National Insurance Contributions Bill

Public Bill Committee, 7 December 2010.

Clause 1

Chris Leslie (Labour, Nottingham East)

I welcome you to the Chair, Mr Brady, on a brisk and frosty morning, and that is just in the Committee room. We had a useful evidence session, which is an interesting innovation to the Committee stage that I have not previously been used to in years gone by. Clearly, having had the benefit of the wisdom of the witnesses, the detail of the clauses now makes much more sense.

Clauses 1 and 2 set out the principal changes to the rates of national insurance, and that will have a big impact on all our constituents, whether employees or employers. Clause 1 relates to the primary contributions to class 1 of national insurance, which largely affects employees. On Second Reading, the Opposition accepted the need for those changes. The previous Chancellor of the Exchequer, my right hon. Friend the Member for Edinburgh South West (Mr Darling), announced the measures and the current Government are introducing the legislation on them. It was my right hon. Friend’s choice to tailor the then Government’s approach to the deficit reduction not only to include gradual and temperate changes to public expenditure, rather than the harsh and speedy cuts to public services that the current Chancellor has chosen, but to reflect the need for the tax system to bear a measure of the strain as well, hence the changes that have come forward. I could not let the clause pass without acknowledging that we accept that that is necessary. Such a measure will never be welcomed with open arms by taxpayers up and down the country, but it is necessary given the wider fiscal and economic climate.

I was not a Member during the previous Parliament, so I was not able to question my right hon. Friend the Member for Edinburgh South West about the changes to national insurance that he was introducing. This is my only opportunity to ask those questions, given that the Minister is presenting the Bill. As I understand it, the national insurance fund represents all the revenues from the national insurance system, which was set up after the second world war as part of the Beveridge report, and it was designed to support the universal insurance system for the British people.

Stephen Williams (Liberal Democrat, Bristol West)

Will the hon. Gentleman give way?

Chris Leslie (Labour, Nottingham East)

I was trying to describe the national insurance fund, but the historian on the Back Benches may know more about it.

Stephen Williams (Liberal Democrat, Bristol West)

May I correct the hon. Gentleman’s history? National insurance was set up in 1911 by my political hero Lloyd George.

Chris Leslie (Labour, Nottingham East)

I am corrected on that fact. Perhaps a function of the national insurance fund changed after the second world war, but the hon. Gentleman makes an interesting point that echoes the issue that I was about to raise. As I understand it, the income from the national insurance fund comprises the contributions from employees, employers and the self-employed, plus interest on its own investments. Each year, those amounts are paid into those funds. As I understand it, there is currently a surplus on the fund—in other words, more money is being paid into the national insurance fund than is being paid out of it.

Will the Minister update the Committee on the current state of the national insurance fund? Over the years, various Government Actuary predictions have suggested that the fund is growing in surplus at an exponential rate, but I am not sure whether the recent credit crunch and recession changed that profile of expectations. Is the Minister able to set out how the fund stands? I think that is relevant, because my understanding is that the surplus on the fund is loaned to the Government—to the Debt Management Office, which includes the Commissioners for the Reduction of the National Debt—and interest on those invested moneys is paid back to the national insurance fund, which is quite a substantial amount of money in itself. The previous Administration had what was colloquially known as the golden rule; any borrowed moneys, including a surplus from the national insurance fund, were not to be used to finance current expenditure but were only to be used for investment, in particular capital investment such as infrastructure.

My second question to the Minister, if he can bear with me and give us a general update on the national insurance fund, is to ask him what the Government’s policy is on the use of the surplus. Given that much of the background to the debate on the changes to national insurance in clauses 1 and 2 has been a discussion about deficit reduction, it might be expected that it could count as part of current expenditure. As I understand it, however, the rules and conventions of the Treasury mean that that is not the case.

If we are embarking on legislation that changes national insurance rates and brings in revenue, yet there are constraints on how that revenue can be used, it is important that we know about them. If it is a continuation of the previous Administration’s policy that that money is for investment, so be it, and that is fine, but it slightly changes the prism through which we see many of the changes. I should be grateful if the Minister would set out the state of the fund and the position regarding the use of the surpluses.

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure to serve under your chairmanship, Mr Brady. On a point of consensus, I agree with the hon. Member for Nottingham East that it is a cold morning in here. To use his word, I hope that proceedings will be brisk, but time will tell.

Clause 1 amends sections 8(2) and 9(2) of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992. The clause increases the main percentage rate of class 1 contributions paid by employees from 11% to 12% and increases the additional primary percentage rate of class 1 contributions paid by employees with earnings above the upper earnings limit, which is currently £844 a week, from 1% to 2%. It increases the class 1 secondary rate, which is the employer contribution, from 12.5% to 13.5%. Those increases run from 6 April 2011 and, as the hon. Gentleman pointed out, they were announced by the previous Government so I am not entirely surprised that he supports them. Indeed, as we learn more about the Opposition’s policy and their belief that in the balance between spending cuts and tax rises more should be raised from taxation than they had planned at the time of the most recent general election, one might even expect them to want to increase the rates further.

Kelvin Hopkins (Labour, Luton North)

If I may follow that point, some have suggested—indeed, I have suggested —that the upper earnings limit on national insurance contributions ought to be lifted on a standard percentage, or even a progressively increasing percentage, all the way up. Have the Government considered that possibility, and how much revenue it might raise?

David Gauke (Conservative, South West Hertfordshire)

That was the policy of the hon. Gentleman’s party in the 1992 general election, although it did not meet with notable success. We do not intend to go down that route, because of the potential disadvantages. As a whole, this Government believe that the previous Government got the balance wrong, in terms not only on the ratio of spending cuts to tax increases but on the increases in taxes on labour that that represents. Although it is not part of the Bill, we will raise the thresholds through a regulatory order. That will mean that much of the increase on labour will not occur, which is consistent with the 2010 Conservative manifesto pledge.

As I have said, this is not a particularly controversial element of the Bill, but I will try to answer the questions raised by the hon. Member for Nottingham East on the national insurance fund. He is right to say that there is a projected surplus for the national insurance fund, which is currently projected to be £50 billion for 2010-11. That surplus, however, will change as a result of policies announced in the emergency Budget, including the triple-lock pensions guarantee and the reduction in the secondary threshold. It is important that we do not make decisions on the national insurance fund by looking just at the balance as of today; it is important that we are prudent. Pensions will be paid from the fund, so we need to look at projections over the longer term.

The hon. Gentleman also asks whether we are using the national insurance fund surplus to fund other Government commitments and what our position is on that. The national insurance fund is run on a pay-as- you-go basis, with current income paying for current expenditure. Although national insurance contributions fund contributory benefits, they also come within the wider fiscal framework. It would be imprudent to use the surplus in one year to increase benefits without regard to the long term. Obviously, we cannot have benefits going up and down according to short-term conditions and how much money is coming into the national insurance fund. We have a surplus, but it is sensible to use that to reduce the deficit in the short term, which clearly is to the long-term benefit of the UK’s public finances.

Chris Leslie (Labour, Nottingham East)

That is the crux of my inquiry. In general terms, people have used the shorthand that the surplus, national insurance changes and the derived income are used to reduce the deficit. My point was that if there are constraints on the use of the surplus, surely that does not offset the general current expenditure fund. Those moneys are specifically earmarked for capital investment. If the Minister is not able to walk us through the line-by-line detail of Government accounting practice, perhaps he could simply confirm that Government policy remains as it has always been, with the surplus being used solely for capital investment.

David Gauke (Conservative, South West Hertfordshire)

Nothing in what we are doing is a change to the usual practice on the national insurance fund, but for reasons that all Governments have recognised, the amount of money going out of the fund and the amount of money going into the fund do not match on a year-by-year basis. Having a surplus does not give us the opportunity to increase spending in a particular area, and I do not think that the hon. Gentleman is suggesting that it does. Without walking him through the details of Government accounting, there is no change to the approach that all Governments have followed—I suspect, since 1911, although I cannot entirely confirm that.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for that explanation. It is important to have on record that the approach taken to the national insurance fund has not changed and that, essentially, the rules and the way in which the fund is accounted for remain as they did under the previous Administration. Many people are sceptical and think that national insurance is simply another form of income tax by a different name. It is, therefore, important to reiterate that there are certain constraints and rules related to the amounts of national insurance paid by employers and by employees.

Clause 2

Chris Leslie (Labour, Nottingham East)

Clause 2 deals with class 4 changes to national insurance, which are largely on self-employed profits, and so on. I want to press the Minister on whether there is a shortfall between the rhetoric that his party—and indeed the Liberal Democrats—enunciated before the general election, and the reality of the changes that are now being made. Although the Bill simply talks about the rise in employer and class 4 national insurance contributions, the suite of policies that both parties in the coalition Government were pursuing implied that they would stop the rise for employers. The coalition agreement talked about

“our pledge to stop the rise in Employer National Insurance contributions from April 2011.”

That is not to lessen or alleviate that rise, but to stop it.

We are not simply looking back at what the parties in the Government said before the general election, when a lot of their campaigning against what they called “the jobs tax” and how it had to be reversed created an assumption among the general public that any proposed changes to employer national insurance contributions would be reversed and not enacted. That was, by and large, the expectation that came from the general election campaign. I concede that the small print of the Conservative manifesto noted that the 1% would be counteracted with a change in the thresholds, which, no doubt, the Minister will refer to. However, it was not necessarily highlighted that the threshold change would only counteract around two thirds of the amount involved. As I understand it, the yield from the changes to employer national insurance contributions is roughly £4.5 billion in 2011-12, yet the expenditure by increasing the threshold in 2011-12 comes to only £3.1 billion. That gives a £1.3 billion shortfall, which may be welcomed by many employers, but it may fall short of their expectations given what they heard during the general election campaign, and what they read subsequently in the coalition agreement.

Accuracy for the general public is exceptionally important, and there was an understanding that the policy would be reversed, rather than simply chipped away at. I wonder whether the Minister can explain how, in the coalition agreement, the words on page 25 came to describe it as a

“pledge to stop the rise in Employer National Insurance contributions”.

Perhaps he can also explain how that will be amended.

The Liberal Democrats themselves promised that they would reverse the change to employer national insurance contributions. I am not sure whether that was simply for employers; it may even have been for employees as well, but it was certainly in the Liberal Democrat manifesto. In recent days, we have become used to Liberal Democrats explaining that, “Well, what was in our manifesto doesn’t actually stand; it was superseded by the coalition agreement”—as though year zero suddenly came into being. [Interruption.] I will give way to the hon. Member for Bristol West if he would like to clarify that matter.

The British public particularly remember what the Liberal Democrats said before the general election, when they were skipping around the country trying to hoover up votes with any number of promises on a whole series of different fronts. The Conservatives had clearly learned lessons from previous electoral defeats and inserted a set of subsections and small print into their pledges all along, although the tabloid press did not necessarily pick up on them. On 30 March, TheSun reported:

“The Shadow Chancellor promised to cancel a 1p National Insurance rise for everyone apart from high earners.”

We know that since then the Conservatives have reneged on the change for employees, who simply had to accept it; but the employers now need to know what is going on. We had an exchange about this during the evidence session. The Minister set out the threshold indexations, which I think were published on 3 December. Clearly there is an indexation change for the thresholds, on top of which I understand that some time in the spring he intends to introduce the regulatory order, which will offset some of the employer change. I do not know whether he can tell us exactly when that will be.

I do not have my calculator with me in Committee, but can the Minister reiterate that the indexation changes are retail prices index indexations? I think that is what he indicated in the evidence session, but now that we have seen the figures could he confirm it? Can he also confirm, plainly and openly, that the threshold changes he intends to make do not stop the rise in the employer national insurance contribution? At the very least, employers up and down the country need to know that what they may have felt was a promise is now not being fulfilled.

David Gauke (Conservative, South West Hertfordshire)

Clause 2 amends section 15(3ZA) of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992. The measure relates to the self-employed who will see a 1% increase from 6 April 2011, which was announced by the previous Government. Although not part of today’s Bill, the Government intend to reverse the impact of the previous Government’s tax on jobs by increasing the lower profits limits and the income tax personal allowance.

I give the hon. Member for Nottingham East credit for trying to make the most of what is a fairly weak case, which is in essence that here are a Government who are implementing a tax change in exactly the way that the larger party in the coalition Government said it would do in its manifesto. I note the point that setting these things out in a manifesto is seen as being the small print, but conventionally that is seen as something quite significant. To be fair, the electorate and, specifically, employers understood what we were doing. There was certainly no attempt on our part to conceal what we were doing.

Given the difficulties in the public finances, and given our desire to focus on protecting the lowest-paid and protecting lower paid jobs, which may be the most vulnerable in difficult economic conditions, we focused on raising thresholds and raising the personal allowance. It will mean that anyone earning £35,000 or less will not be affected by the national insurance contribution increases. It will mean that employers find that the damaging effects of the increase that was proposed are mitigated very substantially and, as I said, it is exactly consistent with what is in the Conservative party manifesto.

Chris Leslie (Labour, Nottingham East)

But surely the Minister has to acknowledge that it is not exactly consistent with what is stated on page 25 of the coalition agreement, which mentions the

“pledge to stop the rise in Employer National Insurance contributions”.

David Gauke (Conservative, South West Hertfordshire)

We have looked at the best way to stop the damaging tax on jobs, and the most effective way of doing that is by raising the thresholds in exactly the way that we are proposing. In clause 2, we are increasing the lower profits limit and the income tax personal allowance, and in clause 1, we are increasing the national insurance threshold and, indeed, the income tax personal allowance. That stops the most damaging elements and it will reverse them. Given the difficulties we face with the public finances, and given the constraints that we have inherited, that is a wise use of limited resources.

In the end, what would have been damaging to jobs provoked hundreds of business leaders to write in support of our policy. Tony Blair wrote in his memoirs that when 35 leading chief executives said that they would support our policy, that was the moment when he thought that the new Labour Government were finished, particularly as there was no response from any business leaders in support of Labour’s tax plans.

The measure demonstrates our commitment, despite the ruinous state of the public finances that we inherited, to ensure that the damaging jobs tax proposed by the previous Government will be substantially reversed in a way that is entirely consistent with the pledges that my party made in advance of the general election. We are pleased to be able to do that.

I want to address a couple of points of fact that were raised by the hon. Member for Nottingham East. The regulations that will increase the thresholds will be laid in late January, which is the same as would have happened under previous Governments. That will coincide with the laying of the Department for Work and Pensions benefits uprating regulations and the Government Actuary’s report on the changes. The primary threshold is increasing to £139 a week in April 2011. The secondary threshold—in other words, the employers’ threshold—is increasing to £136 a week. The hon. Gentleman also asked whether the indexations, which were announced in a ministerial statement last week, will be increased by RPI. I will save him getting out his calculator, because the answer is yes.

With those clarifications and points, I hope that clause 2 will stand part of the Bill.

Chris Leslie (Labour, Nottingham East)

The Minister is a good soul, who tries his best to do a diligent job for the nation and its finances, but it must be noted that those of us in opposition who want to articulate our critique of Ministers sometimes struggle to find the right language. I know that the description of arguments that may or may not be misleading, for example, can sometimes get us into the realms of unparliamentary language. I would never accuse the Minister of that, but there are some in the coalition, to whom he may have implicitly alluded when he said that the main Opposition party, as was, had set out the proposals out in the small print of its manifesto. Perhaps the Liberal Democrats were not quite as specific, but that is a second-order issue.

The fact that the coalition agreement stated that the coalition would

“stop the rise in Employer National Insurance contributions”

is shorthand and a lazy, sloppy bit of drafting, which was deliberately designed to give the outside world the impression that the change in national insurance would be reversed in its entirety. The Minister may baulk at that as a minor issue, but he has acknowledged that it might have been better to use the phrase “substantially reversed”. The £1.3 billion shortfall may be short change to some in the Treasury, but it is a significant amount of money. Some employers may have expected it in return, but it did not come back as a result of the rhetoric used by the parties in the Government.

David Gauke (Conservative, South West Hertfordshire)

I would be grateful for some clarity from the hon. Gentleman. Am I correct in thinking that it remains his party’s policy that it would not reverse a single penny of that increase?

Chris Leslie (Labour, Nottingham East)

I am not sure at this stage of the Parliament. I do not have the massed ranks of Treasury officials that the Minister has at his disposal, and the calculator on my iPhone 4 does not allow me to give a commitment to a projection of what may or may not happen in the next Parliament. All I know is that the coalition agreement pledged to stop the rise, but that is not what is happening. The Minister has tacitly had to acknowledge that that is the case and I will accept that as an apology. It is always the case that the truth will out in the detailed scrutiny of legislation, so I am happy to proceed. I just wanted to emphasise that point at this stage.

Clause 3

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 8, in clause 3, page 2, line 2, leave out ‘50’ and insert ‘90’.

Amendment 8 is short and simple, but it may require some explanation. Clause 3 refers to the Social Security Administration Act 1992 and the percentage rates that form part of the health service allocation. The Bill seeks to change the additional primary percentage rate and the additional class 4 percentage rate from 100% to 50%. The additional rate in both cases is being increased from 1% to 2%. The Government’s intention is that the same quantum of money raised by the original 1% additional rate should continue to go to the health service allocation, but that the revenue from the additional 1% should go not to that allocation but to the general national insurance fund.

The clause and the amendment are crucial in many ways. The clause reminds us that expenditure for the national health service, which is cherished by many of our constituents throughout the country, is at the front and centre of people’s minds during general elections and beyond, because they want to protect NHS investment. The clause and the amendment give us the opportunity to discuss the sums of money allocated to the NHS. The NHS benefited considerably from the 13 years of Labour Administration when increases in its resources grew at a rate never before seen. We have seen great improvements in the quality of care.

Kelvin Hopkins (Labour, Luton North)

It was absolutely necessary that the expenditure increased at that rate during that period. Is it not the fact that health service expenditure when we came into office in 1997 was so appallingly low that we had to do something about it?

Chris Leslie (Labour, Nottingham East)

Indeed, that is absolutely the fact. My hon. Friend will remember that in 2003, the then Chancellor of the Exchequer felt it necessary to go even further and boost NHS investment above and beyond that which normally resulted from spending review processes. The introduction of the additional 1% of national insurance came with hypothecation—something that the Treasury traditionally resists, but it acquiesced in that case; the money it raised was earmarked for the health service allocation. That is certainly something of which I am very proud.

It is important to note that the Bill seeks for all the additional revenue from all that extra 1% to go generally to the national insurance fund. We have heard this morning that the fund is already in healthy surplus and that it cannot be used for current expenditure, but that it could perhaps be loaned back to the Debt Management Office and, in turn, be used to fund certain capital expenditure or infrastructure expenditure.

It is worth noting that in the spending review the Chancellor and the Health Secretary did a bit of double counting on the changes to the national health service budget, because, as hon. Members may recall, over the four-year period the definition of NHS health care has changed. Whereas the Conservative party manifesto and the coalition agreement promised that the NHS would grow “in real terms” year on year, in reality that is not the case. The Government are counting £950 million on average over those four years, but that money is actually for social care and social services, and would otherwise have been line-itemed in a different part of the nation’s account—local government social care expenditure. By changing the classification with a stealthy accountancy trick, they are somehow able to claim that there is a real-terms rise in the NHS budget of 0.4%. But on the traditional basis, looking beyond the spin, the NHS will receive a 0.54% real-terms cut.

Graham Brady (Conservative, Altrincham and Sale West)

Order. The hon. Gentleman has taken us quite some way into the realms of NHS funding. Could he perhaps come back a little closer to the detail of his amendment?

Chris Leslie (Labour, Nottingham East)

Indeed, Mr Brady. I appreciate your reining me in slightly, but it is important that we note that the 0.54% equates to a £500 million shortfall. That figure is important, because, in essence, it is the amount represented by my amendment.

The amendment seeks to take four fifths of that extra one percentage point rise in national insurance—essentially moving from a 50% take to a 90% take—so that the £500 million shortfall in the Government’s promise of a real-terms increase would have to be delivered to the NHS allocation through the national insurance change. In shorthand, the amendment is designed to keep the Government to their word, and keep Ministers to their promise of a real-terms increase in the NHS budget.

Kelvin Hopkins rose—

Graham Brady (Conservative, Altrincham and Sale West)

Order. Before I call Mr Hopkins, I ask him, too, to be punctilious in tying his points about the NHS directly to the amendment.

Kelvin Hopkins (Labour, Luton North)

Thank you for that advice, Mr Brady.

I support my hon. Friend by saying that hypothecation is generally not supported by the Treasury or by most Members, because we want taxation to be spent as appropriate and as needed, particularly at this time. Although the contributory principle that underlies national insurance contributions is not as pure as it used to be, the amendment retains that contributory principle in the national insurance fund.

Chris Leslie (Labour, Nottingham East)

Quite; and it is important to note that, as the Bill states, there is now a well trodden path where national insurance contributions may be vired to the health service allocation. The point that we are debating today is the proportion of those additional rates of national insurance that ought to be allocated to the health service allocation. It is important that we reflect on those amounts, and I am attempting to press the Minister on that point. My calculation is that, roughly speaking, there is a £500 million shortfall in what would be needed for the Government to keep their promise of a real-terms increase in the NHS health care budget. That is based on the traditional definitions, had they not made that slight double-counting change on social care.

Gavin Shuker (Labour, Luton South)

Is not the amendment even more important given that the national health service will pay additional levels of employer’s national insurance contributions?

Chris Leslie (Labour, Nottingham East)

That is indeed true. The Government have already allocated some of that money to specific items of expenditure. We may come to that point later. The amounts we are talking about are needed by the national health service for several reasons. First, the drugs budget in the NHS is considerable and traditionally has more inflation than most other areas of the economy. Medical technologies are changing apace and they too require significant investment. Our ageing population means that a real-terms increase in the national health service budget is needed and it is something that the general public expect and have voted for historically. Again, they may have felt that they were voting for the parties now in government under the illusion that they would be getting a real-terms increase, but detailed exploration of what is happening to the national insurance revenues and other NHS allocations shows that the Government are falling short of that.

Heidi Alexander (Labour, Lewisham East)

My hon. Friend mentions public perception. I feel that the public understand the need to pay employer’s and employee’s national insurance contributions on the basis that they are going towards a service that they value greatly. Does my hon. Friend share my concern that perhaps this move away from that norm muddies the water somewhat in terms of the public’s perception of what national insurance is used for?

Chris Leslie (Labour, Nottingham East)

Yes; it would be useful for the Treasury to embark on a fresh wave of public information about national insurance more generally because there is a lot of confusion among members of the public about where their money goes. For a start many do not recognise that there is a pay-as-you-go element. They sometimes feel that the money is paid into a fund, invested for the long term and then called upon at a later date, which is not the case. There is an understanding that there is some NHS amount in that, which is, essentially, the point of our debate today. The amendment would ensure that 90% of that additional revenue was allocated to the NHS.

Stephen Williams (Liberal Democrat, Bristol West)

May I again help the hon. Gentleman with his history? This time it is Labour history. In 1947, when the second greatest Welshman of the 20th century, Aneurin Bevan, was drafting the National Health Service Bill, he was determined to move away from the contributory principle in health care, which is what many people had had to do until then. He was determined that the NHS should be funded from general taxation, not national insurance.

Chris Leslie (Labour, Nottingham East)

I am intrigued by that Liberal Democrat intervention, which suggests that we might expect an amendment from the hon. Gentleman on Report that would go even lower than the 50% level set out in the Bill. Surely he would support at least 50%, but I expect he will fall into line on Thursday behind the Conservative Front Bench. [ Interruption. ] “We shall see”, say voices off. We shall indeed see. On this issue we were promised a real-terms increase, but that is not what the Government are delivering. We need the amendment to keep them to the investment that will be necessary.

When the Prime Minister said in his speech to the Conservative party conference: “The NHS—protected”, in that classic staccato way that leaders tend to speak at party conferences, it turns out that that was not the case. The Chancellor of the Exchequer said:

“This coalition Government made a commitment to protect the NHS and increase health spending every year. Today we honour that commitment in full. Total health spending will rise each year over and above inflation.”—[Official Report, 20 October 2010; Vol. 516, c. 959.]

Yet the small print shows that the Government are around £500 million short on that. There has been a series of criticisms from many notable individuals. For example, Dr Peter Carter, the chief executive of the Royal College of Nursing, has attacked the urban myth that the NHS is being protected, stating:

“The evidence we have gathered is quite clear: that is not the case.”

The Royal College of Nursing points out that there are 27,000 potential redundancies and that posts are being removed across the national health service. In my constituency the ambulance service is very worried about the shortfall from the real-terms increase that is implicitly promised by the Bill and the other package of measures that the Government have put together. The service may have to reduce the number of ambulance staff from 3,000 to 2,600. Those are significant cuts. Dr Peter Carter has said:

“The public should be really concerned about the potential impact to the NHS. I predict waiting will rise. It won’t be too long before people start asking what is going on.”

Graham Brady (Conservative, Altrincham and Sale West)

Order. I sense that the hon. Gentleman is moving towards a conclusion, so I am being quite tolerant.

Gavin Shuker (Labour, Luton South)

Does my hon. Friend agree that a good way of conceiving of the clause in the context of the amendment is that although money is being taken away from the NHS by the changes, up to 90% would be given back?

Chris Leslie (Labour, Nottingham East)

Yes, and it is important that we understand what the Bill does. The move from 100% to 50% would essentially freeze the amount in quantum terms that is going to the NHS. Through the amendment we are saying that the Government are falling short of their promise to give a real-terms increase, which is why the figure 90 needs to be substituted in the Bill. Good reasons exist for doing so; for example, Ministers have broken their promise to the Royal College of Midwives for the 3,000 extra midwives they said would be delivered by 2014. According to the Royal College of Midwives, the Government said—

Graham Brady (Conservative, Altrincham and Sale West)

Order. This is not a general debate on health policy. I ask the hon. Gentleman to return to his point or move to a rapid conclusion.

Chris Leslie (Labour, Nottingham East)

Obviously, Mr Brady, I accept your entreaties, and it is important that we look at things specifically in terms of the amendment. Moving from 50% to 90% in the Bill may enable Ministers to keep their promise to deliver those 3,000 extra midwives. That is all I seek to do; I do not want to detain the Committee in any way, because that is not my role here today.

It is important to recognise that significant issues face our NHS, and the amendment would at least help to address them. I hope that the Minister admits that the sophistry of Government accounts is such that they fall short of a real-terms increase, and that an amendment such as this is necessary to ensure that the Government keep their promises.

David Gauke (Conservative, South West Hertfordshire)

I thank Opposition Members for tabling the amendment. It may help if I provide some history to put it in context. Hon. Members know that during the 2003-04 tax year there was a 1% increase in national insurance contributions, and the introduction of a new national insurance contributions liability—the additional rates—on earnings above the upper earnings limit and upper profits limit. The allocation of the additional rates is the subject of the amendment. In 2003, the whole of the increase was earmarked for improvements to the NHS, and the legislation reflected that policy with the whole of the additional rate being allocated to the NHS, as well as the 1% increase in the main rates of national insurance contributions on earnings below the upper earnings and upper profits limits.

Following the election, the coalition Government confirmed in our programme document that we would increase the rates of national insurance contributions by 1%, but that we would reverse the most significant impacts of those rises through increases in the employees’ and employers’ thresholds. The Government and, as far as I am aware, the previous Labour Administration when announcing the increases in the pre-Budget reports of 2008 and 2009, did not at any stage announce that the 1% increases are specifically for the NHS. The Government have said that they will increase NHS spending in real terms in each year of the Parliament. We can afford to do so without additional funding from the national insurance contributions increases as proposed by the amendment.

In the emergency Budget on 22 June, the Chancellor announced that from April next year we will re-link the basic state pension to earnings. Pensioners will also be protected by the triple lock, which will guarantee each and every year a rise in the basic state pension in line with earnings, prices or a 2.5% increase, whichever is greater. I know that this is a point that we debated earlier, but although the national insurance fund is currently in surplus, the commitment makes it sensible for the whole of the 1% increase to be channelled into the national insurance fund rather than the NHS.

If I may, I shall address one or two points that arose in the lengthy debate we have just had. The hon. Member for Luton South made a point about the impact of the national insurance contributions rise. Due to the increases in thresholds that reverse much of the effect of that, that will indeed reduce the burden on the NHS. I am grateful to the hon. Gentleman for drawing attention to that point. It will enable us to fund new cancer drugs by up to £200 million per year.

Gavin Shuker (Labour, Luton South)

Is the Minister saying that the net effect of the changes will be to reduce the amount of employers’ national insurance that the NHS is paying overall?

David Gauke (Conservative, South West Hertfordshire)

It will reduce the amount that the NHS is paying as compared with the plans that we inherited, yes. Would we like to do more? Of course we would always like to do more, but I am afraid that those are the plans that we inherited and the NHS would be facing a much greater burden had we not been able to reverse much of that.

A point was raised about social care. The additional expenditure we found for social care—an additional £2 billion in all, with £1 billion coming from the NHS—is very important. It will pay a vital role in helping to keep people healthy and independent, and we are proud of that.

On the issue of ring-fencing the NHS, Mr Brady, you will be pleased to know that I have no intention of going into a detailed speech on NHS spending. We are proud that despite the very difficult circumstances we are in, we have been able to protect health spending. If the hon. Member for Nottingham East is supportive of that, then we welcome it. I have to point out, however, that it was not that long ago that the then shadow Secretary of State for Health, now the shadow Secretary of State for Education, said:

“It is irresponsible to increase NHS spending in real terms within the overall financial envelope”

that the Chancellor was setting. What is more, not long ago, the current shadow Chancellor said in respect of the policy of ring-fencing NHS spending, that there was

“no logic, sense or rationality”

to the policy.

I am pleased that the Opposition appear to have changed their approach. We are able to ring-fence NHS spending without an amendment relating to the additional funds raised through national insurance contributions. I therefore recommend that the Committee rejects the amendment, should it be pressed to a Division.

Chris Leslie (Labour, Nottingham East)

I am surprised that the Minister did not really address the issue of the double-counting of the social care element, because that is absolutely the crux of why we needed to table the amendment in the first place. He ought to have confirmed that had we been following the previous classification of NHS health care expenditure, that equates to a 0.54% real-terms cut in the NHS budget.

I would also have been grateful if the Minister had confirmed my calculations that in order to bridge that gap, and return to the 0.4% real-terms increase that the Government claim to be pursuing, would have equated to roughly £500 million. That was the purpose of the amendment. Clearly, the Government seek just to rebut it, and to deny that they are reducing the health care budget in real terms, but the evidence is actually there, not just from the comments that I have made, but from the real-life experience of health service users and health service staff who report daily the squeeze that they are feeling on the NHS allocation. We will clearly need to return to the issue on Report.

I want to look in more detail at the specific amounts of money. The Minister has not been able to detail the rationale for the change in the accounting for social care, so we need to burrow deeper into it. The clause is a central component of the Bill and I am not content with the Minister’s simple claim that all is fine and dandy, and that real-terms increases are happening. That is not what people are experiencing, nor is it what we see in the reports when we look at the real accounting arrangements.

Kelvin Hopkins (Labour, Luton North)

I support my hon. Friend’s point. Real-terms increases are absolutely necessary to the health service to retain and support the level of service, not only because, with an ageing population, there are more demands on the health service, more techniques in medical treatment and more drugs on the market, but because labour intensity in the health service cannot be reduced. Therefore, to ensure pay and pay increases that are comparable to the rest of the world, we have to have above-inflation increases in health service spending to keep pace with necessary pay.

Chris Leslie (Labour, Nottingham East)

Absolutely, and that is a point that the Conservative and Liberal Democrat parties clearly do not get. They do not understand it and have not figured out what a real-terms increase in the NHS would entail. They panicked. They must have thought, “Quick, where can we steal a little bit of money here and there to make the figures appear to add up?” As on so many different fronts under this Administration, the truth is bursting out of the seams as the stitches begin to pop on the edges of the coalition’s garments.

David Hanson (Labour, Delyn)

They have no garments—they are wearing the emperor’s new clothes.

Chris Leslie (Labour, Nottingham East)

Indeed. The emperor has no clothes, as my right hon. Friend rightly says. I give way to the emperor.

David Gauke (Conservative, South West Hertfordshire)

I merely wanted to point out that the hon. Gentleman’s metaphor is somewhat threadbare.

Chris Leslie (Labour, Nottingham East)

I realise that the Minister may be a little chilly in this Committee Room. Many gentlemen have retained their outer garments, but my point is that the arguments of the Conservative and Liberal Democrat parties are falling apart. They have not kept to the real-terms increase in the NHS budget and we will certainly want to return to the argument on Report. We will seek to refine the precise details, so I beg to ask leave to withdraw the amendment.

Graham Brady (Conservative, Altrincham and Sale West)

We have had a wide-ranging debate, so we should move on without further debate on clause stand part.

Clause 4

David Hanson (Labour, Delyn)

I beg to move amendment 1, in clause 4, page 2, line 9, leave out paragraph (b).

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss the following: amendment 7, in clause 4, page 2, line 10, leave out

‘not in any of the excluded regions’

and insert

‘within a local authority area which features on a list of local authority areas drawn up at the discretion of the Secretary of State for the purposes of this section’.

Amendment 2, in clause 4, page 2, line 21, leave out subsection (5).

Amendment 5, in clause 4, page 2, line 21, leave out

‘Greater London, the South East Region and the Eastern Region’

and insert

‘the 350 constituencies with the lowest percentage rate of unemployment as defined by the Department of Work and Pensions on the date of Royal Assent’.

Amendment 6, in clause 4, page 2, line 21, leave out

‘Greater London, the South East Region and the Eastern Region’

and insert

‘the 350 constituencies with the lowest percentage rate of public sector employment as defined by the Department of Work and Pensions on the date of Royal Assent’.

Amendment 3, in clause 11, page 6, leave out lines 24 to 29.

Amendment 4, in clause 11, page 6, leave out lines 35 to 41.

David Hanson (Labour, Delyn)

I, too, welcome you to the Chair, Mr Brady. Over the past few weeks, I have spent more time in this room than I care to recall, with the hon. Members for Scarborough and Whitby and for Bristol West, and my hon. Friend the Member for West Ham, and this is the coldest I have found it. I am sure it will warm up over the course of the day.

May I say at the outset two things that may seem strange for an Opposition spokesman? First, we welcome the holiday proposal on national insurance contributions. It is innovative. It may help support new businesses and it will, I hope, be of value. If the Minister’s prediction that 400,000 employers and 800,000 employees will seek benefit from it over the next three years materialises, we will certainly welcome it. We hope that areas such as mine in north Wales will benefit from the scheme and that if new businesses come forward, are sustained and survive, it will provide them with a great deal of help.

Without politicising the initial discussion, we face some big challenges over the next three years. We face a £1 billion cut in my area in Wales to the National Assembly for Wales’ budget. We face major cuts in public spending across the board—in local councils, in capital spending, on education—that will cause tremendous pressures on existing employment both in the public and, if I may say so, in the private sector, which will face the knock-on effects of public spending cuts in areas such as capital expenditure, construction and Building Schools for the Future.

Any steps that the Minister can take to help alleviate the great pain that will happen in the next three years, because of public spending cuts, have to be welcomed. If they help to encourage and develop new employment, that has to be a good thing.

The Office for Budget Responsibility’s growth forecasts have been downgraded in the past six months from 2.6 to 2.1%, so we need to face the real pressures that are ahead. We can debate, and we have debated, the different political approaches of the Opposition and the Government on public spending, but if the scheme helps, it would be a positive thing, and I welcome it. I hope that is taken in the spirit of conciliation in which I put it forward.

Where we disagree, and where the amendments go to the heart of that disagreement, is in relation to how that cake, which the Minister has determined to help support new businesses, is distributed. He has confirmed in the Bill, in the evidence sessions and on Second Reading that some £1 billion will be spent on the scheme over the next three years. My hon. Friend the Member for Walthamstow ably questioned the Minister in the evidence session about whether we use those projections, whether they will be met and the basis on which they have been put forward. We can debate that, but if the Minister’s scheme does what it says on the tin, and if it achieves the objectives that he and his officials have set out, we are expecting some £940 million to be spent in benefit of the scheme, with an administration cost to the Government and businesses on top.

The amendments go to the heart of how that £1 billion is spent. Given that we are cutting back regional development agencies, and given that we are cutting back on public spending in general, let me put all that to one side for a moment, and let us not argue about those issues. They are important issues, and they affect the economy, but let us put them to one side. Let us look only at the opportunity that the Minister has to invest £1 billion of taxpayers’ money, from the whole of the United Kingdom, into areas that help generate new employment. Let us look at what the Minister’s choices have been with that £1 billion, and whether they meet areas of need, of deprivation, of high unemployment, and of high impact of public spending cuts—one of the Minister’s objectives—and whether it is, in the spirit of equity and fairness as well as economic necessity, best spent in that way.

I do not want to stray into later amendments, Mr Brady, but, because it is in the context of today’s debates, I will suggest later on that we set a budget for the expenditure over the three-year period of whatever that will be—if it is £1 billion, we set it. I will suggest that the Minister monitors that expenditure, and I will suggest that the Minister looks at the effectiveness of how that resource is spent.

If we accept the Bill as it is drafted, large swathes of the United Kingdom will receive its benefit. My area in north Wales, the area of my hon. Friend the Member for Nottingham East, and the areas of the hon. Members for Cleethorpes, for Burnley, for Hexham and for Central Devon will all be able to access that resource to help support new businesses for that three-year period. They will be able to have that benefit of £5,000 per employer, which might encourage businesses, which might help alleviate the public spending cuts and which might have an impact in those areas. Yet the areas of my hon. Friends the Members for Walthamstow, for Lewisham East, for Luton North, for Luton South and for West Ham, those of the hon. Member for Watford, the Minister himself, and the hon. Member for West Suffolk, who is not in the room, but is on the Committee, will not be able to access that resource. Is that fair and equitable? If we are going to spend that resource, is that its best use in order to tackle the issues that we face?

Amendment 1 addresses the total exclusion of London, the south-east and the eastern region, and seeks to ensure that those areas are included in the scheme. If we accept the Bill as drafted, those regions will not be able to access the benefit at all; the £940 million will be spread over the rest of the United Kingdom. The Minister could have determined that the same budget would be available for the whole of the United Kingdom—and he could still do that if he accepts later amendments—which might mean that there would be a shorter time scale for that budget to be spent, or that there would be fewer businesses to secure the budget. He need not, however, increase the amount of the budget; he can simply spread it across those three regions as well.

I will pick London to begin with; of the top 12 most deprived local authorities, as outlined in the economic deprivation index, no fewer than seven such authorities are in London—I will return to my hon. Friends the Members for Luton North and for Luton South in a moment because those areas are also important, but I want to focus on London for now. The scheme will not apply to the boroughs of Hackney, Newham—the borough of my hon. Friend the Member for West Ham—Tower Hamlets, Islington, Barking and Dagenham, Haringey or Lambeth. By any stretch of the imagination, those boroughs are seven of the most economically deprived in the country.

In his statement on 6 September, the Exchequer Secretary said:

“The Government are determined that all parts of the UK benefit from sustainable economic growth".—[Official Report, 6 September 2010; Vol. 515, c. 1WS.]

I cannot see how that will happen if we exclude those three regions at a time of massive public spending cuts, very difficult challenges and real issues of regional development ahead of us. If those regions are excluded from the payment holiday, there is no opportunity for those deprived boroughs to access that scheme.

However, do not just listen to me—as ever, I am a bigoted Labour politician, I have my views, stood for election and opposed the Government, and this is me, speaking as a Labour politician. I have stretched the hand of friendship out to the Minister and said that we support the Bill, but do not just listen to me; look at the evidence that has been presented to the Committee. As paragraph 1 of the written evidence from the Thames Gateway London Partnership states:

“The Thames Gateway London Partnership (TGLP) believes that the National Insurance contributions holiday should be extended to cover London and the South East.”

It is the first thing that the TGLP said, and the evidence continues with this damning statement, which is the important part:

“A failure to do so demonstrates a lack of understanding about the diversity of the London Thames Gateway’s economy and the importance of the London Thames Gateway as the driver for the UK economy. The exclusion of London and the South East from the Bill is inconsistent with the intention”.

We can also look at last week’s evidence session with Mr Pichon of Wenta. In answer to my hon. Friend the Member for Luton South he said that, and this includes London as well,

“across the whole of the east, there are areas of high deprivation. Just to ignore them, saying, ‘You are not going to cover that area with a scheme such as this,’ is unfair.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 20, Q46.]

Richard Harrington (Conservative, Watford)

Does the right hon. Gentleman also agree with Mr Pichon’s view that all employers’ national insurance contributions should be abolished?

David Hanson (Labour, Delyn)

No, I do not. With my hon. Friends, I have just supported a rise in national insurance contributions, so self-evidently, I will not support a position that abolishes them.

Mel Stride (Conservative, Central Devon)

Does the right hon. Gentleman agree with Mr Pichon’s statement that a national insurance holiday would be totally ineffective anyway?

David Hanson (Labour, Delyn)

No, I do not. We look at the evidence, listen to what people say, take bits of it that we agree with—[ Interruption. —and that is the nature of the business that we are in. The hon. Gentleman knows that part of the objective is to look at the issue. I do not agree that that scheme would be ineffective. I have said, openly and honestly—this is a big thing for an Opposition Member to say to the Minister—that it is a positive scheme, which may be helpful. If it helps the 400,000 businesses, and if it helps 800,000 employees to get into and sustain employment, it will be a good scheme. Time will tell, however, and later we will debate amendments that will give us an opportunity to assess the effectiveness of the scheme.

I criticise not the objective of the scheme but its application, which is unfair because it means that London, the south-east and the east will not benefit. On Second Reading, the Minister said—he has said this in other formats, and he may even have said this in notes to the Bill that I have seen in the past—that the reason behind the policy is that

“areas outside London, the south-east and the east are more reliant on public sector employment.”—[Official Report, 23 November 2010; Vol. 519, c. 200.]

The Minister has, therefore, admitted that when the impact of massive public spending cuts hits, it will hit areas—my area, and those of other members of the Committee—outside those three regions harder than it will hit London, the south-east and the east, but the information does not stack up. In many ways I would love it to do so—if that were the Minister’s honest intention, and his belief—but I do not think that the facts bear that out. The constituencies of Oxford East, of Luton North, of Lewisham East, of Canterbury, of Southampton, Test, of Eltham, of West Ham, of North Thanet, of Hackney North and Stoke Newington, of Tooting, of Islington North, of Dulwich and West Norwood and of Brighton, Kemptown will all miss out on the scheme, but they are in the top 10% for levels of public sector employment in the country.

If I look at the list of public sector employment by constituency across the whole of the United Kingdom, no fewer than 23 of the top 100 constituencies for public sector employment—my maths tells me that that is 23%—are in London and the south-east. Not only the constituencies that I have mentioned, but those of Worthing West, of Leyton and Wanstead, of Hastings and Rye, of Portsmouth South, of Lewisham, Deptford, of Maidstone and the Weald, of Greenwich and Woolwich, of South Cambridgeshire, of Cambridge and of Winchester are all in the top 100 for the highest levels of public sector employment.

On the Minister’s logic, nearly one quarter of the constituencies that are in the top 100 for dependence on public sector employment will not benefit from the scheme, which he is establishing because he is concerned about the impact of public spending cuts on public sector employment. It is not only my hon. Friends who represent those constituencies but, as he knows, Members from other parties as well. That may be why some of his colleagues have also expressed concern about the implications of the policy for those regions.

Leaving aside the arguments from public sector employment, and from local authority deprivation, if we look strictly at unemployment and how it is spread across the country the Minister knows that the employment rates of the regions that are excluded are much more challenging than those of the regions that are included. Unemployment rates from the International Labour Organisation show that across the United Kingdom no area has a higher unemployment rate than London, at 9%. We face a situation where the Government are bringing forward a scheme to help new businesses, but the area with the highest unemployment rate in the country is not included in that scheme. The jobseeker’s allowance claimant rate from the Office for National Statistics shows us that unemployment in London is higher than it is in the south-west, in the constituency of the hon. Member for Central Devon; it is higher than it is in my area, Wales, where it is 3.6%; and it is higher than it is in Scotland, in the east midlands and in the north-west. Indeed, it is above the UK average of 4%. The unemployment rate in the constituency of my hon. Friend the Member for West Ham is 6.8%. In Tottenham it is 7.7%. In Camberwell and Peckham it is 6%.

Let me pick three random constituencies. I told the Minister on Second Reading that I have nothing against the people of Tatton, the seat of the Chancellor of the Exchequer. They once elected me to office as a local councillor. I led the local council that covered the Tatton constituency. They are fine people. Their unemployment rate, however, happens to be 2.1%. That is significantly lower than in the constituency of my hon. Friend the Member for West Ham, which currently has an unemployment rate of 6.8%. What is the logic of trying to start new businesses across the whole of the north when, for example, Tatton has an unemployment rate of 2.1%? Richmond in Yorkshire, the seat of the Foreign Secretary has an unemployment rate of 1.8%. Unemployment in Derbyshire Dales, the seat of the Government Chief Whip, is 1.6%.

My hon. Friends the Members for Lewisham East, for Walthamstow, for Luton North, for Luton South and for West Ham all face higher levels of unemployment. Their constituents will not be able to avail themselves of this scheme, which they will be paying for through their taxes. So people in work in Walthamstow, Lewisham, West Ham and Luton will pay taxes to put money into the Treasury coffers to transfer wealth to support new businesses in Tatton, Richmond and Derbyshire Dales. I have no problem with the people in those three constituencies, but if the Minister wants to focus this issue on a scheme I welcome, I remind him, he needs to focus it in a way that impacts on the areas of highest deprivation and highest unemployment as well as those who will benefit generally.

Stella Creasy (Labour, Walthamstow)

Does my hon. Friend agree that the scheme could also be a double whammy to my constituents, a lot of whom work within the public sector and who now face redundancy? Even if they were to try to move into the private sector and start up new businesses they would be doubly penalised by schemes like this because they are being excluded.

David Hanson (Labour, Delyn)

My hon. Friend is right. Let me remind the Minister what I am arguing for initially. I argue in amendment 1 that London, the south-east and the east region should be included in the scheme. I am simply asking him to make the scheme a national scheme and to make it fair so that all those constituencies like Walthamstow can access it. If that means that the scheme runs for two years instead of three, so be it. If that means that the scheme runs for three years but is capped at £940 million and when that money is gone, it is gone, so be it. I have not tabled amendments to reduce the length of time of the scheme, but I could have done. I might even do so on Report, depending on what the Minister says.

I am not asking the Minister to spend more money. He has estimated that it would cost around £660 million if it were extended on the current level for those areas. That may be the case. The Minister could retain the existing amount of resource for the scheme and spread it over a thinner base to encourage new businesses in those areas. There is no logic for him, based on deprivation, on unemployment or on the concerns of public sector employment, to exclude three regions which have a higher level of public sector employment, a higher level of deprivation and a higher level of unemployment.

These are random constituencies, but they are represented by Conservative and Liberal Cabinet Ministers: Berwickshire, Roxburgh and Selkirk has 2.8% unemployment; Tatton has 2.1% unemployment; Richmond has 1.8%. Derbyshire Dales, Rushcliffe, Sheffield, Hallam, Sutton Coldfield, North Shropshire, Inverness, Nairn, Badenoch and Strathspey all have low levels of unemployment, lower than those in West Ham, Luton North, Luton South, Lewisham East and Walthamstow, the constituencies of my hon. Friends who are in Committee today. The hon. Member for Watford has a current unemployment rate of 3.6%. His constituency will not benefit from this national insurance holiday and yet the constituency of the Chancellor of the Exchequer, who has an unemployment rate of 2.1%, will. Is that a fair and equitable way to distribute the scheme today?

No one on the Opposition Benches who represents a seat in the east region, London or the south-east has a lower unemployment rate than the Chancellor of the Exchequer, who will benefit from the scheme in Tatton. I have nothing against the good burghers of Tatton, but, if we are trying to encourage businesses, it seems inequitable that those in Watford will not benefit from the scheme while those in Tatton, which is adjacent to your constituency, Mr Brady, and, although it has pockets of deprivation, has great pockets of wealth, will benefit.

We have tabled three sets of amendments to give the Minister an opportunity to think about the issues in detail. Amendments 1, 2, 3 and 4 would remove the three excluded regions so that the Bill would apply to them. Amendment 7 would ensure that a local authority area was considered at the discretion of the Secretary of State. I will return to that in a moment. Amendment 5 would insert

“the 350 constituencies with the lowest percentage rate of unemployment as defined by the Department of Work and Pensions on the date of Royal Assent”.

Amendment 6 would insert

“the 350 constituencies with the lowest percentage rate of public sector employment”

that are excluded from the scheme as a whole.

My preference is to make the scheme UK-wide so that every part of the United Kingdom can access the holiday benefits in a similar way to my area and to others represented on the Committee. I hope that the Minister will reflect upon that preference before Report. If he does not reflect upon it, will he consider chopping the scheme up in a different way? It could be done by the unemployment rate—it would be doable by postcode in constituencies, similar to the way it is being done by region—or by the percentage of public sector employment, or by the discretion of the Secretary of State for local authority areas.

Business births are also relevant. The Office for National Statistics released its “Business demography 2009” last week, which is helpful for the Committee. It notes that the percentage of business births in the east and south-east regions of 9.9% and 9.7% respectively were lower than the national average of business births. There have been fewer business births in the south-east and the east over the past year than in the north-east, the north-west and the Yorkshire and Humber region. There are fewer business births in the areas represented by my hon. Friends the Members for Luton South and for Luton North than in the north-west, which is your region, Mr Brady, and which is adjacent to mine. My region depends on north-west employment—I am one and a half miles from the English border, so business births in the north-west employ people in my area. Business births in those regions are higher than those in the regions that the Bill excludes for new employment.

There are more business births in London than in those regions. The rate for business births in London is 12.6% compared with an average of about 10% in the north-east, north-west and Yorkshire and Humber. The point that is important to this discussion, however, is that the level of business deaths in London of 13.7% is higher than anywhere else in the United Kingdom.

The east and south-east regions have fewer business births than the regions—the north-west, the north-east and Yorkshire and Humber—that are included in the Bill’s scheme. Moreover, although London has a higher level of business births, it also has a higher level of business deaths than any other region in the country. Does that not give the Minister a sense of logic? If we are trying to help maintain businesses at the start of their difficult lives, particularly in areas with a high level of public sector employment or of unemployment, or of deprivation in general, should not the logic driving the Minister to his choice of regions say that he should consider including London in the scheme? If schemes are dying quicker in London than anywhere else, and if they are being born slower in the east and the south-east than anywhere else, surely a scheme designed to nurture new businesses by giving them a £5,000 holiday in their initial three years should focus on those three areas.

I want now to conclude my initial remarks, because my hon. Friends also want to speak on these issues. I want to help and support the Minister by saying that, if he were to accept amendment 7, the Secretary of State could, at any point, apply the scheme to specific local government areas that he feels need help and support. To give him one example, which is not in London or the south-eastern region, but it could have been, just before February this year there were major redundancies at the steelworks in Redcar in the north-east. If such a scenario were to happen in London, the south-east and the east regions, which is perfectly possible, the Minister might want to apply the scheme to a particular local authority area to help with a particular challenge following particular levels of redundancy.

I do not want to pick on any particular business in London, the south-east or the east, and put a scourge on them, but I am sure that hon. Members can think of sectors that are very dominant in a town, that are very important to the economy of an area, and that could, given the challenges that we face over the next three years, go belly up. We could find massive redundancies in a particular area. The Luton area could be hit by the failure of a particular business—say, Vauxhall Motors, which I know well, because there is a Vauxhall plant in my constituency. I do not wish to put a blight on the area, but such a situation could happen; anything could happen. In the event of a major employer in the borough of Luton having difficulties, would it not be sensible for the Minister to be able to apply the scheme to that borough, to help create new employment and replace the employment that was lost?

Gavin Shuker (Labour, Luton South)

My right hon. Friend, of course, remembers the chain of events at the turn of the century —in about 2001—when Vauxhall Motors ceased manufacturing cars in Luton; that had a very serious, long-term effect on the local economy. Obviously, the provisions of which he is speaking would allow greater flexibility to recognise that. In Luton, the local authority would be directly affected, but the east and greater south-east perhaps would not.

Mr Hanson rose—

Graham Brady (Conservative, Altrincham and Sale West)

Before the shadow Minister responds to that, he has been entirely relevant, in my view, in all of his points, but it has not escaped his attention, nor the attention of the Committee, that the nature of these amendments allows for exhaustive lists of comparisons. I hope that he will not illustrate his point with too many of them.

David Hanson (Labour, Delyn)

I am grateful to hear that I am in order, Mr Brady; that is always good to know. As the Government Whip will know, I have the ability to talk for ever to try to keep the business of a Committee going, but this is not one of the occasions on which I am trying to do that. I am trying to indicate to the Minister our real concerns about not the principle of the scheme, but its application. It currently excludes three regions represented by five of the seven Labour Members on this Committee, and by some Government Members present, too.

My hon. Friend the Member for Luton South makes a valid point. My point is that if the Minister were to accept amendment 7, which is on local authority areas, he would have the power to apply the scheme to a borough in London, the south-east or the east in the event of a particular situation, even if he chose to continue excluding London, the south-east and the east. Such a situation, although we do not want to see it happen, might be the consequence of a tightening of the fiscal position, an economic downturn, or a lack of public confidence; or a major employer in a particular part of those regions could find itself so challenged that it ups sticks. What tends to happen in such situations is that businesses, companies and other local authorities go into the area to help create new jobs and find new employment. Would that not be a useful scheme for the Minister to have in his back pocket?

I have no wish to put a plague on Luton, but in the event of a major employer in Luton having great difficulties and causing thousands of redundancies, would it not be good for the Minister to have the power to say that one step that the Government were taking to help mitigate the effects of that massive unemployment was ensuring the ability to designate the borough of Luton, so that it could apply, under the scheme, for a national insurance holiday for new businesses? That may help only 10, 11, 12, 13, 14 or 15 people to start a new business, but it is a tool in the armoury that could be used to help support areas in the three excluded regions.

We tabled the amendment simply to say that we want all areas to be included. We could talk about putting a cap on the amount of money or shortening the years, and all the ranges within that, so that, without increasing the cost to the Treasury, we could allow all areas to benefit, for the reasons I have mentioned—unemployment, deprivation and so on. If the Minister cannot accept that, will he split the cake via the public sector, or via levels of unemployment? If he cannot do that, can he at least give himself a power that allows him to offer help and support in the event of a major challenge in one of the boroughs or county boroughs of those three areas? Those all seem reasonable propositions.

I have tried to approach the issue in a constructive way and tried to make the case for why my hon. Friends and I believe that we need to review not the principle of the scheme, but its application, to make sure that it is generally beneficial. I find it difficult to allow the current scheme to stay in place when my hon. Friend the Member for Luton North had 2,390 people out of work last month—a 5.1% unemployment rate. My hon. Friend the Member for Luton South had 6.7% unemployment in his constituency, with 3,245 people out of work. My hon. Friend the Member for West Ham had 5,915 people unemployed last month—a 10.8% unemployment rate. My hon. Friend the Member for Walthamstow had 3,950 people unemployed, which is an 8.5% unemployment rate. My hon. Friend the Member for Lewisham East had a similar level of unemployment. The figures for Lewisham East seemed to have disappeared from my piece of paper, but I am sure that my hon. Friend will have those figures to hand in due course.

Those figures show that the scheme, in its application, does not address some of the areas where there is greatest difficulty. Having spelled that out, I hope that the Minister can reflect on the scheme in a positive way and look at those suggestions. Again, I stretch out the hand of friendship to him. I will not press the amendment to a vote. If he wishes to reflect and come back to the matter on Report, and to rephrase and look again at the scheme, we will happily take his hand. In fact, I will give him a second hand of friendship: if he changes the scheme, I promise him that I will not crow about the fact that he has done so. I will say that it was done in the spirit of co-operation, and that, discussion having taken place about the three areas—[Interruption.] My hon. Friend the Member for West Ham always takes a hard line on such matters. That is perfectly understandable, given the level of unemployment in her constituency, but she will know that if I wanted to, I could and would kick the Minister very hard, metaphorically.

We could make a very strong case as to why the Conservative-Liberal Democrat Government are ignoring the needs of the constituencies represented by my hon. Friends, but I think it better to ask the Minister to reflect on the arguments we have made. There may just be a kernel of sense in some of those arguments about how we distribute the scheme. If he reflects on that and brings back suggestions, we will simply give him our thanks and say, “Well done”; that is the purpose of the debate and the Committee.

Stephen Williams (Liberal Democrat, Bristol West)

While the right hon. Gentleman has been speaking, I, too, have been studying the Library report on the November unemployment statistics. If he looks at the map of Greater London on page 46, he will find that while some of the constituencies he has named are indeed in the top quintile of unemployment, just a matter of a mile or two away there are constituencies in the bottom quintile of unemployment. Is the flaw in his argument that our constituents are not confined by boundaries? Those boundaries are relevant to us; they are not relevant for travel-to-work patterns.

David Hanson (Labour, Delyn)

No, they are not, but I can say to the hon. Gentleman, because I know the area well, that the constituency of Tatton, with low unemployment, is not more than six miles at its furthest point from the constituency of Wythenshawe and Sale East, which has high levels of unemployment. We could start businesses in Tatton, and that would suck people from the estates of Wythenshawe and Sale East down into the rich pastures of Knutsford, close by. That may or may not happen, but the principle is the same in regions where the scheme applies and in regions where it does not. If there is higher unemployment in constituencies in London and the south-east than in many areas of the north, we should examine that.

I am a northerner born and bred. I represent a seat in north Wales now, but I was born in Liverpool. I lived in and represented a council in mid-Cheshire, where I grew up, for many years. There are many prosperous areas. I grew up on a council estate with a prosperous ward—the richest ward in Cheshire—not three miles away, so that fluid movement happens all over the place. If we look at the matter in any particular statistical way, there is no getting away from the fact that there are areas with high unemployment in London, the south-east and the east that will not benefit from the scheme. People in those areas may be within seven tube journeys of the Cities of London and Westminster, but it does not mean that they will benefit from employment there.

Equally, it is important that the hon. Member for Bristol West thinks about the fact that there might be some benefit in helping to generate self-employment in some areas with higher unemployment, such as West Ham, so that we build the localism that he wants and keep that money in the borough of Newham, instead of dragging it back and forward, helping commuting.

Gavin Shuker (Labour, Luton South)

My right hon. Friend makes a salient point about how diverse regions are, even those within a few miles of each other. He strongly makes the point that, instead of grouping regions together in such a way that there is simply a binary split between the north and the south, we need to look at smaller areas, such as those in the Opposition amendments.

David Hanson (Labour, Delyn)

Indeed. I have not even returned to the issue of the borders of these regions, although I may do at some point. There will be businesses on one side of the border that will draw employment from the other, and vice versa. Those are whole areas of discussions that we could, and may, have later.

David Gauke (Conservative, South West Hertfordshire)

I hope so.

David Hanson (Labour, Delyn)

I am sure that we can do that. The nub of the case has been made. I may return to some of these issues, depending on what the Minister and my hon. Friends say in the discussion, but my contention is: good scheme, difficult implementation. Will the Minister please look at wider implementation, along the lines set out in the amendments? If he does, we will welcome his consideration. I look forward to hearing the contributions of my hon. Friends.

Heidi Alexander (Labour, Lewisham East)

Members of the Committee will probably be pleased to know that I will keep all the layers of my clothing on; I know that there was discussion earlier about taking layers of clothing off, but given the temperature in the room, I will keep them firmly on. Members will also be pleased to know that I will not repeat the speech I gave on Second Reading in its entirety, but there are probably some salient points worth repeating for members of the Bill Committee today.

I read through the Second Reading debate on the train on the way here, and I noted that it was not only Labour Members raising concerns about the regional holiday and the exclusion of London, the east and the south-east. I can see from Hansard that the hon. Members for Basildon and Billericay (Mr Baron), and for Portsmouth North (Penny Mordaunt), asked the Minister to look at the decision to exclude certain regions. The shadow Minister talked about the 12 most deprived local authorities in the UK and the fact that a large number of them are excluded from the regional holiday. In those areas, levels of unemployment are high, and there is significant reliance on the public sector for jobs.

My local authority, Lewisham, and my constituency, Lewisham East, are not on the list, but that part of London struggles significantly with its local economy. It has the fourth smallest business base in London and more jobseekers chasing locally advertised jobs than anywhere else in the country. I understand that that is symptomatic of the nature of the London labour market, in that many people will use buses, trains and bikes every day to go to work, but that says something important about the experiences of my constituents when they go to the jobcentre. I receive many letters and e-mails, and many people turn up at my surgery, every week asking me to help them find work.

Given the importance of small and medium-sized enterprises in the local economy, and probably micro-businesses in Lewisham, the exclusion from the national insurance holiday of firms that are setting up in my constituency is seen by many to be patently unfair. As I said on Second Reading, two firms could be operating in exactly the same trade, and might have exactly the same number of employees and exactly the same profit and turnover, but the business setting up in the north would stand to benefit from an exemption of up to £50,000 in the first year, whereas the same business setting up in London, the south-east or, indeed, my constituency would not.

The point made by my right hon. Friend the Member for Delyn about business births and deaths is incredibly important. In Lewisham, only 59% of businesses survive their first three years, whereas the national average is 65%. Those businesses need support in their first few years, and many people who are setting up new enterprises would like to receive the sorts of concessions that other businesses elsewhere in the UK might.

I have discussed why the regional holiday is unfair, but it also does not do what the Government want it to do, which is stimulate private-sector growth in areas that are reliant on the public sector for jobs. Yesterday, I spoke in a debate on cuts to local government. In Lewisham and many parts of London, we envisage significant job losses as a result of the reduced funding available to local government and local councils. That will add to the number of people going to the jobcentre in my constituency, and it will be much harder for mums and dads to find local employment, which the public sector often provides. If you take the boroughs of Lewisham, Lambeth, Southwark and Croydon together, 185,000 people are employed in the public sector there; that is more than the public sector work force of Tyne and Wear. Yet that whole swathe of London is excluded from the national insurance holiday, and I cannot see the fairness in that.

The measures fail to understand the nature of the economy in London. My right hon. Friend the Member for Delyn has said that we recognise that we have the City and Canary Wharf, but just a stone’s throw away from them we have pockets of considerable deprivation. The local economy is key to those places, and anything that can be done to help stimulate the growth of private firms should be done.

I want to comment on the evidence that the Committee received last week when we met for the first time. We talked at some length about administration and the cost of doing the national insurance holiday differently, taking it down to a smaller geographical area, as opposed to focusing only on regions. We received evidence from HMRC, which told us that technically, it probably would not be that difficult to make differences between postcodes in a local area and the regions, but we were told by the Minister that, ultimately, the issue came down to cost.

The Treasury seems to say that there is a lot of uncertainty about how the initiative will work; nothing like this has been done before, and the Treasury’s memorandum refers to that level of uncertainty. Will the Minister retain some flexibility, and an open mind about whether the geographical application of the scheme could be changed, if and when evidence is obtained to show how it is operating?

During the evidence session, my hon. Friend the Member for Walthamstow robustly questioned the Minister and his advisers about the lack of information on any behavioural change that the national insurance holiday might have. I believe she asked, quite rightly, for some written communication in advance of today’s Committee. I do not know whether that has come through, but I have not seen it.

It seems that we do not know exactly how the scheme will play out, and much is based on assumptions. As my right hon. Friend the Member for Delyn said, we know that London and the south-east are proven areas of entrepreneurialism where many people want to set up a business. Will we keep some flexibility to respond to the needs of areas where businesses are being set up and where the national insurance holiday could make a difference?

Stella Creasy (Labour, Walthamstow)

Is my hon. Friend as interested as I am in the evidence submitted by the Treasury in its impact assessment suggesting that were the scheme to be extended to the entire country and include some of the areas mentioned, an extra 300,000 new businesses would be eligible? If the Government see that targets for the number of new businesses to be set up under the scheme are not being reached, would that not make the case for more flexibility so that we can tap into that ability to generate more businesses in those areas?

Heidi Alexander (Labour, Lewisham East)

My hon. Friend makes a good point; that is precisely the sort of flexibility I am asking the Minister to consider. I shall not take up any more of the Committee’s time. I ask the Minister to consider my remarks, and I look forward to the contributions of other colleagues, including those from Luton.

Kelvin Hopkins (Labour, Luton North)

It is a pleasure to speak under your chairmanship, Mr Brady, even though it is a rather cold day. First, I want to express my support for everything that my right hon. Friend the shadow Minister said in his powerful and passionate speech. I will reinforce what he said with some specific points about my constituency. The constituencies of Luton North and Luton South are similar in many ways and my hon. Friend the Member for Luton South and I work together in solidarity, comradeship and friendship, to support the town in every way. There are, however, some slight differences, such as in the rate of unemployment because the most affluent part of the town happens to be in my constituency, which somewhat moderates unemployment levels. In some pockets of my constituency, however, there are serious levels of unemployment and our local economy needs all the help it can get.

On Second Reading—unfortunately I did not attend most of the debate because I was detained on parliamentary business elsewhere—it was specifically mentioned that Luton North has one of the highest levels of public sector employment. That means that it will be disproportionately affected by cuts to public spending and public sector jobs. Therefore, Luton North is threatened by Government plans more than some other constituencies. I disagree profoundly with the Government’s strategy, but that subject is not for this debate.

Luton is close to other regions and towns that will not be disadvantaged by the Government’s policy on this proposal, such as Northampton in the east midlands or Milton Keynes in the southern region. Those large conurbations will have the advantage of the scheme, but Luton will not. The illogicality of the scheme is shown up by the joint town of Leighton-Linslade and Leighton Buzzard, which is close to Luton. The Leighton Buzzard part of the town is in Bedfordshire, while Linslade is in Buckinghamshire. The division between the counties and, indeed, the regions goes through that mini conurbation. I have a friend with a small business in Leighton Buzzard, and he will not understand why someone just half a mile away enjoys the advantages of the scheme, while he does not. The scheme is clearly illogical, even outside my borough.

The Government should change their position and understand the points that the shadow Minister made very strongly. Unemployment is the key problem. If I may digress somewhat, I thought that the contribution of Mr Pichon, from Wenta, in our public meeting last week was very good. He suggested that one way forward would be a substantial increase in the minimum wage, which I heartily endorse. He suggested that that could be compensated for by abolishing the employer’s contribution to national insurance. That is a radical step, but putting more money into the pockets of low-paid employees is the best way to generate demand in the economy, because they tend to spend all their money, which goes straight back into the economy, generating employment elsewhere. Tax cuts for the better-off do not make that difference.

Giving additional income to low-paid workers is the best way to generate economic recovery and bring down unemployment. The key to tackling the problem faced by the Government and the nation is to bring down unemployment, not to create it through massive public spending cuts, which will not only create unemployment in the public sector, but as we have heard from PricewaterhouseCoopers and others, it will lead to massive cuts in the private sector. There is even a suggestion that, at its peak, the Government’s strategy of cuts could destroy as many as 1.5 million jobs. That is completely the wrong direction for us to go in; indeed, I tabled an early-day motion to that effect two or three weeks ago. It has been signed by a number of my hon. Friends, but not, sadly, by Government Members.

I have made the points that I wanted to make. These exclusions are illogical. They will unfairly affect not only Luton, but many other parts of the country. Even in areas that are not quite so badly off as Luton, there will be illogicalities, which the local populations will not understand. As I said, Leighton-Linslade is perhaps the best example that I have come across in my locality. However, I think I have made my point, and I will leave the floor to other colleagues.

Gavin Shuker (Labour, Luton South)

It is good to be able to speak to the amendments. Obviously, Government Members would prefer a scheme that was extended across the country, but we recognise, as we heard in evidence last week, that there are restrictions on the amount that can be spent and that the Government are unwilling to shorten the time for which these national insurance holidays are in place, so we have to find another route.

Amendments 7, 5 and 6 offer innovative ways of tackling a problem that may seem distant to those of us in the Committee right now, but which is very real to people in Luton South, which I represent. I spoke about that on Second Reading. Luton North and Luton South are great places to do business. They benefit from great road and rail connections and proximity to London. Businesses really like our town. The majority—82%—of the businesses in our town are small businesses, with fewer than 10 people working in them. We have a creative work force.

Many people may choose to set up a business, but the proposals in the Bill will mean that they do not receive the equivalent of the £50,000 golden hello that they would 15 or 20 minutes up the road or railway line, and there is something profoundly unfair about that. I would have to defend that difficult situation to my constituents, so I want to speak now to the amendments that I mentioned.

When Mr Patel from the Federation of Small Businesses gave evidence to the Committee a few days ago, he answered a question on the effect of the proposals on the east, the south-east and London:

“It would obviously impact on a business when it is starting up, and when it is looking at employing its first person. It would have a behavioural impact on where it locates and what employment intentions it has.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 11, Q22.]

I could not have put it better myself. The changes will have a profound effect on the east, the south-east and London—collectively termed “the greater south-east”—and that is why I sponsored an early-day motion a few months ago:

“That this House notes that the Government’s decision to introduce a Class 1 Employer National Insurance exemption for new businesses in regions other than the East, South East and London will have a negative effect on growth in those areas collectively termed the Greater South East; further notes that in areas which border, or have good rail and road links with non-Greater South Eastern towns and cities, the strategy positively encourages entrepreneurs to start new businesses away from their own communities, breaking community ties and vastly increasing unemployment; and further notes that the same strategy fails to recognise the vast disparity within the Greater South East region, where some towns and cities experience levels of unemployment and deprivation that are equal to or worse than the parts of the country that will benefit from this scheme.”

Luton North and Luton South are two areas to which the amendments speak. I am almost certain that Luton South would be one of the 350 constituencies covered by amendment 5, and that Luton North would be among the 350 covered by amendment 6. I hazard a guess that both areas fit into both camps, but the holiday would not apply in either of them, and we would therefore be at a serious disadvantage in comparison to areas that border us. My hon. Friend the Member for Luton North—my good friend—made that point well.

The proposals in the Bill will have a serious effect. There will be the £50,000 golden hello available to new businesses just up the road, but the effect on my seat will be a double, triple or even quadruple whammy. The road and rail links and the other great infrastructure that attracts businesses to Luton also represent the ability for businesses and talented individuals to move away from Luton. The public sector cuts that are coming, which will be deep and which are beginning to take shape in Luton, will further increase unemployment, and without something stepping in to increase and boost private sector employment we will be at a disadvantage.

As my right hon. Friend the Member for Delyn has laid out, the lower rates of business birth in Luton already put us at a disadvantage, and there will be a quadruple whammy for my constituents if the Bill is left unamended. The fundamental question is that the Government have put forward their position, that the changes are essential for boosting growth in areas with high public sector employment. They have said that they will stimulate the economy in those areas, and that they want the scheme to be in place so that they can rebalance the economy between the south and the north, yet we see from the Minister’s answer to a question in last week’s evidence session that that might, in fact, not be the full story:

“The reason why we have not done this nationally”—

the payment holiday—

“is because we have a constrained budget.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 38, Q130.]

To my mind, the Bill is neither one thing nor another. It does not necessarily tackle the problem of public sector employment and the Government’s intentions to rebalance the economy, nor does it necessarily serve to stimulate growth where we are, in the greater south-east. Will the Minister clarify the motivation behind the greater south-east being exempted? My constituents deserve a clear answer as to why the scheme has been constructed in such a way.

I turn briefly to amendment 7. I can see an incredible amount of credit in the idea that local authority areas could be designated by the Treasury and by appropriate Ministers as areas that could benefit from the holiday. As my right hon. Friend the Member for Delyn has already laid out, there are situations—I can think of one or two in Luton right now where potentially we could lose large employers—where the stimulation would be necessary. It seems funny to argue from the Opposition side for greater powers in the hands of the Treasury to determine where this goes, but I see advantages to that approach. Local authority areas already produce information about public sector employment and levels of deprivation. Indeed, in my local authority there are wards that we are spending a lot of time and effort trying to revive.

Mel Stride (Conservative, Central Devon)

Does the hon. Gentleman accept that there is additional complexity and cost in trying to identify smaller areas for assistance? Indeed, during the previous sitting of the Committee, he put a question along those lines to Sam Mitha, who I notice is here today. He replied:

“If you have a system that required us to operate a more complicated, or a narrower, range of areas, by reference to which we were giving relief, that would raise the costs of compliance substantially.”

He went on:

“Instead of making the maximum amount of money available to new businesses, a significant amount of money would be absorbed in trying to administer the scheme.”—––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 35-36, Q121.]

Does the hon. Gentleman agree with those comments?

Gavin Shuker (Labour, Luton South)

What is clear from those comments is that the scheme as it is intended is a simpler scheme than one looking at local authority areas and individual constituencies—either the 350 with the highest rate of unemployment or the 350 with the highest rate of public sector employment. But we are in politics not only to administer schemes but to address inequalities in our society. For us to constantly say that we just want the simplest and most straightforward scheme is an argument that produces a blanket scheme for a shorter period. This scheme does neither one thing nor the other.

I see advantages to amendment 5, which relates to the 350 constituencies with the lowest rate of unemployment. Unemployment is an issue in many of our communities and there are pockets of unemployment not only in regions but in constituencies. We are being presented with quite an innovative scheme. We certainly heard that from the evidence given by different experts. The question why we will not allow that innovation to extend to individual constituencies is one to which I still see no answer in the evidence that was given. When we want to tackle unemployment, or areas with very high public sector employment where we are hoping to rebalance the economy—as in the coalition’s stated aim—the amendments could make a real dent.

I appreciate that wherever we reach a border, there will be some difficulty. When we questioned the Minister, some of his most compelling responses were about trying to reduce the number of borders where there would be a significant movement of people. But That answer recognises that there will be a significant impact on several communities that border those areas. If we approached it from a simpler and more straightforward perspective and said that there are certain objectives and policy aims that we are trying to achieve—reducing unemployment in areas of high unemployment and rebalancing the economy in areas of high public sector employment—we could hold our heads high when we come out of the Committee and say that there was a simple and clear strategy behind it.

Clearly, a blanket approach across the south-east, the east and London—termed collectively as the greater south-east—does no credit to constituents in the massively diverse area of the greater south-east. If we are to make a strong case for the Bill, do we accept that there needs to be an increase in national insurance to address the deficit, which all parties seek to reduce? If we accept that there are businesses that will not start up as a result of this measure, we have to adopt a consistent approach, which must come from an ideological belief that it is our responsibility not just to administer schemes but to tackle deprivation where we find it, so that we end up with an economy that is fit for all people and that produces jobs as well.

David Gauke (Conservative, South West Hertfordshire)

We have had a useful and thorough debate on this matter so far. I thank the right hon. Member for Delyn for the spirit in which he began his remarks and for offering the hand of friendship. None the less, I detected a veiled threat of the boot of hostility as well, which I shall keep a careful eye out for. During the general election, the Opposition’s response to the crisis in the public finances was to raise employers’ national insurance contributions. Now their answer to the crisis is to reduce employers’ national insurance contributions; I call that progress.

Mr Hanson rose—

David Gauke (Conservative, South West Hertfordshire)

I am stretching the hand of tolerance already, but I will give way.

David Hanson (Labour, Delyn)

On a point of clarity, we supported a national insurance rise during the election and we supported it today. The Minister has brought forward a scheme to help the start of new businesses. Those new businesses are needed because the Government are cutting back massively on public spending, exorcising regional development agencies and making damaging cuts to regional assemblies, such as my own one in Wales. The hand of friendship extends because this is a scheme to help create new employment from the devastation of public sector cuts.

David Gauke (Conservative, South West Hertfordshire)

I note that comment. Perhaps I am being churlish, but I must point out that employers’ national insurance contributions will affect start-up businesses, existing businesses and employment. I wish that we could do more in that area, but we are very constrained. None the less, we are trying to do something, which is more than can be said of the previous Government.

Let me turn to the amendments. The right hon. Member for Delyn is right to say that we have to take some difficult decisions on the public finances. I am pleased that the OBR has reduced to 330,000 its projections for the number of public sector jobs that will be lost as a consequence of the fiscal consolidation. Whichever party came to power was going to have to take tough decisions on public spending and that would have had an impact on the numbers being employed by the public sector. The intention behind this scheme is to seek to redress that and to encourage private sector growth and enterprise. I am genuinely pleased that there is support from both Government and Opposition for that, although I understand that there are issues about how such help is targeted. I believe that we have the right approach, and I will seek to explain why.

It is fair to say that people of goodwill can hold different views on this, particularly those representing constituencies that do not benefit from the scheme. Of course a Member will want to speak out for their constituents if they think that they will be significantly disadvantaged. Let me see if I can explain our thinking. The amendments relate to the regional nature of the NICs holiday, which was a debate that we had on Second Reading and at the evidence stage. Amendments 1 to 4 taken together would make the holiday a UK-wide scheme. The NICs holiday is aimed at helping the formation of new businesses that are employing staff in those countries and regions most reliant on public sector employment. The reason that Greater London and the eastern and south-eastern regions are excluded is that the proportion of the population in public sector employment is lower than in any other part of the United Kingdom. We estimate that the scheme will cost an additional £660 million over the three years.

During the evidence session, I was asked whether, if take-up is lower than expected, there is a plan to expand the holiday to cover the whole of the United Kingdom. It is not only about cost, but about the policy rationale for the holiday, which is to target incentives on new businesses in regions with higher public sector employment. During the evidence session, the representatives of the Federation of Small Businesses and the British Chambers of Commerce made it clear that the greater south-east is more resilient than the rest of the United Kingdom. The formation of new businesses would not be significantly harmed because the holiday was not available. It must not be forgotten that all new and existing businesses in the greater south-east will benefit from the increase in the employer national insurance contributions threshold, which we have discussed, and the reduction in corporation tax rates. Reducing the deficit is the priority. We have limited resources in the application of this holiday, which was why we focused it in the way that we did.

The right hon. Member for Delyn proposes an alternative. To be fair, he made it clear that he is not proposing anything that would cost more than we have scored already on this policy. One proposal that he made was that we have this as a national scheme, but that we have a fixed budget, and that it stops when the money runs out. That would enable it to work across all regions, if I have correctly summarised one of his points.

The difficulty with the fixed-amount approach, which is what the previous Government did with the car scrappage scheme, is that while it may be appropriate in some circumstances, we have to look from the viewpoint of someone who wants to set up a business and is planning and is aware of this particular scheme and wants to make use of it. Imagine the situation if, having spent several months preparing to start a business, shortly before they did so, the person discovered that the scheme had run out of money. Imagine if someone who already had a business was benefitting from the national insurance contributions holiday and had taken on a number of employees and then, six months through, with 10 employees benefitting, the Government announced that the scheme had run out of money. We would have fundamentally undermined the whole policy, because we would have created a degree of uncertainty.

As we hear constantly, businesses want certainty on how their tax system works. If we want the scheme to have a beneficial behavioural impact, that degree of uncertainty within it would substantially undermine it. It would also cause considerable administrative costs and difficulties for Her Majesty’s Revenue and Customs in monitoring where the money was being spent and in identifying at which point all the £940 million had been spent, especially because much of that information may not come to light until afterwards. Although I understand the reasons why the hon. Gentleman suggests that this holiday could be done on a national basis and still remain within the cost envelope that we have identified, it is not a practical solution.

David Hanson (Labour, Delyn)

If the Minister refers back to my hon. Friend the Member for Walthamstow and the discussions that we have had, the basis on which he is determining the potential uptake of the scheme is woolly, if I am honest. In the event of the scheme being over-subscribed, will he stick to £940 million, or will he then apply the cap that I argue he should apply from the beginning, so that the taxpayer, and the businesses that may apply, know the extent of the scheme’s contribution?

David Gauke (Conservative, South West Hertfordshire)

I answered that question in the evidence session, and I hope that I will give the same answer here. The £940 million is a forecast for what the policy will cost, not a cap. If the uptake is greater than we anticipate, the cost of the policy will be greater and we will not cap it as such. Businesses need certainty that the scheme is the same as what we are putting on the statute book, and that the holiday will be available to their employees in exactly the same way as we have set out.

David Hanson (Labour, Delyn)

Again, this is an important point: one of the Minister’s arguments against the amendments is that the extra cost of £660 million will be incurred by the scheme being applied to London, the south-east and the eastern region, and that he cannot guarantee his hon. Friends that the £940 million will not become £1.3 billion at the end of the scheme, if the take-up is large enough, which it may well be. We need clarity on what basis the Minister has made the assessment of £940 million, because his argument against our proposals is based partly on cost, as well as partly on application.

David Gauke (Conservative, South West Hertfordshire)

If the number of businesses starting up were more than we had projected, that would suggest that there had been a greater behavioural impact than we had anticipated, and that the policy would have been a greater success. Whenever the Treasury, under whatever Government, sets out a tax policy, it forecasts what the cost will be. Sometimes, it is accurate—at least in theory, that happens—sometimes it is an overestimate, and sometimes it is an underestimate. However, on the basis of the numbers available to the Treasury and HMRC, it is the best estimate of what the policy will cost. For this particular policy, the best estimate we have is £940 million, but that will depend on take-up, and we will see how that develops. As I see it, there is nothing particularly difficult or novel about that.

Stella Creasy (Labour, Walthamstow)

Can the Minister clarify this point? By that logic, there is no reason to be against the entire process being extended to the whole of the UK. You say that it would cost £660 million and that essentially you have a blank cheque for the policy, dependent on take-up, so you could apply the same metric to the whole of the country and say, “We will intervene at a later date if necessary”, because you are also saying that you would intervene if the scheme went over a certain amount.

Graham Brady (Conservative, Altrincham and Sale West)

May I just remind the hon. Lady that I am saying nothing?

David Gauke (Conservative, South West Hertfordshire)

I hope that that was not the approach that the previous Government took when they were in power. Essentially, one has to make a best estimate of how much a particular policy would cost, just as one would on how much a tax increase might bring in, or how much a tax cut might cost. It is an estimate and that does not mean, for example, that if a tax increase brings in more money than was expected halfway through the time period, one automatically reduces it. That is not how such things work. Our estimate is that the scheme will cost £940 million pounds, based on the regions and countries that are currently included. It would cost an additional £660 million if we included the areas that are currently excluded.

Kelvin Hopkins (Labour, Luton North)

Even if there were an indicative cap—an estimate of how much the scheme would cost—one approach might be to reduce the generosity of the scheme per enterprise, and have the scheme applied across the whole country. I would not choose that route myself; I would choose more generosity in general, but it is a possibility, is it not?

David Gauke (Conservative, South West Hertfordshire)

I note the hon. Gentleman’s comment that he would be more generous generally, and it is interesting to learn that he is an instinctive tax-cutter. We learn many things in Committees and it is a particular pleasure to hear of two Luton MPs working closely together, which is progress from the previous Parliament. If we made the scheme less generous, the chances of it having much of an impact where it applies would be weaker, and the essential impact would be limited. We would rather focus and target the scheme.

David Hanson (Labour, Delyn)

If the scheme were extended to London, the south-east and the eastern region, the number of people that the £940 million over the three years would affect would still potentially be the same. It would still be 400,000 businesses. It would still be 800,000 employees. It would just be spread over three other regions. There is no increase necessarily in the impact. What is the problem in doing that, given that there are already 23% public sector employees in London, the south-east and the eastern region who will not now qualify for this scheme?

David Gauke (Conservative, South West Hertfordshire)

The point that I was trying to make was that if we had reduced the eligibility per employee falling within the scheme then the chances of the scheme being particularly effective would be weaker. We might be spreading the benefits too thinly for it to make any noticeable behavioural impact or benefit for a business in those regions. I accept that this is a question of judgment, but our judgment is that if we were to do that the scheme would be less likely to be effective.

Amendments 5 and 6 would remove eligibility from areas which benefit under the Government’s proposals. I will turn to the policy and practical merits of these proposals in more detail shortly. However, a further consideration prevents these amendments from being accepted: no provision is made to protect those new businesses that are already benefiting from the operation of the scheme and which would be excluded under these amendments. If they were accepted, such business would be obliged to repay the employer’s national insurance contributions they have withheld to date. Perhaps just as damaging, those who are actively considering starting a business or who are in the process of arranging the necessary finances to start their new businesses, could see their business plans wrecked. That surely would be unfair. I hope that the right hon. Gentleman will agree that such outcomes are highly undesirable, and concur that these amendments cannot therefore be accepted.

Amendments 5 and 6 propose to exclude from the holiday new businesses located within the 350 constituencies with the lowest percentage rate of unemployment or lowest percentage rate of public sector employment respectively. I have said before that using smaller units such as constituencies does not recognise that in practice labour markets span larger areas. It is also worth repeating that ring-fencing small geographical areas would create multiple borders up and down the UK. The hon. Member for Luton North highlighted a town that spans Bedfordshire and Buckinghamshire. He pointed out, entirely fairly, that they are in different regions, although both fall within the excluded area. The hon. Member for Luton South was generous enough to say that he found the borders argument to some extent compelling. The right hon. Member for Delyn touched on the borders issue and I tried to tempt him to say more on that subject.

I have to accept that, as we have targeted this, there are border issues but were we to break it down even further those border issues would be exacerbated. There is the central point made by my hon. Friend the Member for Bristol West when he said that working patterns do not necessarily reflect constituencies or even local authorities and to some extent, particularly when we look at London, the south-east and the eastern region, not even regions. Thousands of my constituents in Hertfordshire travel to London every day. I am one of them. A point that I would make more broadly in some of the discussions when we look at London, unemployment rates and dependency on the public sector is that the London labour market is substantial and expands and includes much of the home counties in the eastern region and the south-east. We would face great difficulties with borders if we had a holiday scheme that was designed on the basis of constituencies or local authorities.

Making a distinction between the 350th and the 351st constituencies might create some issues. Data at constituency level are based on samples and will be subject to considerable margins of error, and rankings are likely to vary over time. I know this is only a temporary policy, but it is likely that by the end of the three-year period, the list of the 350 most deprived constituencies would be different from the one we will start off with, and those who found themselves in the list at the end would have reason to complain. We are not likely to see similar changes with regions, so we might face some difficulties there.

Amendment 7 targets the holiday at local authority level. It suffers from the same problems as I mentioned under amendments 5 and 6. It creates more uncertainty by not specifying the criteria that local authorities must satisfy to feature on the list, and by leaving open the possibility that those could change. Steve Hughes of the British Chambers of Commerce said in his evidence:

“When there are limited resources, it is better to focus them on the regions most in need.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 6, Q8.]

In conclusion, the NICs holiday is targeted at regions and countries that have the highest proportion of public sector dependence to encourage new businesses to start up and to take on employees. Expanding the holiday to the whole country would undermine that policy rationale. Introducing new criteria at constituency or local authority level would increase complexity and, without much more complex legislation, lead to some employers currently participating in the holiday losing the benefits and having to pay back the NICs that they have withheld. Consequently, I ask the right hon. Member for Delyn to withdraw his amendment.

David Hanson (Labour, Delyn)

I am grateful to the Minister for what he has said. For the purpose of completeness, I can tell my hon. Friend the Member for Lewisham East that in her constituency there are currently 1,985 people unemployed, which is an unemployment rate of 5%. I apologise for missing her off my list earlier.

The Minister made some interesting arguments, but the nub of it goes back to the question of why key areas in the east, the south-east and London regions are excluded from the scheme. I have offered him what I hope are helpful suggestions. We have not put them down as amendments, but they have been part of the discussion. On reflection, he might on Report make this a two-year rather than a three-year scheme, which would operate from June 2010 to June 2012. During that time, he might have extended the scheme to the three excluded regions, monitored the extra cost arising from those exclusions and looked at the £940 million he is currently spending. Based on what has already been said, he might have evaluated the take-up of the scheme, which may not come anywhere near meeting the expected 400,000 businesses and 800,000 individuals over that period. At the end of that two-year period, he might also have judged whether he wanted to continue or extend the scheme based on the economy, which he believes will pick up through the Government’s other fiscal measures over that time.

The complete exclusion of certain areas still misses the point. My favoured option is to ensure that we have a scheme that is applicable across the whole country. I do not want to repeat the arguments, but—very pithily—there are three basic reasons for my wanting that. There are levels of unemployment in areas of the east, the south-east and London regions that merit the challenge of having Government help to generate new businesses. It is important that we encourage such new businesses in those areas as well as in the country as a whole. His logic on the public sector means that, as I have mentioned, we have a situation in which 23 of the top 100 constituencies by public sector employment are excluded by their being in the three excluded regions. On the deprivation index, as my hon. Friend the Member for Lewisham East said, seven of the 12 authorities are excluded by the removal of the three regions.

My offer to the Minister, which I hope he will consider, is that I will happily not press amendments 7, 5 and 6, because I recognise that there are administrative issues that need further reflection, as he pointed out. We tabled those amendments so that he could consider our concerns about local authority areas, unemployment and the public sector as a whole. I will happily not press them, but we need to maintain our concerns on amendment 1 and subsequent amendments.

George Howarth (Labour, Knowsley)

We now have heat and let us hope that there will be some light, too.

George Howarth (Labour, Knowsley)

I remind the Committee that with this we are discussing the following: amendment 7, page 2, line 10, leave out

‘not in any of the excluded regions’

and insert

‘within a local authority area which features on a list of local authority areas drawn up at the discretion of the Secretary of State for the purposes of this section’.

Amendment 2, page 2, line 21, leave out subsection (5).

Amendment 5, page 2, line 21, leave out

‘Greater London, the South East Region and the Eastern Region’

and insert

‘the 350 constituencies with the lowest percentage rate of unemployment as defined by the Department of Work and Pensions on the date of Royal Assent’.

Amendment 6, page 2, line 21, leave out

‘Greater London, the South East Region and the Eastern Region’

and insert

‘the 350 constituencies with the lowest percentage rate of public sector employment as defined by the Department of Work and Pensions on the date of Royal Assent’.

Amendment 3, in clause 11, page 6, leave out lines 24 to 29.

Amendment 4, page 6, leave out lines 35 to 41.

David Hanson (Labour, Delyn)

I welcome you to the Chair, Mr Howarth. We have also spent some time together in Committee over the past few weeks on various measures, and I am very content to see you back in the Chair. I hope you enjoy this Committee and its deliberations.

There was a smidgen of opportunity for me not to talk very much after 4 o’clock, but, having seen the Government majority troop in from the Committee corridor, that smidgen has now passed, and I may well continue my discussion of these matters for a few moments. So, as ever, I congratulate the Government Whip on maintaining his troops on time and on budget.

Before the Committee adjourned for lunch, we were discussing amendment 1, which seeks to ensure that we exclude the exclusions from the Bill, so that London, the south-east and east regions are part of it. We had a full discussion on those matters, and I do not wish to detain the Committee having jested about it for too long. I can only sum up what has been said by quoting individuals who believe that the Government have got it wrong. On occasion. the Government expect the Opposition to say that they have got it wrong, and I have tried to point out the Opposition’s concerns in a constructive way.

In June, when the proposals were first announced, Mr John Bridge, the chief executive of Cambridgeshire chambers of commerce, said that the move to exclude his region would put his region and his region’s businesses at a disadvantage:

“In the east we have tremendous success in terms of business development and start-ups but what we don't believe is right is that businesses here should not have the same opportunities as elsewhere.”

I could not concur more with Mr Bridge. His argument goes to the heart of the arguments made by my hon. Friends the Members for Luton South and for Luton North. I understand the Minister’s wish to exclude those regions and an argument could be made, although I do not agree with it, that areas such as Lewisham, West Ham and Walthamstow may be attracted to the honeypot that is central London for employment purposes. That is not an argument that I accept, but it is an argument that the Minister has made.

I find it more difficult to accept that, as Mr Bridge has said, businesses in those regions may be disadvantaged by the national insurance opt-out being in place in other regions close to their places of employment, work and business, but not in their region. My hon. Friend the Member for Luton South put that very clearly in his contribution to the Committee, as did my hon. Friend the Member for Luton North. Towns such as Northampton, which is just up the road from Luton in business terms, will benefit from the new start-up business. Before we move on from these amendments, the Minister has to answer that point about the edges of the regions.

Matthew Hancock (Conservative, West Suffolk)

Will the right hon. Gentleman give way?

David Hanson (Labour, Delyn)

The hon. Gentleman was not present for the debate for most of the morning—he sat outside doing his post—but, of course, I give way.

Matthew Hancock (Conservative, West Suffolk)

Despite that discourtesy, I will continue to make my point. I represent a seat in the east of England. As the shadow Minister, who is not paying attention, should recognise, I have consulted businesses in my constituency very broadly. Those businesses recognise the need to get to grips with the deficit, and, therefore, that infinite money is not available for the scheme. They also recognise that the eastern region has public sector employment of less than 14%, which is one of the lowest proportions of public sector employment. They therefore accept the argument that the scheme is targeted at areas with high public sector employment, which will be most affected by the cuts caused by the Labour party’s woeful management of public finances.

David Hanson (Labour, Delyn)

I would never wish to be discourteous to the hon. Gentleman, and, if I was, I will formally apologise to him.

I do not think that the hon. Gentleman was present for the whole debate. Had he been, he would have heard that, of the top 100 constituencies for public sector employment, 23% are in London, the south-east and the east. Many of them are in London and, indeed, in his own region. There are high levels of employment not only in seats that elect Opposition Members, but in seats that elect hon. Members from his own party. It is woeful if the logic of the Government’s proposal for the national insurance opt-out is to target public sector employment by making the scheme available to regions other than London, the south-east and the east, because they represent the almost quarter of constituencies with the highest level of public employment. That would miss the target.

I recognise that the Minister may have concerns in relation to the amendment, but, if it is the case that he is targeting the areas with the highest public employment, it is incumbent upon him to look at the top 100 or 200 seats with public employment. The amendment suggests the top 350 seats. The Minister could devise the scheme in ways, based on postcode, that look at those areas of high public sector employment, rather than adopt a blanket approach that completely discards such areas.

Kelvin Hopkins (Labour, Luton North)

I mentioned in my speech this morning that Luton North has one of the highest levels of public sector employment, but that is not the point that I want to make. Long travel distances are just not possible for many lower paid workers with families. They need employment in their own localities. Travel to town centres in areas of inner London and some parts of my own constituency is significant to the budget of lower paid workers. They need jobs near to where they live.

David Hanson (Labour, Delyn)

Indeed. If we are to adopt the agenda of localism that the Government seek to approve, surely it would be sensible to base it on a local basis without that conflict. The Minister does not have to listen to me—as I said earlier, I have a political agenda, even though I am offering him the hand of friendship. He could, however, listen to his hon. Friend the Member for Basildon and Billericay (Mr Baron), who asked him on Second Reading whether he could

“revisit the Government’s decision to exclude businesses in the south-east from the national insurance holiday? Otherwise, it could be seen to discriminate against local entrepreneurs there and hit the areas that need higher employment.”

I have crossed swords with the hon. Member for Basildon and Billericay on a number of occasions, but he strongly believes that the Minister should reconsider the issue.

If the Minister does not want to listen to the hon. Member for Basildon and Billericay, he could listen to the hon. Member for Portsmouth North (Penny Mordaunt), who asked him on Second Reading:

“If the scheme cannot be extended to an entire region, does the Exchequer Secretary accept that there will be pockets of that region, such as my constituency, that would benefit massively from it? The area has historically had very low new business start-up rates”.

That is the very point that I made earlier in relation to London, the east and the south-east regions in general. The hon. Lady said that her area

“would benefit from what I think is an excellent scheme.”—[Official Report, 23 November 2010; Vol. 519, c. 195.]

There is not a cigarette paper between me and the hon. Lady on that matter. I have said that it is a good scheme, and it is encouraging that the Opposition support the Government on the issue.

The hon. Member for Portsmouth North also thinks that she will benefit from the scheme, so much so that, on 2 December, she went to the trouble of tabling a question asking the Exchequer Secretary what estimate he had made of the revenue forgone from the national insurance contribution scheme in the Portsmouth city council area. If the hon. Lady were on the Committee, I suspect that she would support the amendment that we have tabled stating that the Secretary of State should look at the matter by local authority area, because she would be able to make the case for Portsmouth. She might be able to explain to the Exchequer Secretary any difficulties at the dockyard as well as problems for businesses, the loss of public sector employment and difficulties at Hampshire county council. Why, she may therefore ask, can we not look at Portsmouth authority as one of the areas for the scheme?

We have had a good discussion and I do not want to labour the point too much, because we have made our issues clear. Having taken some indication from you, Mr Howarth, and Mr Brady, on the likelihood of a clause stand part debate, I just wish to ask a couple of questions that are separate to the amendments. They are linked to them in general terms and the Minister might want to consider them, too, in relation to the clause as a whole. We have had a good discussion and I anticipate that we may not have a clause stand part debate.

George Howarth (Labour, Knowsley)

That might be helpful at this point. I am of the opinion that the relevant matters have been discussed during the debate. I am informed by the Clerks that that is the case. I do not propose to have a clause stand part debate on that, so if the right hon. Gentleman wants to, I will allow him a little latitude.

David Hanson (Labour, Delyn)

I am grateful, Mr Howarth, because I did want to speak to the amendments. I will try and link the debate on clause stand part to the amendments.

The Minister knows that we are trying to remove the Greater London, south-east and eastern regions from the exclusion. He knows that under clause 4(4), the relevant period for the scheme commencing is 22 June 2010 to 5 September 2013. At the moment, the Greater London, south-east and eastern regions are excluded under that scheme, which is why I am relating it to this issue.

I accept that it is an unlikely event, but if the Minister had not convinced his hon. Friends today, and I convinced my hon. Friends that we wished to vote against clause 4 in its entirety because of the absence of those three regions, could he tell the Committee what would happen to those 1,100 businesses that he indicated have already taken part and have already applied to take part in the scheme from 22 June 2010? That is an unlikely event, because I am not advocating that my hon. Friends should vote against the clause, but—and this is an important point for me, as an MP for nearly 19 years—Parliament is an important place. The Government have started the scheme, issued publicity about the scheme, encouraged people to take up the scheme, have got 1,100 people, by the Minister’s own version of the Bill, applying for the scheme and planning for the future, yet we did not even have a Second Reading when the Bill was introduced.

In the unlikely event of me, when I was a Minister, introducing a Bill, spending taxpayers’ money, bringing forward investment, and providing a scheme that gave promises before we even had a Second Reading in the House of Commons, I suspect that the current Minister would have been making points of order against me in the Chamber in front of the Speaker of the House of Commons. I would like him to give me some indication of his view about what would happen if the scheme did not progress and was not approved by both Houses of Parliament.

We are all paid to scrutinise the Bill. We are paid to give an endorsement, on behalf of our constituents, to the Bill. I just venture to suggest to the Minister that it might have been better if he had started the scheme on a date subsequent to the authorisation of the House, at least on Second Reading, before running it for a similar period of time in the next two to three years. He is, in a sense, just testing the wishes of Members who say that we should retrospectively approve something. If we are into the area of retrospective legislation, there are a number of occasions when we have been criticised for potentially thinking about it, never mind doing it. I would, therefore, welcome an explanation from him on that point.

As part of the consideration of the amendments to date, I am still not satisfied with the answers that the Minister gave to my hon. Friend the Member for Walthamstow in the evidence session. I would welcome it if the Minister gave some clarity about how many he expects to take up the scheme and over what period of time. We have been told today that approximately 1,100 people have applied for the scheme to date. We have a figure of 400,000 prior to the commencement of the scheme with employers, and we have a figure of 800,000 people, from memory, who will take up the scheme in that three-year period. I would welcome it if he examined that for the Committee today, before we approve the clause and approve the opt-outs of the regions that we are concerned about, and told us what his curve trajectory is on that. How many does he expect in the first year, and how many in the second and third years? I would welcome information about the modelling he has undertaken to look at which regions will potentially take up the offer. Even within the regional take-up, I am not yet clear whether he expects the north, the constituency of the hon. Member for Central Devon in the south-west, the north-east and places such as Hexham, Lancashire, or Scarborough and Whitby, for example, to take up the national insurance holiday. What is his trajectory?

Part of the debate on this amendment, and future amendments, concerns the dividing of the cake, its time scale and the Minister’s trajectories. He has made great play of the fact that in Greater London, the south-east and eastern region, the scheme will involve a major take-up and cost a considerable amount of money. Has any modelling been undertaken on the potential trajectory? Returning to my earlier point, we could table an amendment on Report on behalf of the Opposition—or, if they were convinced, on behalf of the Government—to give a review period to the scheme of two years, for example. Even if the Minister does not accept that London, the south-east and the east should be part of the scheme now, we could table an amendment to the Bill to see whether the trajectory outlined by the Minister is met. It may be that the take-up of the scheme is not what he expects.

Suppose that £940 million of expenditure is allocated, and after 18 months or two years we have invested only £300 million in the scheme because that was the take-up. I would be concerned if there was only one year left in which to invest the other £640 million but my constituents, and those of hon. Friends in West Ham, Luton, Walthamstow and Lewisham, had not had the benefit of the scheme. There is scope to look at that issue, and as a precursor to a later discussion I would welcome more details from the Minister about the trajectory he outlines.

My hon. Friend the Member for Walthamstow mentioned a point that she raised in Committee on Thursday that the Minister had promised to write to her about—she may wish to ask further questions about that. That material is relevant to today’s debate, but it might not be to the debate on Thursday afternoon. If the Minister was not able to respond to my hon. Friend about the point she made last Thursday, it is important that he outlines what those concerns were to the Committee. I commend the amendment, and I would welcome clarification on those points from the Minister.

David Gauke (Conservative, South West Hertfordshire)

It is a pleasure to serve under your chairmanship, Mr Howarth. I am grateful for the points raised by the right hon. Member for Delyn. The first half of his remarks covered ground that was perhaps familiar from this morning. Given that my response will also be familiar, I will spare the Committee a response on all those points.

One point was not stated this morning as clearly as it might have been. The right hon. Gentleman argues that we should be looking at levels of public sector employment across constituencies, and the hon. Member for Luton North said that his constituency has one of the highest levels of public sector employment. When looking at constituencies as opposed to regions, and therefore a smaller sample, we must acknowledge that there is some uncertainty in the statistics. I have seen statistics suggesting that both Luton seats have levels of public sector employment that are slightly below average. I do not dispute that other figures are available, and I do not doubt that the hon. Gentleman has seen other statistics. Those I have seen contain some margin of error, because the sampling size is small. One of the difficulties we encounter if we try to look at such matters on the basis of constituency is that there is a danger of inaccuracy.

Kelvin Hopkins (Labour, Luton North)

These are statistics from the Library and I was surprised when I found them and I asked the Library why that was the case. It is about the employment in the area. There is a large general hospital, two very large colleges and much of the industrial employment is in Luton South. That is reason for the disparity.

David Gauke (Conservative, South West Hertfordshire)

I am grateful. The numbers I have seen are from the Office for National Statistics but it acknowledged that there is some uncertainty about its numbers as well. Some of the constituency numbers look somewhat strange. For example, of the two Norwich constituencies, one has a much higher level of public sector employment than the other. I do not know Norwich well enough to know whether that is likely to be true, but it does not look right. There is this uncertainty over constituencies as well as the border issue, which the right hon. Gentleman touched on, and the fact that people will travel long distances to work and so trying to target this on employment in particular locations does not seem entirely sensible.

The right hon. Gentleman asked what will happen if the Bill fails. That is a point that I touched on this morning in relation to the amendments. If the Bill fails, those employers who have benefited from the scheme and have not paid the national insurance contributions that they would otherwise have had to pay would have to pay that outstanding amount. All of them were informed that that was the case because all of this was subject to the Bill receiving Royal Assent. Everyone was notified of that. It would be a great pity if that happened, given the right hon. Gentleman’s comments in support of the Bill.

As for the principle, if we had waited for Royal Assent before we commenced doing anything on this, we would not have been able to help those businesses starting since 22 June. As we want to encourage private sector employment and we are now seeing growth in private sector employment, I make no apologies for this Government wanting to act quickly to help businesses and to provide businesses with that opportunity. But it is all subject to Royal Assent and if the Committee and the House refuse to let the Bill go forward in its current form, those businesses that have benefited will have to pay the money back.

David Hanson (Labour, Delyn)

This is a very important point. If the Committee accepted our amendment for London, the south-east and the eastern region it would change the whole nature of the potential for the scheme. It would change the nature of the £940 million that he has put in place, even if it were the same figure across the board. It would change the nature of the advertising and everything else. I just hope that the Minister thinks about this for future occasions. I would have been lambasted as a Minister had we not even had a Second Reading. In my 19 years in the House, I cannot think of a single time when expenditure has been incurred before a Second Reading.

David Gauke (Conservative, South West Hertfordshire)

The consequence of the approach that the right hon. Gentleman sets out would have been that businesses would not have received the help. Some businesses might have delayed starting up. There are people in employment today who would not be if we had followed his approach. It is not by any means unusual when we are talking about a benefit, or something that is helping people within the tax system, for it to be announced at one point and legislated for later. I dare say that there was even an example or two of that in our Finance Bill just a few weeks ago: it is not unusual.

This is a measure that is helping businesses and we are pleased to be able to do that. As the right hon. Gentleman suggests, the House may take away some of those benefits, and the House is perfectly entitled to do so. However, we felt it that was right to be on the side of start-up businesses and we were able to move quickly. If we had been constrained by not doing this until Royal Assent, we could not have helped until much later and business would not have benefited.

Gavin Shuker (Labour, Luton South)

Is not the real issue that the Minister said earlier that the reason for not accepting amendments was that we did not necessarily have the right to change fundamentally a scheme that had already been started? Is not that the area of contention? I may be new to the House but I do not believe that we are just going through the motions in this Committee.

David Gauke (Conservative, South West Hertfordshire)

My argument is not that the Committee does not have the right to do change the scheme—the Committee is perfectly entitled, if it so decides, to scrap the holiday altogether or to change the regions—but that it would have to do so bearing in mind the consequences for certain businesses that have responded to this opportunity. They would have to pay back the money that they would otherwise have paid in tax, and that would have certain consequences. If that is what the Committee wants to do, it is perfectly entitled to do it, but we do not think it would be advisable. Withdrawing a benefit such as this one, which enables start-up businesses to get up and running with a reduced tax burden, would be a strange position for the Committee to take.

Heidi Alexander (Labour, Lewisham East)

I thank the Minister for giving way. Does he have any concerns that the decision to initiate the scheme prior to legislation passing suggests an attempt to disregard the House, its Members and its procedures?

David Gauke (Conservative, South West Hertfordshire)

No, I do not. The House and the Committee is entitled to amend the legislation, but we wanted to move quickly and to be on the side of businesses. We wanted to provide this benefit at the ideal time—when there was private sector growth. We want businesses to start up and do well. Had we followed the approach that nothing could be done until legislation had been passed, it would have been a great pity.

Matthew Hancock (Conservative, West Suffolk)

I was not a Member of Parliament before the election, so perhaps the Minister could advise me. Is it not true that the changes to alcohol taxation in the former Labour Government’s last Budget, only eight months ago, were announced and implemented immediately and only legislated for in the following Finance Bill?

George Howarth (Labour, Knowsley)

Before the Minister responds to that, I must say that I have allowed rather a lot of latitude to avoid the necessity for a clause stand part debate, but I do not think that the Minister should be tempted down that road.

David Gauke (Conservative, South West Hertfordshire)

I shall resist the temptations of alcohol, Mr Howarth, however near to Christmas we may be. There may be Budget resolutions with Budgets, but full scrutiny happens some months afterwards, as a matter of course. My hon. Friend is right to draw the Committee’s attention to that.

May I turn to modelling and take-up? We have published details but it might be helpful for the Committee to examine this point. The right hon. Member for Delyn rightly makes the point that we have a long way to go from the take-up at the moment of 11,000 businesses to the 400,000 that we hope for by the end of the process. As Mr Mitha suggested, we anticipate that as time goes on knowledge of the availability of this scheme will spread, and there will be greater understanding from professional advisers in particular. As people reach the end of the accounting year and seek advice, more information will be available.

It may be helpful to the Committee if I state the anticipated costs of the policy over the next few years —£50 million for 2010-11, £230 million for 2011-12 and £180 million for 2012-13. That results in a total cost of £940 million. That gives some indication of the likely profile. As expected, the cost starts relatively slowly and picks up over the course of 2011-12 and 2012-13. That is what we anticipate and more information will be published on that.

Let me turn quickly to the issues raised by the hon. Member for Walthamstow. I apologise for the fact that she does not have the letter that deals with them, although I think that it is about to be sent to her. She raised the issues of the methodology and, in particular, the behavioural effects, so let me attempt to address the substance of her points and to clarify those issues.

There could be direct behavioural effects of business fragmentation, with companies with many staff setting up multiple separate entities to avoid being affected by the limit of 10 employees and so on. However, as a result of our compliance plans, we do not expect there to be a lot of such behaviour, which one could describe as equivalent to avoidance. Such direct effects are a consequence of the way in which the rules are set up, but they will be somewhat limited. Those are the behavioural effects that the hon. Lady asked about, and the cost would involve a relatively small amount of money.

It would be hard to model the policy’s indirect dynamic effects, such as enabling the provision of jobs that otherwise would not have existed or encouraging more start-up businesses, so we have not done so. If there is a significant dynamic effect, it is unlikely to be very expensive, because we will receive more tax revenue, which we would not otherwise have received. However, that is not what we have modelled in the numbers that the hon. Lady referred to in her questions last week. I hope that that distinction is clear.

Stella Creasy (Labour, Walthamstow)

I am exceptionally disappointed that we did not have this information before this sitting, and it would have been fair to provide it. From what the Minister says, my original points on Thursday are true, and the scheme has a very great dead weight. The Minister is saying that we can ascertain only that there will be £10 million of direct benefit, or £10 million of cost to the Exchequer, as a result of introducing the proposal. He cannot actually guarantee the indirect stuff that he is talking about and he cannot show us any workings out to show where it comes from. Is he saying that he cannot provide any information beyond that in the original memorandum that he put forward on Thursday? It was discussed at that meeting that additional information would be forthcoming, so does that mean that there is no additional information on the basis of which this policy has been proposed?

David Gauke (Conservative, South West Hertfordshire)

I refer to the answer that I gave my hon. Friend the Member for West Suffolk, and reiterate that there is a degree of uncertainty as to what the dynamic behavioural effect will be. That is not what we have modelled: we have looked at possible fragmentation behaviour—people forming two businesses rather than one to benefit from the full policy. The policy will help those who are starting up a business because it will reduce their tax burden and enable them to get through the difficult years. There is some uncertainty—this is why we have not covered this in the scorecard—about how policy will change things.

I will make sure that the hon. Lady gets the full letter, which explains things in greater detail, later today. I am sorry that she did not get it before today’s sitting, but I am keen to set out the essence of it. We accept that there is a degree of uncertainty about the dynamic and behavioural effects, but reducing employment costs will have a positive effect. Indeed, research by the Federation of Small Businesses has indicated that the reduction in labour costs is the single factor most likely to make the difference between taking on an extra member of staff and not doing so, and that has been cited by 60% of small businesses surveyed. We are not making bold or unsubstantiated claims as to the behavioural effect, but we will be monitoring and evaluating the policy to improve our understanding. With those comments, I hope that the clause will stand part and that the amendments will be withdrawn.

David Hanson (Labour, Delyn)

I am grateful to the Minister for his response. I share the disappointment of my hon. Friend the Member for Walthamstow that the figures are not there, but it is about time that we came to some conclusions on these matters. I will not force a vote on the issues to do with employment, public sector employment or local authority areas—we may return to those on Report—but I will press the Minister on the inclusion of London and the south-east and east regions. My hon. Friends the Members for Lewisham East, for Walthamstow, for Luton North and for Luton South, have made strong arguments in favour of their areas, and it is important that we reflect the fact that the scheme needs to operate on a universal basis across the United Kingdom to benefit all businesses.

I hope that the hon. Members for West Suffolk and for Watford, in particular, will consider their constituents when they vote on this issue. I want to give them a little reminder of those issues; I am sure that they will vote in the way that they want but we will be taking an interest in how they vote, particularly the hon. Member for Watford. I am grateful for the clause stand part debate, but I want to press amendment 1 to a vote if the Minister refuses to accept it.

Clause 5

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 9, in clause 5, page 3, line 33, at end add—

Good afternoon, Mr Howarth, and may I say how pleased I am that you are in the Chair? The Committee always seems much warmer when you are presiding over our proceedings; I do not know why that might be.

George Howarth (Labour, Knowsley)

I think that might have been because I forgot to unlock the doors.

Chris Leslie (Labour, Nottingham East)

I notice that certain members of the Committee have slightly changed their attire to fit the occasion, and perhaps the extra heat in the room has made that an unwise choice.

Amendment 9 probes the Minister on the design of clause 5 in respect of the exclusion of charities from the national insurance holiday, and the reason why the Minister has chosen to do that. The Minister said during the evidence session last Thursday that the Bill

“would not include charities that do not have a business element…It is not specifically designed to help charities, but to help the wealth-creation sector”.––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 47, Q167.]

I am slightly surprised that the Minister has taken that line, because charities are important players in our economy. Although they may not be out to make a profit, they are often enterprising institutions—and employing institutions, hiring various staff in many different cases—and they deserve our support and encouragement.

Kelvin Hopkins (Labour, Luton North)

That is of particular concern in my constituency, where I have had meetings with charities that are under considerable pressure at the moment. Whatever one thinks of the big society proposed by the Government, if it ever comes to pass, charities would expect to play a big role in it. They are, however, going to be discriminated against, because they would not have the lower employment costs advantage of small businesses.

Chris Leslie (Labour, Nottingham East)

Indeed, and it would be quite useful if the Minister would elaborate on the specific wording of clause 5(6), because there are certain definitions of “new business” that are allowed to qualify for the national insurance holiday. To what extent are charities able to be defined within that particular categorisation? I am told that there are some 140,000 charities in the UK. Of course, existing enterprises and endeavours would not qualify for the national insurance holiday: it would be new start-ups. I tried to find out how many new charities might start up in our constituencies, because there are not many detailed records to hand. I was not able to find particular figures in the Library, but I was able to discover that, for instance, some 13,000 staff are employed by charities in Wales —6,300 in full-time employment and 6,500 in part-time employment.

We have some 140,000 charities in the UK as a whole, and I am told that some 5,000 new charities start up each year, so something in the order of 2 or 3% of the total quantum of charitable institutions are new start-ups, which could mean that there are several thousand charities nationwide that might feel that they could benefit from the national insurance holiday arrangement, but are not evidently able to do so from the provisions as set out in the Bill.

Charities have, as I have said, a clear social benefit, as we can all obviously understand, but there is an economic benefit to their work as well. Many young people will find that the first step on the career ladder, either through work experience, training or some other activity, might be through a charitable gateway. We should be encouraging charities to start up, and it would be wise to frame the legislation in such a way that would benefit the voluntary and charitable sectors. It is a shame, as my hon. Friend has said, that charities, which are already suffering the rather sinister ironies of the Prime Minister’s big society, are having their funding slashed by local authorities up and down the land and, unless I am mistaken in my interpretation, probably will not be included much in the scope of the Bill.

Richard Harrington (Conservative, Watford)

I am grateful to the hon. Gentleman for giving way and for his usual erudition. He has, however, probably not had that much experience in the charitable sector—I hope that I am wrong. From what the hon. Gentleman is saying, one could argue that what we are doing here is, in a way, in the charitable sector, because it has great social benefits, as he has said. Having worked in the charitable sector, I know that charities receive many other benefits such as tax-free status and that most charitable start-ups do not actually have employees at all. Many of the employees that the hon. Gentleman has mentioned—work experience people, for example—do not work the hours or receive the salary to attract national insurance. His point is very much a red herring. Given that everything is about money, and that the Government are helping charities in many other ways, it is not relevant to include the charitable sector within the Bill.

George Howarth (Labour, Knowsley)

Order. Before the hon. Gentleman continues, let me say that interventions should be brief and to the point. They are not an opportunity to make a mini-speech. I would be grateful if Members would bear that in mind before they consider further interventions.

Richard Harrington (Conservative, Watford)

My apologies, Mr Howarth.

Chris Leslie (Labour, Nottingham East)

It was an interesting intervention. I had not actually thought about new Members, and whether they would be classed as new start-up businesses in some circumstances. I suspect that our constituents would not regard it as necessary for newly elected Members to qualify for a national insurance holiday. That is not least because, unless there is a by-election, even recently elected Members would have taken up their vocations before the provisions of the clause came into force—even though we did not have the Second Reading until late in the day.

However, I disagree with the hon. Gentleman’s point that charities do not, by and large, take on some of those characteristics. As with new start-up companies, a new start-up charity may have a number of part-time or full-time employees, and the national insurance holiday may make a big difference. I am not so sure about other tax benefits that charities have. As I understand it, charity shops, for instance, may get tax benefits relating to exemption from non-domestic rates. There are, of course, VAT provisions—sometimes charities have the capability to reclaim elements of VAT—but I think that they have to cover some of the costs on certain purchases. I accept, however, that tax benefits are available to the charitable sector.

Richard Harrington (Conservative, Watford)

Corporation tax is a major tax that charitable institutions do not pay.

Chris Leslie (Labour, Nottingham East)

Indeed, and I am grateful for that point. Nevertheless, most new start-up charities that employ a small number of individuals would probably say, “Yes, please” to the national insurance holiday, were it available to them. Charities that are thinking about starting up, and that are looking at the costs and expense of staffing their activities, could be deterred from hiring the desirable number of extra staff. I presume that the national insurance holiday is partly designed to act as a carrot that draws new endeavours into employing new people, but that may no longer be the case.

I want to ask the Minister the following specific questions. What is the logic of excluding the not-for-profit sector in this way? Is there a reason why he has focused only on the “wealth-creating sector”—as he defines it—as, supposedly, the for-profit sector? In many ways, I think that the not-for-profit sector can also help with the general prosperity and wealth of the country at large, but that is a bit of a moot point. In the Minister’s view, if we were to accept the amendment and the clause were to be extended to charities, what would be the cost? Has the Treasury been able to put a broad estimate in place about that? Cost may be one reason why the Minister does not want to extend the parameters of the clause. If so, what would that cost be? My most specific question is that, as I understand it, in charity law, a charity is either a trust, an association, or a company limited by guarantee. In the latter case, would that third form of charity find itself eligible under the Bill as drafted, particularly under clause 5(6)(a)? Obviously, the provisions of the income tax Acts and corporation tax Acts may well apply to a charity which is a company limited by guarantee.

Gavin Shuker (Labour, Luton South)

I declare an interest because I am a trustee of a charity called City Life Church Luton. In the past five or six years, I have been struck by the number of charities that have considered whether they should move to being a company limited by guarantee as part, or for all, of their working. Surely the Bill could have a knock-on effect on that.

Chris Leslie (Labour, Nottingham East)

Indeed. My hon. Friend makes a very good point, not least because he declared an interest. I am not sure that he needs to declare an interest unless he is to be involved with a new established charity, but it reminds me that I ought to declare an interest as a trustee of Credit Action, a charity that provides debt advice and education, and of the Consumer Credit Counselling Service. Neither is a new charity, so that may be slightly otiose, but it would be helpful if the Minister addressed those points.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the hon. Gentleman for tabling this amendment.

New charities in qualifying areas are eligible for the holiday if carrying on a trade, vocation or business. Amendment 9 would extend eligibility to new non-trading charities in qualifying areas. That would not support our objective of encouraging new entrepreneurs to set up in business in areas with a high proportion of public sector employment.

The Government value the contribution that charities make to society, and they preside over £3 billion-worth of support for charities each year. We have heard one example from my hon. Friend the Member for Watford, gift aid, which is very substantial and is worth £1 billion a year to charities. There are various other reliefs and exemptions. To extend the policy to charities would complicate the scheme and would impose additional administrative costs. Any ensuing benefit is likely to be limited since we estimate that relatively few non-trading charities employing staff are likely to be set up over the holiday period. That point, again, was made by my hon. Friend the Member for Watford. We expect the costs to be relatively modest—I am clear with the Committee about that—but that is not the objective of the scheme. We help charities in other ways.

We recognise the valuable contributions made by charities, but we do not think that extending the NICs holiday is the best way to achieve our objective. The policy is focused on promoting enterprise. Adding complexity to the scheme by extending it to non-trading organisations would provide little benefit to charities, and we do not believe that it would be a sensible option. There are other, better things that we can do to help charities.

One point that I should make is that charities are employers, and they will, therefore, benefit from the increase in the employers’ national insurance contribution threshold. As we discussed this morning, we will do that for 2011-12. That is an example of the Government reducing the tax burden on charities from the position that we inherited.

Chris Leslie (Labour, Nottingham East)

I am listening carefully to the Minister, but I am not sure that I agree with him. He implies that charities are not part of the enterprise sector of the economy. I am sure that he did not mean to say that; and I am sure that he, like me, believes that charities can be enterprising, too. Has he given any consideration to other parts of government—whether it be the Ministry of Justice, the Cabinet Office or elsewhere—which are encouraging charities, social enterprises and other new not-for-profit enterprises to come forward and take on various public sector activities? Those may well involve new start-ups, and yet, for some reason of which I am not clear, they are excluded from the definitions that might entitle them to the national insurance holiday.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman disagrees with something that I am not entirely sure that I said. I did not say that charities are not enterprising; I said that this policy would support entrepreneurs in those regions where public sector employment is high or, to put it another way, where the private sector is weakest. We are trying to help the private sector in those areas where it is weakest. That is what this is about. Of course, charities play a valuable role, which, as constituency MPs, we all recognise, but we do not believe that such a policy would be the right way forward, especially as the Committee has endorsed a regional approach.

The test of whether an organisation can benefit is set in clause 5(6)(a), which refers to

“a trade, profession or vocation”.

That is the test, as opposed to the legal structure that applies to the charity. I do not claim by any means to be an expert in charity law, but as long as the charity, whether it is a trust, an association, or a company limited by guarantee, is a trade, profession or vocation, it would qualify.

I see that the hon. Gentleman wants to come back in. I suspect he may be an expert on charity law, so I look forward to his intervention.

Chris Leslie (Labour, Nottingham East)

Not at all. I am wondering about the 240 staff waiting to pick up the phone at the HMRC call centre while the steady trickle of applications comes through. If they receive a telephone call from a charity that says that it is a company limited by guarantee, does that charity need to provide extra evidence that it is also a trade, profession or vocation? I doubt very much that a normal business would have to provide that evidence. Its simple existence as a start-up would be sufficient. Is there a separate burden that would fall upon a charity if it disclosed its charitable status that would not necessarily fall on a for-profit company? It is a genuine question.

David Gauke (Conservative, South West Hertfordshire)

I take the question in the spirit in which the hon. Gentleman asks it. I can understand that if a charity rang HMRC and said, “We are a charity” as opposed to, “We are a company that is set up to make a profit”, the test I described earlier about being a trade, profession or vocation, would clearly be applicable. HMRC and the charity would have to establish whether the activity itself constituted a trade, profession or vocation. I do not think that that is particularly unusual. It runs throughout the tax system, and HMRC officials will be very familiar with it. I suspect that charities will be familiar with it from having trading and non-trading arms. I suspect that the hon. Gentleman may be more familiar with the matter than I am. Indeed, the hon. Member for Luton South may be an expert, given his position as a trustee.

Gavin Shuker (Labour, Luton South)

During our evidence session we heard that there had been 1,100 applications so far and that there would be initial compliance checks. Mr Mitha said:

“My colleague has just passed me the information—we have rejected 54 of the 1,100-plus applications that we have received so far.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 39, Q131.]

Were any of those 54 rejected because of ambiguity about whether they were a charity or a company limited by guarantee?

David Gauke (Conservative, South West Hertfordshire)

It is a fair question. My understanding is that they were all rejected either because they were created before 22 June or they were in one of the excluded regions. If I am wrong about that, I will make sure that I correct the record. The information I have seen suggests that that was the reason. Who knows? Inspiration may come to me soon if I am wrong. Subject to those points, I hope that I have provided some useful clarification and that the hon. Gentleman will withdraw his amendment.

Stella Creasy (Labour, Walthamstow)

I wanted to speak on this amendment as someone with quite a lot of experience of the charitable and voluntary sector both locally and nationally. I know I am not alone among Members on either side of the House in being involved in this and not necessarily sharing the view that the hon. Member for Watford takes. My concern about the amendment, and the reason why I think it is important, goes to the heart of the Bill and what it is there to do.

If we are talking about a job creation scheme, we need to look at where jobs are created within our economy. My contention is that the Government are missing a trick by excluding any sector that we know has a capacity for job creation. In fact, over the past seven or eight years, the sector in question has shown a tremendous capacity for job creation. That is why, going back to my earlier comments, it is so important to get the evidence on which the proposals have been put together and why I am so disappointed that today we have not had the evidence on how the modelling of behaviour was undertaken. Behaviour varies in different sectors of the economy, and any other economist doing modelling on behavioural work would agree. My professional background is in psychology, which is why I am particularly interested in behaviour models. There are further complexities that Governments could and should look at when dealing with such technical policies.

There is also the question of the model of take-up. I would like to point out to the Minister that on Thursday I was given the commitment that I would get more details on the background of the model relating to the 400,000 businesses that he thought the policy would affect. I have looked at the impact assessment and the information I requested is not in there. Although it will have to be done after the debate today, I again ask for that information to be supplied. All of us want good evidence-based policy making, rather than policy-based evidence making; that has perhaps been a critique of policies in the past.

The charitable sector is important because charities in Britain have done a tremendous amount over the past 10 years to grow. Members said earlier that they were unsure about the issue, so it will be helpful in making the case for not ignoring the voluntary sector to look at some of the evidence. Evidence from the “UK Civil Society Almanac” tells us that nearly 700,000 people work as paid employees in the voluntary sector, so it clearly creates jobs. The sector accounts for two out of every 100 employees. If we compare that with the 7 million employees in the public sector and the 21 million in the private sector, it is a comparatively smaller amount of people, but it is no less important an area at which to look. It has also grown tremendously; the almanac tells us that between 1999 and 2008, the voluntary sector work force increased by 124,000, which is higher than the increase in the public or the private sector over the same period. That is why it is so important that we do not say that employment costs are a secondary concern. For any industry with that many people working in it, employment costs will obviously be a consideration when starting up or expanding.

The almanac also tells us that staff are 20% of the costs of small charities, which are comparable with the businesses that we are talking about in the Bill. Those costs include national insurance. Critically for the provisions of the Bill, the average wage of those working in the voluntary sector is around £22,000, so any changes to national insurance contributions would make a substantial impact.

Heidi Alexander (Labour, Lewisham East)

My hon. Friend has spoken eloquently about the growth over the past few years in the charitable sector. Does she agree that if the current Government’s policies on the big society are successful, employment in the charitable sector should increase? With the new models of public service delivery, one might think that the services that the public sector provides would go out to community and voluntary groups. Would an NIC holiday be important for those new organisations’ viability in their first few years?

Stella Creasy (Labour, Walthamstow)

My hon. Friend makes a good point, which I want to come on to, because if nothing were to change, ceteris paribus, what would happen with the voluntary sector’s long-term growth trajectories and why would the policy impact on them? I also want to look at the impact that the big society might have on some of the figures. The most crucial thing about what my hon. Friend has just said is that the majority of people who work in the voluntary sector are women, and the majority of people who will be affected by public service cuts will be women. The voluntary sector, therefore, is a growth area of the economy, and one in which some of those who will lose their jobs in the public sector may well seek employment. That is why looking at how we can make taking on those people an attractive proposition for charities is a crucial issue for our economy and, indeed, for the families of those concerned.

To return to a point that I made this morning, many of the people who live in Walthamstow who will be disproportionately affected by the Government’s cuts work in the public sector and, judging by my surgeries and the people who come to see me on an almost daily basis now, they are women. Only yesterday, the entire inclusion support service for the speech and language therapy centre in Waltham Forest came to see me about the fact that they have all been put on redundancy notices. My conversation with them was not only about how they represent themselves within that employment process, but about whether they could set themselves up to provide that service, which is what the big society at its best may mean. That is why excluding such people and organisations is a remission that the Government should correct by supporting the amendment. If they agree to the amendment and state clearly that they want charities involved in the start-up business, the Government would put down a marker on the importance of the voluntary and community sector for job creation.

It is worth looking at the figures for the birth and death of businesses—my right hon. Friend the Member for Delyn gave some earlier—and putting them in the context of the charitable sector. Last year alone, 51,000 new businesses were put together in London, but 55,000 fell. Considering that 5,000 new charities are created and registered every year, albeit nationally, and that many of them are small organisations with two or three employees at most, the impact of working with the charitable sector to increase employment could be substantial. That is another reason why I return to the question of the evidence. I am disappointed that the documents to which we have had access—I accept that we may not have seen some of the modelling—show that the role of the voluntary and community sector has not been analysed and that its impact has not been understood.

I have, however, asked the National Council for Voluntary Organisations for its opinion. It is keen for the amendment to be agreed to, and with good reason. Its model of the possible impact of extending the national insurance holiday to new charities—I return to ceteris paribus and what we know at the moment, as opposed to the impact and incentive that policies based on the big society could create for charitable start-ups—estimates that the amendment could generate an additional 2,500 or so charities. Obviously, its estimations are based on models of rough data, but looking at the charitable almanac and at what organisations are setting up in what sectors, the NCVO thinks that there could be a national insurance bill of about £1.7 million. Crucially, that excludes London and the south-east, and one of the reasons that we are so keen to see London and the south-east benefit from some of the proposals is that nearly 40% of the charitable and voluntary sector is based in London and the south-east.

The Minister mentioned bodies in the charitable and voluntary sector that may be trading bodies. I want to say a little bit about the concept of what it means to be a trading body, because having worked in charitable and voluntary organisations, I know that that is a complicated question to ask of them, and with good reason—because of they way in which they operate. Some 40% of charitable and voluntary organisations that he may want to benefit will actually be excluded by his geographical divisions, so I ask him to think about that. If he included London and the south-east, NCVO calculates that that would mean an additional 1,200 new charities every year. They would be start-ups, not existing charities. It would also mean two to three more jobs per organisation.

The amendment is not a sideline issue. It is fundamental to how such schemes could generate jobs, and that is even before we get to the impact of the big society. If the big society is about rolling back the state and allowing communities to organise services and suggest proposals for how they are not only run but delivered, helping the voluntary and community sector to take advantage of it will be absolutely key. I am concerned that under the current proposals, deliverers from the private and voluntary sectors could compete to run services, with private sector delivery organisations having an edge over the voluntary sector because of the costs that they deal with as a result of being able to access the exemption. Voluntary and community organisations would not necessarily be able to do that.

One challenge is about what constitutes a trading body. Again, that point concerns how voluntary and community organisations work. I appreciate what the Minister said about how constituency MPs spend a lot of time with different community and voluntary groups. However, if those MPs reflect on that experience, they will recognise that such groups are a mishmash of volunteers and paid employees, and that both services and advice may be provided.

As someone who comes from a community and co-operative background, I welcome the potential behind the ideas that surround the big society to enable co-operatives—such as the one that I mentioned earlier when I spoke about inclusion services—to be set up and to involve employees as well as users in the direct delivery of services. However, that would create a complicated model for how things are done, and unless the legislation makes it clear that those organisations would be able to access the scheme, and that the national insurance holiday would apply to them, they will not apply for it. It would be confusing for those 240 employees, in terms of whether or not those organisations would be eligible.

Such a move would have the unintended consequence of pushing charities and voluntary sector organisations to be more commercial, rather than encouraging the charitable and voluntary aspects that the big society, at its best, tries to tap into. This is about a collaborative approach. When organisations work with the people they serve and with the local public sector—whatever might be left of it—they can deliver all sorts of benefits to a community.

I urge the Minister to include the amendment and avoid such complications, and make it easier for charities and voluntary organisations to be part of both job creation and public service delivery. If he does not, the risk is that the over-complexity of the scheme will mean that those organisations that other Departments are desperately encouraging into service delivery will not get a starting handle. Those of us who care about the charitable and voluntary sector are sympathetic to the need to make it easier, rather than harder, for charities to contribute to service delivery in a local community. I hope that the Minister will look again at the concept of a non-trading organisation, and at the nature of the voluntary sector and how it is expected to grow in years ahead. I hope that he will accept the amendment.

Gavin Shuker (Labour, Luton South)

To be frank, I looked through the amendments to the Bill and this one did not seem the most compelling. However, as I have listened to the debate, I have swung behind the amendment: it is potentially a crucial aspect of the Bill, and we must provide more light on the matter and explore it in greater detail.

Put simply, we do not come to the House to administer schemes: we come to legislate, to change the way that the country is governed, and to make a difference to individual communities. We explored that matter earlier. Across the country, charities are making a real difference in their own way. We would struggle to find anyone who would want to say that there are terrible aspects to charities. However, a charity is an employer. Many charities across the country employ staff, and they have to comply with health and safety regulations and ensure that proper procedures are in place. We require that in the legislation that we have laid down over successive years and successive Parliaments. Often, we require charities to go through a pay-as-you-earn scheme. We take taxes from employees, and require employers to pay national insurance on their employees. The fact that an organisation is a charity does not affect the fact that it is also an employer, although many charities start to be an employer from a less confident base.

As has been said, this legislation will offer perverse incentives. Imagine, for example, a local council looking to outsource services. It regrets doing that, but it accepts that that is part of the current landscape. Potentially, commercial companies could have a significant advantage over a charity that has been set up to provide the same services. There will also be changes in behaviour. I will speak from my own experience: my right hon. Friend suggested that I did not necessarily need to declare an interest, but I realised that, because of a change in the way in which our charity is structured, we would be included in the legislation if the amendment were passed, so I will just declare that more fully.

One of the key growing pains of the charity of which I have been a trustee is that—as budgets have increased and we have been able to take on more staff time—we have had to take the plunge and make the transition from having someone who was self-employed, and providing services to the charity at a time of their choosing without a set number of hours, to employing that person and paying employers’ national insurance. There is currently a disincentive to move to that arrangement, because it involves a significant step up. On top of the money that the charity pays to an employee, it must pay a significant chunk—12 or 13%— of employers’ national insurance on top of that.

I believe that the legislation could change behaviour. For a new charitable organisation setting up, having that initial period where staff can be moved into new roles without the organisation having to pay a whole load of national insurance up front, and being able to plan for the bumps that are inevitable when it comes to setting up a new venture, would be really beneficial. As a trustee of a charity, I have spent a lot of time poring over charitable budgets and trying to work out what is possible. If there is an increase in the dead-weight costs to charities as employers, they cannot go and sell more product to cover them, because that option is not available to charities. The only option is to trim somewhere else.

As someone who has been employed by a charity, in some years I have reduced my pay in order to make a more sustainable budget for the charity. I have taken a pay cut to cover the additional costs arising from the change of employment. It is not the case that if a charity takes on an increase in national insurance contributions, that will not have a knock-on effect for its employees. They may very well have to step up and take a cut in order to cover the additional cost. When we are looking at setting up new charitable organisations—let us be honest, we all fully expect to see more of them in the coming years—we need to be able to tell a strong story about our notion of the social good that comes from the charitable sector, and I believe that the amendment would do that.

I also have concerns about the ambiguity over what is a charitable body or organisation. None of us immediately jumped up to say that we were experts in charity law when that issue was discussed previously, but we are the Committee that is looking at how we word the legislation specifically to incorporate or exclude different bodies. The level of ambiguity will increase over the coming years. Where does the charitable sector stop and become the public sector? If a charity and a company limited by guarantee exist side by side in the same kind of governance framework, where do we draw the line there? Although I was pleased to hear from the Minister that to the best of his knowledge none of the 54 applications that have so far been rejected under the scheme was rejected because there was ambiguity over whether it was a charity, if we hit the targets for the scheme there will be a small but significant number of cases where it is not clear. By accepting the amendment, we will deal with that ambiguity clearly, without having to refer to subsections of subsections of various Bills.

One of the other points that the Minister made was that the charitable organisations that would be included would be few in number, and therefore there was no particular reason to include them in the legislation. In many ways, that argument serves another purpose, which is to prove that, while the additional costs may not be great, the additional benefits for a new charitable venture that is starting out could be great.

I declared an interest before as a trustee of a charity. We are coming up to our budget-setting period for 2011 and we are looking at how we employ our staff and the amount of money that is available. I can tell the Minister and coalition Members that these are tough times, not just for business but for the charitable sector as we look at how we respond to rising costs, including the VAT that we pay on the things that we have to buy and consume as a charity, the additional costs of inflation—many employees will not receive an inflation-related pay rise this year—and additional needs caused by the cuts that are coming to our public services.

In the charitable sector, part of our core identity is to step up and serve even when there is no direct financial benefit to the organisation for doing so. In fact, it is quite the opposite—it is 180° in the other direction. At a time when pressures on budgets are very tight, we hope that the charitable sector will expand to provide new and innovative models for delivering public services—for example, in working with offenders, patients and people with drug and alcohol problems—and, more broadly, to be the social glue that holds together individuals and societies as the Government pull out of local communities. I do not believe that the Bill necessarily sends the right signs in that regard.

The amendment is very sensible. I said at the start that it was not necessarily the one that jumped out at me, but it is the one that I feel very strongly about. It would make a real difference to our charitable sector and we would do ourselves a huge service to include it in the Bill.

Richard Harrington (Conservative, Watford)

You correctly reprimanded me before, Mr Howarth, for making an intervention the size of a speech. I shall now try to make a speech the size of an intervention to balance things up.

There were one or two points in previous speeches that I felt I should comment on, and perhaps explain the reason why I do not feel that the amendment is a good thing. First, I congratulate the hon. Member for Walthamstow on quoting Latin. It is the first time that I have heard that done in these proceedings, although—to be a bit pompous about it—we were actually taught that the “c” in ceteris paribus should be pronounced as an “s”, although that was 31 years ago. The hon. Lady made a very important point about the complexities of setting up a trading business compared with a charity. I have tried both, and it is a lot easier for a charity to set up a trading company than it is to go through all the Charity Commission’s paperwork to become a charity—that is actually the hard bit. It is quite easy to separate commercial activities, which would get the benefits of the holiday if they were in the right area, from the charitable institution.

The hon. Member for Luton South made the point that that many charities have changed dramatically and become part of the public sector. That is certainly true in my constituency of Watford, much known and loved by the right hon. Member for Delyn, who seems to enjoy mentioning it on any occasion—I am very grateful for that. Mencap is a very good example. When my late father was in charge of it some 30 years ago, 95% of its income came from voluntary contributions and 5% from different organs of state. That has completely reversed. However much we all support charities, and for all that they are excellent institutions with social benefits—and are, actually, a very efficient way of spending public money—they get plenty of benefits.

Gavin Shuker (Labour, Luton South)

Does the hon. Gentleman accept that under the proposals, if two new enterprises—one a company and one a charity—were established within the qualifying period and fulfilled all the other criteria, the company would be at an advantage over the charity for, say, bidding for a contract for local public services delivery?

Richard Harrington (Conservative, Watford)

I am tempted to say ceteris paribus, but all other things being equal and in an ideal world the hon. Gentleman would be right. Unfortunately, it is not an ideal world, and all institutions have to make choices. There are plenty of advantages to being a charity. I hope that there will be more in the future, and I am sure that the Government are looking at that. The national insurance holiday is specifically targeted at individuals setting up small businesses, and no one has ever set up a charity with the same motives for setting up a business. The thought process is not about labour costs at the beginning being lower: it is about the good cause.

Stella Creasy (Labour, Walthamstow)

I am little confused by the hon. Gentleman’s assessment of how charities operate, how they start and how they start delivering services. Does he not see that within the big society agenda, which is very much about voluntary and community organisations starting up as businesses to deliver services, the £2,000 that they might save, which is the average given in the explanatory notes, could be fundamental as to whether they are able to bid for a contract and deliver it?

Richard Harrington (Conservative, Watford)

That is a valid point, but there are many other reasons why charities would be set up, and there are other advantages of having the status of a charity, such as corporation tax, VAT, rates and many others. The £950 million national insurance holiday programme is a different kind of project. It deals with the situation we have at the moment and with getting people to set up small businesses. It is not a particularly important point for charities in deciding whether to go ahead or not.

Gavin Shuker (Labour, Luton South)

The hon. Gentleman says that the national insurance holiday would not be a factor in setting up a new charity. Would he concede that it might be a factor in determining whether to take on new employees of a charity or in choosing the structure for employing someone within a charity?

Richard Harrington (Conservative, Watford)

That is not a relevant point, because the holiday is for establishing new businesses rather than for existing businesses.

Kelvin Hopkins (Labour, Luton North)

I apologise for not being here for all of the debate—I unavoidably had to leave the room—but there are some points that I wish to make.

I am indebted to my hon. Friend the Member for Walthamstow who told me that one third of all voluntary organisations have fewer than 10 employees, so there is a vast number of organisations that could qualify were they within the Government definition. I should, perhaps, declare an interest as I am a non-executive director of a small training organisation that would certainly fit into that category. Such organisations are often working on small margins. They have difficulty in sustaining themselves financially, but they do valuable work. Any assistance that they can get in difficult times such as these would be valuable. I strongly support the amendment tabled by my hon. Friends on the Front Bench.

I was, for eight years, a member of the Public Administration Committee, and charities and the third sector were a big interest. I and others argued that there are some supposed charities that are not really charities. I am talking about private—public—schools, which have always had charitable status essentially to give them a public subsidy. That is not appropriate. If they were deemed to be purely business organisations, which is what they really are, that subsidy could easily be used to help genuine charities. That is a controversial view, and it is obviously not the official policy of my party. I only wish that it were, and I shall continue to press that point. Support of that kind for small organisations that do immensely valuable work is important.

The hon. Member for Watford made the strong point that these days many supposed charities are heavily dependent on public money—on local authority grants, and so on—much of which is non-statutory. Local authorities are under pressure and they will withdraw some of those grants, thereby putting those small bodies under pressure. I have a general scepticism about the big society taking over from professional public services in any case, but that will make the situation even worse. I have had meetings with voluntary sector and third sector organisations in my constituency and in the constituency of my hon. Friend the Member for Luton South, and they are seriously worried about their future, because of cuts to their funding coming from pressure on local authorities. Any assistance that can be given to small organisations that are starting up would be right.

Stella Creasy (Labour, Walthamstow)

On that point, does my hon. Friend agree that, for small groups of former public sector employees clubbing together to create social enterprises to bid for services, such as the women who came to see me at my surgery yesterday, such measures could be precisely the thing that makes a difference to the contracts that they can bid for and the tenders that they could put forward, the cost-effectiveness of their proposals and, frankly, the success of their proposals?

Kelvin Hopkins (Labour, Luton North)

My hon. Friend makes a first-class point. In these difficult times in which small groups of people are doing precisely that and trying to set up organisations to fill gaps in social provision, she is absolutely right—in the best of all possible worlds there would be public provision, but such things are not being provided by public authorities. For people setting up such groups, something of that sort will be the difference between success and failure.

My final point is on the constant reference to the wealth-producing sector. I do not accept that dichotomy. All organisations may produce social value of some kind. It is suggested that a burger bar, or something even less health-promoting, is somehow wealth-producing, whereas a charity that looks after people with, say, drug problems is not. Which is the more valuable to society? I suggest that the voluntary sector one is more valuable. We have far too many burger bars and, in fact, we are the fattest people in Europe, partly because we eat too many burgers. I do not personally, although I could do with losing a pound or two. I do not accept that dichotomy—voluntary organisations and public services produce value for society, be it in material terms or in service terms. They also produce employment, which is fundamental, and the income from that employment goes into society and produces demand for other goods and services, too. So I do not accept the idea that there is a wealth-producing sector on which the rest of us somehow depend.

David Gauke (Conservative, South West Hertfordshire)

I shall briefly respond to the debate for a second time. We have had a number of interesting contributions. The hon. Member for Luton South said that initially he was not attracted by the amendment and that he was more persuaded as he heard the arguments. I fear that he may have provoked some competition on the Opposition Front Bench. The hon. Member for Nottingham East felt that he was one up on the right hon. Member for Delyn as a consequence of that. I may be being unfair: I suspect that he was more persuaded by the hon. Member for Walthamstow, regardless of the Latin content, and that it had nothing to do with either of them.

We all want to help charities in our constituencies, and I understand why hon. Members would argue that charities are employers, but so are local authorities, so is the public sector and so are individuals when they employee a nanny, a chauffeur or a butler.I suspect that not many of us here do that. [Interruption.] I can only think of one right hon. Member who employs a butler, and he is not on our side any more. We have to think about the purpose of the scheme and what we are trying to achieve: strengthening the private sector in those regions where it is not as strong as we need it to be if we are to have private sector-led growth in the years ahead.

We all want to help charities. There are other things that we are doing for charities, some of which are long standing, such as gift aid, but we are looking at ways in which we can improve that. There is a transitional fund to help charities and so on that we have announced. The Government remain committed to finding ways to help charities. The question is not, “Do we want to help charities?” but, “Is this the right mechanism for doing so?” We believe that we need to create new start-up private sector employers, particularly in those regions where that is not happening and has not happened over the last few years as much as we would like. That is why we are bringing in this scheme. The purpose is not to discriminate against charities: there are other policies specifically for charities, but this scheme is not about that.

Gavin Shuker (Labour, Luton South)

Rather than charities being helped, the real issue is that they should not be disadvantaged by the Bill.

David Gauke (Conservative, South West Hertfordshire)

As my hon. Friend the Member for Watford pointed out, we have to look at this in the round. There are various policies that advantage charities, and rightly so. The policy under discussion is aimed specifically at private sector employers. The circumstances involved will be very limited. I am saying not that it will never happen, but that we would see direct competition between the two in pretty limited circumstances. Even then, there is a host of other things that we do for charities that we do not do for private sector businesses. Consequently, although I appreciate the nature and the intention behind the amendment, I urge the hon. Gentleman to withdraw it because it is not consistent with what we are trying to do in the Bill.

Stella Creasy (Labour, Walthamstow)

Will the Minister give way?

George Howarth (Labour, Knowsley)

Order. The Minister has taken his seat.

Chris Leslie (Labour, Nottingham East)

I heard what the Minister said. I am glad that we have had a good debate. I am not convinced that he has satisfactorily described the test as set out in subsection (6) and how it will or will not apply to certain charities. That is an important point. I also feel that the provisions in the Bill discriminate against charities. That is the kernel of the argument that my hon. Friends have put. We may wish to return to the matter, but I now press the amendment to a vote.

David Hanson (Labour, Delyn)

Although we broadly support the clause, I want to ask a few questions, because this is the only opportunity I will have to raise these issues.

Clause 5 provides the definition of “starting a new business”, and, helpfully, the Bill’s explanatory notes cover a range of issues relating to how that would be applied. From the evidence sessions and the explanatory notes, we know that HMRC will undertake the policy and operate it manually, and it also intends to allocate around 240 members of staff for the scheme’s operation.

Broadly, the key issues I want to test the Minister on are, compliance, enforcement, and what happens if there is fraudulent use of the term “starting a new business”, which escapes both compliance and enforcement. However simple we make the scheme—and we are making it simple—it is still complex in relation to assessment of eligibility and ensuring that people who complete the forms and applications do so in a way that is not fraudulent, either by accident or by design. There is also the issue of ensuring that circumstances do not change once the scheme is up and running.

I will deal with applications first. The explanatory notes give several examples of individuals who could apply for the scheme and would be ruled as either accepted under clause 5, or not accepted. I will briefly read out two such examples:

“Roy carries on a business as a carpenter with two employees. He is offered a job working for a larger business and accepts, closing his own business and releasing his employees. He doesn’t enjoy his new job and leaves after 3 months. He begins to carry on his old business as a carpenter, and re-hires his former employees. This is not a new business as, within the six months prior to it starting, Roy carried on another business consisting of the activities of which the business consists.”

That is simple to understand, but it is quite complex to assess initially, and to enforce as we proceed during the period. Here is a similar example:

“Sam is a publican, running a pub in a small village. He wishes to retire and sells the pub as a going concern to Tom, who takes over the trade and continues to employ the pub’s staff. Tom is not carrying on a new business, as the whole of the trade he is now carrying on was previously carried on by Sam.”

Again, it is a simple task, but in terms of enforcement and compliance, it is complex.

The Minister expects 400,000 businesses to apply for the scheme over the period of three years, and he has said that of the 1,100 businesses that have been brought into play, 54 have been rejected so far. I accept that the scheme is new and there may have been some rejections because of its novelty, but if I project that percentage on to the 400,000 businesses, we are talking about a 5% rejection rate. Therefore, over the three years, on the Minister’s current projections, about 20,000 businesses will be rejected. That assumes that the staff of 240, who will be processing the approved schemes and approving schemes based on information that they have received, will also be working quite hard to look at rejected schemes or schemes that are likely to be rejected because people have misunderstood the scheme’s application. They may have applied either because they have misunderstood it, or—in a small minority of cases—because they think that it might be a way of getting this information fraudulently.

I am interested in the Minister’s assessment of the likely level of rejections over the three years, and whether he believes that 20,000 is an appropriate ballpark figure based on experience to date. What does he believe will be the element of potential fraudulent applications? As a former Prisons Minister, I know that there are people who try to undertake things fraudulently, and who believe that the workload of the agencies monitoring them will allow them to get away with it. It is up to those agencies to ensure that such people do not get away with it. I am interested in exploring that issue.

This may be somewhere in the mists of the Bill, and I may have missed it, but I hope that the Minister can help. Let us suppose that a fraudulent application is made and the scheme operates under clause 5, and HMRC subsequently discovers on compliance checks—the other important point—that a fraudulent application has been made. I cannot see in the Bill the level of penalty for a fraudulent application to the scheme. What would the level of tariff be in the event of a fraudulent application? Normally, a Bill will contain tariffs that are applicable to fraudulent applications.

I mention that because there are three stages. In addition to the initial application and the initial rejection, there could—this is not a slur on HMRC—be occasions when individuals slip through the net and an application that seemed correct on paper does not seem correct in operation. My question concerns not only the Minister’s assessment of the workload, of the rejection rate and of the level of detail of the scrutiny of initial applications among the 400,000 based on the rejection rate to date, but what the compliance activity will be with the 240 staff in HMRC. How often and under what circumstances will HMRC revisit a business to ensure that it is what it says on the tin and that it operates accordingly? With 240 staff and 400,000 applications—matters could be dealt with, as it says in the explanatory notes, “manually”. Does “manually” mean visits to the businesses, paper assessment, or returning to a select few businesses three months or six months afterwards to ensure that they are doing what they said in relation to the new employee? Does the Minister want to consider restrictions on that in due course? If a business is found to be fraudulent, what are the penalties?

In the event of an application being made for a business, and HMRC rejecting the application I am not clear what the appeal mechanism is for companies who might, within this very complex but simple pattern of eligibility, feel that they are eligible and feel aggrieved at HMRC’s decision. What is the appeal mechanism outside HMRC?

Those matters essentially concern the definition of a new business. They are not strictly issues that we are amending; they are more about the implementation of the scheme. Before we endorse the clause, it is important to have some clarity from the Minister on those three key issues and on the penalties that might apply in the event of an individual acting fraudulently.

David Gauke (Conservative, South West Hertfordshire)

The right hon. Gentleman is right to highlight that issue. When we are developing policy in such areas it is all too easy to forget the realities of administration, how the scheme will work in practice and how HMRC will be able to cope with that. There is a temptation in a Committee such as this to address great issues of policy, which may be relevant but which do not get to grips with the administration side. We must administer this scheme properly, which is one of the reasons why we are keen to keep the provisions as simple as possible. We have debated various matters today, but we intend to keep the scheme simple and avoid complications. There is always a temptation to meet further policy objectives and include additional complexities, but we are keen to resist that.

We must look at how businesses or potential applicants might seek to abuse the system. There may be innocent applications or misunderstandings about how the system works, and we are keen to keep such problems to a minimum. We want genuine new businesses to take advantage of the holiday if they are eligible, and we do not want them to be deterred by a complicated process. Where possible, HMRC will take account of the fact that new employers have many other duties and obligations. It will seek to operate the scheme through a compliance regime that is not unnecessarily intrusive and does not discourage genuine applicants.

More generally, our strategy is to use a “check now, pay later” approach to stop error and fraud throughout the tax system. We are keen to ensure compliance and to stop error and fraud in the most cost-effective way. Assistance will be given in the early pre-return stages to help with simple errors. Where people are tempted to break the rules, HMRC’s strategy will be to address those who are not taking enough care through targeted risk assessments and the use of profiling, to ensure that serious abuse and manipulation are identified and acted on. An individual employer can benefit only for the first 10 employees and by up to £5,000 per employee. That cap is to prevent large sums being made available and providing an incentive for fraud.

It is possible, indeed likely, that there will be some fraudulent applications. If someone incorrectly applies for the national insurance holiday and makes an incorrect return, at the end of the year they will be liable for that, based on the understatement of their national insurance contributions. A regime exists for national insurance contributions, and this scheme would fall within that. The penalties for an incorrect return will be no different to those that apply within the general workings of the national insurance contribution regime. That is how it will work, and I hope that the right hon. Gentleman takes some comfort from that. There is no separate penalties regime in the Bill because the scheme fits with an existing regime. However, he was right to highlight that point. We seek to keep the scheme as simple as possible and discourage fraudulent claims from being made on the basis that large sums of money will be available.

The right hon. Gentleman also asked about the appeals regime for the scheme. [Interruption.] To be fair, it is not as clear as it might be for those who are not familiar with the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and the equivalent Act in Northern Ireland. I understand that clause 8(6) and (7) deals with the appeals process although, as I say, the right hon. Gentleman could be forgiven for not appreciating that. That, however, provides a mechanism that I hope is helpful to him.

David Hanson (Labour, Delyn)

I shall resist the temptation to ask the Minister whether he can explain to the Committee what that appeals procedure is, and I will perhaps look up the 1999 Act and the mechanism in due course.

David Gauke (Conservative, South West Hertfordshire)

I can tell the right hon. Gentleman that it provides the standard national insurance contributions appeals procedure, which applies to decisions about deductions or refunds under the clause. Of course, as we are all familiar with the standard appeals procedure for national insurance contributions, I will not detain the Committee by speaking at length on that subject.

Clause 6

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 10, in clause 6, page 3, line 40, at end add—

The amendment is at the heart of clause 6 and seeks to test the definition of the “qualifying employee”. Clause 6(1) states:

Clause 6(2) states that that person would count as one of the 10 qualifying employees, where

“only the first 10 persons who become qualifying employees are qualifying employees.”

In other words, it does not matter for how long that person is employed and whether full or part-time: the simple fact that they are a person means that they count against the quota of 10. The amendment seeks to refine the definition of the single qualifying employee, so that several individuals in aggregate might comprise the equivalent of a full-time employee.

We argue that, rather than going on the head count alone, it might be more convenient for a business to ensure that it benefits properly from and maximises the national insurance holiday by taking several part-time employees together if they add up to a full-time equivalent. As the Bill is drafted, several part-timers might do the same job, under the same terms of contract, as a single full-timer, but, by virtue of the fact that they work fewer hours each, their new start-up employer might not be able to qualify for as much of the national insurance holiday as other start-ups that immediately employ 10 full-time staff.

That is not a very likely scenario in many start-up circumstances, but the rationale behind the amendment is that many start-ups will employ gradually and will take on part-time staff. Some of those might go full time, but, in order to ensure that the national insurance holiday regime has the maximum benefit for such firms, we felt that it was important to ask the Minister why we could not take into account part-time employment and avoid the penalisation of firms that only take on part-timers. If that flexibility was in place, it might give a better incentive for a new start-up to employ a higher number of individuals. For example, if by taking on 15 part-timers, a firm could gain the same benefit as an equivalent new start-up taking on 10 full-timers, it would help people back to work. We want to see the maximum number of people given that first step on the ladder.

I should like to see many more people in full-time employment but it might be preferableif a greater number of people had the opportunity to take part-time employment, whether they are mothers coming back into the workplace having taken time off to have children, or young people starting their careers and perhaps looking for part-time employment to support the increasing cost of their student fees, for example. There may be any number of reasons why we want to encourage part-time employment opportunities. It would seem a more sophisticated approach if the Bill could allow the flexibility for new firms to take account of the fact that on aggregate they would qualify and be able to maximise the benefits not just for 10 head-count employees but for 10 full-time equivalent employees.

Kelvin Hopkins (Labour, Luton North)

The Government’s intention is to try to press or even force women with children—younger than the previous Government would have encouraged—to take up employment. Many of them, probably the majority, would want part-time employment and pursuing this policy would make such part-time employment less likely. I strongly support what my hon. Friend is saying. Indeed, I have five members of staff, only one of whom is full-time.

Chris Leslie (Labour, Nottingham East)

Indeed. My hon. Friend hits on a reality of the modern work force that is not quite captured in the framing of the Bill. Although it might be convenient for the administration of the large establishment bureaucracy that is Her Majesty’s Revenue and Customs, as circumstances change, we should not design legislation for the Treasury’s benefit; it should be designed around the convenience and the realities of the employment market and the small businesses wanting to start up. They would certainly find it far preferable to be able to maximise the national insurance holiday in that way. I would not regard our proposal as particularly difficult to administer. Most organisations are aware of the concept of full-time equivalence for a member of staff. They can understand that. It would not be beyond the wit of HMRC to issue guidance as to how various part-time arrangements might together comprise a full-time equivalent arrangement.

The lack of flexibility in the Bill seems to echo the sense in which the shadow of disadvantage is still cast upon the whole part-time labour market more generally. We know that in many circumstances part-timers can be at a disadvantage even though, as I am sure the Minister will confirm, under employment law, part-timers are entitled to receive the same treatment as equivalent full-timers, unless there is an objective justification for not doing so, in terms of bonuses, benefits, sick pay, maternity leave and so forth.

Gavin Shuker (Labour, Luton South)

Does my hon. Friend agree that in other aspects of our taxation system we take account of the fact that there are a variety of different working practices, with a smaller or larger number of hours for how we define part-time and full-time working, for example? Therefore all those things should be taken into account when deciding whether the amendment could help the Bill.

Chris Leslie (Labour, Nottingham East)

Absolutely. We had a useful evidence session last week. When that point was put to the two witnesses from the Federation of Small Businesses and the British Chambers of Commerce, Mr Priyen Patel and Mr Steve Hughes, they both acknowledged the attractiveness to business of having some flexibility that would allow the aggregation of several individuals in part-time employment to equate to a full-time equivalent arrangement. They both, it is fair to say, said that there could be some complexity involved in doing that, but if that could be overcome they felt that it would be useful and it was certainly an option that they wished to pursue.

Most small businesses would want to ask that question. Indeed, I suspect that it will be many of the inquiries to the 240 eager HMRC staff, who will be waiting by their telephones for the massed ranks of new start-up businesses to phone the hotline number. They would find it useful to have the flexibility to help those small business start-ups.

I would be grateful if the Minister would explain why the Bill does not currently have that flexibility and whether he foresees a particular cost in providing it. Although I am arguing that new small firms should be allowed to maximise the national insurance holiday, and that allowing the aggregation of part-time employees may involve an extra cost, I cannot imagine that it would be a particularly significant amount. Perhaps the sophisticated models in the “House of National Insurance” in the Treasury division that the Minister presides over have the ability to spit out the number from an Excel spreadsheet. I would be grateful if he would tell us what that might be.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman appears to be concerned that limiting the holiday to the first 10 employees could disadvantage a new business with a large number of part-time employees. To some extent, that returns to the remarks I made about the previous amendment—we must look at how the scheme will work in practice and how it will be administered, and we must keep complexity to a minimum for the purposes both of employers and of HMRC. That is why we have tried to make the rules on qualifying employees as simple as possible.

The amendment would increase the complexity of the legislation, without helping new businesses. Most new businesses are unlikely in their first year of business to take on a large number of employees; we estimate that a typical business hires an average of two employees in its first year. That will come as no surprise given that on a number of occasions we have debated our estimate that there will be 400,000 employers and 800,000 employees.

Only a few thousand new firms per year are likely to employ more than 10 workers, which is less than 2% of the firms it is thought will benefit from the scheme. We have set the number of employees to whom the holiday can apply at 10, which ensures that employers with part-time staff are not penalised and can take full advantage of the holiday.

In the evidence session to which the hon. Member for Nottingham East referred, Priyen Patel from the Federation of Small Businesses was correct to conclude that going down the route suggested would add to the complexity for employers because the national insurance contribution system does not distinguish between full-time and part-time staff. It is based on earnings paid to a single person holding a single employment. Therefore, we would immediately have a problem in defining full-time staff for the purposes of the holiday. We would have to amend the legislation to allow for the splitting of the £5,000 holiday limit per employee between two or more employees, adding to the complexity for employers and HMRC compliance checks.

The amendment could potentially create incentives for new businesses to make full-time employees work part-time, in order maximise the NIC holiday savings. We want to avoid such incentives. For example, an employer could reclassify some of their existing employees as part-time by reducing their hours while retaining their wage level so as to include 20 rather than 10 employees in the holiday. It is possible that we might see some distortive behaviour in such circumstances.

In conclusion, the limit of 10 employees is not an issue that has been raised by employer representatives, or others, when commenting on the holiday. I reassure Opposition Members that the amendment is unnecessary because the number of employees to whom the holiday applies is already generous when compared with the numbers of employees likely to be taken on by a new business.

Kelvin Hopkins (Labour, Luton North)

I imagine that employers are not so keen on part-time employees but that employees want part-time work. That is why we should be giving them the opportunity through the Bill.

David Gauke (Conservative, South West Hertfordshire)

If employers were conscious that that was a problem and if they could envisage a number of circumstances in which they thought, “If only we had the flexibility”—the word used by the hon. Member for Nottingham East—“to have more than 10 employees if they are part-time workers,” and if those were circumstances that employers’ representatives felt were likely to occur often, I think we would have had some form of representation from them, but it does not appear to be a concern for them.

Chris Leslie (Labour, Nottingham East)

This is dancing on the head of a pin. Although the witnesses from the principal employer organisations mentioned that there could be a complexity issue, the Minister has to acknowledge that they both also indicated that they would be in favour of the flexibility to count part-time employees in that way. He needs to acknowledge that they assented to that concept.

David Gauke (Conservative, South West Hertfordshire)

I return to the point I have just made: it is not something that anyone has made any representations to us about. It is something that would add—quite significantly, I think—to the complexity of the administration both for HMRC and for employers, for the reasons that I set out. Most businesses that will benefit will be taking on one, two, three, or four employees. The limit of 10 is not likely to affect very many of them.

Kelvin Hopkins (Labour, Luton North)

I am still concerned about that point. It may just be that the Bill is not high profile, and that subsection of the Bill is not high profile. Is the TUC aware of the proposal? I imagine that it might want to make representations along the lines that some Opposition Members have been making.

David Gauke (Conservative, South West Hertfordshire)

I am not aware that we have had any representations from the TUC on this point; I will certainly let the hon. Gentleman know if I have. The key point is that the amendment would increase the complexity of the holiday. We want to reduce complexity, or keep it to a minimum, and the amendment would be of little benefit for new businesses.

Stella Creasy (Labour, Walthamstow)

I am a little perturbed by the Minister’s argument that because he has not had representations on a particular point the point is not valid, not least because no formal consultation, which would normally generate those sorts of points, has actually been carried out on the proposals. The impact assessment that has been published says that the draft legislation was available to businesses and advisers on the website. That is obviously not as thorough as a process of consultation. When it comes to such technical points, it would be fair to say that just because they have not been raised formally so far does not mean that they are not valid.

David Gauke (Conservative, South West Hertfordshire)

We believe that the amendment would add significantly to the complexity of the scheme, given the typical profile of new businesses, which is that they tend to take on one, two, three or four employees in their first year. A limit set at 10 employees provides some flexibility for part-time workers. Returning to the earlier debate, we think that it is necessary to have a limit, because otherwise the incentives for fraud become greater and the scheme will become less well targeted. For those reasons, we do not believe that the amendment would add to the scheme anything significant to help employers, but it would add significant complexity, and I ask the hon. Gentleman to withdraw it.

Stella Creasy (Labour, Walthamstow)

I had not planned to speak to the amendment but, like my hon. Friend the Member for Luton South, one becomes inspired when listening to the debate and to the arguments about what the issues might be. [ Interruption. ] “Inspired” is a strong term, I know. The Committee has already been enlivened by the varying definitions of how one might use Latin terms in economics, and I am sure that inspiration on the technical restrictions around national insurance is but a heartbeat away for all of us.

My main concern comes again from my experience of working in organisations, employing people and looking at some of the margins one deals with, particularly in small-scale organisations. I was disappointed by the Minister’s approach, not least because, for a starting point, we have not had evidence about what the cost-benefit analysis of such a proposal might be. It is, therefore, very hard for us to judge whether it would actually increase substantially the administrative costs of the scheme. He talked about 240 tax advisers waiting, willing and able to encourage businesses to take up the scheme, but it seems churlish to preclude the idea that full-time equivalency could be a useful category for employers to think about when they start a business. Drawing on my own experience with a small, not-for-profit business in the charitable sector—I continue to press this point—when we set up projects, we would take on people for a certain amount of time. We would, therefore, increase the number of employees who were technically on our payroll on a three or six-month contract for a particular project.

As I have said, I talked to a group of women yesterday, and I have also spoken to another group of public service workers who face redundancy, about how they might bid to provide career services in Waltham Forest and how they might take on additional employees for particular projects within certain time periods. That may mean that they will breach the 10 employee limit for a certain amount of time when they start their business, but that is very different from an ongoing revenue commitment to employing a member of staff. A business could end up with one or two administrators—I think this is the type of small business model that the Minister is talking about—with seven or eight people working for them over a particular period on a part-time basis of two or three afternoons or days a week on a scheme that was fundamental to the growth of their business. I would hate to see a lack of flexibility in the legislation mean that such projects could not be generated.

The legislation is not only about job creation, but job sustainability. Helping organisations to be flexible about how and when they employ people is critical, not just to create jobs but to create opportunities for people to sustain employment and gain experience. They may not end up as a long-term employee of any of the new start-up businesses, but the more opportunities that people have to work, the more their careers are advanced and the more attractive their CVs are to employers.

Setting a limit on the total number of people who could be affected by the scheme, rather than the total number of positions, inadvertently prevents the flexibility that might help employers bid for contracts—several such opportunities will emerge in the near future, as we have discussed—and it might stop them thinking about how they might employ someone on a part-time basis. One of my concerns, particularly as the representative of an area in which a lot of people work flexible hours in the public sector, is that, as those jobs diminish, they will not look for just any job, but one that fits their family and life commitments. That kind of flexibility is critical to those people, wherever they may be.

I appreciate that I represent an area that is excluded from the scheme and that that may not be of concern to the Minister. I am sure that I am not alone, however, in representing a group of people who are at risk of losing their jobs and who seem to be the target, when he talks about job creation in the public sector, of the legislation. They would want to work part time and would therefore fit into the category of tipping an employer over to 10 or 11 people for a particular project, such as running child care or social care provision within a local community. They would inadvertently be hampered by the legislation, so I hope that the Minister will look more favourably at how the amendment could be introduced and what its implications would be.

At the very least, I hope that the Minister will commit to getting more evidence from his Department, because today’s debate has been informed, above all, by limited evidence about the policy and how it might work. I do not know whether that is because of the lack of formal consultation with a wide range of organisations, including trade unions and small businesses, on the technicalities and various permutations of the provision, as opposed to its overall principle. The impact assessment does not even consider what the impact might be of expanding the limit to the positions rather than the people. We are asking reasonable questions and it is a pity that we have to ask them on the basis of a conditional analysis of what might happen rather than the evidence needed to make good decisions.

Kelvin Hopkins (Labour, Luton North)

I strongly support the arguments put by my hon. Friend the Member for Nottingham East. I do not buy the argument about complexity. Millions of people work part time and have their national insurance and employers’ contributions deducted. Not collecting them seems no more complicated—in fact, it is probably less complex—than collecting them, so I do not think that that is an argument. I suspect that the trade unions have not been consulted. Some employers may not even realise that their representatives have not picked up the point properly. It ought to be debated and brought out more in our debates, perhaps on Report and beyond. I hope that that will happen.

Those who will be affected by the job opportunities that might be lost are people with young families, and one would expect that they would primarily be women. There is a very large group of people who will need part-time employment to survive—students. If the Government get their way on Thursday, and I hope that they do not, hundreds of thousands of students will need part-time employment, but many job opportunities might be lost to them because of how the Bill is drafted. I very much hope that we can win the argument and the Government will eventually relent.

Gavin Shuker (Labour, Luton South)

I want to return to one of the basic premises of what we are here to do, which is produce a Bill that not only administers a scheme, but has a social benefit. That was recognised in the explanations about why we would apply the blanket relief to some parts of the country and not to others. The argument was also advanced when we looked at the different constituencies that might benefit—the local authorities or areas with high or low rates of unemployment or public sector employment.

Clearly there is a social benefit in allowing businesses to make use of their relief in whatever way they see as most appropriate. Each business will look at the task it is trying to fulfil and its balance sheet, and choose an appropriate way of carrying out its duties and tasks. It is beyond me why a business employing part-time employees should be penalised, and potentially be able to claim, say, only half the amount of a full-time business employing the same number of employees. The amendment could rectify some of the problems.

The Minister said that there would be a need for an additional amendment to change the amount of the cap per employee—a percentage by which to reduce the £5,000. I am new to the House but it does not strike me as being beyond the wit of anyone to come up with a way of doing that. One potential way to do it would be to cap the amount that any business could claim at £50,000. That route would allow full relief equality—as it were—across different businesses and start-ups, so that each was entitled to claim the same amount based on the number of employees and hours, and the amount of money paid.

I do not feel that the case against the amendment has been made fully, and we need to take it forward on Report. I recently heard the story of a group of women who lost their jobs in the previous major recession. They lost their cleaning contract and used that as an opportunity to club together to form a new business, and they grew out of that recession. I do not know the exact numbers involved, but if there were more than 10 of them and they were working part-time, I would view it as a social good if they could claim full relief like a start-up company that had only 10 full-time employees.

We have increasingly looked at the impact of legislation to ensure that it does not disadvantage certain groups that have been historically disadvantaged by the labour markets, such as women, people with small children or other people who would not necessarily find work or a job. If the Government are serious about getting more people into work, they should take the amendment seriously as well.

David Gauke (Conservative, South West Hertfordshire)

In a way, I am grateful that Opposition Members have become so enthusiastic about this policy—a tax cut—that they want to apply it more widely than we feel able to do. One idea floated this morning was that we should apply this nationally and, to keep things within budget, perhaps have fewer employees. Now the argument is that we need to lift the cap and have more employees. The evidence that we have shows that, of the various start-up businesses that are likely to benefit from the scheme, less than 2% are likely to employ more than 10 workers.

So does the amendment address a particular problem that is likely to pinch a great deal or cause considerable disadvantage? No. What are the consequences of the considerable additional complexity of those phone calls between employers setting up a business and HMRC, which we talked about a moment or so ago? There will be more points to go through. How many employees? How many part-time? How many full-time? How do you prove whether someone is part time rather than full time? At the moment the national insurance contribution system is not set up to make a distinction between the two. We would have to introduce all of that just to solve a problem that will not occur that often. For those reasons—I think I have made the point very clear—we cannot accept this amendment, and I urge the hon. Member for Nottingham East to withdraw it.

Chris Leslie (Labour, Nottingham East)

This has been a useful debate. My hon. Friends the Members for Luton North, for Luton South and for Walthamstow articulated far more effectively than could I the important changes that have occurred in the labour market, which are not particularly well reflected in the framing of the legislation. I get the impression sometimes that the Minister, perhaps unwittingly, is articulating a tired stance on behalf of a Treasury that is slightly weary of anything that does not fit within its computations and its limited world view. Although it may be convenient for the customers or for the businesses of this country, something cannot be done if it is too difficult or if it does not quite fit in the neat little boxes that HMRC considers applicable.

Stella Creasy (Labour, Walthamstow)

Does my hon. Friend agree about how frustrating it is that we do not have all the evidence—we do not even have the various models—to make the assessments that the Minister has made of the cost-effectiveness of the policies? The impact assessment always presumes that 10 employees would be the cut-off point. It does not talk about whether it might be five or 15. It does not give us any of the analysis on which that is based. That is frustrating in terms of the amendments and how we make decisions.

George Howarth (Labour, Knowsley)

Order. Before the hon. Member for Nottingham East proceeds, I think we have debated that point previously.

Chris Leslie (Labour, Nottingham East)

In terms of the amendment, it is relevant, as my hon. Friend the Member for Walthamstow has pointed out, that there has not been a full consultative process for the Bill. Perhaps I am a little harsh on HMRC and on officials at the Treasury, but it is said from time to time that they take the producer interest a little too seriously and see things from the perspective of what is easy to administer, rather than what is beneficial for consumers and businesses.

I suspect that the reason we do not have full information on this particular amendment and this particular clause is that the scheme’s design was included in the Conservative party manifesto. The poor old officials at Her Majesty’s Treasury had the scheme foisted upon them and had to retrofit their arrangements around the hare-brained ideas of the Chancellor of the Exchequer.

Matthew Hancock (Conservative, West Suffolk)

The hon. Gentleman cannot have it both ways. He cannot argue both that there has been no consultation and that there has been a general election fought on policies including this one.

Chris Leslie (Labour, Nottingham East)

I certainly can make that argument. In the hon. Gentleman’s mind it may be that there was massive worldwide awareness of the small print that was included in an addendum to an appendix to a sub-paragraph of the Conservative party manifesto on the way in which this scheme would run, but I suspect that many people were not aware of the issue that we are addressing today—whether part-timers or full-timers should count among the first 10 qualifying employees. Now that Her Majesty’s Revenue and Customs has to make the scheme a reality, it quite naturally resists anything that may go beyond this.

It may be that the Minister has shone a light on the fact that this will probably be a scheme of small benefit to a very small number of employers because it is just for new start-ups and not for existing employers. In this case, it will not affect that many employers, which is a great shame. I would like to see this relief benefit the widest number of new firms and employers. We have already mentioned the excluded regions, but we feel that there could be cases—as my hon. Friend the Member for Walthamstow said—of new start-ups that are on the margins. They might have more than 10 qualifying employees, but they would fall short of maximising the relief that could otherwise accrue to them if the flexibility were available in the Bill.

We urge the Minister not simply to cut and paste what might have been drawn up by his right hon. Friend the Chancellor in that half-hour meeting at which they were penning the Conservative party manifesto on the back of an envelope, but to spark the enterprise, initiative and innovation that exists in some deep recesses within the Treasury. They have the capability to design a scheme that is flexible, that can suit today’s modern labour market and that can help those firms that want a sophisticated mix of part-time and full-time employees, so I urge him to think again. I suppose that I am coming to the conclusion that we should press this issue to the vote.

Clause 7

Chris Leslie (Labour, Nottingham East)

I have a few brief questions for the Minister. The clause specifies the appropriate amount. We have already debated the sum of £5,000, which is a round figure that was probably thought up in haste before the general election. Nevertheless, that is the amount that is in clause 7. There are a number of cases that could cause some head-scratching in the Treasury when it comes to defining the relevant earnings that may or may not come under the sum that is set out in subsection (4). For example, there is the issue about defining the principle place, as set out in subsection (3), where the employed of the new business undertake their employment activities. Not all employees are static; some are mobile, such as hauliers, taxi drivers and indeed seafarers, as the Minister will recall.

The humble mariner, under subsection (5), who may set off for a voyage from one part of the country to another, or from one part of the European Union to another, may cause some difficulty for the 240 members of HMRC staff sitting at the end of the hotline ready to pick up the telephone. When the seafarer’s employer rings up and says that their employee will embark from a port in Yorkshire such as Kingston upon Hull, and set sail for the east of England, maybe for a coastal area of a constituency of one of the members of the Committee—perhaps not in West Suffolk, but my geography is not what it was—

Matthew Hancock (Conservative, West Suffolk)

The hon. Gentleman has just made an eloquent case about how employment in some parts of the country and in some jobs is not specific to a location. Does that not completely hole below the water line, if he will excuse the pun, the Opposition’s argument that a regional system is invalid? It supports exactly the argument that the Minister was making all morning in response to requests for an overly complex and overly localised geographical system.

Chris Leslie (Labour, Nottingham East)

Quite the contrary. The Bill draws a line somewhere vaguely down the middle of the country, and bisects our great nation into two qualifying and non-qualifying areas, but I am not sure that those non-static issues of employment are such a simple matter. If the hon. Gentleman will bear with me on my voyage, setting sail from a qualifying part of the country to a non-qualifying part, I am not clear from clause 7 how the appropriate amount would be apportioned in that employee’s activities.

Kelvin Hopkins (Labour, Luton North)

Might the definition of such an employee’s place of work be where the ship is registered? If it is a coastal ship that is registered in London and it departs from Kingston upon Hull with another ship that is registered in Hull, would the employees on one ship be granted the tax cut and the others not? Where are the definitions?

Chris Leslie (Labour, Nottingham East)

Absolutely. The Minister may well seek to reference regulation 115 of the Social Security (Contributions) Regulations 2001 in his defence, but that is not a wholly substantive defence.

I am perturbed not only by those voyages by sea, but by other employment activities that may cross over the boundaries between different qualifying regions. Take the humble ice cream purveyor in his or her van, who drives around different parts of the country, perhaps including tourist destinations. How on earth would that new budding small enterprise be able to apportion the amount of time that they have spent in those places, in order to work out whether they qualify for the national insurance holiday? I accept that it might be quite difficult for more than two or three employees to fit in the van, but the Committee can imagine examples—better than those that I can produce off the top of my head—of circumstances that force these questions of the Minister. How are we defining the principal place? Who will arbitrate over what is or is not the principal place of employment? Is that a decision for the normal national insurance appeals arrangements, or is it left to executive officers in Her Majesty’s Revenue and Customs? How can the regional element apply, particularly to seafarers, mariners and others who are mobile?

David Gauke (Conservative, South West Hertfordshire)

Let met see if I can address the hon. Gentleman’s concerns. I think that he will find that it is a little simpler than he fears. Essentially, the test is this: where is the principal place of business for that employer? So long as it is not within the excluded regions, all employees will benefit from the NICs holiday, in accordance with the various rules that we are discussing. They might travel around, but it is not necessary to apportion the amount of time spent in excluded regions and in other regions.

The hon. Gentleman alighted upon the example of mariners, and I know that he has an interest in that area, because we seem to find ourselves debating seafarers regularly—I am pleased that he has managed to leave Iceland out of the debate.

Chris Leslie (Labour, Nottingham East)

So far.

David Gauke (Conservative, South West Hertfordshire)

Indeed.

The reference to mariners in clause 7 relates to apportionment according to time, rather than location, in the sense that a mariner may go out on a fishing expedition, for example, and some of that period might fall within the holiday period and some of it might not. In those circumstances, the payment the mariner would receive for the entire voyage would need to be apportioned. That is what that provision is about. There is no need to make apportionments between time spent near the port of Hull and time spent near any ports in West Suffolk or Hertfordshire that the unlikely mariner might find himself docking in, which would not quite work. I hope that that provides the hon. Gentleman with a little reassurance.

There is a right of appeal against the decision on where the principal place of business is. Clearly, that point needs to be established by the employer and HMRC. It is one of the reasons why it is easier to do that with broad regional boundaries, rather than by constituency or local authority. The process will therefore be easier because it will generally be obvious where the principal place of business is. It will be, for example, the shop, office or depot from which the business is conducted or controlled, and there is HMRC guidance on that.

Stella Creasy (Labour, Walthamstow)

One of my concerns with the regional variation is that people might put up name plates for offices in northern cities but practise is the south of the country, probably because of the nature of their business, whether it is consultancy or a type of industry that requires travelling. Has the Minister thought about how the 240 employees who at the moment are doing light-touch regulation might deal with those instances that would essentially constitute fraud under the proposed scheme?

David Gauke (Conservative, South West Hertfordshire)

The hon. Lady is entirely right to highlight that as a concern that we need to address. It is a question of fact, and we had the debate earlier about the penalties available, within the national insurance contributions scheme. She is absolutely right that it would be fraud if someone provided false or misleading information that stated that their business was located somewhere it was not. It is a question of fact and something that needs to be policed, and it is absolutely right that we should do so. Subject to assessing where the principal place of business is, I hope that I can reassure the hon. Member for Nottingham East that there will be not be enormous complexity in working out where a mobile employee is, because it is the location of the employer that is the test. With those comments, I hope that clause 7 can stand part of the Bill.

Chris Leslie (Labour, Nottingham East)

I hear what the Minister says. The onus will clearly be on the Government and the Treasury to ensure that that is administered as successfully as possible. I simply wanted to probe a number of those points. I am grateful to the Minister for taking the time to set out his views on the matter.

Kelvin Hopkins (Labour, Luton North)

The Minister made much play with the word “complexity” when debating a previous clause. Complexity arises with clause 7 simply because of the arbitrary geographical divisions in relation to where the Bill, once enacted, will apply. He would do well to look again at those divisions and simplify the Bill, and in so doing he could overcome some of the complexity about which he is so concerned.