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National Insurance Contributions Bill

My Lords, it is always a pleasure to speak after the noble Lord, Lord Bilimoria. I have a tendency at times to stray away from the core subject in hand, but that can be judged only in relative terms, so I hope that your Lordships will judge me to be focused. The noble Lord, Lord Newby, correctly said that this is not an excuse for a general discussion about the economy, although I am sure that the House would welcome such an opportunity in due course. My noble friend Lord McKenzie of Luton has expressed the view that the Government’s position on NIC is one that the Labour Party will not oppose in substance although we will challenge it in detail, especially when the Bill is in Committee. The key challenge for the economy is growth and addressing the deficit. There is no doubt that the deficit needs to be addressed but that must be set in context. In 2007-08 the deficit was 2 per cent of GDP; it was only the global banking crisis that forced it up with its impact on tax receipts and increased public expenditure through the fiscal adjustment process. We are clear that the deficit needs to be addressed, and the difference between the Government and the Opposition is a matter of quantum and pace in terms of deficit reduction. The noble Lord, Lord Newby, challenged us to ask what would happen if the deficit had not been addressed, and pointed to the credit rating agencies and their attitude to Japan. I think that those agencies are somewhat in disrepute and I would not be terribly taken by their views. Simply, the deficit was well funded and continues to be well funded. We have a 14-year average debt maturity for gilts and were funding at the time of the general election the lowest long-term rate of interest for more than 40 years. The Minister used to tell the House about how interest rates had come down, which was a sign of the world’s financial markets endorsing the Government’s policies. He has been rather more silent of late as interest rates have gone up. The UK gilt-edge market has been the worst performing major fixed-income market in the world in the past eight months. We do not hear very much from the Minister on that. It is happening because markets are becoming increasingly worried about inflation and the prospect of the economy being pushed back into recession. The noble Lord, Lord Bilimoria, said that the last quarter of 2010 saw negative GDP of 5 per cent. It was not 5 per cent but 0.5 per cent but the fact remains that we were alone among the world’s major economies in experiencing a negative figure. We have to watch how the UK economy develops compared with other economies that seem to be coming out of the global recession. The Government will not be forgiven if their own policies force us back into recession. My questions on the Bill are matters of detail. The holiday refers to an anticipated participation by 400,000 employers defined as being outside the ““excluded regions”” in Clause 4(5) and falling within the definitions in Clauses 5 and 6. Can the Minister be a little more helpful by explaining how the estimate of 400,000 has been arrived at? Can he clarify whether the cost is on the basis that the 800,000 jobs would not have been created at all or are they significantly jobs that would have been created regardless of whether the measure was adopted? My feeling is that the £940 million may be the cost but it is an overestimation of the benefit of the policy that the Government are promoting as a counterbalance against the general impact of employment on the NIC charge. The noble Lord, Lord Bilimoria, is right about it being a tax on jobs, but it is worth keeping in mind that the OBR estimates that the impact on jobs of the VAT increase is three times as great as the estimated impact of the increase in NIC. Although it looks to be specifically related to employment, other taxes have an even more adverse impact on employment activities. Have the figures of £940 million, 400,000 employers and 800,000 employees been audited by the OBR? Can the Minister, either now or in writing after Second Reading, tell us whether there is any evidence that this is already having an impact on employment creation? The Bill is retrospective in its impact back to June 2010, so we should have eight months’ experience already. We should see an increase in employment creation in the non-excluded regions compared with the excluded regions. I would be interested to know whether we are talking about really new jobs being created—as opposed to those which, in the natural cycle of things, would have been created—and whether there is evidence that the policy is having the desired impact. The excluded regions worry me. I am very pleased to see that Cornwall is eligible. Cornwall has very high unemployment and, as your Lordships know, I will always speak up in this House for my home county. However, I find it odd that Torbay and Harrogate should qualify for this aid, but Southampton, Bethnal Green and Corby do not. That is the problem with something as crude as the regional definitions that we employ here. What would the cost have been had the excluded regions not been excluded? If the Government can calculate the figure on a regional basis—I am very sceptical about how much reliance we can place on these data—for job creation in a changing environment for a certain type of employer, a certain size of enterprise, newly created and in certain regions but not all regions of the economy, they should also be able to tell us what the additional cost would have been had the excluded regions also been eligible. Then we could look at the trade-offs. Would it have been justified not to have excluded regions? Would it have been better to have a lower tax advantage or a lower threshold for the number of employees? There are a number of ways in which one could have effectively divided up the benefit proposed under the legislation. My noble friend Lord McKenzie of Luton spoke very insightfully on the issues of regional exemptions. That said, whatever we can do for the regions is valuable, because the abolition of the RDAs is having a tragic impact on the regions. The LEPs are clearly not going to substitute for the RDAs. I welcome that support for regional economic activity. Why are charities not included? There are 5,000 new charities established in this country every year—there may be even more with the big society. I would like the Minister to think carefully about whether newly established charities could also be eligible for the exemption. That would seem entirely consistent with the Government's position on a number of issues and would be most welcomed by those in the charitable sector, who find themselves under huge pressure as a result of changes in other taxation and general cutbacks on public expenditure. Finally, Clause 10 deals with anti-avoidance. I welcome that. There has been much confusion between avoidance and evasion. Dr Cable and Mr Danny Alexander have often talked in terms of them being one and the same. Clearly, they are not. Anti-avoidance regulations are appropriate, and I support the Government’s intention to introduce general anti-avoidance requirements on the part of banks. Setting things in proportion, whatever avoidance might be going on here by someone creating a business in one of the regions employing not more than 10 people, that is hardly undermining the integrity of public finance. Where avoidance is most pronounced, as the Minister will know, is in the financial sector. I ask him to confirm that the Government are as committed to pursuing avoidance strategies on the part of banks and financial institutions as they are on the part of small employers in the regions. Let me put a very specific question to the Minister. In the past, banks and financial institutions have been very creative at avoiding NIC. One of the things they have done is to pay bonuses in gold bullion and other forms. Can the Minister confirm that the Government will be vigilant in ensuring that such strategies are not able to operate in future and that no business of which he has ever been part, employed by or worked for has ever involved itself in paying bonuses in gold bullion or non-transferable instruments?