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National Insurance Contributions Bill

My Lord, those two interventions go to the heart of why it is necessary to strike a difficult balance—this is where judgments have to be made—between, on the one hand, providing some tight and suitable anti-avoidance provisions and, on the other, ensuring that we do not make it excessively difficult for people to take up the holiday in the Bill. Of course we need to ensure that the scheme is affordable. That is why it has been targeted at new businesses, with a cap on the number of employees. Yes, we want to stimulate and encourage employment right across the areas of economic activity, but to do so through an across-the-board national insurance holiday would be extraordinarily costly. That is why we have come up with a scheme that is targeted in this way. On the other hand, as has been pointed out, we need to have appropriate anti-avoidance provisions. When I first saw the amendments in this group, I had considerable sympathy with Amendment 3, which seems to be aimed at ensuring that new businesses that benefit from the holiday must not only have their principal place of business in an area that is not excluded but remain outside the excluded areas for the entire period during which holiday deductions or refunds are claimed. The amendment seeks to prevent a new business that relocates to an excluded area from enjoying any further holiday. The Government certainly agree with that objective. In fact, the Bill already provides that if the new business, having made a successful application for a holiday, relocates to an address within an excluded area the holiday will cease automatically. The necessary provisions are found in Clause 7, which provides for the appropriate amount of secondary class 1 contributions that a new business can deduct or request to be refunded under the holiday. The appropriate amount is calculated by reference to a qualifying employee’s relevant earnings. Clause 7(3) provides that: "““‘Relevant earnings’ are earnings paid to””," an employee who is employed, "““for the purposes of the new business, at any time during the holiday period when the principal place at which the business is carried on is not in any of the excluded””," areas. Therefore, if a new business were to move to an excluded region, any earnings paid to a qualifying employee would cease to be relevant earnings and there would be no appropriate amount to be deducted or refunded, so the protection sought by the amendment has already been provided within the Bill. However, it might be worth noting that the amendment would go further than the current protection. If accepted, it would mean that a new business that decides not to operate the holiday in real time, but instead to claim a refund later, would not be entitled to that refund if it relocates its principal place of business to an excluded area at any time before the refund claim period expires. Clause 8(5) provides that an application for a refund can be made up to four years after, "““the day on which the last deduction could be made in respect of the qualifying employee””." At the risk of going into excessive detail, the main intention of Amendment 3 is covered, and, as I say, it might inadvertently go further than its strict intended purpose. Amendment 8, if accepted, would amend Clause 5 so that the period for which an individual must have ceased carrying out a similar previous business would increase from six to 12 months. The Government believe that that would present an unnecessary restriction on individuals who set up new businesses. I return to my noble friend’s point: we are trying to encourage people to set up businesses. This is clearly a matter of judgment, but we concluded that six months would be an appropriate gap to defer any mischief by individuals who may try to game the system by closing an existing business and starting another. Our view is that extending the gap to 12 months would deter genuine businesses from being started. For example, someone who used to own a hotel but bought a restaurant instead might be prevented going back into the hotel business if the restaurant business did not succeed. We would not want to deter such perfectly genuine attempts at starting businesses in succession by having too long a period. I have gone on for some time on these amendments. The noble Lord, Lord McKenzie, was kind enough to say that he did not expect me to answer all his points in forensic detail. I was interested in his analysis of Amendment 9, on situations where he thought that there were still loopholes. I will ask officials to look at whether that is so, but I do not believe that it is. Amendment 9 would amend the definition of a ““new”” business in Clause 5 so that anyone with an existing business would not be able to benefit from the holiday where they also set up a new, unrelated business. The Government believe that that would be an overly restrictive measure. While I am assured that the anti-avoidance provisions are sufficient, the noble Lord makes one or two specific points, which I will ensure are checked out. In conclusion, we have made sure that the holiday has been carefully targeted. Yes, as is recognised, there need to be anti-avoidance provisions and although it is helpful to be reminded of some of the key ones I believe, having looked at the amendments, that they go beyond what is necessary to achieve the purposes which I think we broadly share.