hitting the 400,000? There is a big differential on the current trajectory.

Stella Creasy (Labour, Walthamstow)

So you do not have any proposals to deal with what is at the moment a very low level of take-up? You are hoping that your model is right. You do not have a staging post in this process?

David Hanson (Labour, Delyn)

I take it then, Minister, that there will be no problem in accepting new clause 1, which would require the annual publication of figures for business take-up by constituency.

Stella Creasy (Labour, Walthamstow)

I have to wear my Public Accounts Committee hat in this. I am a little concerned that the monitoring procedures that you are setting out here seem to be quite inert. You expect people to report to you and you expect the complexity of the scheme to mean that there is little chance for people to say, “I’m a new business and I’ll change addresses and suddenly I’ll become another new business.” There will be 240 people working on this scheme. What measures do you have to check proactively that claims are not fraudulent, or do you have anything in your model in terms of compliance? You said that it was process now, check later. Do you expect any of those 1,100 to be subsequently rejected?

Stella Creasy (Labour, Walthamstow)

What estimate of risk of fraud have you made within the scheme?

Stella Creasy (Labour, Walthamstow)

So it is possible that the 1,100 could go down.

Stella Creasy (Labour, Walthamstow)

But it could go down—so we could see a dip before you get the curve on the model.

Stella Creasy (Labour, Walthamstow)

You cannot see any problem with the clauses about publishing all these data, in terms of compliance, the numbers of applications and the rate of growth in numbers of applications.

Jim Sheridan (Labour, Paisley and Renfrewshire North)

If you cannot comment, will the Minister?

Stella Creasy (Labour, Walthamstow)

But you have every confidence in what your officials are telling you about compliance—there would no problem in publishing.

Stella Creasy (Labour, Walthamstow)

Of course, your colleagues pointed out that businesses will be self-reporting the name of their company and their address. Those two things are relatively easy—

Stella Creasy (Labour, Walthamstow)

So you will be monitoring the national insurance contributions.

Stella Creasy (Labour, Walthamstow)

It sounds as though you are making the case for all the data being published by saying how easy it will be.

I have some final questions, which are only for you, Minister. Why have you focused primarily on start-up businesses if the measure is about job creation? We talked earlier about the role of charities and the voluntary sector in job creation. Will you explain why you have chosen to exclude them from the legislation?

Stella Creasy (Labour, Walthamstow)

Is that not a little against the big society though? If the big society is about all the wonderful voluntary and charitable organisations coming together to deliver public services—a piece of business for them—why should they not be seen as job-creation businesses as well?

Stella Creasy (Labour, Walthamstow)

It is abstaining. Is that what you are saying?

Stella Creasy (Labour, Walthamstow)

So, essentially, there is a value judgment—

Jim Sheridan (Labour, Paisley and Renfrewshire North)

Order. The hon. Lady has had a fair run. As we have to finish at 4 o’clock, we shall now move to the final question.

Mel Stride (Conservative, Central Devon)

Following Stella Creasy’s comments about the modelling, I want to be clear about your position, Mr Mitha. You are saying, as I understand it, that the model is well researched and that it is outlined in the impact assessment, so members of the Committee can look at it there. It shows non-linear growth in the take-up of the national insurance holiday, so we might expect a smaller take-up at the beginning, accelerating as the scheme takes off. The figure of 1,100, as the current level of take-up, is therefore not inconsistent with the model you developed. Is that correct?

Jim Sheridan (Labour, Paisley and Renfrewshire North)

As there are no other questions, I thank our witnesses for coming along. It has been very informative and I am sure that the Committee welcomes your evidence.