Contribution
My Lords, I apologise; I was not in the country to be present during Second Reading, although I did have the chance to discuss this with the noble Lord, Lord Londesborough, while we were supporting a much smaller economy than our own.
I support all the amendments in this group. I will speak later on the impact on the charities sector, in particular on social care homes, but I will concentrate now on the effect on business, in particular small business.
Small business is, of course, notoriously difficult to determine. There are all sorts of definitions of small business all over the legislation. The definitions that have been proposed are perfectly adequate. Companies House calls businesses small if their revenue is less than £10.2 million and they have fewer than 50 employees, and adds some balance sheet footing restrictions. Micro companies, however, are those that make less than £632,000.
One of the problems with the amendments—that can, as my noble friend Lady Noakes said, be revised—is how the Government will work out which companies are eligible for this reduction. As we know from our work on the Economic Crime and Corporate Transparency Bill, Companies House does not require disclosure of revenue for these small companies, particularly if the balance sheet and employee numbers are lower. The numbers are there in HMRC but, as we have discovered, HMRC will not release them. This could of course be self-selecting.
I have to disagree with the noble Lord, Lord Eatwell— I say this as a qualified tax accountant who is always happy to sharpen his pencil—that there will be any money in this for tax accountants trying to find wiggle room. These proposals are the simplest and most effective way to reduce costs for small companies. The proposal that the noble Lord suggests—I think I quote him—of “subsidies or benefits” is much more complicated and dangerous. I accept that research and development tax credits do a good job, but subsidies and benefits for small companies in place of reducing national insurance would be a far greater administrative burden, in my opinion.
These amendments directly affect small businesses. As we have heard from a number of people, they will suffer because higher employment costs lead to lower hiring capacity and potential job costs. This will lead to lower wages, which will lower morale and lead to higher wages, with pressure on employers. It leads to less investment and growth. The inevitable lower profits, which I think my noble friend Lord Forsyth indicated, means that covenants are at risk, which is a real issue for small businesses because banks are not sympathetic to this issue.
I too declare an interest: like my noble friend Lord Forsyth, I started a business. I had one partner and one assistant, and I too had sleepless nights about how we were going to survive and pay the payroll. We have 220 employees now, but my experience makes me very concerned for the survival of small companies. It has to be said that, although the Government Front Bench in the other place have many skills, abilities and experiences, none of them has started a small business. None of them knows and understands the pressures the small business men and women face. The risk of starting a business means that they have typically put up money secured on their home and left gainful employment so to do.
I urge the Front Bench here to listen to those who have been through that and adopt the sensible suggestion to conduct a proper assessment of the implications of what has been proposed. As my noble friend Lord Forsyth said, there are clearly economic challenges, but there are other ways of sorting them. The best, in my opinion, is to think about the 9 million people who are economically inactive. Steps taken to get the economically inactive into employment will dramatically improve the economy, whereas constantly justifying everything by the infamous £22 billion black hole does not lead to a sensible discussion.
Andy Haldane said that the black hole event was
“unnecessary and probably unhelpful economically”.
The aforementioned OBR has said that
“it was unable to confirm chancellor Rachel Reeves’ claim that she inherited a £22bn ‘black hole’ in the public finances from the previous administration”.
To be fair, the Chancellor’s claim that the Treasury had not been transparent about the pressures on the public finances resonates, but the chair of the OBE himself said that he
“could not endorse the £22bn ‘black hole’ figure specifically”.
Mr Hughes told a press conference a few months after the Budget that it was simply “impossible to say”.
I refer your Lordships to an article in the Financial Times in which Mr Hughes “noted that other measures” the Chancellor
“had included in her estimate of the £22bn ‘black hole’”
included
“her own £9.4bn uplift to public sector pay”
without any productivity gains. The article went on to say that, sadly,
“the Treasury has failed to fully explain how it arrived at the £22bn number”—
I know that explanations have been given, but I do not think that they are satisfactory—
“declining to answer a Financial Times freedom of information request on the subject”.