National Insurance Contributions Bill

Public Bill Committee, 19 November 2013.

Alan Meale (Labour, Mansfield)

I have a few preliminary things to tell the Committee. Would Members switch off their electronic devices, or at least put them in silent mode? As a general rule, I and my fellow Chair do not intend to call starred amendments that have not been tabled with adequate notice. The required notice in the Public Bill Office is three working days, so amendments should be tabled by the rise of the House on Monday for consideration on Thursday, and by the rise of the House on Thursday for consideration the following Tuesday.

Not everyone is familiar with the process of taking oral evidence in Public Bill Committees, so it might help if I go through how this is done. The Committee will first be asked to consider the programme motion, on which debate is limited to half an hour. We will then proceed to consider motions to report written evidence and to allow the Committee to deliberate in private in advance of the oral evidence sessions, which I hope we can take formally. Assuming that the second of those motions is agreed, the Committee will then move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back into the room and our oral evidence session will begin.

Alan Meale (Labour, Mansfield)

Copies of the written evidence that the Committee receives will be made available in the Committee Room.

Examination of Witnesses

Alan Meale (Labour, Mansfield)

We will now hear evidence from the Federation of Small Businesses and the Institute for Fiscal Studies. I remind Members that questions should be limited to the scope of the Bill. Please stick to time which, as we have already said, is very rigid indeed. We are scheduled to finish at 9.45 am. I hope that I do not have to interrupt anybody mid-sentence but I will, if necessary.

Mr Cherry and Mr Adam, will you briefly introduce yourselves to the Committee?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I welcome both witnesses to the Committee and thank them for giving evidence today.

I would like to start by looking at projections for take-up of the employment allowance. Both witnesses will know that the allowance is the successor to the regional national insurance employers’ holiday, which was projected to reach 400,000 businesses, but in the end was taken up by 25,000. The Government have suggested that they expect up to 1.25 million businesses to benefit from the new employment allowance, with a take-up of about 90%. Do you agree with those projections?

Shabana Mahmood (Labour, Birmingham, Ladywood)

That was my next question, so may I ask whether Mr Cherry has a view about why we might not hit 100%?

Shabana Mahmood (Labour, Birmingham, Ladywood)

We will come back to effective communication in a few minutes.

At what point would you be able to say that this allowance was a success and money well spent?

Shabana Mahmood (Labour, Birmingham, Ladywood)

What measures should be used to quantify or evaluate the policy’s impact on the economy?

Shabana Mahmood (Labour, Birmingham, Ladywood)

Mr Cherry, I think that some of your members told you in a survey that they would expect the allowance to have a positive impact on jobs, with some jobs created as a result. After the allowance has been introduced, will you do any follow-up work to see whether that remains the case?

Shabana Mahmood (Labour, Birmingham, Ladywood)

You spoke about effective communication in the context of the previous national insurance scheme. What do you think the Government need to do to ensure that this scheme will be well understood and taken up in large numbers by the business community?

Shabana Mahmood (Labour, Birmingham, Ladywood)

Practically, how best should the Government be getting the message out there? What do you mean by “effective communication”?

Julian Smith (Conservative, Skipton and Ripon)

Good morning. I have a question particularly for Mike Cherry. I am keen to hear your comparison of the scheme now being proposed by the Government with other schemes that have been discussed in the past year or two—specifically ones focusing on new employees of small businesses. It seems you feel that this is simpler, so I am interested in your thoughts on the advantages of this proposal compared with other types.

Julian Smith (Conservative, Skipton and Ripon)

You have beaten me and other MPs about the head several times—I seem to remember that Scarborough was the worst situation—but I assume that you are quite happy and excited now. What is your organisation going to do to promote the measure? You acknowledge that the Government have delivered, so what will the federation do specifically to help businesses to take advantage of this?

Julian Smith (Conservative, Skipton and Ripon)

Can you confirm that the Federation of Small Businesses is pretty happy with the proposal?

Anne Marie Morris (Conservative, Newton Abbot)

This question is for Mike and Stuart. I will focus on the exclusions—those businesses that will not benefit. There are probably three groups. As we are short of time, I will put them together. I would like your comments on the clarity and whether we will be able to decide clearly which are excluded and which are not, and secondly on the appropriateness of excluding these particular groups.

The first group is a miscellaneous collection, but it principally includes businesses which provide personal services—your gardener or your housekeeper. The second group is public sector businesses, and the third is connected businesses or connected charities of which only one can take the benefit—a choice has to be made and there has to be an election. Without necessarily having to comment on all three categories, what do you feel about the ability to make this work? Is there clarity on who is excluded? Is it appropriate and right that these groups are excluded? Maybe we can start with Stuart.

Anne Marie Morris (Conservative, Newton Abbot)

Stuart, perhaps I could come back and ask you whether you think that there is any economic reason—or what you think the policy reason is—behind those particular groups of exclusions. It is pretty obvious in the case of the connected category, but do you have any thoughts regarding the public sector and personal services?

Anne Marie Morris (Conservative, Newton Abbot)

Mike, may I press you on the appropriateness? I hear your message about simplicity, but what about appropriateness? I understand that, as you said, you are not necessarily au fait with the detail, but can you think of any particular reason why personal services, for example, should be an excluded group?

Sheila Gilmore (Labour, Edinburgh East)

The Government have indicated that the allowance is a permanent tax cut. Do you think that that is a good idea?

Sheila Gilmore (Labour, Edinburgh East)

Do you think it is better in this format?

Richard Fuller (Conservative, Bedford)

I am interested in ways we can encourage businesses, particularly small businesses, to pay the living wage. At the moment the Government subsidise people on low incomes through the tax credit system, but increase the price for companies employing them through national insurance. The Bill will reduce that. What is the merit of having a second box that companies can tick to say that they comply with a living wage against which there would be a higher figure than £2,000 for the employment allowance? What figure would have a significant impact in encouraging businesses to comply and say they were a living wage employer next to that box?

Chris Evans (Labour, Islwyn)

Looking at this as the replacement for the national insurance holiday, for which take-up was sketchy in parts—particularly in my area in Wales, and in Scotland, the north-east and Northern Ireland—do you think this new employment allowance is really just a sticking plaster on a far wider issue? I am looking here again at some of the changes which will cost the taxpayer an estimated £1.73 billion a year by 2017-18. Do you think that this is just the tip of the iceberg and that we should be looking more at tax reform and simplification, rather than initiative after initiative?

Chris Evans (Labour, Islwyn)

I will tell you where I come from with it being a sticking plaster. There is talk of it being a permanent tax cut. Anyone who has been around business or in politics for a number of years knows that there is no such thing as a permanent tax cut. The world does not work like that. I am concerned that the measure might work for two or three years, but we could be sat here in the next Parliament talking about how to put the tax cut back up. We have used reliefs in the past, such as the national insurance holiday, which was not taken up in places where there is traditionally high public sector employment, and I have mentioned those areas as well.

Whatever political persuasion we are, we want to see small businesses thrive and, in particular, we want to see small businesses take more people on. The question I come back to is this: does the Bill tackle the barriers that you see small businesses having in taking new people on?

Chris Evans (Labour, Islwyn)

What I am trying to get at—

Alan Meale (Labour, Mansfield)

Briefly.

Chris Evans (Labour, Islwyn)

Sir Alan, I will tie my question up. What I see is that we are stuck in a maelstrom of incentive after incentive after incentive. We are sticking our fingers in the wind, and sometimes it is working and sometimes it is not working. I am concerned that we are in the middle of another incentive, rather than going at the base of the problem. When I talk to business people, their problem is with corporation tax. For every £1 they make, they are paying 23p to the taxman. Is the Bill just an initiative, or is it something that tackles the central problem?

Caroline Dinenage (Conservative, Gosport)

Mike, a minute ago you talked us through some percentage statistics on how businesses thought that they could best use the tax relief. Clearly, its purpose is to increase the number of people in employment. What percentage of employers do you really think will use it to take on new employees or to increase wages? How many will just use it to increase profit margins?

Caroline Dinenage (Conservative, Gosport)

We can all specify small businesses we have spoken to in our constituencies—I have had a small business since I was 19 years old—so we all have a finger in the air-type ability to judge what we think is going to happen. However, obviously you have a huge database of businesses that you speak to on a regular basis and the ability to collect a huge amount of statistics. On the whole, is it your view that, particularly as far as small businesses are concerned, the initiative is a good thing that is to be warmly welcomed?

Nicholas Dakin (Labour, Scunthorpe)

When the Government have, on occasion, withdrawn support, they have said that the support they were giving was a dead-weight—in other words, that things would have happened anyway. I am interested in how we can judge whether the policy is good value for money and what would happen without it. You have both suggested that the two outcomes we might look at are more jobs and higher pay for those in jobs. How might we determine whether, after a period of time, the policy represents good value for money for the taxpayer?

Nicholas Dakin (Labour, Scunthorpe)

Mr Cherry, you said earlier that 29% of your members expected to see increases in wages paid and that 28% expected to undertake greater employment. Is it reasonable for us to come back in a year or two to see whether those percentages have been realised?

David Rutley (Conservative, Macclesfield)

I want to focus on the recent FSB survey. Apparently, 28% of respondents to one of your surveys this year said that the allowance would be a positive help to them. Does that bode well for the success of the scheme? Is 28% a good figure?

David Rutley (Conservative, Macclesfield)

To build on that, one of the key messages coming out of here is the importance of communication. Clearly there has been some focus from others on what the Government will do to communicate this. I wonder whether you know not just what the FSB is doing, but what organisations such as the chambers or the Institute of Directors might be doing to look towards April and to get behind the scheme.

David Rutley (Conservative, Macclesfield)

A final question about communication. We all realise it is difficult with small businesses, but there are new opportunities through digital communication and the like. Has either of the two witnesses come up with examples of other countries and Governments that have been particularly good at communicating with small businesses? Is there anything we can learn from them?

Alan Meale (Labour, Mansfield)

We are rapidly running out of time.

Ian Swales (Liberal Democrat, Redcar)

This is probably a question for Mr Adam. Clause 11 attempts to deal with tax and national insurance avoidance by oil and gas workers offshore, which is estimated as being worth £80 million to £90 million. Do you think the Bill will successfully close the loopholes?

Ian Swales (Liberal Democrat, Redcar)

I guess the FSB has nothing to say on that matter; okay, fine.

Julian Smith (Conservative, Skipton and Ripon)

May I press Mike on the issue of communication that David Rutley mentioned? I believe that the Government have put together a suite of measures ranging from tax to deregulation to apprenticeships—a whole set of positive proposals—but my one worry is that we are not communicating about the good stuff that we are doing as fully as we could. What one or two things do you think would be helpful from the Government—and from Her Majesty’s Revenue and Customs, which communicates most to businesses—to signpost more effectively the excellent schemes, policies and proposals that are on offer for small business?

Julian Smith (Conservative, Skipton and Ripon)

Do you think that HMRC would be a good means of signposting completely non-tax-related proposals?

Julian Smith (Conservative, Skipton and Ripon)

Have you polled your members on which Government site they use most frequently?

Richard Fuller (Conservative, Bedford)

May I go back to Mr Cherry on the living wage? My point was about not compelling companies, but incentivising them. Many of us want to reduce taxes on our small businesses because, through their ingenuity and creativity, they create the wealth that pays for the public services that the rest of the country can enjoy. The Bill is a welcome step towards achieving that, but I am trying to find ways in which we can cut taxes for your members more. However, the quid pro quo has to be that they react like that 28% that said that they wanted to increase wages.

The coalition Government have done a good job of increasing the tax threshold for employees. How would you like to see this £2,000 change over the next five years? Should we look to increase that year on year—from £2,000 to £3,000, to £5,000 and to £10,000?

Richard Fuller (Conservative, Bedford)

But my point is about whether you can give the Government confidence that they will see that.

Anne Marie Morris (Conservative, Newton Abbot)

Mike, one of the challenges is to make this simple to use. Clearly, the PAYE changes will make life easier. As the Government have not yet clarified exactly how this will work, other than that it will be the first deduction that they will make, how would you like to see it implemented? What are the two or three things you would like to see in the process that would make it easy for a small business to use?

Alan Meale (Labour, Mansfield)

Thank you very much. That brings us to the end of this morning’s session. May I thank the witnesses on behalf of the Committee?

Alan Meale (Labour, Mansfield)

We shall now hear from the Financial Conduct Authority. May I remind Members that questions should be limited to matters in the scope of the Bill? We have to stick to the timings, which are very tight—we have less than half an hour for this group of witnesses. If I have to interrupt someone who is going on a bit, I will, so please beware. May I ask the witnesses to introduce themselves?

Shabana Mahmood (Labour, Birmingham, Ladywood)

I welcome both witnesses to the Committee.

I wanted to ask your assessment of the effectiveness of clause 12 in dealing with how the alternative investment fund managers directive interacts with current partnership tax rules. Secondly, given that the directive was agreed in July 2011, why are we only now getting to this matter, which appears to have cropped up as a side issue as part of the wider consultation on partnership tax rules?

Shabana Mahmood (Labour, Birmingham, Ladywood)

You said that you had your consultation in September. Did you say that January was when you are going to publish a policy statement?

Anne Marie Morris (Conservative, Newton Abbot)

May I ask about the process by which all this will be made effective? I understand that the Bill will be followed by provisions in next year’s Finance Bill and secondary legislation. Do you see any problem with introducing rules in that way?

Anne Marie Morris (Conservative, Newton Abbot)

Regarding the provisions to date, are you satisfied that we are likely to solve the problem, rather than creating an unintended consequence that allows further opportunities for tax avoidance?

Ian Swales (Liberal Democrat, Redcar)

I know that limited liability partnerships were allowed in the wake of some well-publicised financial problems, especially for large accounting firms, but I do not think it was ever envisaged that we would see such a huge proliferation of limited liability partnerships since those issues arose. What is your comment on the number and nature of limited liability partnerships? Could you answer that question, Mr Geale?

Ian Swales (Liberal Democrat, Redcar)

So the FCA has no comment on whether limited liability partnerships appear to be going way beyond the original intent, such as on transparency or the fact that there might be low-paid staff in an apparent limited liability partnership just to avoid employment taxes. Is it the case that the FCA has no role on such things, or any comment about them?

Ian Swales (Liberal Democrat, Redcar)

Mr Saldanha, do you have any comments about the wider question of the sheer number and varied nature of limited liability partnerships, which seem to go way beyond the original intent?

Ian Swales (Liberal Democrat, Redcar)

So would you agree that the current limited liability partnership rules allow imaginative avoidance of both tax and national insurance? Would you agree that that is a problem that needs addressing?

Ian Swales (Liberal Democrat, Redcar)

So you do not really have any comment on the effectiveness of the proposed changes because both of you would say that it is not your area of expertise. Am I right?

Ian Swales (Liberal Democrat, Redcar)

What about clause 13, which deals with a wider point about partners abusing the corporate form? Do you not have any comment about the use of this to avoid tax or national insurance? Would you simply recognise deferred payment as an issue?

Ian Swales (Liberal Democrat, Redcar)

Was the FCA one of the organisations consulted prior to the Bill being drafted?

Alan Meale (Labour, Mansfield)

If no more Members wish to raise any questions, may I thank both witnesses on behalf of the Committee?

Alan Meale (Labour, Mansfield)

For the record, Minister, would you and your colleagues introduce yourselves?

Alan Meale (Labour, Mansfield)

We will start the test.

Shabana Mahmood (Labour, Birmingham, Ladywood)

I thank the Minister and his officials for giving evidence to the Committee.

May I start by asking you what criteria you have set for assessing the impact of the employment allowance and, hopefully, its success?

Shabana Mahmood (Labour, Birmingham, Ladywood)

May I press you on that? You say that you will keep the policy “under review”. I know that that is a standard phrase that is often used, but what will that mean in practice inside HMRC? Presumably there will be some criteria against which you will be measuring throughout that constant review.

Shabana Mahmood (Labour, Birmingham, Ladywood)

Have you considered carrying out a formal post-implementation review at a suitable point after the introduction of the employment allowance?

Shabana Mahmood (Labour, Birmingham, Ladywood)

Moving on to exclusions, purely domestic employers are obviously excluded from being able to access the employment allowance, but it would appear that if a person engages a carer, nanny or gardener through that individual’s own personal service company, and the company then pays that individual a wage, the company would be eligible for the employment allowance. Is that correct?

Shabana Mahmood (Labour, Birmingham, Ladywood)

My question was less about the set-up for agencies and more about when an enterprising and highly knowledgeable nanny, or indeed her eventual employer, constructs an arrangement whereby she—or a gardener or a carer—sets up her own personal service company as a way of enabling the allowance to be claimed, rather than being directly employed by the ultimate employer.

Shabana Mahmood (Labour, Birmingham, Ladywood)

Yes, but what about an individual personal service company?

Shabana Mahmood (Labour, Birmingham, Ladywood)

On the connected persons exclusion, could you talk us through what you envisage happening in a situation in which there are joint ventures, mergers or franchises? I am thinking in particular of the McDonald’s example. How will those different franchises or individual franchises be treated under the Bill? Who will ultimately be able to claim the allowance?

Shabana Mahmood (Labour, Birmingham, Ladywood)

Yes. We will take that as a given.

Shabana Mahmood (Labour, Birmingham, Ladywood)

So both will be able to get up to the maximum of £2,000 for the allowance in the tax year in which the merger occurs, but afterwards they have to choose one or the other.

Shabana Mahmood (Labour, Birmingham, Ladywood)

Okay. This question came from the evidence session this morning. It is about the different boundaries between who is and who is not eligible and the different changes that any one company might go through in the course of a tax year. What consideration has HMRC given to how those boundaries will be policed?

David Rutley (Conservative, Macclesfield)

I want to move on to a different aspect of this issue. The annual relief that employers can claim under the employment allowance is capped at £2,000. What were the factors in deciding on that level?

David Rutley (Conservative, Macclesfield)

One of the things that I am very positive about on this is the impact that it might have for first-time employers—the stock of people who are self-employed has been increasing, but nudging them over into becoming first-time employers proved much more difficult across successive Governments. Is there any evidence that you have, or any indications, that this will help with that nudging process to bring more people into that category?

Nicholas Dakin (Labour, Scunthorpe)

I have a couple of questions for the Minister. First, to pick up the issue about excluding publicly funded bodies from having access, which seems perfectly sensible, what about a scenario in which a part of the business is outsourced to a new company—at what point in that process of movement from one to another is the new company eligible to claim the funding?

Nicholas Dakin (Labour, Scunthorpe)

So if it is a company—I do not know enough about G4S or Serco, but a company like that—that only did work that was outsourced from the public sector, it would not be eligible for the allowance.

Nicholas Dakin (Labour, Scunthorpe)

What is the bit?

Nicholas Dakin (Labour, Scunthorpe)

So—

Nicholas Dakin (Labour, Scunthorpe)

So it would need to cross the 50% threshold for them to be eligible for this allowance.

Nicholas Dakin (Labour, Scunthorpe)

Okay. The other thing was that I wanted to go back to the Minister and press him a little further on the criteria for success. Looking back from two years down the line, how will you judge whether this has been successful?

Julian Smith (Conservative, Skipton and Ripon)

Could I ask officials about the uptake of this scheme versus other schemes that have been proposed, and also about the admin burden in HMRC versus other schemes? There have been schemes, for example, that were going to focus on new employees of small businesses. It would be useful for the Committee to understand what the complications and challenges of those sorts of proposals versus this sort of proposal are.

Julian Smith (Conservative, Skipton and Ripon)

This was sort of “back of the net” for simplicity and for maximum chance of take-up in terms of all the various proposals that are being made.

Julian Smith (Conservative, Skipton and Ripon)

Could I also ask, perhaps in my ignorance, how, if I am business with Sage or another package, the process will work? How will I take advantage of this brilliant idea?

Julian Smith (Conservative, Skipton and Ripon)

On communication more generally—this came up this morning—I was hearing from my colleague to my right, my hon. Friend the Member for Macclesfield, about a video that HMRC produced about taking on a new employee. I think it has only had 300 hits in a month. The video is really good. It is really helpful, and I re-emphasise the point that I made this morning: I think HMRC has the keys to the communication gatehouse in terms of companies, and I would urge you to look at that particular example and at other examples. Presumably, with modern communications, if I go to HMRC and say I am employing a new person, there should be some way of telling me, if I have one employee, about all the other Governments policies or opportunities for that sort of situation.

Julian Smith (Conservative, Skipton and Ripon)

There seems to be a reticence from either HMRC or other Departments to cross-sell, to use the commercial jargon.

Julian Smith (Conservative, Skipton and Ripon)

I pay tribute to the Minister, who I understand has listened to many MPs across all parties who have championed the small business and business cause. I think that this, along with the lowering of corporation tax, is one of the biggest fiscal messages we can send to business. The Government have done that.

Chris Evans (Labour, Islwyn)

We all like the idea of tax simplification, but it is interesting to look at the Bill in terms of oil and gas workers. That is a fish that has been slippery for a number of years. The previous Government tried to resolve the issue of multi-layered contracts 10 years ago, which resulted in the wholly unsatisfactory IR35 regulations. Will the Minister talk through the process? I know that this is one stage of three: the certification system is coming in. Knowing how complicated oil and gas employment contracts are—offshore and onshore are all inter-related—how do you think that the Bill can reduce the tax avoidance that is, unfortunately, prevalent in the industry?

Chris Evans (Labour, Islwyn)

I appreciate what you are saying and I appreciate that it is a very complicated issue. However, my concern is whether you think changing the tax regime would have any effect on the competitiveness of British oil and gas companies.

Chris Evans (Labour, Islwyn)

This is probably a question for the Minister. I obviously do not want to pre-empt what the Government are going to do, but I know that this initiative is part of a three-part package. Forgive me if I am out of order for straying from the content of the Bill, Sir Alan, because obviously this issue will have to be dealt with in secondary legislation, but do you think, Minister, that this is an opportunity to reform the IR35 regulations? I know that in the past the Government have said that they have not been minded to abolish them because of the consequences of further tax avoidance, but it seems that every part of industry has major concerns about IR35. In some ways, are we on a direction of travel that would see the end of those regulations?

Chris Evans (Labour, Islwyn)

Perhaps I could explain where that question comes from. I do see some overlap, because oil and gas companies are taking advantage of IR35. That is what I was driving at really; I was not looking for a definite answer.

Chris Evans (Labour, Islwyn)

I was going to say; I can see her writing.

Chris Evans (Labour, Islwyn)

What would happen if a worker set up an offshore company to funnel their wages through? Would they need certification as well?

Chris Evans (Labour, Islwyn)

Thank you.

Ian Swales (Liberal Democrat, Redcar)

Chris Evans has asked a lot of what I was going to ask. Can I add another point about transparency to employees of what is going on? I have many offshore workers in my constituency and I have had constituents coming to see me shocked that they do not have the pension they were expecting because they did not realise they were not properly in the system. In the communication that people receive annually, they hear a lot about tax, but they are not told what their national insurance position is unless they request it. Has HMRC considered giving clarity to people about their national insurance position on a more regular basis?

Ian Swales (Liberal Democrat, Redcar)

It would be a cross-check. People could have missed odd weeks and, as a result of the curious way the system works, lost a whole year of entitlement. Communication is important and it would help to have a supporting mechanism as part of the measures you have been speaking about.

Anne Marie Morris (Conservative, Newton Abbot)

I have three short questions for you, Minister. First, as you know, I am a great supporter of the employment allowance. It is a fantastic initiative and one of the best things the Government have done. However, as you also know I am a great advocate of simplicity. My concern is about the exclusions for those who should not benefit. I am concerned that we are making a rod for our own back. As I understand it, we are trying to make sure that people do not circumvent IR35. Secondly, we are trying to ensure that this does not apply when we are talking about taxpayer-funded businesses. Both of those measures seem to me to make sense.

If, however, we are trying to achieve that by identifying particular sectors—in this case, the domestic sector—it seems to me that we will be opening a Pandora’s box. People will ask, “What is domestic?” All sorts of opportunities will be opened up for unintended tax avoidance. You said earlier that if someone employed a nanny, they would not employ another one. Perhaps what you are really talking about, therefore, is the purpose of the business, but if you are talking about purpose, we will have to go into community interest companies or a whole bundle of different organisations that do or do not make a profit, but are really there for a social purpose and not to make profit. I suspect that that is a box that would be better left unopened. If we could find some wording that simply dealt with the problem of IR35, we might be better off.

In the public sector, avoiding giving out a benefit that is taxpayers’ money is absolutely the right course of action. The challenge is with the many businesses these days that are combined private-public sector bodies—joint ventures. It is not as simple as when a body is 100% funded by the Government or the taxpayer in some way. That is fine; those bodies are in a separate category and the provisions do not apply. But Mr Manclark’s response was, “Well, we think it may be 50%.” I can think of so many ways of getting around that, and I can imagine the Government changing the percentage each year. It seems to me that it would be much simpler to specify public bodies as any body whose primary, principal purpose is to serve the public. It can be a local authority, or a county council—we have to decide whether to include local enterprise partnerships, for example. That would avoid what I can see as a mess going forward. That is my first question.

Anne Marie Morris (Conservative, Newton Abbot)

Thank you. I have two further questions. One relates to how this is to operate in practice. When I asked a question this morning of the FSB they said they would effectively like the £2,000 as soon as possible, and therefore as soon as we get to that trigger point. It may be that the Government are thinking of tranches over a 12-month period. Are you able to explain to us how that might work in practice?

Anne Marie Morris (Conservative, Newton Abbot)

Will the real-time information implementation affect how easy it will be to make this work in practice?

Anne Marie Morris (Conservative, Newton Abbot)

My third and final question. Given that, to some extent, the Bill has been used to tidy up some of the challenges with national insurance, I wonder why we did not look at class 2. I suspect that an awful lot of time at the Treasury is spent on the self-employed who do not realise that they have to pay class 2 and class 4. Class 4, I am sure, is where the biggest tax take is; class 2 just seems to be a strange thing to continue. I am surprised that such a change is not included in this tidying-up Bill.

Richard Fuller (Conservative, Bedford)

The Committee’s brief tells us that national insurance contributions paid to the Exchequer amount to £102 billion, which is slightly below the revenue from income tax at £152 billion, while £101 billion is raised from VAT, so this is a very large tax. I believe from the brief—I am not an expert—that employers pay just under 60% of that amount from NICs. Does that not seem like an awfully heavy tax to levy on employment when we have 2 million people looking for work?

Richard Fuller (Conservative, Bedford)

I agree with you. I was happy to campaign against the jobs tax in 2010, and the employment allowance seems to be an excellent way of reducing the tax. It is so good, in fact, that I can see it winning converts around the table even as you speak, Minister. However, you talked about the fact that we are dealing with a massive overhang of national debt and a crippling deficit, albeit one that has come down over the past couple of years, so difficult choices and trade-offs have to be made when looking at particular tax changes. We are entering a period where lots of politicians will dangle different types of tax changes and try to pressure the Exchequer into saying whether they are good ideas. This idea seems very good for employment and wages, but how would you contrast it with other tax changes that could be made? Is it the best way for us to give some money back to the hard-pressed taxpayer?

Richard Fuller (Conservative, Bedford)

One final question on HMRC. One aspect of this cut is that it is permanent and not a one-off change for one year that might modify behaviour. There have been one-off incentives to change corporations’ behaviour or to encourage them to do something differently. Can HMRC provide any analysis of how effective one-off inducements are compared with a change that is understood to be permanent?

Richard Fuller (Conservative, Bedford)

I do not want to put too much work on you, because you are already hard-pressed. However, you say that you have not done such research, but it would be help the Committee’s deliberations if HMRC could carry out some analysis on the impact of recent one-off or temporary changes compared with that of longer-term changes. We are trying to change behaviour. We have heard from the Federation of Small Businesses that there will be some change, and that is right, because the measure is permanent. We should be able to contrast that with just giving someone a one-year rebate. That might be helpful.

Nick de Bois (Conservative, Enfield North)

Minister, has any assessment been made of how businesses will use this? Did you assess how many will wish to expand employment as a result of it and how many will use it to invest in their businesses in other ways? I know the FSB has done some work, but I wondered whether your Department had.

Nick de Bois (Conservative, Enfield North)

Your memory is clearly on form.

Nick de Bois (Conservative, Enfield North)

It may be that we will rely on evidence from organisations other than the Treasury in future. Just picking up on what my hon. Friend the Member for Bedford said, could I ask you about the sustainability of this? I know you cannot predict what will be in the next Budget but, for example, is introducing this measure the beginning of a sustained long-term attack on the cost of employment? In that sense, is the general intention that it will at least be protected by salary inflation in the future? Is this a sustained attack on a tax that is not very useful, except in terms of the amount of money you see from it, and will you, as a minimum, seek to sustain its value?

Alan Meale (Labour, Mansfield)

Minister, we are rapidly drawing to a conclusion, but we will have one last question in this sitting.

Shabana Mahmood (Labour, Birmingham, Ladywood)

On clause 13, I am trying to understand the impact of the disapplication of section 4(4) of the Limited Liability Partnerships Act 2000. Is the intention basically to ignore the special tax status of LLPs and to consider them as bodies corporate so that their members are treated as office holders of that body corporate and are therefore deemed to be employed earners for tax purposes, or is it to revert to the definitions used in the Social Security Contributions and Benefits Act 1992 for an “employed earner” and a “self-employed earner”?

Alan Meale (Labour, Mansfield)

That brings us to the end of this sitting. Thank you, Minister, and the other witnesses on behalf of the Committee.