Business and the Economy

Damian Hinds Excerpts

Wednesday 21st May 2025 Commons Chamber

[Damian Hinds (East Hampshire) (Con)]

It is a pleasure to join this lively debate. Small businesses are the backbone of the economy in my constituency. In fact, 99.9% of businesses in East Hampshire are small or medium-sized enterprises. We over-index in professional services, retail, information and communications, and, of course, agriculture. [Interruption.] I thought there were few Labour Members present before I stood to speak! The biggest sectors for employment are retail, health and care, and manufacturing. [Interruption.] I am starting to get a complex!

I have heard from all those sectors, which are worried about the prospects for their businesses and the economy under this Government. We must always remember two things about business. First, contrary to what the hon. Member for Loughborough (Dr Sandher) said—he is no longer in his place but I know he will return—only business can create the wealth and jobs, make the livelihoods and generate the tax that, in turn, makes the high-quality and brilliant public services that we all so value and on which we rely.

There is a second thing that we should always remember about business, and I encourage Ministers to remember it. Accountants talk about the entity principle and describe a business as an entity that is separate from the people who run it. That might be true in an accounting sense, but in a broader sense, businesses are people. They are collections of people coming together to achieve something. The joint stock company was created to share risk among different people, and the way that organisations work within companies is a way of increasing efficiency and productivity, compared with everybody doing their own thing as a sole trader. So, because businesses are ultimately people, there is ultimately no such thing as a tax on a business. Taxes can only ever fall on people. A so-called business tax falls on one or more of three groups of people: the business’s customers, the business’s employees or the business’s owners.

[Sarah Dyke]

The hon. Gentleman talks about the impact on people. A small business in Fifehead in my constituency has recently had to reduce its staff by four—small business, real impact. Small businesses create so much for our rural economy. Does he agree that the Government should scrap the national insurance contributions rise and replace the broken business rates with a new, fairer funding system to boost our rural economies and jobs in our rural areas?

[Damian Hinds]

The hon. Lady makes a good point about small businesses, particularly rural small businesses, and I will talk about national insurance contributions and business rates, but let me come back to how taxes on businesses are ultimately taxes on people.

Some Labour Members might say that they do not mind a tax on business owners, because they are the capitalists and they can afford it, but we need to remember that the owners of businesses are a mixture of institutional owners—which, by the way, includes your mum’s pension fund—small business owners, who are quite often sole traders, and family businesses. If the owners are not affected, either the customers or the employees will be affected, and I am afraid the effect of the national insurance contributions rise will ultimately be felt by those two groups of people, and particularly by employees, through a mixture of wage suppression over time and possibly some job losses. The bigger effect will not be about job losses; it will be about jobs that are never created in the first place, particularly among the youngest people and those furthest from the labour market.

[Jerome Mayhew]

My right hon. Friend is making a good point. When the Government brought in the increased national insurance contribution for employers, they used sleight of hand, saying that it was not a tax on working people, but does he agree that the Office for Budget Responsibility’s assessment of the impact concluded that the overwhelming majority of that cost will be borne by the employees and not by this notional employer?

[Damian Hinds]

It will, and I repeat that it can only be one of those three groups. There will be some price increases, and those costs will be felt by customers and consumers, but all the indications are that the big effects will be felt in wage suppression and in employment, which will ultimately mean slower economic growth.

In the same way that taxes on business ultimately land on people, taxes that look like they are on people can sometimes have an effect on business. I want to talk briefly about two examples. The first is the family farm tax. This is clearly a desperately ill-conceived measure, although, to be fair to Labour Ministers, they probably did not realise at the time quite what they were doing. However, their Members of Parliament representing rural seats found out very quickly exactly what they were doing and the effect it would have.

There is an alternative proposal on the table, which we know has been put to the Treasury by representatives of the sector. As this brilliant Treasury Minister the Parliamentary Secretary to the Treasury, the hon. Member for Swansea West (Torsten Bell) will be winding up, I am sure—at least I hope—he will find it possible to share with the House the Treasury’s critique of that alternative proposal, the so-called clawback proposal, which would be much fairer, and tell us why the Government are rejecting it.

There has been quite a lot of debate in the House on the family farm tax, but somewhat less on the business property relief situation, which is not quite as acute in some ways, but there are a number of parallels and similarities. Business property relief was put in place to level the playing field for family-owned businesses and others, so that people could invest in their family-owned businesses, confident that they could pass it on, within the family, without incurring a tax that applies to no other business ownership model.

Typically, these businesses will not have large amounts of net cash or liquid assets that will allow them to settle the tax bill upon the demise of the owner, and there are no listed shares, so there is typically no market for those. There has to be a theoretical valuation, because the shares cannot be valued, and that figure is likely to be considerably higher than the amount that could be realised in the event of a sale. The relief was created specifically to stop family firms having to be broken up; however, the net effect of the changes is that a substantial number of firms in this situation will be bought up, either in whole or in part, by foreign owners or private equity. Is that really what a new Labour Government had in mind?

[Jerome Mayhew]

Labour used to agree with the point that my right hon. Friend makes. Am I right in saying that it was a Labour Government in 1976 that generated the policy of having a relief in the first place?

[Damian Hinds]

Forgive me, but I do not have the history at my fingertips. The relief has been recognised over the years, and has been looked at in the past by Treasury officials. I have been a Treasury Minister, and I know that they get presented with various things that could be done, but generally speaking, when many Ministers before you have found good reasons to keep a measure, it is a good idea to wonder what those reasons might be.

Overall, this Government’s changes to the business taxation regime will affect many sectors, but particularly those that are labour intensive. We can all name hospitality, retail and care as the three really big-volume employers in the country. In my constituency, I would also mention nurseries, pubs and hair and beauty businesses. Of course, there are sector-specific pressures. For nurseries, for example, the issue is whether the unit rate per child per hour is sufficient. Many of my nurseries say that it is simply not sufficient to cover their costs, at a time when entitlement to nursery care is increasing. In the hair sector, there has long been an issue about those who have created a business that has employees, and their ability to compete with others who are below the VAT threshold.

The confluence of four things that the new Government have done is creating a big headache. First of all, the national living wage going up to £12.21 is a good thing in and of itself. We absolutely support a rise in wages for people on lower wages; it is the fact that it is happening at the same time as all the other things that is causing the problem. I will not talk in detail about the national insurance contributions increase, because others have done so, but that will have an effect, particularly on part-time employees, and the Government ought also to acknowledge the gender differential effect of that, which we have heard little about.

Today I have heard two Labour MPs say that business rates have gone down for retail and hospitality businesses. One was the Minister. Try telling that to those businesses—

[Dr Sandher]

rose—

[Damian Hinds]

Perhaps the hon. Gentleman is going to tell me that he has told that to his local retailers and pubs.

[Dr Sandher]

You brought in a temporary reduction of business rates during covid, but as with so much else, you did not fund that beyond those years, so you made a permanent reduction of 40% for the future.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

Order. It is good etiquette to speak through the Chair, and to not use the word “you”; it just dampens the tone of the debate a little bit.

[Damian Hinds]

I shall suitably dampen. At a time when the Government are changing the relief from 75% to 40%, try telling those businesses already facing the national insurance contributions increase and all the other cost increases that their bill is being reduced. Clearly, it is going up.

[Jerome Mayhew]

Will my right hon. Friend give way?

[Damian Hinds]

I am conscious that I have gone on for quite a while, and I want to wind up.

Fourthly, there is the Employment Rights Bill. On the face of it, who would not like something with that name? It sounds like a positive thing, but the point is the effect that it will have, particularly on seasonal businesses, which might otherwise take somebody on at Christmas or in the summer. Hospitality, travel and events businesses rely on doing that. The Bill will affect the national health service, which will have to deal for the first time with some of those considerations. It turns out that the national health service is a considerable user of zero-hour contracts—by the way, not for someone’s first job, but usually for their second—so that staffing can vary according to the demands of a hospital or clinic. The Minister is a labour—and a Labour—economist, so I would be interested to hear his comments on the shift that we are likely to see from permanent to temporary contracts, and the shift that we are already starting to see in companies that are moving from relying on contracted, salaried employees to relying on agency workers.

[Alison Griffiths]

Will my right hon. Friend give way?

[Damian Hinds]

Forgive me; I will not. Finally, there is the effect that the measures will have on the removal of job opportunities for those further from the labour market—perhaps those who have been out of work for a long time; ex-offenders, who it feels like more of a risk for an employer to take on; and, most of all, young people. That is the concern with this package of measures: the effect on unemployment, especially youth unemployment.

Today we heard the Government make the first of what I hope is a series of U-turns over the winter fuel payment. I ask the Government to look at what is happening, and what will happen to our small businesses and the unemployment statistics, and to please think again.