National Insurance Contributions Bill
Monday 14th June 2021
(3 years, 5 months ago)
Commons ChamberRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Jesse Norman)
I beg to move, That the Bill be now read a Second time.
The Bill before the House today is a short one, with just four measures: an employer’s national insurance contributions relief for employees in freeports; an employer’s NICs relief for employers of veterans; an exemption for Test and Trace support payments from self-employed NICs; and changes to the disclosure of tax avoidance schemes legislation with regard to national insurance contributions. The measures are all important, and I shall explain each of them in more detail.
I shall start with the employer’s NICs relief for employees in freeports. At the Budget, the Chancellor announced the locations of the first eight freeports. These sites, which range from Teesside to Tilbury, will become hubs for trade, innovation and commerce. They will attract new businesses and they will regenerate communities by creating jobs, boosting investment and spreading prosperity. Overall, freeports present an extraordinary opportunity to drive regional economic growth, and the Government want as many areas as possible to benefit.
An important part of the appeal of freeports for employers is undoubtedly the wide range and variety of tax reliefs that they provide. These include an enhanced 10% rate of structures and buildings allowance, an increased 100% capital allowance for companies investing in plant and machinery, and full relief from stamp duty on land or property purchases.
The employer’s NICs relief for workers in freeports contained in the Bill encourages employment while supporting regional growth. Under this measure, employers with premises in a freeport in Great Britain will be exempt from employer’s NICs on up to £25,000 of a new worker’s wages. This legislation applies to all new workers who spend 60% of their working time at a freeport tax site in the first three years of employment.
The relief will be available from April next year until at least April 2026. At that point, a sunset clause will require the Government to lay secondary legislation to extend the relief, if they wish, for up to a further five years to April 2031. Any decision to extend will only be taken upon review of the relief’s impact. However, even if the Government decided not to extend the relief, employers will be able to claim it for the full three years on new hires taken on before April 2026. While these measures relate to Great Britain, let me assure the House that it is the Government’s intention to legislate for this relief in Northern Ireland as soon as is practicable. Indeed, the Bill provides the Government with the power to set out the detail of employer NICs relief in Northern Ireland in secondary legislation once engagement with the Northern Ireland Executive is complete.
The second of our measures concerns NICs relief for employers of veterans. As colleagues will recall, this policy was announced at spring Budget 2020. It also fulfils a manifesto commitment to reduce employer NICs for a full year for every new employee who has left the armed forces. The House will know well that I am very closely connected to the astonishing work of special forces in Hereford, but the veterans of our armed forces across the United Kingdom give extraordinary service to this nation. We know that some face great challenges in obtaining secure and fulfilling employment, so it is only right that we should do all we can to change this situation. Under the Bill, employers will not pay employer NICs on earnings worth up to £50,270 in a veteran’s first full year of civilian employment. This amounts to a saving of up to £5,500 per hired veteran. I am sure that colleagues across the House will agree that this measure should give a real boost to veterans’ employment prospects, and should mean that many more businesses benefit from their often extraordinary skills and personal experience.
I now turn to the exemption of Test and Trace support payments from self-employed NICs. Last September, the Government announced the launch of a £500 support payment in England for low-income individuals who had been told to self-isolate but who could not work from home and would lose income as a result. Shortly afterwards, the Scottish and Welsh Governments announced similar schemes. These payments, which were provided by local authorities, would be subject to employee and employer class 1 and 1A and self-employed class 2 and class 4 NICs under long-standing legislation. Last year, however, the Government introduced secondary legislation to exempt payments under the support schemes from employee and employer class 1 and 1A NICs. The measure contained in the Bill will extend this exemption to the self-employed. It will ensure that these workers are treated consistently with their employed counterparts and do not have to pay NICs on support payments. The legislation will therefore retrospectively exempt Test and Trace support payments from class 2 and class 4 NICs for the 2020-21 tax year. It will also ensure that in future Test and Trace support payments will not be included in profit liable to class 2 and class 4 NICs.
The final measure in the Bill relates to changes in the disclosure of tax avoidance schemes—DOTAS—regime in relation to NICs. As colleagues will recall, the DOTAS legislation was introduced in 2004. It seeks to provide Her Majesty’s Revenue and Customs with early information about new tax avoidance schemes—information on how they work and about those who use them. The provisions in the Finance Act 2021 enhanced the operation of the DOTAS regime, and the Bill includes changes to an existing regulation-making power in the Social Security Administration Act 1992. This will ensure that HMRC can act decisively over a wider range of promoters and their supply chains if they fail to provide information on suspected avoidance schemes. It will also ensure that HMRC can warn taxpayers about suspected avoidance schemes at an earlier stage than at present. In addition, the Bill places responsibility for the obligations within DOTAS and for any failure to comply with them both on promoters of these schemes and their suppliers. I am sure all colleagues across the House will welcome these measures.
The Bill supports regional growth and, with it, the Government’s levelling-up agenda; boosts employment while helping to protect those on low incomes from the financial impacts of covid-19; and strengthens the Government’s powers to tackle promoters of avoidance schemes. For all those reasons, I commend it to the House.
James Murray (Ealing North) (Lab/Co-op)
Thank you, Madam Deputy Speaker, for the opportunity to speak about this Bill on behalf of the Opposition. We will not oppose the Bill on Second Reading. Indeed, we support the intention behind many of its measures. However, I would like to take this opportunity to raise important questions with Ministers about some of the approaches they have decided to take.
As we know, clauses 1 to 5 would introduce a new zero rate of secondary class 1 national insurance contributions for employers taking on employees in a freeport. The zero rate would apply from April 2022, and it would allow employers to claim relief on the earnings of eligible employees up to £25,000 per year for three years. As the House will recall from the Report stage of the recent Finance Bill, my hon. Friend the Member for Erith and Thamesmead (Abena Oppong-Asare) made it clear that we want every region and nation of the UK to succeed whether or not it has a freeport. We want secure new jobs with better pay to be created right across the country, and we want to support and protect British businesses and industries. Freeports may be part of the solution to increasing trade and investment across the UK, but we note that the International Trade Committee concluded in its recent report on UK freeports, published on 20 April, that
“it remains to be seen how successful freeports will be at achieving this objective.”
Kevin Hollinrake (Thirsk and Malton) (Con)
Just to clarify, the hon. Member says that freeports might be part of the solution—to levelling up, I guess—but does he therefore support freeports or does he agree with his colleague in the shadow Treasury team, the shadow Chief Secretary to the Treasury, the hon. Member for Houghton and Sunderland South (Bridget Phillipson), who has said that they are “economically illiterate”?
James Murray
I was awaiting the hon. Gentleman’s intervention—I was definitely expecting it given the recent debates we have had in this place—and if he will wait just one moment, I will get on to setting out our position on freeports in more detail.
We were concerned at the recent Report stage of the Finance Bill that the Government themselves seemed to show a lack of certainty by voting against our simple amendment to the Finance Bill that would have seen the success of each individual freeport transparently evaluated. As I am sure the hon. Gentleman will remember, we wanted each freeport to be judged against the key tests of whether, across the country, they lead to any net increase in jobs, deliver improvements in training and skills for local residents, produce tangible transport and infrastructure improvements beyond the port itself and will be adequately protected against the risks of tax evasion, smuggling and criminal activity. It is disappointing that the Government voted against the transparent evaluation of their proposed freeports. Not only would this have enabled us to judge their success, but some of the factors we highlighted in our tests would in fact make investment in freeports more attractive to businesses.
Indeed, in response to the Government’s own consultation on freeports last year, many respondents argued that
“although tax incentives can be a significant driver behind businesses investing within an area, they were not usually the sole determinant.”
The Government’s summary of responses went on to explain:
“Some respondents also indicated the success of tax incentives was partially dependent on local factors, especially the quality of transport infrastructure and the skills and availability of local labour.”
As we consider the tax relief before us today, it is therefore important to remind the Government not to ignore the other aspects of the operation of freeports that may be key to their success.
On this tax relief, I would like to ask Ministers to address three specific points that arise from the Bill. First, while relief to employer’s national insurance contributions may be a reasonable part of a tax incentive package along with other tax incentive measures, it is hard to understand why this relief is conditional on employment not commencing until 6 April 2022. As the Chartered Institute of Taxation has pointed out, with freeports expected to start operating in 2021, that would surely hamper freeport employers this year and perhaps create perverse incentives about delaying the start of an employee’s work. I would be grateful if the Exchequer Secretary set out in her response the Government’s reasoning behind this condition on accessing the relief.
Secondly, clause 8 of the Bill enables the Government to set an upper secondary threshold for employer class 1 national insurance contributions specifically in relation to freeport employees—and, indeed, for armed forces veterans, which I will turn to shortly. In practice, this means that employers do not need to pay NICs until an employee’s earnings pass that threshold. We note that the upper secondary threshold for freeport employees will, according to a policy paper published by the Government on 12 May, be set at £25,000 for 2022-23. That is substantially less than the equivalent thresholds for employers’ relief for under-21s and apprentices, which is £50,270 in 2021-22. Just to be clear, this means that employers do not need to pay any NICs for under-21s and apprentices earning up to just over £50,000 a year, but they will have to pay contributions for freeport employees next year if they earn more than £25,000. It would be helpful to understand the Government’s rationale for picking this figure. According to the Office for National Statistics, the median income in all those local authority areas where the eight freeport sites are located is greater than £25,000, with the figures ranging from £25,200 in Kingston upon Hull, within the Humber freeport, to £33,200 in Thurrock, within the Thames freeport. I therefore ask the Exchequer Secretary to explain why the relief for freeport employers is set below median pay in all freeport areas and why this rate is half of that for those employing under-21s and apprentices.
Thirdly, as the plans for freeports stand, businesses taking advantage of their tax incentives will still pay corporation tax. British businesses that pay their fair share of tax will find it very hard to understand why the Chancellor has been for so long so lukewarm about a new, global minimum corporate tax rate to stop large multinationals undercutting them by exploiting tax havens around the world. The Chancellor welcomed the rate being cut from the original 21% proposed by President Biden down to 15%, even though that would cost Britain £131 million a week and leave British businesses being undercut. When I have asked the Financial Secretary before about the Government’s position, he said he did not think
“it is appropriate for Ministers to comment on tax policy in flight”.—[Official Report, 28 April 2021; Vol. 693, c. 418.]
Now, however, the outcomes of the G7 Finance Ministers’ meeting and the Carbis Bay summit are public, so perhaps his colleague, the Exchequer Secretary, could explain why the UK Government’s position has been to back a rate of 15%.
Let me move on to other measures in the Bill. As we have heard, an important relief, covered by clauses 6 and 7—
Jesse Norman
I am happy to give the hon. Gentleman some satisfaction on that question. What is extraordinary is how the Labour party has continuously sought to pretend that things are other than they actually are in relation to this deal. Let us just talk about that for a second. In the first case, the G7 is a package—it is a process. Were we, as Labour would have had us do, to ignore the pillar 1 aspects, there would then have been no argument, no debate and no proper taxation of platforms in the areas where the new taxing rights will reside. That would have been a serious, serious deficit. The whole point of the package is to see it as a package, and it predated the Biden Administration. We have greatly benefited as a world from their additional support, but it is by no means up to them; it is an OECD process, of which they have been an important recent supporter.
James Murray
I thank the Minister for engaging on what has happened in the negotiations about the new global deal, but I notice that he did not address the issue about the headline rate. I have asked him on several occasions, perhaps three or four times in recent months in this place, to explain why the Government have been so lukewarm about an ambitious rate of 21%, as proposed by President Biden, and instead favoured its being cut to 15%, which is indeed what has happened. I note that when the right hon. Gentleman got to his feet a few moments ago, he did not address the headline rate. Labour Members continue to worry that we are missing out on a once-in-a-generation opportunity to strike a truly ambitious global deal to stop a few large multinationals avoiding paying their fair share of tax.
James Murray
I tell you what, Madam Deputy Speaker, I will give way if the right hon. Gentleman addresses the specific point about 15% and 21%.
Jesse Norman
As the hon. Gentleman knows, it is completely inappropriate for a Minister to comment on confidential negotiations with allies and other nations around the world. He is ignoring that this is a package and the package involves two pillars, the second of which is a 15% rate, globally agreed, one that reconciles and acknowledges different countries around the world which have different tax regimes and different supports. The Government have been in no way lukewarm on pillar 2. What the Government have insisted on, in contradiction to the Labour party and against the ill-fated and ill-advised suggestions that it has made, is pillar 1, which is the crucial component of this that allows us to tax platforms. It is extraordinary that the hon. Gentleman refuses to acknowledge that under a Labour party Administration, there would have been no taxation of these platforms. What on earth does he say to that?
James Murray
As the right hon. Gentleman well knows, I have set out many times that we believe that there should be a deal on both pillar 1 and pillar 2. However, pillar 2 stands to generate a huge amount of revenue for British public services and to stop a few large multinationals avoiding paying their fair share of tax and thereby undercutting British businesses that are paying their fair share of tax.
The Minister keeps referring to the idea that it is inappropriate for him to comment on the British Government’s position. The position is there in public, following the G7 Finance Ministers’ meeting and the G7 summit over the weekend. People have a right to know what our Government were arguing for and we can arrive at no conclusion other than that the British Government were at least lukewarm and perhaps even against the tax rate being set at 21% because it has fallen to 15%, thereby losing out on £131 million a week, meaning that we are potentially missing a once-in-a-generation opportunity for a truly ambitious global tax deal.
James Murray
Certainly. I am conscious, Madam Deputy Speaker, that this is not all entirely within the frame of the Bill, but I give way to the hon. Gentleman.
Kevin Hollinrake
The hon. Gentleman does keep mentioning it. Just on the point about corporation tax, he seems to imply that somehow we are in favour of lower corporation tax, but he is aware that the Government are increasing corporation tax from 19% to 25%. On pillar 2 and pillar 1, I have heard him at the Dispatch Box on numerous occasions urging the Government to sign up to a deal that was only on pillar 2. It did not involve pillar 1, so how can he say now that he was in favour of a wider negotiated agreement? That is not what he was saying at all.
James Murray
I am surprised—because the hon. Gentleman always seems to be here when I am speaking at the Dispatch Box—that he does not seem to remember me advocating for a deal on pillar 1 and pillar 2. I will happily send him the reference in Hansard after this meeting so he can refresh his memory. The point here is that we have President Biden suggesting 21% in pillar 2 as an ambitious global deal. We had the British Government being at least lukewarm and potentially anti the proposal of 21%. We have now settled on a position where it has dropped to 15%, and we will not cease pushing the Government to be more ambitious in what they seek to achieve, because this will mean that Britain will lose out on £131 million a week that could be invested in our public services and British businesses will continue to be undercut by a few large multinationals that do not pay their fair share of tax.
I will move on to other measures in the Bill. As I was saying, there is an important relief, covered by clauses 6 and 7, that sets out to help service personnel leaving the armed forces back into work. This is a vital issue. Veterans deserve the full support of the Government as they seek civilian employment after their service to our country. It is crucial to make sure that all veterans get the support they need. I noted that the Government’s consultation document for this measure refers to an existing career transition package to service personnel leaving the armed forces and explains how 6% of veterans accessing the service remain unemployed for up to a year after leaving the armed forces. We believe that this relief on employers’ national insurance contributions is a positive step, and we hope it will particularly help the 6% of veterans who the Government acknowledge are not benefiting from the current service on offer.
We recognise that this measure may not, on its own, be enough to get everyone into work, so I would like to ask the Exchequer Secretary to set out what further help the Government are offering the 6% of veterans, in particular, who need greater support. We also want to make sure that the employers’ relief is as effective as possible, so I ask why the employers’ relief for veterans is 12 months, which is much less than the relief for employers in freeports, which is 36 months. Perhaps the Exchequer Secretary could explain the Government’s thinking in setting the relief for just one year rather than three years, in line with the approach taken for employers in freeports.
Moving on to further measures in the Bill, clause 10 provides a national insurance contributions exemption for payments made under a self-isolation support scheme. Ministers will know that we in the Opposition have been calling on the Government to expand eligibility for this scheme for some time. It is crucial that people who need support to self-isolate receive it, so we welcome any steps that make the system of self-isolation payments more effective and subject to less administrative burden.
We note that the Government introduced secondary legislation to exempt self-isolation support scheme payments from class 1 and 1A national insurance contributions in October 2020 for England and January 2021 for Scotland and Wales. We recognise that the measure in front of us, which exempts self-isolation support scheme payments from class 2 and class 4 national insurance contributions, will bring the treatment of the self-employed in line with the employed. We also recognise that it will be retrospective for the year 2020-21, and so can be reflected in the relevant tax returns.
Can the Minister explain, however, why the exemption for class 2 and class 4 contributions was not implemented earlier, in line with the exemption for class 1 contributions? If the class 2 and class 4 exemptions had been announced earlier, that could have given much-needed certainty to self-employed people at an earlier point in the outbreak. I would be grateful if the Exchequer Secretary explained why that did not happen.
Finally, clause 11 widens existing regulation-making powers so that regulations can be made for national insurance to mirror the amendments to the disclosure of tax avoidance schemes procedures in the Finance Act 2021. Under DOTAS, introduced by the Government in 2004, promoters of tax avoidance schemes are required to notify the tax authorities of any new scheme they are planning to offer taxpayers. The measure in clause 11 and its counterpart in the recent Finance Act aim to help HMRC obtain details earlier than it can now where promoters fail to provide information about their avoidance under DOTAS.
We welcome any measures that help HMRC track tax avoidance schemes, and we believe it is crucial that it targets the promoters of such schemes. I therefore want to use this opportunity to ask Ministers how effective they think the measures that flow from clause 11 will be. As they may know, the Chartered Institute of Taxation believes that there is a hard core of between 20 and 30 promoters, identified by HMRC, who clearly do not play by the rules. Do Ministers recognise that number? If so, I would be grateful if the Exchequer Secretary set out what goals HMRC has to clamp down on those 20 to 30 hard-core promoters. Are there any targets, and are there dates by which Ministers expect the number of hard-core promoters at large to fall substantially?
As I set out at the beginning of my remarks, we will not oppose this Bill today. Indeed, we support the intention behind many of its measures. As I have explained, however, we have a number of questions about the design of the measures in it, and I look forward to the Exchequer Secretary addressing them directly in her reply. We want to see effective measures in place to support British businesses, jobs in every part of this country and veterans seeking work. On this Second Reading and in later stages of the Bill, we will be pushing the Government to make sure that is the case.
Fay Jones (Brecon and Radnorshire) (Con)
I am not used to being called so early in the batting order, Madam Deputy Speaker. I am very grateful.
I made my maiden speech on a small but mighty Bill, and this is another. I very much welcome the contents of the Bill. These small but meaningful changes will make a real difference to many of my constituents.
There are two elements of the Bill on which I would like to focus. The first is what it would do for freeports. I was elected in 2019 on a manifesto that promised to create up to 10 freeports around the UK. They are a cornerstone of the Government’s levelling-up agenda, which recognises that talent is spread evenly across the country but opportunity is not. As someone who represents an often-forgotten part of the world, I am determined to see that agenda through.
We know that a freeport is an area within a country’s geographic border but outside its customs area, but there is no one model for freeports. That is their strength: they can be implemented in a number of ways.
Jim Shannon (Strangford) (DUP)
Does the hon. Lady share my interest in and my demand for having a freeport in Northern Ireland too? I understand that this legislation does not necessarily help that happen, but does she support us in our calls to have a freeport in Northern Ireland?
Fay Jones
As a Member of the Northern Ireland Affairs Committee, I certainly welcome that suggestion. I was greatly reassured by the Minister’s reference to that in his opening speech, and I hope that further details will come forward as soon as possible.
Freeports can be implemented in a number of ways. For example, manufacturing businesses operating in a freeport can benefit from tariff inversion, whereby tariffs from a finished products are lower than those on its component parts. Further tax and non-tax incentives, such as lower rates for corporation or even employment tax, which we are discussing this afternoon, as well as simplified customs processes can also be offered.
Although a freeport is a fairly new buzzword in our political discourse, it is important to remember that this is not a new idea. The UK used to operate a number of freeports. In fact, prior to the creation of the Welsh Assembly, now the Senedd, a freeport even operated in Cardiff.
Back in 2016, the then up-and-coming Member for Richmond (Yorks) (Rishi Sunak), now my right hon. Friend the Chancellor of the Exchequer, argued that freeports could turbocharge the UK’s post-Brexit economy. Free of the customs union and state aid rules, he argued that tens of thousands of jobs could be created with a successful freeports programme. He was right then, and he is right now.
In 2018, my hon. Friend the Member for Middlesbrough South and East Cleveland (Mr Clarke) highlighted in a Westminster Hall debate just how positive a freeport in the UK could be. He cited the example of the Jebel Ali Free Zone in the United Arab Emirates and explained how it has transformed Dubai. It now hosts 7,000 global companies, employs 145,000 people and accounts for around 40% of the UAE’s total direct foreign investment. That is a dramatic example, but there is no reason to believe that freeports in the UK cannot be just as successful as those around the world, perhaps even more so given our strong links with the United States, Europe and the Commonwealth.
I warmly welcome clause 1 of the Bill, which introduces a new zero-rate national insurance contribution for employers taking on employees in a freeport. The Government have already outlined the 10 areas of the UK where freeports will be created. Eight sites in England have been successful, and the Government have committed to creating one in Wales. I understand that the First Minister of Wales has expressed reservations and an unwillingness to work with the UK Government on a Welsh freeport, so may I urge the Minister, my close neighbour and friend across the border, who knows Wales extremely well, to press full steam ahead and work with his colleague the Secretary of State for Wales in setting up a Welsh freeport.
A rising tide lifts all boats—to continue with the maritime theme—and a freeport in Wales will create jobs and growth in all parts of Wales. That is especially important for me in mid-Wales, because, throughout the recent Senedd election, constituents told me that all they want is for their kids to have a future in Brecon and Radnorshire. They want them not to leave at 18 to go to university, only to come back 30 years later when they can afford to buy a home. They want them to have good jobs when they leave education. This is not part of the Welsh Government’s current plan for Mid Wales. We are forgotten about, but I am determined that that will not be the case. My constituents are determined that we will not be ignored and will not stand still.
The other clause that I want to focus on is clause 6, which makes a small but important change for our military community—employers who hire an armed forces veteran immediately after they leave the forces will be able to claim a new zero-rate national insurance contribution. Employers will be able to claim the relief from April ‘22, and transitional arrangements will allow a retrospective claim for the 2021-22 tax year. This is extremely close to my heart, and I declare an interest in that my partner is a serving member of the armed forces.
Brecon is a proud garrison town and, like the Minister, we have a number of military sites and personnel of whom we are very proud. The barracks and the infantry battle school, Sennybridge training area, are important military assets and I am fiercely proud of them. Although my campaign to save Brecon barracks from closure is a persistent thorn in the side of the Ministry of Defence, our support for veterans must go beyond maintaining high-quality sites and shiny silverware in the mess. We must look at a suite of policy instruments and make swift but sweeping changes to improve things for veterans once they leave active service.
The changes outlined in the Bill could save an employer, who employs a veteran, up to £5,500. This makes a veteran even more attractive to an employer, and the Minister should be commended for pursuing this, especially as we remember that our veterans are getting younger. The House of Commons Library estimates that the percentage of veterans of working age is projected to increase from 37% at the moment to 44% in 2028.
I am particularly pleased that the Bill covers veterans right across the United Kingdom equally. All four nations need to be comprehensive in the way that we look after our veterans. Wales is currently the only part of the United Kingdom not to have a dedicated veterans commissioner—someone on the side of veterans who can challenge local authorities and health boards to ensure that veterans can access the services that they need. Earlier this year, I called on the UK Government to address this imbalance and create a veterans commissioner for Wales, and I am extremely grateful to both the Secretary of State for Wales and the former Minister for veterans’ affairs, my hon. Friend the Member for Plymouth, Moor View (Johnny Mercer), for the work that led to the announcement on St David’s Day that they were actively considering creating such a post, but this needs to be done in co-operation with the Welsh Government, so that the postholder has oversight to challenge Welsh health and education services. May I take this opportunity to urge both sides to come together and create this role so that Welsh veterans can benefit from the protection that their colleagues have in England?
I am grateful for the opportunity to speak on this small, but important Bill and wish it swift passage through the House.
Richard Thomson (Gordon) (SNP) [V]
The Bill makes provision for NI exemptions in what we believe are a number of important and necessary areas. We are generally supportive on such matters, but there are issues in each area—both within and outwith the scope of the Bill—that require some attention and that we will likely seek to address or draw attention to as the Bill proceeds. For the moment, however, I shall confine my remarks to the general principles and the remedies offered in the Bill.
First, I made clear the SNP’s support for freeports during the debates on the Finance Bill. We feel strongly that, given the scale of financial support on offer in the Bill, in terms of the customs exemptions and NICs, it is important to make sure that other wider policy objectives —such as environmental obligations, the commitment to net zero and fair pay for those employed in freeports—are met. That is what the Scottish Government’s greenports aim to do, by marrying up all the incentives of a freeport with wider obligations to ensure the payment of the real living wage, the implementation of the Scottish business pledge and the making of contributions towards net zero emissions. All those objectives must be met before companies are able to benefit from the substantial tax status benefits that freeports offer. The fair and sustainable greenport model can be an exemplar of those values while adding value to goods, services and the country’s brand.
If the UK Government wish to take a more laissez-faire approach to the securing of such outcomes, that is a matter of choice as much as it is a matter of regret. However, it should not be allowed to become a matter that contributes to any further delay in allowing the Scottish Government to take their approach or in allowing those who wish to invest in Scotland under the conditions I have set out to do so. I urge the Minister to ensure that the UK Government move quickly to allow the model to proceed so that the bidding process can begin.
Let me turn to veterans. Those with experience of serving in our armed forces bring valuable life skills and experience to the workplace. The NICs exemptions are therefore a positive step, making it even more attractive to employers to hire ex-service personnel and bring their skills and experience into the workforce. We very much welcome that step on its own terms. It is important to provide every support possible to former service personnel as they transition to civilian life.
Anyone who is in contact with the veterans community will be all too aware of the gaps in the support available. The Scottish Government have sought to fill those gaps by funding the translation of military qualifications so that they can be fully recognised by civilian employers—another key step that can help to incentivise the employment of ex-service personnel; setting up the national veterans care network to ensure parity of access to specialist services; actively supporting attempts to improve access to employment for the spouses and partners of those serving in the military, through Can Do hubs and the Forces Families Jobs website; and setting up, in conjunction with the Welsh Government, the Capitalising on Military Family Talent initiative. All those things are key elements in making sure that we deliver the best for our service personnel, and they sit well beside the NICs exemptions.
However important the NICs step will be, it cannot and must not be seen as any kind of substitute or sticking plaster for what we believe is a planned 40% reduction in the budget of the Office for Veterans’ Affairs. That cut stands in stark contrast to the support that we should be offering and my party will continue to oppose it.
Let me turn to the treatment of self-isolation payments—another measure that we are happy to support fully. The purpose of the payments was clearly to incentivise people on low incomes who needed to self-isolate to do so, to help to prevent the spread of the virus without their having to suffer any adverse financial consequences. The intention was only ever to help people to make the right choices for the benefit of themselves and others, with the NICs consequences quite understandably something of an afterthought. The move to exempt the payments from NICs, thereby removing the administrative and cost burdens on local authorities and employers, is therefore a positive step. If the payments can be made exempt from NICs, it makes it harder to justify the continuation—apparently at UK ministerial insistence—of the situation whereby any past or future thank you payments made to NHS and care workers in Scotland remain liable to income tax.
Finally, we welcome the move to allow changes to the disclosure of tax avoidance schemes regime as it applies to NICs avoidance schemes. That may be a small step towards closing another area of potential abuse in the tax code, but it is necessary. However, what is really needed is a workable set of general anti-avoidance rules that tackle tax avoidance in all its forms; do not exempt existing and established abuse from action; include in their scope international tax abuse; give a tax authority the right to take action against tax avoidance, which it defines, in an objective fashion capable of being numerically assessed, without the consent of any unelected authority; and place the burden of proof on this issue on the taxpayer.
We are happy to see the Bill progress, and to address it in greater detail and attempt to improve it as it continues its passage through the House.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to speak in this debate. When we talk about levelling up, we tend to think about things such as new railways or roads, or the dualling of carriageways such as the A64 in my constituency, which is long overdue, of course. It is absolutely right that we should think about those things—they are important—but they are just part of the picture.
Really, levelling up is about one very important thing: prosperity. We cannot achieve prosperity in some of the places that fall well behind the average income in this country without a combination of private sector and public sector investment. That is what the Bill is about—incentives for the private sector to invest.
Those are much needed, particularly in areas such as the north-east, which borders my constituency. In relative terms, the gap in productivity and economic output per person between London and the south-east, and the north-east, is as large as the gap between East Germany and West Germany prior to reunification. It took three decades and $2 trillion to narrow that gap, and it is still not fully narrowed, so this is a huge undertaking. To achieve what it has achieved so far, Germany required not just public sector investment—the roads and railways—but incentives for businesses to start up and scale up in East Germany.
Mark Littlewood, chief executive of the Institute of Economic Affairs, pointed that out in an interesting article in The Times a few months ago. He asked why, if prosperity is all about connectivity—roads and railways—Doncaster is not more prosperous. Doncaster, which you are obviously well aware of, Madam Deputy Speaker, is very well connected in terms of transport links, but in terms of prosperity it leaves much to be desired. That is what this is all about: freeports will create incentives for businesses, small and large, to relocate to those areas, or to start in those areas and grow.
That is why I am a little confused by some aspects of the Opposition’s approach. One of their shadow Treasury Ministers said that freeports are “economically illiterate”. Tell that to Teesside, which expects to create 18,000 jobs due to its freeport status. That is far from illiterate. The incentives are not just the waiving of national insurance contributions for employers, but things such as buildings allowances, capital allowances and stamp duty exemptions.
Of course, it required our leaving the EU to bring about this legislation, because the freeports that we are contemplating are far more comprehensive than the ones that could be delivered in the EU, particularly, as my hon. Friend the Member for Brecon and Radnorshire (Fay Jones) said, with things such as inverted tariffs, which are not an issue for us with freeports, and the very restrictive state aid regime in the EU.
Teesside freeport, my nearest, will be 4,500 acres. Ben Houchen, the very good Mayor of the Tees Valley, has established the South Tees Development Corporation. We heard the interesting news today that Northumberland Estates may be interested in bringing forward a bid for much of the Teesside freeport region on the back of these incentives. That is proof, if it were needed, that private sector capital will come in and invest in those regions. Of course, public sector capital is important, but Governments do not always have a great track record of allocating capital in the most efficient way, whereas those in the private sector are much more likely, because it is their money they are putting down, to allocate that capital reasonably. So I very much support the measures to exempt employers from paying national insurance contributions up to £25,000.
The other thing I would like to talk briefly about is in part 3 of the Bill. It covers the disclosure of issues around national insurance in relation to the arrangements for contribution avoidance for promoters of tax avoidance schemes. The Government have done much to clamp down on tax avoidance, with the digital services tax, the diverted profits tax and the recent negotiations at the G7 on minimum corporation tax, as well as a number of measures in the Finance Bill to clamp down on these tax avoidance promoters, which are absolutely key.
I draw the House’s attention to my entry in the Register of Members’ Financial Interests. In my own business background, the only time a tax avoidance scheme was ever discussed in our businesses was when our own advisers—our own accountants—came to us with a tax avoidance scheme. It looked pretty contrived, in our view, and it was not something for us at all. We were very clear about that. It is clear, I feel, that these advisers—these promoters—are the ones who are principally responsible for the number of schemes that are being used to avoid tax in the UK.
I know that the Government have done much on this, including in the Finance Bill, and that they are consulting on further changes. However, I am also an officer and vice-chair of the all-party parliamentary group on anti-corruption and responsible tax, along with the right hon. Member for Barking (Dame Margaret Hodge), my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and my hon. Friend the Member for Amber Valley (Nigel Mills), and the Minister will have heard us talk a number of times about a double reasonable test for tax promoters and the schemes that they are promoting. Indeed, he was kind enough to attend a roundtable on the issue. It would work very simply, and I often use the loan charge as an example. At the moment, the requirement, as I understand it, is that a promoter considers a scheme reasonable. I could argue that I thought a scheme was reasonable, and someone else could do the same, and a court could decide whether it was reasonable or not, but if it was not reasonable, I could still argue that, in my judgment, I thought it was reasonable.
We are seeking to bring forward a change in the form of a double reasonable test: would a reasonable person have considered that scheme reasonable? A promoter might offer a highly contrived underlying scheme behind a loan charge, in which someone would move their money into an offshore jurisdiction and bring it back as a loan, on which they would pay no tax. That is a highly contrived scheme. I could argue that I thought it was reasonable, but a court could not possibly decide that a reasonable person would describe that scheme as reasonable. In that way, it would be far easier for HMRC to take forward prosecutions against promoters to stop this stuff happening in the first place. So I ask the Minister to consider that proposal again; I know that he is fully aware of it. On that note, I wish the Bill a quick and easy passage through the House.
John McDonnell (Hayes and Harlington) (Lab) [V]
I want to focus my remarks on the parts of the Bill that relate to freeports, as others have done. During the debate on the Finance Bill, I highlighted the corporate tax reliefs available and the lack of any projections of the impact on the Exchequer, or of any impact assessments on the areas where freeports will be located and on their neighbouring areas. I might be a bit old-fashioned, but I still believe in evidence-based policy making. Ministers seem to have come to Parliament asking MPs to sign a blank cheque and—apologies for the mixed metaphor—to take a leap in the dark on a policy that, in my experience, failed to deliver in the 1980s, when I was in local government, and in the 2010s, when I was an MP in Parliament.
I asked the Financial Secretary to the Treasury, the right hon. Member for Hereford and South Herefordshire (Jesse Norman), what estimate the Government had made of the cost to the Exchequer. The Minister could not answer, but insisted:
“The National Insurance contribution relief will be important in supporting the Government’s objectives for the Freeports programme, which includes regeneration through job creation.”
Given that the Government’s objective, as stated by the Financial Secretary, is job creation, I then asked him how many jobs would be created as a result of the national insurance contributions relief contained in this Bill. I received the answer to my written parliamentary question today, and it is a classic—worth framing. It states:
“The National Insurance contribution relief will be key in supporting the Government’s objectives for the Freeports programme, which includes regeneration through job creation. The Freeports tax sites have not yet been confirmed and so the Government is currently unable to give an accurate estimate of the number of employees that benefit in 2022-23 as this will depend on how many employers use the relief and will vary depending on a number of circumstances, including the location of the Freeport tax site.
The Government will publish an updated Tax Information and Impact Note (TIIN), when further information is available following confirmation of the tax sites.”
Can the Minister estimate when that will be published? Can he commit to publishing it during the passage of this Bill? I do believe in evidence-based policy making, and in recent months I have seen not just evidence-light policy making; we are now in a bizarre situation of non-existent-evidence-based policy making.
I just hope that the Government have learnt something from the failure of this policy under George Osborne. I remind the Minister that in May 2014 the Public Accounts Committee described the impact of George Osborne’s enterprise zones as “particularly underwhelming” and criticised the Government for “over optimistic” claims about job creation. The job numbers failed to materialise. The Centre for Cities, the think-tank, found that the jobs created were “overwhelmingly low skilled” and therefore low paid.
Despite their refusal to countenance in the Finance Bill the proposals that I put forward, just to get the information, I hope that the Government have reflected and will commit to publishing data annually on the impact of freeports on local and regional job creation; on tax revenues, locally and nationally; and on neighbouring economies. They failed to countenance that in the Finance Bill, but they could in this Bill.
This Bill is also a missed opportunity. The Government could have made provision for increasing the national insurance contributions paid by the highest earners. Currently, higher earners pay only 2% above the upper earnings limit. Raising that by just a small percentage would raise billions from those with the broadest shoulders. Instead, the Government are imposing a huge stealth tax on millions of low-income workers by freezing tax thresholds. They have imposed a pay cap or pay freeze on millions of public sector workers. In just a few months, shamefully, the Government are proposing to cut the incomes of some of the poorest families in the country by £20 a week. I have heard a lot of the Government’s claims to be levelling up. Instead, they seem to be keeping people down.
Sarah Olney (Richmond Park) (LD)
The Bill seeks to achieve a range of aims, but like most things that the Government are currently attempting, it misses the opportunity to achieve a great deal more.
The Liberal Democrats welcome the provisions that will enable a 0% rate of national insurance contributions to be paid by employers of former members of the armed forces. Glass Door, a charity in my constituency that provides shelters and outreach for homeless people and rough sleepers, has described to me how past trauma is a key risk factor in becoming homeless and how the two groups most at risk are survivors of childhood sexual abuse and armed forces veterans. Like many Members across the House, I am deeply concerned about how we care for our servicemen and women, and I support all measures to assist them in their post-service life. The Liberal Democrats unequivocally welcome an incentive for businesses to bring them into new employment.
We also welcome the straightening out of any unintended tax consequences that have arisen from covid payments in the past 18 months. The British public have been extraordinary in their response to the crisis and have willingly played their part in staying at home to protect the NHS and save lives. For many individuals, that will have had a direct financial consequence, and it is absolutely right that any payments made to mitigate such financial consequences should be free from tax and national insurance. There is no doubt that people would willingly have gone out and earned national insurance contribution income if the Government had not asked them not to. It is only fitting that their financial sacrifices be properly recognised in our tax and benefits system.
I support the comments made by the hon. Member for Thirsk and Malton (Kevin Hollinrake) about tax avoidance schemes and the extent to which they are being promoted. I support measures to clamp down on such schemes, particularly where vulnerable taxpayers are being targeted and potentially lured, dare I say it, into investing in schemes that would bring them into default in their tax affairs; we have seen that happening in relation to the loan charge, as he mentioned. I would like to see the Government doing more to clamp down on these schemes, and I welcome any measures to do so.
The Bill also makes provision for 0% national insurance contributions for employers in freeports. The Government have made a great deal of their plans for freeports; they appear to have great hopes for their abilities to bring economic revival to our country following Brexit and the pandemic. The extent to which that looks likely to be achieved remains uncertain. The Government have not yet published an assessment of the likely impact of this national insurance reduction, which leads me to believe that that uncertainty is continuing. If the Government are unable to say how much the Treasury will lose from the cut in national insurance, one can conclude only that they do not yet have any confidence in how much they expect freeports to boost employment.
What is certain is that the Government have not yet brought forward any other plans to boost economic growth following Brexit and the pandemic. I regret that they are missing the opportunity to boost growth in other sectors and in regions that are not lucky enough to benefit from a freeport.
The Exchequer Secretary to the Treasury (Kemi Badenoch)
The hon. Lady says that the Government do not have any additional plans for growth. We launched a plan for growth in the Budget with three pillars—infrastructure, innovation and skills—to tackle net zero post covid and take our opportunities for global Britain on leaving the EU, so she is quite wrong to say that we have not done anything to plan for growth.
Sarah Olney
I very much welcome the Exchequer Secretary’s intervention. I am happy to stand corrected, and I very much look forward to seeing the impacts of those plans right across the nation, because as far as I am concerned, the significant weakness of the plan for freeports is that it cherry-picks areas for investment while ignoring the needs of many other communities across the country. That is why I say that the Bill is a missed opportunity: because to target the national insurance cut just at areas that will have a freeport is to ignore the impact that such a cut could have across many sectors that could provide fantastic opportunities for employment as we come out of the pandemic. There is a very real danger that freeports will divert business activity from areas outside freeports, and that this measure will hit the public finances without any subsequent increase in economic activity.
I believe that the Government would make much better use of the national insurance contributions scheme by stimulating economic growth in ways proven to be effective. For example, an increase in the annual employment allowance to £16,000 could benefit every small and medium-sized enterprise. It would allow employers to take on up to five workers each without making contributions, which would be a substantial boost to communities across the country and would do much more to boost employment across the nation than these hand-picked benefits whose impact cannot be measured.
Madam Deputy Speaker (Dame Rosie Winterton)
As the next speaker has withdrawn, we will go straight to Jim Shannon.
Jim Shannon (Strangford) (DUP)
Thank you, Madam Deputy Speaker. When you are in the Chair, I always seem to get called earlier. I am not sure why that is, but thank you very much.
It is a pleasure to speak in this debate. I add my support for the Government proposals. A lot of hours have gone into them, so I will make some comments about them.
Broadly, the national insurance contributions that are raised in a year look after the benefits that are used in that year. They are therefore very important. We deal with an enormous number of people every day in our offices who have benefits issues, and we know that our contributions and everybody’s contributions make a difference. I have stated numerous times in this House over recent months that now is the time to ensure that the investments we have made through the furlough scheme and the coronavirus grants system to secure business pays off by having businesses repay their debt through tax and national insurance over many years of success.
The end must be clear: sustainable and expanding small and medium businesses. In my constituency and, I believe, in many other constituencies, small and medium businesses contribute to everyday life through employment and by creating the prosperity we wish to see. I want to see them encouraged on every possible occasion.
The Bill is one cog in that mechanism of growth, regrowth and enhanced growth. I welcome that the Government are completely committed to that. My attention was immediately drawn to a few components of the Bill. Of course, time prevents me from delving into them all, but I first highlight the proposed new zero rate of secondary class 1 national insurance contributions for employers who hire an armed forces veteran during their first year of civilian employment after leaving the armed forces. Employers will be able to claim relief on the earnings of an eligible employee up to the NICs upper secondary threshold from April 2022, and transitional arrangements will allow retrospective claims for the 2021-22 tax year. Like everyone, I really welcome that. I am pleased as punch to see it in the Bill. There is a clear commitment to our veterans, and here is one way of showing it.
I say gently to the Minister that many veterans are missed by the charities. I know some of them in Northern Ireland, and I deal with them regularly in my constituency. They seem to fall under the radar of the charitable organisations. I want to ensure that when the Treasury works to make the proposal happen, there is clear help, co-operation and co-ordination with the veterans’ charities, because they identify the people and then this system can help those people get the jobs. It is therefore logical to me that they work together. If they work together closely, they can bring the real benefit that I wish to see.
This is a fantastic step, and I thank the Minister and the Government for it. It is welcome that we will remember veterans in actions, not simply in prose. I congratulate the Government on proposing these steps to make it more attractive for a business to put its faith in a serving soldier, who may well be acclimatising to civilian life and the different burdens it entails. I have regularly met soldiers who come out of the forces after 20 or 25 years, or even fewer, and who find civilian life extremely difficult. Two weeks ago, I went to a horse charity, People for Horses, where June Burgess helps people who have served in the military or in the police or prison service in Northern Ireland to deal with their post-traumatic stress disorder through contact with horses. I believe that we can do the same thing here in a really important way.
The point that this provision flags up for this humble man is the fact that the Government have managed to extend it to the whole of the United Kingdom of Great Britain and Northern Ireland, and rightly so. I am truly grateful for that, because every regiment in our armed forces is made up of men and women from every corner of this great United Kingdom. That is right and proper, yet it does highlight that other armed forces promises do not similarly extend to each part of the UK. The ungenerous might highlight that such failings have perhaps made President Macron think it acceptable to comment that Northern Ireland is not part of this great nation; wow, does he need a lesson in geography. A mixed message may be seen by those who wish to push their own narrative, but I commend the Prime Minister and the Foreign Secretary for making it clear to President Macron that Northern Ireland is an integral part of the United Kingdom of Great Britain and Northern Ireland. For that reason, I again wish my Government to make abundantly clear the absolutely bedrock foundation that, in every aspect of life, without a successful border poll the six counties of Northern Ireland were, are and will be British.
This legislation regarding troops is for every serviceman and woman, regardless of their accent. Whether we have my very broad Northern Ireland accent, the Scots accent of my colleague on my right, the hon. Member for East Lothian (Kenny MacAskill), or a Welsh accent, we are all going to qualify for this, which is good.
We also welcome the Minister’s commitment to freeports. From reading the Library notes and listening to the Minister beforehand, it is clear that the commitment is not only to freeports here in the mainland but to freeports in Northern Ireland as well. That is really good news and I welcome it. There is some work for the Northern Ireland Assembly to do; there seems to be work for the Northern Ireland Assembly to do every day, and that is the way it should be. In this case it has clear job to do, and I want to make sure that that happens and that we all gain advantage.
I also noted that some of the correspondence on freeports in the notes referred to ensuring the incentives are not exploited for tax avoidance purposes. The Government have taken on the task of making those who pay tax accountable in their own country, as they should be, and I want to make sure of that and therefore ask the Minister to comment on it in summing up. Some correspondents pointed out that freeports had gained a negative reputation for enabling tax evasion through the storage of high-value goods, but the Government have proposed the creation of a tax site within any UK freeport to support and facilitate a robust system of monitoring and ensure that the available reliefs are claimed legitimately. I therefore think the Government have addressed this, but want to make sure that it is on the record. I also ask the Minister to indicate what discussions the Government have had with the Northern Ireland Assembly to ensure that the freeports issue continues to move forward for Northern Ireland.
I welcome as well the move to address tax avoidance in the form of a provision to allow changes to the disclosure of tax avoidance schemes regime as it applies to national insurance contribution avoidance schemes. I am informed that these changes also mirror amendments to the disclosure of tax avoidance schemes regime as it applies to other tax avoidance schemes made by provisions included in the Finance Act 2021.
When I speak to the ordinary businessman in the street—the self-employed trader, or the employer of five members of staff in a small shop—they talk about the fact that they cannot afford to hire a high-flying accountant who can find and use loopholes, and they watch on with increasing frustration as the big companies that could afford to pay any contributions get away with not paying. I believe that the Government are again setting the marker for those companies by ensuring they are accountable; they should pay tax in their own country and make sure that they pay the right amount as well.
Our businesses need a level playing field and help, and it is my hope that this Bill will enable those avoiding and evading tax to be brought into line. It is my hope that this Bill helps to ensure that those who can pay should pay and do pay. If we make that happen, we will be going in the right direction. If we all do the right thing—us here and those outside—we will all benefit.
Robin Millar (Aberconwy) (Con)
It is a pleasure to speak today and to follow the hon. Member for Strangford (Jim Shannon), and I take this opportunity to reiterate his unequivocal statement that Northern Ireland is indeed part of the United Kingdom.
I welcome this opportunity to make a few brief remarks in support of the Bill’s provisions on freeports and the benefits that it will represent for one in north Wales, in particular. But before I do, I note that the Bill demonstrates once again the Government’s commitment to levelling up. It is also set to reduce the tax avoidance that disadvantages our small and medium businesses, which cannot afford access to the specialist experience available on avoidance, as has been referred to. In addition, it seeks to offer the dignity of decent employment to our veterans, which, again, I welcome.
Freeports are a common feature of the world’s most ambitious free-trading nations and are used by many of our closest allies. They have propelled many previously impoverished nations to prosperity and have proved a valuable means of ensuring structured investment in export-led industry. The right hon. Member for Hayes and Harlington (John McDonnell) asked for evidence, and he might consider the words of the directors of the World Customs Organisation and the former director of the Swedish customs body, who noted that freeports create local supply chains beyond the facility, so long as firms have ease of access. In that way, freeports have the potential to boost investment and trade in the surrounding region. For an island nation such as Britain, with a rich history of trade across the globe trade—trade that, despite criticisms of it, has driven developments, innovations and improvements—investment in freeports is a signal to the world of the Government’s commitment to secure the UK’s place at the heart of global trade.
There has been speculation in the media in recent months as to what levelling up means. I speak as a representative of the region—north Wales—in which I grew up, and I have seen it change over the five decades I have known it. Indeed, I have spoken in this place before about how residents of north Wales have grown used under devolution to being overlooked and underfunded for much of the past two decades. However, I am also a Conservative, and it is a hallmark of conservatism to see constituencies such as mine not only in terms of handouts but in terms of their potential—to treat them according to their distinctiveness and not to mistake equal treatment as sameness. That is why I describe Aberconwy not solely in terms of needs or deprivation, for there are both, but also in terms of its potential, and that potential will be different for every other constituency across the UK—a point the hon. Member for Richmond Park (Sarah Olney) might consider.
The practical provisions set out in the Bill will help to realise that potential. Despite north Wales being one of the UK’s most under-invested regions, the British Private Equity & Venture Capital Association notes that it is also one of the fastest growing parts of Wales. North Wales is part of an expanding advanced manufacturing cluster worth more than £30 billion a year to the UK economy. We have world-beating green energy research in Ynys Môn and an industry-leading centre for 5G telecoms innovation at the University College of North Wales. Our Betsi Cadwaladr University Health Board has a vision for a best-in-class medical school and primary care underpinned by technology.
We also occupy a significant strategic location. The Romans may have built the first version of the A55 on ancient paths across our hills, Thomas Telford may have developed it, and Irish MPs may have driven the development of our road and rail links to ensure their smooth transport to this place, but today north Wales finds itself astride a trade route stretching from Dublin to Moscow. In its day, the tunnel carrying the A55 underneath the Conwy estuary was the largest construction project in Europe. Today, fully four fifths of our UK trade to Ireland passes through Wales, with most of it going through our Holyhead port in Ynys Môn.
That is potential, and it needs unlocking. A freeport offers a remarkable opportunity to build on those natural advantages and offer a site of structured relief for international investors. The practical provisions in this modest Bill will help to secure that; they are practical incentives for investors and employees, and I suggest that that that is at the heart of levelling up.
This Bill demonstrates how, beyond the provision of a simple designation as a freeport, supporting legislation and incentives such as those before us, can create an exciting opportunity for investors and an opportunity for co-operation with other parts of Government—even the Welsh Government in Cardiff. Indeed, I urge all parties to do what can be done to bring this opportunity to north Wales. Given the strategic importance of Holyhead to trade with Northern Ireland, such co-operation would also be an investment in our Union.
To conclude, it has been said that ports are the power cables to the UK economy. A Bill such as this, creating incentives by removing national insurance on workers, will help flick the switch, so I will be supporting the Bill.
Anthony Browne (South Cambridgeshire) (Con)
I know that the public like it when different political parties work together for the common good, and I notice that the National Insurance Contributions Bill, which we have been discussing this evening, has been subject to absolutely glutinous harmony. I have counted five different political parties expressing support for it, which means it must be doing something good, and I fully support the measures in it.
I am particularly keen on the freeports, which have been widely discussed, but I will keep my very brief comments to the national insurance contributions deductions for veterans. We all know, as various other Members have said, that veterans have amazing skills and great strengths, which they bring to many different jobs, including in this House. We have many Officers who are veterans and, indeed, Members of Parliament who are veterans, but we also know that veterans suffer from a veteran employment gap. They suffer higher unemployment than the national average. That is not just a UK thing; it applies to other countries and is a very big issue in the United States.
One thing we can do with national insurance is tilt the employment market in veterans’ favour. I say this from an economics background, but there is a market failure occasionally in the employment market, where the interests of wider society, employers and the state in terms of the Treasury are not always aligned. Making small adjustments to incentives through the national insurance system or otherwise can actually help align those incentives for the benefit of employees, employers and the Government.
I fully support the veterans measure, but the principle of it could be extended to other areas where there are structural issues around different groups and unemployment, particularly the long-term unemployed and the disabled. There is a particular issue. If someone has been unemployed for a year, they lose motivation and lose contacts. Employers start looking askance at them and do not want to take them on. If someone has been unemployed for two years, they are more likely to retire, never having worked again, than to ever find a job. There is a reason for that.
Say an employer has two candidates who are equally good in front of them. One is already working and one has been unemployed for two years. The employer will take the risk-averse approach and think, “There might be something about that long-term unemployed person. I will stick with the employed one.” That might be a rational decision for the employer—one might argue that it is not, but most employers would behave that way. It means that the Government will carry on paying the welfare bills of the long-term unemployed person. It means that the long-term unemployed person finds it even more difficult in future to find a job, and it is not good for society to have a cohort of people who are so detached from the labour market.
There is therefore a big economic rational argument for the Government to tilt the labour market in favour of long-term unemployed people. They could do that through national insurance—there are other ways of doing it—by having deductions for people who have been unemployed for a year or two years.
The second group I will mention is the disabled, and the same issues apply there. Somebody who is blind or severely visually impaired may be very good at a job, but a lot of employers would be worried about the adjustment costs, for example, or other things—they may just be nervous and have not had experience of it before. There is a huge societal and Treasury incentive to help disabled people to get into work rather than languishing in long-term unemployment. Again, there is a rational economic argument to create an incentive to align the interests of employers, the Government and the long-term unemployed to get the disabled or others into work.
I fully support this national insurance deduction for veterans precisely for that reason: it will be good for veterans, good for employers, good for society at large and good for the Treasury. I wish this Bill the swiftest and smoothest passage through this House.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to respond to this debate on behalf of the official Opposition. As my hon. Friend the Member for Ealing North (James Murray) said earlier, we will not be opposing this Bill today. We support the intention behind it and many measures within it.
I thank all hon. Members from across the House for their contributions to the debate. My right hon. Friend the Member for Hayes and Harlington (John McDonnell) spoke about his concerns about how freeports will operate, which were shared by the hon. Members for Gordon (Richard Thomson) and for Richmond Park (Sarah Olney).
I will now make a few brief points about the different elements of the Bill and echo the questions asked by my hon. Friend the Member for Ealing North in the hope that we can get some clear answers from the Minister. On freeports, which we debated at length over the course of the passage of the Finance Act 2021, we have consistently said that we support and protect British businesses and want every region in the nation of the UK to thrive. We have asked important questions about exactly how freeports will operate. On my hon. Friend’s specific questions about the national insurance relief being introduced for freeports, we need clarity on why the relief is conditional on employment beginning after April 2022 given that freeports are expected to begin operating in 2021, and why the level of the relief is set at £25,000, which is below both median pay in the freeport areas and the rate for those employing under-21s and apprentices.
My hon. Friend asked the Minister for some transparency about the Government’s approach to the global minimum corporation tax rate. Specifically, why did the Chancellor support the weakening of the proposals and the reduction from the 21% rate to the 15% rate? The Government must be ambitious and argue for a higher rate in order to level the playing field for British businesses and build a strong economic recovery.
I turn now to the measures related to veterans. I pay tribute to all those who have served in our armed forces and all those who currently do so. They make great sacrifices on behalf of this country and they deserve nothing but the best from this Government. Clearly, an important part of this is supporting veterans as they transition into civilian employment. We therefore welcome the new relief on employers’ national insurance contributions for veterans. I hope the Minister can answer my hon. Friend’s specific points about the length of the relief and why it is shorter than the freeport relief, and on what the upper secondary threshold for the veterans’ relief will be.
The second part of the Bill exempts self-isolation payments for national insurance contributions for the self-employed. Again, we welcome this measure. We have consistently called for the Government to do more to ensure that people do not have to choose between self-isolating and paying the bills. Recent figures show that still only about half the people who should be self-isolating are doing so. Clearly, this will not be about the financial element alone, but there is clear evidence that the system is not working as it should. First, only about one in eight of the workforce are eligible for the £500 payment. Of those who apply, only 30% succeed, and of those who apply for the discretionary scheme, only about 20% succeed. We urgently need some action from the Government to improve this. Although we welcome the small step in the Bill to reduce the administrative burden associated with self-isolation payments, will the Minister set out what more the Government intend to do to support people to self-isolate in the coming months?
We welcome the anti-tax avoidance measure in clause 11. My hon. Friend asked what action the Government will take to clamp down on the most active promoters of tax avoidance schemes, and I hope the Minister will address this.
We will not oppose the Bill today. We support the measures to boost jobs across the country, to help veterans to find employment, to ensure that people can self-isolate, and to tackle tax avoidance. We will of course use further stages of the Bill to seek to improve it. I hope the Minister can respond to the specific questions that I and other hon. Members have asked.
The Exchequer Secretary to the Treasury (Kemi Badenoch)
I would like to thank Members for their well-considered contributions to what has been a very productive debate, and I am very grateful for the support across the House on Second Reading. A range of perspectives has been presented here today, but I think we are all agreed that this is an important piece of legislation, which assists this country’s recovery from covid-19 and helps us prepare for a better future.
Before I address some of the specific points raised by Members today, I will briefly reiterate the Bill’s main measures and outline what they seek to achieve. First, this Bill supports the delivery of the Government’s freeports programme and boosts regional growth. It achieves this through the introduction of an employer national insurance contributions relief for businesses based in freeports that take on workers. This measure will play a major part in helping these new economic zones to create jobs, drive growth and revitalise local communities.
Secondly, this Bill delivers on a Conservative party manifesto commitment by introducing an employer national insurance contributions relief for organisations that recruit armed forces veterans. This will encourage firms to take on former services personnel, as so eloquently put by my hon. Friend the Member for South Cambridgeshire (Anthony Browne), boosting veterans’ employment prospects. On this point, the hon. Member for Strangford (Jim Shannon) raised an excellent point about working better with veterans charities, and I agree that this is something that employers and Government should do more of. In turn, this measure will allow even more businesses to benefit from veterans’ abilities, skills and experience, and I am sure Members would agree that this represents a valuable opportunity for firms up and down the country.
Thirdly, this Bill provides an exemption from self-employed national insurance contributions for test and trace support payments, which will apply retrospectively. This measure will ensure self-employed workers benefit from parity with their employed counterparts and are not penalised if they need to self-isolate and therefore submit a claim.
As I have outlined, the Bill supports workers and the wider economy, but it also contains measures targeted at those who threaten our country’s financial wellbeing. The final measure is the disclosure of tax avoidance schemes regime introduced by this Bill, which boosts HMRC’s powers to deal with the promoters of such unscrupulous arrangements. In addition, it will help ensure that taxpayers are better informed about the risks posed by avoidance schemes. This measure will deter the operators of such schemes and better protect consumers.
I will now move to the specific questions raised by Members. There were several questions from the Opposition Front Bench. The hon. Member for Ealing North (James Murray) asked why the self-employed national insurance contribution exemption was not legislated earlier. The answer is that class 1 NICs exemptions were made in regulations. However, the self-employed exemption requires primary legislation, and therefore is included in this Bill, as this is the earliest opportunity to legislate.
The hon. Gentleman asked about the upper secondary threshold for freeports and why, at £25,000, this is lower than for other reliefs and what the rationale was. The answer is that, unlike other NICs reliefs that are available to employers nationally and generally are targeted at specific groups of employees with particular characteristics, businesses operating in a freeport are likely to be able to claim the relief on almost all of their new hires. To balance generosity of support with the need to consider the public finances, this broader eligibility has been balanced by limiting the amount of salary that can be relieved. We have chosen to set this limit at £25,000 per annum, which is approximately the average salary in the UK. Employees with earnings at or below this limit will be eligible for full employer NICs relief, and employers will still be able to claim up to approximately £6,500 of relief on the salaries of employees earning more than this.
The hon. Gentleman asked why the relief was not starting until April 2022. The Government have been clear that this relief is only available on new hires from April 2022, and set this out in the “Freeports Bidding Prospectus” published in autumn 2020. The reason why is that having a clear start date is a simple approach that will support the freeport businesses. Further, a freeport tax site needs to be designated so that the location requirements can be met, otherwise there would be no reference in legislation for what geographical area constitutes a freeport tax site.
On the veterans scheme, I believe the hon. Gentleman asked why the relief was just for a year compared with that for freeports, and he said that it needed to be longer. The answer is that the relief provides employers with up to £5,500 in savings per veteran that they employ. The aim of that policy is to support veterans’ transition into civilian life through encouraging employers to hire veterans.
Finally, on corporation tax, the hon. Gentleman asked a question about the 15% rate. The reason the global rate of 15% was settled on is that, at that value, it will protect against multinational tax avoidance while leaving appropriate room for countries to use corporation tax as a lever to support their economic, fiscal and environmental objectives.
I now turn to some of the questions raised by the right hon. Member for Hayes and Harlington (John McDonnell), who asked why we are having freeports now, after they have not necessarily worked in the past. He has forgotten one thing: we have left the European Union. Leaving the EU means that we have an opportunity to do things differently. We have developed an ambitious new freeport model to ensure that towns and cities across the UK can benefit from fantastic new international trade opportunities. Freeports can attract new investment and employment in left-behind communities across the UK, and the further benefits include a simplified customs process. Our freeports will offer tax measures to incentivise private business investment, carefully considered planning reforms to facilitate much needed construction, and additional targeted funding for infrastructure improvements in freeport areas to level up communities and increase employment opportunities. This is therefore a much more ambitious policy than the previous freeports that the right hon. Gentleman referenced.
On the right hon. Gentleman’s question about evidence-based policy and the wider impact of freeports, we believe that the relief will significantly reduce the cost of taking on new employees and doing business in the freeport. That, along with other tax reliefs being offered as part of the wider package, will support businesses, but the Government have not yet agreed and finalised successful bidders’ tax site proposals. Any modelling that we have done to support the process remains sensitive to the locations chosen, and we will be in a better place to conduct more detailed modelling once tax sites have been agreed with the Government. The right hon. Gentleman asked whether that would be completed before the end of the passage of the Bill. That will not be done before we finish this Bill. However, the Government will outline the process for confirming tax sites in due course.
There were several questions about the Union. Freeports in Scotland, Wales and Northern Ireland were raised by my hon. Friend the Member for Brecon and Radnorshire (Fay Jones), the hon. Members for Gordon (Richard Thomson) and for Strangford, and my hon. Friend the Member for Aberconwy (Robin Millar). I say to all of them that we want to ensure that the whole of the UK can benefit. We are thrilled that there is demand for freeports across the United Kingdom, and we remain committed to establishing at least one freeport in Wales as soon as possible. Discussions about the best way to establish a freeport in countries outside England, such as Scotland, are complex. It would not be appropriate for me to elaborate on those private discussions. However, those are things that the Treasury is considering in detail.
On the point that the hon. Member for Strangford made about Northern Ireland, we are working with the Northern Ireland Executive to ensure that a suitable model for an NI freeport is developed. We will ensure that we meet our international legal obligations in Northern Ireland. It is appropriate that we take our time to ensure that the freeports model for Northern Ireland meets these obligations while delivering a competitive offer for the ports, businesses and communities in that country.
There was a question about displacement of economic activity from other local areas—I believe it was from the right hon. Member for Hayes and Harlington. That is something that we have considered. We still believe that this proposal will encourage new investment and create jobs in deprived communities, and will not cause harmful displacement.
I am very grateful for the opportunity to explain this Bill’s measures and the context behind them. To sum up, this Bill supports the regional growth that is integral to furthering our levelling-up agenda, and is part of our plan for growth, as I said to the hon. Member for Richmond Park (Sarah Olney). It plays a part in shielding self-employed people from the full financial impact of covid-19, while boosting our veterans’ employment prospects. It strengthens HMRC’s powers to tackle the organisers of tax avoidance schemes. There are clearly a number of points that we can expect to discuss at greater length when this legislation moves to Committee stage, but for the purposes of this debate I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
National Insurance Contributions Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the National Insurance Contributions Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 22 June.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Michael Tomlinson.)
Question agreed to.
Thangam Debbonaire (Bristol West) (Lab)
On a point of order, Madam Deputy Speaker. Further to earlier points of order, as matters seem to have moved on, I seek urgent clarification on the process that we are in the middle of, given that Mr Speaker appeared to be deeply unhappy earlier and that we are now facing a wait of possibly up to two hours to hear from the Secretary of State for Health and Social Care on a matter that the Prime Minister has already addressed the press about.
We understand that the Prime Minister was not available at 3.30; we know that and that is reasonable. Since then, though, the Prime Minister has addressed the press. His comments are causing concern and confusion, but the House has to wait two hours more. This is treating the House with disdain. Parliament is sovereign. What is more, the Prime Minister himself ran on a campaign of Parliament being sovereign—sovereign, Madam Deputy Speaker. Our constituents deserve better.
I wonder whether those on the Treasury Bench have had time to reflect on the matter since the earlier points of order. Can you tell me, Madam Deputy Speaker, whether you or the House have had any word from No. 10 about coming here now to clear up the confusion and whether the Prime Minister is willing to face questions from Members of Parliament on behalf of our constituents? I seek your urgent clarification, because we feel that the Prime Minister is treating this House with contempt.
Madam Deputy Speaker (Dame Rosie Winterton)
I thank the hon. Lady for that point of order, and realise that she has set out the fact that the Prime Minister has made a statement to the press, not to the House. However, the best thing I can do is repeat what Mr Speaker said earlier:
“I have repeatedly made it clear how important it is that announcements should be made in this Chamber.”
He went on to say:
“The Secretary of State will be making a statement at 8.30 pm on covid. That will give Members of the House an opportunity to question him on the Government’s policy.”
He then went on to say:
“However, it is not what I would have expected, which is a statement to the House before an announcement to the press. It is not acceptable. The Government determine when Ministers make statements, but, in doing so, they must show respect to this House.”
That is what Mr Speaker said earlier, and I do not think that there is much more that I can add to that, but the hon. Lady wants to follow that up.
Thangam Debbonaire
Further to that point of order, Madam Deputy Speaker. Can we be absolutely clear that the Prime Minister has not made any attempt to contact Mr Speaker about making a statement and that there is literally nothing else to add at all? Given that Mr Speaker made it very clear in his ruling earlier that he was deeply unhappy, may I just check that there has been no response from those on the Treasury Bench or from No.10 about the Prime Minister coming to this House so that he, having made a speech to the press, can face questions from this House?
Madam Deputy Speaker
As I have said, the hon. Lady can rest assured that Mr Speaker will have made his views very clear. I am not aware of any discussions that have taken place, but I think we would know if the Prime Minister were shortly to arrive here. Instead, I suspect that the Secretary of State will make a statement at 8.30.
Chris Bryant (Rhondda) (Lab)
On a point of order, Madam Deputy Speaker. This is somewhat different. It relates to the fact that if the Government are extending the provisions in England in relation to the restrictions on people’s freedom because of covid beyond 21 June, that is also the date when matters change as to how we do our business here in Parliament.
It is actually quite difficult to get a rail ticket from Wales to London because of covid restrictions on trains. People have to book some time in advance. I just wonder when there will be a busines statement that will lay out exactly how we will be doing our business in a week’s time. There are perfectly sensible measures that could be put in place very quickly; I am sure that we would all want to assist in that, but it is important to get these things right. Sometimes, when the Government rush them or do not consult on them, we end up having to tidy them up afterwards.
Madam Deputy Speaker
I thank the hon. Gentleman for that point of order. I suspect that the shadow Leader of the House will be having discussions with the Leader of House about that issue, and it may be something that comes forward in a business statement at some point.
I am suspending the House until 8.30 pm.
National Insurance Contributions Bill (First sitting)
Tuesday 22nd June 2021
(3 years, 5 months ago)
Public Bill CommitteesRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 22 June 2021 - (22 Jun 2021)
The Committee divided: - Ayes: 1 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 1 / Noes: 10 - Question accordingly negatived.
The Chair
Before we begin, I have a few preliminary points. Please switch electronic devices to silent. Tea and coffee are not allowed in the sitting. I remind Members that we have moved to 1 metre social distancing in general Committees, in line with the Chamber and Westminster Hall, so Members should continue to sit only in places that are clearly marked. I can see that you all are—thank you. I will suspend the sitting if I think anyone is in breach of social distancing guidelines. Mr Speaker has asked that Members wear face coverings in Committee except when they are speaking, unless of course they are exempt. The Hansard reporters would be grateful if Members could email any electronic copies of their speaking notes to hansardnotes@parliament.uk.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 22 June) meet at 2.00 pm on Tuesday 22 June;
2. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 22 June.—(Jesse Norman.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Jesse Norman.)
The Chair
Copies of written evidence that the Committee receives will be circulated to the Committee by email.
We now begin our line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the clause that the amendment affects. Decisions on new clauses will be taken once we have been through all the clauses of the Bill as introduced.
Clause 1
Zero-rate contributions for employees at freeport tax sites: Great Britain
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 5—Freeport zero-rate relief: review of incomes and wages—
(1) The Government must conduct a review of the impact of sections 1 to 5 of this Act on income and wage ranges at all freeport tax sites.
(2) The review must assess—
(a) the average income and wage ranges of jobs in respect of which employers have claimed the secondary Class 1 relief introduced by section 1 of this Act; and
(b) for each freeport, how the incomes provided by these jobs compare to average median incomes across the local authority areas in which the freeport is located.
(3) The review must be commenced by 31 October 2022.
(4) The review must be published and laid before Parliament by 31 January 2023.
This new clause will require the Government to evaluate the wages of the jobs created as a result of the employers’ relief introduced by this Bill.
The Financial Secretary to the Treasury (Jesse Norman)
It is a great pleasure to be able to address these important clauses in a small but important Bill, and I thank all colleagues for joining us today.
Part I of the Social Security Contributions and Benefits Act 1992 stipulates that secondary class 1 national insurance contributions be calculated at a standard rate of 13.8% on earnings above the secondary threshold—currently about £8,700 a year. Part I also provides for other rates of secondary class 1 NICs—the zero rate for 21-year-olds or apprentices under 25, for example—that can be applied up to an upper secondary threshold.
Clause 1 introduces a new zero rate of secondary class 1 national insurance contributions on earnings up to a new upper secondary threshold in Great Britain. The standard rate of NICs, 13.8%, in most cases will apply above that threshold. The threshold will be set through regulations at £25,000 per annum.
Clause 1 provides employers that meet the conditions set out in clause 2, which we will shortly debate, with access to this relief where they have a secondary class 1 liability. An employer may qualify for various rates of secondary national insurance contributions. Clause 1 therefore stipulates that an employer must elect to apply the freeport relief if they wish to utilise this zero rate. By applying the rate, their status as a secondary contributor remains even if, as a result of this relief, an employer has no secondary class 1 liability. The relief will be administered through pay-as-you-earn and real-time information returns by Her Majesty’s Revenue and Customs. This approach has been welcomed by stakeholders.
New clause 5, if I may say so, recapitulates much of what the Government have already done. I remind the Committee that the Government have already published a decision-making note that clearly sets out how sustainable economic growth and regeneration are prioritised in the freeports assessment process. We will also be publishing costings of the freeports programme at the next fiscal event, in line with conventional practice. Those costings will undergo the usual scrutiny from the Office for Budget Responsibility.
It is also important to say that the Government are already taking the necessary steps to gather the information required to review the programme effectively. Before funding is allocated and tax sites are designated, each freeport will need to pass a business case process, which includes assessing how effectively tax sites can be monitored. Freeports will need to collect data on reliefs and their realised outcomes, which will include monitoring the effectiveness of tax reliefs, and the Government will continue to publish information relating to HMRC through its annual report and accounts. It is important to note that the Government have already committed to keeping this measure under review as new information becomes available. The publicly available tax information and impact note also commits the Government to keeping the scheme under review through communication with taxpayers’ groups.
The Government reject the proposal in new clause 5 because a report that focused exclusively on just one aspect of the policy would not do justice, however valuable its focus, to the whole, which includes other important aspects over and above wages, such as changes to customs rules, Government infrastructure spending and planning reform. I therefore ask that the Committee reject new clause 5.
I am sure that Committee members will not wish to delay the investment associated with clause 1, which introduces a zero rate of secondary class 1 national insurance contributions that employers can apply when they meet the conditions specified in clause 2. For that reason, and with the reassurances that I have given, I urge the Committee to agree that clause 1 stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
Thank you, Ms Nokes, for the opportunity to speak on behalf of the Opposition. We begin by considering the clauses that relate to freeports. In March 2021, the Chancellor announced that eight freeports would be created in England—East Midlands Airport, Felixstowe-Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Thames, and Teesside—and we understand that discussions continue around further freeports in Scotland, Wales and Northern Ireland.
Clause 1 will introduce a new secondary class 1 national insurance contributions relief for freeport employers. It provides for that relief to apply when secondary class 1 NICs are due from an employer other than a public authority when the conditions set out in clause 2 are met. Clause 1(2)(a) states that the rate for the relief is 0% and applies up to the upper secondary threshold; subsection (2)(b) states that for earnings above the upper secondary threshold, the secondary percentage—currently 13.8%—applies. Subsection (3) states that the upper secondary threshold, or the prescribed equivalent, will be set by statutory instrument under a power established by clause 8.
As the Financial Secretary may remember, we discussed on Second Reading the fact that the upper secondary threshold for freeport employees would, according to a policy paper published by the Government on 12 May, be set at £25,000 for 2022-23. As I pointed out at the time:
“That is substantially less than the equivalent thresholds for employers’ relief for under-21s and apprentices, which is £50,270 in 2021-22…this means that employers do not need to pay any NICs for under-21s and apprentices earning up to just over £50,000 a year, but they will have to pay contributions for freeport employees next year if they earn more than £25,000.”—[Official Report, 4 June 2021; Vol. 697, c. 49.]
In response to my question about the Government’s rationale for picking the figure of £25,000 for employees of freeports, the Exchequer Secretary said:
“The answer is that, unlike other NICs reliefs that are available to employers nationally and generally are targeted at specific groups of employees with particular characteristics, businesses operating in a freeport are likely to be able to claim the relief on almost all of their new hires. To balance generosity of support with the need to consider the public finances, this broader eligibility has been balanced by limiting the amount of salary that can be relieved. We have chosen to set this limit at £25,000 per annum, which is approximately the average salary in the UK.”—[Official Report, 14 June 2021; Vol. 697, c. 69.]
I would like to take this opportunity to understand the Exchequer Secretary’s response a bit more. I would therefore be grateful if the Financial Secretary let us know the specific source of the data that says that £25,000 is approximately the average salary in the UK. I ask this because according to the Office for National Statistics the median income in all the local authority areas where the eight freeport sites are located is greater than £25,000, with the figures ranging from £25,200 in Kingston upon Hull, within the Humber freeport, to £33,200 in Thurrock, within the Thames freeport.
We would like to take this opportunity to press further on this point, which is why we have tabled new clause 5. We want to understand if the Government are concerned that making the threshold for the NIC relief in freeports £25,000 might create an incentive for employers to create posts paid less than £25,000, rather than higher paid posts, which could in turn create the risk of salaries being bunched below the threshold, thereby undermining salary progression.
New clause 5 requires the Government to conduct a review, after this policy has been in place for six months, to assess the average income and wage range of jobs in respect of which employers have claimed the secondary class 1 relief introduced by clause 1, and for each freeport to assess how incomes provided by these jobs compare with the average median income across the local authority area in which the freeport is located.
I would be grateful if, for clarity, the Minister let us know the precise statistical source of the figure of £25,000 for the average UK salary. Will the Government support the review we propose, which would assess the average incomes of jobs created by this employers’ relief? If not, does he think that setting the threshold for the relief at £25,000 risks creating an incentive for employers to create posts that are paid less—even just less—than £25,000, rather than higher paid positions?
Jesse Norman
I thank the hon. Gentleman for his question. I saw that he raised the issue on Second Reading and, if I may say so, it potentially reflects a slight misunderstanding.
As the Exchequer Secretary said, the decision has been taken to set the rate at £25,000, roughly the national average earnings. That is different from median earnings. I do not think it is right to suggest that the threshold has been set at a level that is approximate, because it is designed to be comprehensible and readily understandable. To make it more precise might affect that.
The overall generosity of the package of support that is being given to freeports, and the range of potential employees to which this applies, is very creditable to the Government, because it shows the intensity and strength of the intent to make the freeports policy work. This is an important part of that policy, but only one part of a set of policies that are designed to increase the attractiveness of freeports for growth and for employment as well.
The way in which this measure has been structured is focused towards longer-term employment, as the relief runs for three years, and therefore it allows the employment rights associated with longer-term employment to be vested in those employees. From that point of view, it reflects a commitment by the Government to create high-quality and stable longer-term employment.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Freeport conditions
Richard Thomson (Gordon) (SNP)
I beg to move amendment 1, in clause 2, page 2, line 26, at end insert—
“(e) the employer pays, as a minimum, a living wage, to all staff it employs, and
(f) the businesses operating in the freeport in which the employer has business premises have collectively—
(i) put in place a strategy setting out how the freeport will contribute to the target for net UK emissions of greenhouse gases in 2050 as set out in the Climate Change Act 2008 as amended by the Climate Change Act (2050 Target Amendment) Order 2019,
(ii) put in place a strategy setting out how the businesses will ensure that no goods passing through the freeport are the products of slave labour, and
(iii) carried out an environmental impact assessment of the operation of the freeport.”
This amendment provides conditions to businesses in freeports. These include a strategy on how the freeport will contribute to the target for net UK greenhouse gases emissions, a strategy ensuring no goods passing through the freeport are products of slave labour, and an environmental impact assessment of the freeport.
The Chair
With this it will be convenient to discuss the following:
Amendment 2, in clause 2, page 3, line 11, at end insert—
“(4A) For the purposes of subsection (1)(e), the living wage per hour—
(a) for the financial year 2020-21 is—
(i) £9.30 outside of London, and
(ii) £10.85 inside London; and
(b) for each year after the financial year 2020-21 is to be determined by the Living Wage Foundation.”
This amendment defines the living wage, payment of which is one of the conditions business would have to meet under Amendment 1.
Clause stand part.
Clause 3 stand part.
New clause 1—NIC relief for employers at freeports: review of commencement date—
(1) The Government must conduct a review of job creation in the 2021-22 financial year at each of the eight freeport tax sites.
(2) The review must assess the impact on decisions around job creation of the relief becoming available from April 2022 rather than April 2021.
(3) The review must be commenced by 30 April 2022.
(4) The review must be published and laid before Parliament by 31 July 2022.
This new clause will require the Government to assess the impact on job creation in freeports in 2021-22 as a result of NIC relief being available from April 2022 rather than April 2021.
New clause 2—NIC relief for employers at freeports: review of the conditions of eligibility—
(1) The Government must conduct a review of the conditions of eligibility for the National Insurance contributions relief introduced by section 1 of this Act.
(2) The review must take into account the number of freeport employees in 2022-23 who work at more than one freeport site and who earn less than the relevant upper secondary threshold set under the powers created by section 8.
(3) The review must consider the impact of the matter in subsection (4) on decisions by employers about job creation.
(4) The matter is the relief introduced by section 1 of this Act being available for employees who spend 60% or more of their working time in one freeport, and not for employees who spend 60% or more of their working time across more than one freeport but less than 60% in any one freeport.
(5) The review must be commenced by 30 September 2023.
(6) The review must be published and laid before Parliament by 31 December 2023.
This new clause will require the Government to evaluate the impact on job creation of the employers’ NIC relief not being available for employees who spend 60% or more of their time across more than one freeport, but less than 60% in any one freeport.
Richard Thomson
There is a pretty basic principle that lies behind this: that you shouldn’t get owt for nowt. In exchange for the substantial package of reliefs that are on offer through this Bill, we believe that businesses must offer something in return, beyond their presence and their baseline economic activity within the bounds of a freeport.
In this case that would include, through amendments 1 and 2, meeting local environmental obligations. Many freeports are built on sites that have environmental sensitivities. We believe there need to be some enhanced obligations around that. Activities in a freeport should contribute to wider environmental objectives, such as the commitments to net zero and climate targets. It is very important to protect workers’ rights, not only within the perimeter of a freeport but anywhere else that has any kind of economic relationship with the freeport. That means taking steps to actively ensure that we are preventing the exploitation of slave labour at any stage in the value chain and ensuring that a living wage, as defined, is paid to the workers in the freeport.
Those are all important objectives in policy terms and are a fair exchange for the public goods being consumed through the creation of the freeport. They are modest asks in the context of the relief being offered and are worthy of support.
James Murray
Clause 2 sets out the conditions that employers must meet to qualify for the relief created by clause 1. Those conditions require that the freeport employment must begin between 6 April 2022 and 5 April 2026; the relief will apply for three years from the first day of each eligible employee’s employment; and the employee must spend 60% or more of their employed time in a single freeport tax site at which the employer has business premises.
We have a number of points to raise with the Minister on the details of the clause. First, as I mentioned on Second Reading, it is hard to understand why the relief is conditional on employment not commencing until 6 April 2022. As the Chartered Institute of Taxation pointed out, with freeports expected to start operating in 2021, that would surely hamper freeport employers this year, and perhaps even create perverse incentives to delay the start of an employee’s work. In her response to my raising this point on Second Reading, the Exchequer Secretary said:
“The Government have been clear that this relief is only available on new hires from April 2022, and set this out in the ‘Freeports Bidding Prospectus’ published in autumn 2020. The reason why is that having a clear start date is a simple approach that will support the freeport businesses.”—[Official Report, 14 June 2021; Vol. 697, c. 70.]
I found it hard to understand that the Minister’s point. Having a clear start date may well be a simple approach, but my question was not about whether the relief should have a clear start date, but why the Government had chosen a start date in 2022, rather than in 2021 when freeports are expected to start operating. To press Ministers on that, we suggest a simple review, as set out in new clause 1, which would require the Government to conduct a review of job creation in 2021-22 at each of the eight freeport tax sites. The review must assess the impact on job creation decisions of the relief becoming available from April 2022 rather than April 2021. I would be grateful if the Minister committed to carrying out such a review. If he is not willing to, perhaps he could explain why the Chartered Institute of Taxation is wrong to say that this choice of date could hamper freeport employers this year and perhaps create perverse incentives to delay the start of an employee’s work.
Alongside the start date for the relief, we want to raise questions about clause 2(1)(d), which states that at the time the qualifying period begins, a freeport employer must reasonably expect that the earner will spend 60% or more of their employed time in a single freeport tax site in which the freeport employer must also have business premises. That means that the relief introduced by clause 1 is available for employees who spend 60% or more of their working time in one freeport, but not for employees who spend 60% or more of their working time across more than one freeport, but less than 60% in any one freeport. If an employee splits their working time between two freeport sites, the employee may not qualify as a freeport employee, which might not be what is intended.
We have therefore proposed, in new clause 2, a review of the impact of that feature of the policy design on employers’ decisions about job creation. Again, I would again be grateful if the Minister committed to carrying out such a review. If he is not willing to, perhaps he could explain why he does not think that issue is likely to arise.
Finally, I would like to ask the Minister about clause 2(1)(a), which provides that the employed earner’s employment is a new employment commencing between 6 April 2022 and 5 April 2026. As the Chartered Institute of Taxation has pointed out, it is unclear whether an employee who is TUPE transferred from an existing employer to a new freeport business on or after 6 April 2022 qualifies for this relief.
Although clause 2(2) would prevent an employee from qualifying if the two businesses were connected, that would not always be the case—for instance, when a freeport business buys the trade of an unconnected business and commences that newly acquired trade at a freeport site. I would be grateful if the Minister could explain whether, in such a case, we can assume that the freeport business would be a “new” employer for the purposes of this relief, while recognising, of course, that its “new” employees would have continuity of employment for employment rights purposes.
Jesse Norman
I am grateful to the hon. Members for Gordon and for Ealing North for their contributions. We have discussed already how clause 1 introduces a new rate of secondary class 1 national insurance contributions. If I may, I would like now to explain the freeport conditions that enable a freeport employer to qualify for the relief. That is set out in clause 2, and I will then discuss clause 3 and the amendments and new clauses that have been tabled.
Clause 2 has the following effect. It sets the conditions that an employment must meet to qualify for the freeport employer’s NICs relief. A freeport employer is an employer that has a business premises in the freeport tax site—business premises being defined as building or structure out of which the business is carried out. A freeport employee is an employee of a freeport employer who spends 60% of their working time in a freeport tax site and has not been employed by that employer in the previous 24 months. A freeport employer can apply the zero rate for 36 months on new hires from April 2022. The earnings of freeport employees hired before April 2026 will qualify for the zero rate for the full 36 months.
Clause 3 provides the Treasury with the power to legislate for the finer detail of the measure in secondary legislation. It provides a power to add, to amend and to remove certain conditions. The practical effect of that is to allow the Government to react to the economic realities of today, and also to give a degree of future-proofing to the measure against unintended policy outcomes.
The hon. Member for Ealing North raised the question of the starting date in 2022, and I understand that he is repeating the concern that he raised on Second Reading. It is adequately and properly met by the response that the Exchequer Secretary gave. It is a hypothetical matter as to when these freeports will begin to operate. We expect that to be soon, and we are pressing forward, but there are number of further steps to be undertaken before a freeport tax site can be designated and a freeport can go into operation. It is useful therefore to have a date certain for the operation of the policy.
The hon. Gentleman asked whether the 60% rule discriminates against people who work flexibly. It is important to understand that this is a place-based policy—that is to say, it is a policy designed to focus and operate from a very specific location. To meet the objective of encouraging new investment and economic activity, and to maintain the focus and the targeting of the policy overall, it is important to restrict reliefs to those whose jobs are based in a freeport tax site. The Government will do that by making it a requirement that eligible employees spend at least 60% of their working time in a tax site.
Opening up that relief to employees who did not meet that requirement would undermine the policy aim of supporting employment in the freeport area, because it would mean that employers could effectively claim relief on employees carrying out work outside a freeport area—indeed, in an area that may not be related to the freeport at all.
The hon. Gentleman raised the question about TUPE-ed employments. These are not regarded as new employments, and the employment is transferred but is not regarded as new, and therefore the employee would not be eligible for the reliefs offered in the Bill.
I turn now to the questions raised by the Scottish National party in the speech made by the hon. Member for Gordon. It is important to note that the SNP’s amendment would place additional eligibility criteria—with respect to employment rights, equalities and the environment —in the Bill. Of course, those would add complexity to what is a well-established and rapidly moving process, and they would create potential delay. For that reason, it is not an attractive amendment.
The Government are committed to reducing carbon emissions, which is why this country was the first major economy to implement a legally binding net zero greenhouse gas emissions target by 2050. Of course, it remains open to the Scottish Government to impose higher standards if they wish, either on freeports or on other ports that exist in Scotland, since environmental policy is a devolved area. The hon. Gentleman may want to take up his concern with the Scottish Government if he wishes to see higher standards in ports in Scotland. From the Government’s standpoint, we are also committed to supporting those in employment, which is why we introduced the national living wage in 2016. This month, workers have seen a pay increase to £8.91 an hour, which is a 2.2% pay rise.
The hon. Gentleman raises an important point about ensuring that goods passing through freeports should in no way be the products of slave labour. This is a global problem, and employers and freeports will need to meet the same high regulatory standards on slave labour that other businesses in the UK meet. That is to say that they must abide by the landmark transparency and supply chain provision in the Modern Slavery Act 2015, by which the UK became the first country in the world to require businesses to report on the steps they have taken to tackle modern slavery in their operations and global supply chains. With that said, I hope hon. Members will withdraw their new clauses and amendments.
Richard Thomson
I thank the Minister for his response. One of the things that we hear most often is that any amendment that may be desirable may add complexity, which seems to be a standard phrase that gets thrown in whenever the Government do not wish to proceed with something and cannot think of a better argument.
On the basis of what I have heard, I am unpersuaded that the suite of benefits and reliefs that are offered should make it easier to help achieve those objectives. I take what the Minister said about the obligations that already exist under the Modern Slavery Act 2015, but I still think that more can be done to embed the expectations that we have, and not just in Scotland. I take the Minister’s point that the Scottish Government have a certain latitude in this area, but the point is to ensure that the provision applies all over and that there is some kind of equality. On that basis, I will press the amendment to a vote.
Question put, That the amendment be made.
Jesse Norman
If I may, I will explain a little of the background to clause 4. In addition to the powers taken in clause 3 to amend freeport conditions if the relief is found to be subject to abuse, clause 4 excludes employers that arrange their affairs with the aim of benefiting from the relief where that arrangement is contrary to the policy intent. Clause 4 works by removing eligibility for the relief if the conditions set out in clause 2 are met only as a result of an avoidance arrangement.
The Government are aware that the incentives of the freeport package potentially lend themselves to businesses taking steps to organise their affairs so that they can benefit from the relief; that is the design of the policy. Therefore, the Government have taken a similar approach to that in section 14 of the Finance Act 2021, which exempts employers if their arrangement is contrary to the policy intent of the relief and specifically in relation to the avoidance of tax.
An example of where the Government would expect HMRC to reject a claim for this relief would be where an employer structures their employment contracts so that a workforce can easily be dismissed after three years with the sole purpose of hiring new staff so that they can benefit from another three years of relief, or if an employer were to fire their employees and rehire the exact same posts with new employees.
The Government want the freeports to thrive, to boost local investment and to be a hotbed of innovation. Clause 4 provides an invaluable backstop and gives HMRC the ability to recover any relief that has been claimed as a result of contrived arrangements. I urge that clause 4 stand part of the Bill.
James Murray
As we have heard, clause 4 states that the relief for freeport employers cannot be claimed if an avoidance arrangement has been used, and it defines what is meant by an avoidance arrangement. We welcome any steps to prevent employers from taking advantage of the relief in cases in which avoidance arrangements are used. As this clause sets out, avoidance arrangements are those that are, or include steps that are
“contrived, abnormal or lacking a genuine commercial purpose, or”
that circumvent
“the intended limits of the application of section 1 or otherwise”
exploit
“shortcomings in that section or in provision made in or under sections 2 and 3.”
I would be grateful if the Minister could confirm for us what extra resource, if any, has been made available to HMRC to ensure that it can identify and take action against employers in a freeport who have used avoidance arrangements. I would also like to understand what the Bill suggests about wider access to tax reliefs that arise from avoidance arrangements. I would be grateful if the Minister could offer some clarity on the wider situation.
This clause makes it clear that the tax relief in clause 1
“does not apply if it would otherwise apply only as a result of avoidance arrangements.”
Perhaps the Minister could help me to understand this by explaining whether, generally, companies are still able to claim tax reliefs if they arise only from avoidance arrangements—that is to say, arrangements that are contrived, abnormal or lacking a genuine commercial purpose. Although we of course support this relief being withheld in cases in which it can apply only as a result of avoidance arrangements, I would appreciate an explanation from the Minister about why this specific measure is needed and why the relief would not be withheld by existing provisions in law if it was deemed to have arisen from avoidance arrangements.
Jesse Norman
I thank the hon. Gentleman for his questions. Of course, HMRC is taking a close interest in freeports and has been closely involved in the policy design in order to minimise any potential for avoidance and any other failure to target the policy as we would desire. It is well staffed to address all the concerns that are raised. Of course, its staffing is flexible and also is something that reflects periodic conversations with the Treasury during the spending review processes and otherwise in order to ensure that it is as effective as possible—and it is highly effective, as is shown by the fact that the tax gap in this country is now lower than it ever has been. It is significantly lower than it was in 2005, for example—it is something like 40% lower than it was under that Government. That important achievement puts things into perspective.
Jesse Norman
Clause 5 confirms the Government’s commitment to provide a freeport NICs relief in Northern Ireland. It gives the Treasury the power to legislate for the detail of the freeport NICs relief in Northern Ireland in secondary legislation. The power is limited in so far as the relief must be similar to or correspond to that available in Great Britain.
In Northern Ireland, the specific design of the relief will have to comply with European Union rules on the provision of state aid, due to the requirements of the Northern Ireland protocol. It will be developed and agreed through a process of engagement with the Northern Ireland Executive on the detail of the wider freeports offer in Northern Ireland.
This Bill legislates for a power to allow the Government to set out the detail of the employer NICs relief in Northern Ireland in secondary legislation once engagement with the Northern Ireland Executive is complete. These regulations will be laid at the earliest possible opportunity once negotiations with the Northern Ireland Executive have given a clear indication of consensus on the tax offer.
Given the timing of the Bill, I trust Members will see that this approach is sensible, and ensures all stakeholders are fully engaged. I commend the clause to the Committee.
James Murray
Clause 5 gives the Treasury a regulation-making power to provide for a freeport secondary class 1 NICs relief in Northern Ireland. On Second Reading, the Minister assured us that, although the measures in clauses 1 to 4 relate to Great Britain, it is the Government’s intention to legislate for this relief in Northern Ireland as soon as practicable. He drew attention to the fact the Bill provides the Government with the power to set out the detail of employer NIC relief in Northern Ireland in secondary legislation once engagement with the Northern Ireland Executive is complete.
I note that the House of Commons International Trade Committee’s recent report on UK freeports, published on 20 April, discussed the issue of freeports in Northern Ireland, and in particular their relationships with the Northern Ireland protocol. It quotes Professor Catherine Barnard of the University of Cambridge, who said:
“under the Northern Ireland Protocol the EU state aid regime applies, certainly to Northern Ireland where there is an effect on trade between Northern Ireland and the rest of the EU. You should also bear in mind that the protocol is probably wide enough to catch any freeport legislation that applies throughout the United Kingdom.”
The Chief Secretary to the Treasury acknowledged to the Committee that the freeport offer would have to be adapted to comply with the UK’s obligations under the Northern Ireland protocol. Acknowledging that, the Committee’s report concluded that it is clear the Northern Ireland protocol will impact the terms under which a freeport can be established in Northern Ireland. It recommended that the Government should set out in their response to the report their view on how the freeports model will need to be adapted in Northern Ireland to comply with the terms of the protocol. I would be grateful if the Minister could give us an update on the Treasury’s thinking in that regard.
I would also like to clarify a comment in the memorandum from the Treasury to the Delegated Powers and Regulatory Reform Committee on this Bill. On clause 5, the memorandum says:
“The Government’s intention is that the employer NICs relief for Freeports employers is in place by 6 April 2022 throughout the UK.”
I would be grateful if the Minister could confirm whether that means it is the Government’s intention, as set out in the memorandum, for a freeport to be established in all four nations of the UK by 6 April 2022.
Jesse Norman
I thank the hon. Gentleman for his questions. He asked me to update the Committee on the detail of the discussions with the Northern Ireland Executive on a freeport and noted the comments made by the Select Committee. I am afraid I am not in a position to do that. These things are subject to current discussion and negotiation. It is a matter of some complexity and I do not think it would be appropriate to do so. I assure him that once matters have reached a conclusion and a consensus, Parliament will of course be given a full picture of what has taken place and I am sure colleagues will take a great interest.
He also asked a question about timing. For the reasons I have indicated, I do not think it would be prudent to specify a time by which a particular freeport, either one in process at the moment in England or one in the devolved Administrations, will be up and running. That is something for the Governments concerned and for the freeport operators and there will of course be processes of further designation that will need to be gone through. I assure him that it is certainly the UK Government’s intention that this should be done as rapidly and effectively as possible, across the whole of the UK.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill
Clause 6
Zero-rate contributions for armed forces veterans
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 7 stand part.
New clause 3—NIC relief for employers of veterans: review of the tax year of relief claims—
(1) The Government must conduct a review of how many veterans have been employed in 2021-22 in jobs for which employers have accessed the National Insurance contributions relief provided for under section 6 of this Act.
(2) The review must assess the impact on decisions around job creation of the requirement that the relief must be claimed retrospectively for 2021-22 rather than being available in real time.
(3) The review must be commenced by 30 April 2022.
(4) The review must be published and laid before Parliament by 31 July 2022.
This new clause would assess the impact of NIC relief for employers of veterans being claimable retrospectively for 2021-22, rather than in real-time.
New clause 4—NIC relief for employers of veterans: review of the period of NIC relief—
(1) The Government must conduct a review of how many veterans have been employed in jobs for which employers have accessed the National Insurance contributions relief provided for under section 6 of this Act.
(2) The review must assess the impact on decisions about the creation of jobs for veterans of the relief being available for earnings paid over a one-year period rather than a three-year period.
(3) A review must be conducted for each of the financial years 2021-22, 2022-23, and 2023-24.
(4) Each review under subsection (3) must commence within 30 days of the end of the relevant financial year.
(5) Each review under subsection (3) must be published and laid before Parliament within three months of its commencement.
This new clause will require the Government to evaluate the impact of the NIC relief for employers of veterans being available only for one year rather than three years.
Jesse Norman
We have considered the clauses concerning the zero-rate contributions for employees at freeport sites. I turn now to the second aspect of the Bill—the clauses on zero-rate contributions for armed forces veterans, starting with clause 6.
As the Committee will recall, the Government made a manifesto commitment to support ex-service personnel in their attempts to work to secure stable and fulfilling employment. Clauses 6 and 7 honour that commitment and provide employers with a zero rate of national insurance contributions on the earnings of qualifying veterans.
The Chancellor announced that policy at the spring Budget in 2020 and launched a policy consultation shortly after. The Government received 37 written responses from a variety of stakeholders and a response to that consultation was published on 11 January 2021. That response document outlined the final policy design. On 11 January 2021, the Government also published draft clauses for a technical consultation, which closed on 8 March 2021. Thus, the measure has been fully and effectively consulted upon, tested with stakeholders and debated by Parliament. It should be seen in that light.
Clause 6 introduces a zero rate of secondary class 1 NICs when the conditions in clause 7 are met. The relief can be applied on earnings up to the upper secondary threshold. Earnings above that threshold will be liable to the standard rates of NICs.
The relief will be available initially for three years. For the tax years 2022-23 and 2023-24, employers will have immediate access to the relief. For earnings in the 2021-22 tax year, employers will be able to claim the relief from 2022 onwards. The Government have sought to introduce this policy as quickly as possible, but practical and, in particular, IT considerations have meant that claims for earnings in the 2021-22 tax year will need to be at year end. That does not affect the amount of relief that an employer is able to receive.
The Government are keen to understand the effectiveness of the relief and will review the impact before deciding whether to extend it. Clause 6 provides the Treasury with the power to add additional years.
Clause 7 sets out the conditions that need to be met to allow an employer of a veteran to qualify for the zero rate that clause 6 provides. To qualify as a veteran for the relief, an individual needs to have completed at least one day of basic training in the regular forces. An employer can claim the relief for the first 12 months of a veteran’s first civilian employment since leaving the armed forces. The 12-month period starts on the first day of the veteran’s first day of civilian employment and ends 12 months later. Any employment in that period will qualify for this relief, which means that a veteran will not use up access to this relief if they take on a temporary role immediately after leaving the armed forces.
The relief will be available on the earnings of qualifying veterans from April 2021. Clause 7 also provides that a veteran can commence their first civilian employment before April 2021 and still qualify for the remaining period. Therefore, the 12-month period will begin on the first day the veteran took up their first employment and the relief will be made available only from 6 April 2021 for the remainder of that 12-month period.
Opposition new clauses 3 and 4 ask the Government to report on the impact of claiming the relief retrospectively and the impact of providing the relief for one year, rather than three. I shall explain why they are unnecessary. First, most of these issues were considered during the detailed consultation, which I have described. In addition, the Government have already committed to reviewing the measures and will, of course, be transparent about their expected impact. The policy costing for the measure and the underlying analysis were signed off and certified by the independent Office for Budget Responsibility, and the methodology was set out in the Budget policy costing document. As I say, the Government are committed to keeping the measure under review as new information becomes available. As part of the review process, HMRC and HM Treasury will speak to stakeholders to gauge their views on how the policy is operating.
Clause 6 will support veterans and help them to find stable and fulfilling employment, and it will provide employers with up to £5,500 in savings. I hope the Committee will agree to clauses 6 and 7 standing part of the Bill, and that the new clauses will not be pressed.
James Murray
Clauses 6 and 7 introduce an important relief, designed to help service personnel leaving the armed forces to get back into work. As I made clear on Second Reading, we believe that this is a vital issue. Veterans deserve the Government’s full support as they seek civilian employment after their service to our country. It is crucial to make sure that all veterans get the support they need.
Clause 6 sets out the detail of the relief. It provides for a 0% rate of secondary class 1 national insurance contributions up to an upper secondary threshold for the tax years 2022-23 and 2023-24. Earnings above the upper secondary threshold will be liable to secondary class 1 NICs at the secondary percentage, currently 13.8%. It also specifies that the relief is available for the 2021-22 tax year retrospectively. In practice, that means that employers need to pay secondary class 1 NICs as if the relief did not apply; then, from April 2022, they can claim the relief retrospectively for the earnings in 2021-22. The relief described by clause 6 applies if the veteran conditions in clause 7 are met. The conditions include that to qualify for the relief the earner is required to have served for at least one day in the regular forces, and that the relief is available for one year, beginning on the earner’s first day of civilian employment after leaving the armed forces.
On Second Reading, I asked Ministers to explain why the employer’s relief for veterans is for 12 months, which is much less than the relief for employers in freeports, which is 36 months. In her response, the Exchequer Secretary said:
“The answer is that the relief provides employers with up to £5,500 in savings per veteran that they employ. The aim of that policy is to support veterans’ transition into civilian life through encouraging employers to hire veterans.”—[Official Report, 14 June 2021; Vol. 697, c. 70.]
That did not address my question about why the Government had chosen to make the relief for veterans’ employers available for one year, rather than any longer; in particular, why not for three years, in line with the relief for freeport employers, which the Bill also introduces. That is why we wanted to raise the matter again, and why we tabled new clause 4, to address the impact of the Government’s decision.
New clause 4 would require the Government to conduct a review of how many veterans had been employed in jobs for which employers accessed the national insurance contributions relief provided under clause 6. The review would have to assess the impact on decisions on the creation of jobs for veterans of the relief being available for earnings paid over a one-year period rather than a three-year period. I would be grateful if the Minister agreed to undertake the review. If he does not, perhaps he will explain in greater detail why the Government have chosen a one-year period for veterans’ employers, rather than the three years for freeport employers.
New clause 3 is about enabling us to understand the impact of the Government’s reluctance to make the relief claimable in real time for 2021-22. As the Chartered Institute of Taxation sets out, it seems that the policy intention is that the relief will be available from 6 April 2021, although employers will need to pay the secondary class 1 NICs on the earnings of eligible veterans for the 2021-22 tax year, then claim them back retrospectively in April 2022. From the 2022-23 tax year onward, employers will be able to claim the relief in real time through their PAYE declarations.
The Chartered Institute of Taxation reasonably questioned why employers cannot self-serve the relief for 2021-22, once the legislation has been passed, especially given the challenging circumstances of the pandemic and the cash-flow implications. The institute asks whether HMRC could be permitted to exercise its discretion and to permit employers to make real-time claims for 2021-22 where their payroll software provides for suitable identification of eligible veterans.
Jesse Norman
I thank the hon. Gentleman for his questions. He repeated the question from Second Reading of why the measure is for one year, contrasting it with the freeports measures, which are for three years. The Exchequer Secretary was absolutely right, but it is important for me to add more colour.
The freeports measure is set at a lower upper secondary threshold, but for a longer period, because the goal is to bring people into an environment that has already been greatly supported by taxpayers, but to create circumstances in which they can have long-term secure employment, in particular with all the employment rights that come with more durable employment. The NICs relief for veterans is at a higher level for a shorter period, because the goal is to support a very specific process of transition, which veterans have as they come out of the armed forces.
Many people in the room have constituencies in which there are veterans or serving armed forces personnel, so they will appreciate the importance of the measure. Veterans are extremely skilled individuals who have extraordinary life experience, but there is often that process of transition. Therefore, the more effective approach is to provide more support for a shorter period to assist that transition in as flexible a way as possible.
Liz Twist (Blaydon) (Lab)
I understand the concept of the transition, but does the Minister not share my concern that it might go against the grain of what he is trying to do if we were to find that, after a period of one year of having the national insurance relief, people were out of employment? The proposal to look over a longer period would be beneficial to veterans in maintaining long-term employment.
Jesse Norman
I fully understand the concern of the hon. Lady, and precisely because the Government have been concerned about transition, we have introduced the relief. If it were the case that veterans still had a serious problem of finding secure and stable employment, of course that would be a matter that the Government would wish to reflect on and consider. I thank her for raising it.
To go to the second point raised by the hon. Member for Ealing North, he asked about the timing and the issues of real-time payments that the Bill contemplates. I understand the concern, in particular at this moment of pandemic when the Government are seeking to protect and support the cash flow of businesses and have done so across a vast number of them, across the whole of the United Kingdom, in many different forms. The Committee is aware of that.
The hon. Gentleman asked if we would look at that. Of course, I am happy to consider the matter further and to ask HMRC to consider it, but as he will recall, the matter has been given extensive consultation and internal discussion, and the IT and other problems that I described are not ones that can be wished away.
Sarah Owen (Luton North) (Lab)
When it comes to veterans’ national insurance contributions relief, I really feel that it needs to be for much longer than a year, for some of the reasons that the Minister has just highlighted. The cuts to 10,000 armed forces personnel come at a time when people are losing their jobs due to the economic pressures from the pandemic, and it seems very odd to say that we are looking at a long-term solution yet giving armed forces personnel the security of only one year.
Jesse Norman
I thank the hon. Lady for her question. I would repeat the points that I made earlier, which is to say that this is about managing a process of transition. The process of transition is one that has a beginning and an end. The key thing is to offer genuine support at a moment when a veteran needs it as they come out of the armed forces and go into employment, and to design that flexibly. That is what we have done. It has been extensively consulted on throughout a process with a series of stages, which have taken place during the pandemic and in which colleagues and wider stakeholders have been well sighted. It reflects the shared and calibrated understanding, but of course we recognise the concern that colleagues have raised, and we will continue to reflect on this policy, as we will on other tax policies.
Jesse Norman
No, I think we have had quite enough discussion of this topic. If the hon. Lady is going to raise a new point, of course I am happy to take the question.
Mrs Lewell-Buck
I am. The Minister says that he is confident about the argument he is making, and that the Government believe they are on the right track. With these new clauses, all the Opposition are asking the Government to do is evaluate and assess the decisions that they have made. Why will the Minister not do that, if he is confident about what they are doing?
Jesse Norman
As I have explained, we already have in place processes of evaluation and assessment. We will be following them, and this reflects an extensive process. It is lovely to see the Labour party waking up at last after its long slumbers, but the question that the hon. Lady raises is not, in fact, a new question; it is a reiteration of the same question, so I am going to stick with the answers I have already given.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7 ordered to stand part of the Bill.
Clause 8
Upper secondary threshold for earnings
Question proposed, That the clause stand part of the Bill.
Jesse Norman
I do apologise. We wait in expectancy and hope.
Clause 8 contains a regulation that would allow the Treasury to set for every tax year a freeport upper secondary threshold and a veterans upper secondary threshold over which the secondary percentage, rather than the zero secondary percentage, would apply. Different upper secondary thresholds may be set for each measure. The freeports bidding prospectus confirmed that the freeports UST would be set at £25,000 for the 2022-23 tax year. The veterans consultation document confirmed that the veterans UST would be £50,270 for the 2021-22 tax year.
On Second Reading, a question was asked about the freeport UST being lower than that for veterans. We have touched on it already, but let me come back to it. Unlike other NICs reliefs that are available to employers generally, businesses operating in a freeport are likely to be able to claim the refund for almost all their new hires. That is the basis on which the upper secondary threshold has been set, in the context of the wider generosity that has been given. Employers will still be able to claim up to approximately £6,500 of relief on the salaries of employees earning more than that. The clause also provides that regulations may specify that the veterans UST is set retrospectively, and that is for reasons that we have described and discussed.
I turn now to clause 9, which contains a consequential amendment in relation to the apprentice levy that is calculated by reference to employers’ annual pay bill. It amends section 100 of the Finance Act 2016 to ensure that earnings that are liable for the freeport and veterans zero rate of secondary class 1 NICs are still considered when calculating an employer’s annual pay bill. This approach is consistent with other employees’ NICs reliefs, such as the under-21 and under-23 apprentice reliefs.
James Murray
Clauses 8 and 9, which were discussed with earlier clauses, allow the Treasury to set an upper secondary threshold for secondary class 1 NICs specifically in relation to armed forces veterans and freeport earners every tax year. The Bill will therefore allow different thresholds to be set for veterans and freeport employees, and for those thresholds to be different from the thresholds that apply to under-21s and apprentices.
We welcome the fact that the Minister confirmed on Second Reading that the upper secondary threshold for veterans will be £50,270 in a veteran’s first full year of civilian employment. After the Minister’s explanation, however, I remain unconvinced by his argument for setting the threshold for employers in freeports below the average wage in freeport areas, as we discussed at length during debate on earlier clauses. If the Minister has had time to think further about his argument, I would welcome further explanation in his response. If not, I will leave my remarks there.
Jesse Norman
No, I have nothing to add. We have already discussed this at some length.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9 ordered to stand part of the Bill.
Clause 10
Treatment of self-isolation support scheme payments
Question proposed, That the clause stand part of the Bill.
Jesse Norman
It may help the Committee if I start by explaining some of the background to clause 10. We are making good progress, and we move now to the treatment of self-isolation support scheme payments in respect of contributions paid by the self-employed.
In response to the coronavirus pandemic, the Government announced last September the launch of a £500 support payment in England for low-income individuals who had been told to self-isolate but who could not work from home and would lose income as a result. The Scottish and Welsh Governments announced similar schemes shortly after that. To ensure that those payments, which are provided by local authorities, would not be subject to employee and employer class 1 and class 1A NICs, the Government introduced secondary legislation to exempt payments under the support schemes from employee and employer class 1 and class 1A NICs.
Clause 10 is intended to extend that exemption to the self-employed and retrospectively exempts Test and Trace support payments from class 2 and class 4 NICs for the 2020-21 tax year. The clause also enables the Government to ensure, through regulations, that future Test and Trace support payments will not be included in profits liable to class 2 and class 4 NICs.
James Murray
Clause 10 provides a national insurance contributions exemption for payments made under a self-isolation support scheme. That ensures that they are not taken into account for the purposes of computing profits liable to class 4 NICs or for the purposes of class 2 NICs.
As I set out on Second Reading, we welcome this exemption from national insurance contributions for payments made under a self-isolation support scheme. It is crucial that people who need support to self-isolate receive it, so we welcome any steps that make the system for self-isolation payments more effective and subject to less administrative burden.
The Minister may recall that on Second Reading I asked why the exemption for class 2 and class 4 contributions was not implemented earlier, in line with the exemption for class 1 contributions. In response, his colleague the Exchequer Secretary explained that
“class 1 NICs exemptions were made in regulations. However, the self-employed exemption requires primary legislation, and therefore is included in this Bill, as this is the earliest opportunity to legislate.”—[Official Report, 14 June 2021; Vol. 697, c. 69.]
I accept that the formal processes for introducing the exemptions for the different classes of NICs may differ, but my point on Second Reading was that announcing the class 2 and class 4 exemptions earlier could have given much-needed certainty to self-employed people at an earlier point in the outbreak. I am sure that the Minister would agree that self-employed people would have benefited from such certainty. The Exchequer Secretary seemed to claim in her comments that the Government’s intention was always to provide that relief for class 2 and 4 NICs, and the delay appears to have been for solely practical reasons.
I would therefore be grateful if the Minister confirmed exactly when the Treasury announced, by way of ministerial statement or other appropriate means, that the exemption for national insurance contributions would be extended to class 2 and class 4 contributions for payments made under a self-isolation support scheme.
Jesse Norman
The hon. Gentleman asks why it was not exempted earlier; the Exchequer Secretary was absolutely right that it is a quirk of our tax system that regulations should be used to exempt national insurance contributions on the employment side, but not these ones. I do not have the date that he describes at hand, and I am happy to write to him on that. It has always been the Government’s intention that the self-employed should benefit from that, as one would expect, given the nature of national insurance contributions and the overall treatment of employment and self-employment.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Disclosure of contributions avoidance arrangements
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Clause 11 widens the existing power in the Social Security Administration Act 1992 to make amendments to the disclosure of tax avoidance scheme regime known as DOTAS, which I mentioned earlier. The changes enable HMRC to obtain information and documents much earlier for avoidance schemes that HMRC suspect should have been notified to them but have not been disclosed. The changes will allow HMRC to issue a notice to anyone they reasonably suspect of being a promoter or other supplier involved in NICs tax avoidance schemes. It would require the provision of all documents and information that relate to the schemes in question. The amendments will ensure that regulations can be made mirroring the changes to the DOTAS procedures that are included in the Finance Act 2021.
The changes here are necessary to satisfy HMRC that a NICs scheme is not notifiable. If HMRC are not satisfied, they would be able to issue a scheme reference number, or SRN. DOTAS was introduced in 2004 and seeks to provide HMRC with early information about new tax avoidance schemes, how they work and those who use them. The equivalent regime for VAT and other indirect taxes, known by the unattractive label of DASVOIT—disclosure of avoidance schemes for VAT and other indirect taxes—was introduced in 2017.
Currently, when avoidance promoters fail to meet their DOTAS obligations, it can take HMRC a considerable period of time to challenge that failure, often years. Throughout that delay period, there is no disincentive to promoters continuing to promote their schemes, meaning that taxpayers may remain unaware of the risks they face and could end up with large tax bills.
It is appropriate that we should continue to act to protect taxpayers and discourage such behaviour from promoters where they involve NICS. The clause provides that future modifications to part 7 of the Finance Act 2004—Disclosure of Tax Avoidance Schemes—can be applied or modified so that they apply to NICs without the need for primary NICs legislation. That will enable changes to be made efficiently and effectively, with the minimum of separation in time, to ensure the rules continue to move in step. It is usual practice where an existing tax rule is extended to NICs, and I hope the Committee will agree that it is appropriate to have that in place.
The DOTAS regime provides HMRC with important early information, on the basis of which we can make interventions. The prompt disclosure to HMRC of proposals and arrangements that bear the hallmarks of tax avoidance will allow them to be fully considered and tackled much earlier and more effectively, as appropriate.
James Murray
Clause 11 widens existing regulation-making powers so that regulations can be made for national insurance, mirroring the amendments to the disclosure of tax avoidance schemes—DOTAS—procedures that are included in the Finance Act 2021. This measure, and its counterpart in the Finance Act, means that when HMRC suspects someone has failed to disclose arrangements or proposed arrangements that should have been notified to them under DOTAS, it may issue a notice to anyone it suspects of being a promoter or other supplier involved in the supply of the arrangements. The notice explains that if the person is unable to satisfy HMRC that the arrangements are not disclosable, HMRC may allocate a scheme reference number to the arrangements.
As I made clear on Second Reading, we welcome any measures that help HMRC to track tax avoidance schemes. During the debate, I drew Ministers’ attention to a point made by the Chartered Institute of Taxation: that it believes that there is a hard core of between 20 and 30 promoters, identified by HMRC, who clearly do not play by the rules. I asked:
“Do Ministers recognise that number? If so, I would be grateful if the Exchequer Secretary set out what goals HMRC has to clamp down on those 20 to 30 hard-core promoters.”—[Official Report, 14 June 2021; Vol. 697, c. 53.]
Unfortunately, the Exchequer Secretary did not address those questions at the end of Second Reading, so I am glad to have the chance today to raise them again for the Financial Secretary to address. Would he comment on whether he recognises 20 to 30 as the number of hardcore promoters, and on whether there are any targets with dates by which Ministers expect the number of hardcore promoters at large to fall substantially?
Jesse Norman
Again, I thank the hon. Gentleman for his question. It is HMRC’s view—as he says that it is the Chartered Institute of Taxation’s view—that some 20 or 30 promoters are in the market at present. HMRC are vigorously applying themselves to curtailing that activity and to supporting and protecting taxpayers. The Bill will give them an important additional tool with which to do that. By their nature, the promotion of tax avoidance schemes is constantly changing and evolving; promoters are highly resourceful in seeking new ways to sidestep responsibilities and avoid the attention of HMRC. That is one reason why the earlier interventions and the greater flexibility that we have provided are so important.
For that reason, I do not think that it would be prudent to make an estimate or assessment of what the appropriate number of promoters is or could be. The number that we want, obviously, is zero: we would like to see no promotion of tax avoidance schemes in the market, because it is a reprehensible and disgraceful practice.
To reassure the hon. Gentleman and other members of the Committee, I will say that over the past six years, more than 20 promoters have left the market. That is a significant achievement that reflects the decisions that have been made. As I have also indicated, there has been a substantial reduction more widely in the overall tax gap, which bears testimony to HMRC’s wider effective prosecution and collection of unpaid tax.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Regulations
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Clause 12 specifies how regulations are to be made under the Act and the parliamentary procedure that will apply to them. I ask the Committee to agree that it stand part of the Bill.
James Murray
As we turn to clause 12, which provides for regulations under the Bill to be made by statutory instrument, I would like to discuss which regulations can be decided by the negative and the affirmative procedures. It might be helpful to focus on clause 3(3), which is mentioned in clause 12.
Clause 3 gives the Treasury regulation-making powers to
“provide for circumstances in which a freeport condition is to be treated as being met.”
That has the effect of making the relief available in circumstances in which it would not otherwise be. We note that clause 3 also gives the Government extensive powers to
“amend, repeal or otherwise modify”
the relief. Although it will always be easier for the Government to amend legislation by way of regulations, we recognise the concerns that the Chartered Institute of Taxation has articulated that the powers to make those changes are extensive. There may well need to be flexibility to allow the finer detail of legislation to be amended, but there is a strong argument that any fundamental changes should be subject to full consultation and scrutiny.
I would be grateful if the Financial Secretary explained why he considers that the powers granted in clause 12, with effect on clause 3, to make decisions by way of regulations are proportionate. Does he agree that the clause gives the Government more powers than are desirable to change key elements of the policy by regulations? In particular, given that regulations under clause 3(3), which relate to freeport conditions, are subject to the affirmative procedure, will he explain why regulations under clause 3(2), which also relate to freeport conditions, are subject to the negative procedure instead?
Jesse Norman
I thank the hon. Gentleman. Clause 12(2) specifies that regulations made under the Act are subject to the negative procedure, except for clause 3(3), which relates to the power conferred on the Treasury to add, remove or alter the qualifying conditions for the freeport relief; clause 5, which relates to the power conferred on the Treasury to apply for a freeport secondary class NICs relief in Northern Ireland; and clause 8, which relates to the power conferred on the Treasury to specify the amounts of veterans’ and freeports’ upper secondary threshold. All three are subject to the affirmative procedure.
As the hon. Gentleman will be aware, the Treasury takes extremely seriously the question of what are its appropriate powers, and there has been considerable discussion and indeed parliamentary engagement on what the appropriate powers for HMRC should be in each case. In this case, the normal procedure has been followed, which is to try to recognise the public policy intent and overall public benefit of a more flexible arrangement, but also to respect the parliamentary procedure that where a measure includes new burdens or new taxes, or makes material changes of those kinds, they should be subject to an enhanced level of scrutiny by Parliament, provided by the affirmative procedure. That is the approach that we have taken.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clause 13
Interpretation etc
Question proposed, That the clause stand part of the Bill.
James Murray
I do not have any specific concerns to raise in relation to the interpretation or the short title. May I take this opportunity, as it is the final clause under consideration in Committee, to thank my hon. Friends for joining me on the Committee, to thank you, Ms Nokes, as Chair, and to give special thanks to the Clerks, the Library and the Chartered Institute of Taxation for all their advice during the passage of the Bill so far?
Jesse Norman
If I may say so in a similar spirit, as I may not have the chance to do so after the conclusion of deliberations on the final provisions, let me also offer my thanks to you, Ms Nokes, to the Clerks, to my colleagues and also to the officials at the Treasury and HMRC for the work that they have done to prepare the Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14 ordered to stand part of the Bill.
New Clause 6
Zero-rate contributions for employees of green manufacturing companies
(1) This section applies where—
(a) a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) of the 1992 Act in respect of earnings paid in a tax week in respect of an employment,
(b) the green manufacturing condition is met, and
(c) the employer (or, if different, the secondary contributor) elects that this section is to apply in relation to the contribution for the purposes of section 9(1) of the 1992 Act instead of section 9(1A) of that Act or section 1 of this Act.
(2) For the purposes of section 9(1) of whichever of the 1992 Acts would otherwise apply—
(a) the relevant percentage in respect of any earnings paid in the tax week up to or at the upper secondary threshold is 0%, and
(b) the relevant percentage in respect of any earnings paid in the tax week above that threshold is the secondary percentage.
(3) The upper secondary threshold (or the prescribed equivalent in relation to earners paid otherwise than weekly) is the amount specified in regulations under section 8.
(4) For the purposes of the 1992 Acts a person is still to be regarded as being liable to pay a secondary Class 1 contribution even if the amount of the contribution is £0 as a result of this section.
(5) The Treasury may by regulations make provision about cases in which subsection (2) is to be treated as applying in relation to contributions payable in respect of a tax week in a given tax year only when—
(a) that tax year has ended, and
(b) all contributions payable in respect of a tax week in that tax year have been paid.
—(Richard Thomson)
This new clause provides NIC relief for businesses in freeports dealing with green manufacturing products.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 7—Green manufacturing condition—
(1) The green manufacturing condition is that the employer is engaged in the manufacture of products within the categories designated under subsection (2).
(2) For the purposes of subsection (1), the Secretary of State must by regulations designate categories of products that in the opinion of the Secretary of State are manufactured with the aim increasing environmental standards. The categories of products designated must include—
(a) wind turbines, and
(b) electric vehicles.
This new clause is linked to NC6.
Richard Thomson
With your permission, Ms Nokes, I would like to speak to new clauses 6, 7 and 8, if that is possible. I will just wrap everything into one debate. I would like to add my own thanks to the Clerk and you, Ms Nokes.
Richard Thomson
Okay. In that case, on new clauses 6 and 7, I simply seek to make the point that there is a strong appetite to find new ways to support the economy, especially in those sectors that can contribute to green recovery, beyond the covid recovery and into the future.
A key element in progressing that, along with the cost curve for new technologies, is driving competition and, through that, improvement. Providing exemptions on NICs and ensuring that they are targeted on businesses engaged solely in green manufacturing could do much to drive that innovation and improvement. That requires that incentives are targeted at enterprises that are engaged in green manufacturing and in driving that new green industrial revolution.
New clause 7 provides examples of two categories of products that clearly fall within that bracket, although there is certainly scope to expand beyond that, but I think that the principle stands. If that strategy is not to be achieved in that manner, it certainly should be achieved in other ways. I would welcome the Minister’s remarks on that. It is not my intention to push the new clause to a vote.
Jesse Norman
I thank the hon. Gentleman for his speech and his attention to the Bill. The new clauses tabled by the Scottish National party would create a new zero rate of secondary class 1 NICs for employers that are classed as “green manufacturing companies”, including those that produce wind turbines and electric vehicles. In considering such a measure, it is important for the Government to balance the different potential benefits and costs in a context that respects the requirement to manage public money and support public services.
A change to the tax system of this kind needs careful consideration and assessment of costs and benefits and goes far beyond what should be done via amendment in such a Bill. Designing a sector-focused relief is not straightforward and it adds complexity to the tax system. Having said that, the Government take supporting green manufacturing companies extremely seriously, and we have a raft of policies in place to do that. For example, since 2013, the Government have provided £150 million a year for the Aerospace Technology Institute, match-funded by industry to support the development of incremental improvements to existing aerospace technology, alongside zero-emission technology to protect and secure the sector. That includes £84.6 million of investment to develop zero-emission flights, and further support for other potential zero-emission aircraft concepts. There are many other areas, including support for the Advanced Propulsion Centre and the Faraday battery challenge, let alone all the work that has been done to subsidise the development of offshore wind, which attest to the importance the Government place on green manufacturing and green manufacturing jobs.
I encourage the Committee to reject the new clause, but I acknowledge that the Government fully share the policy intent.
Richard Thomson
On the basis of the Minister’s remarks, the principle stands, but on this occasion, I will not seek to progress by moving to a vote. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 8
Scottish Government Covid payments: exemption from primary Class 1 contributions
(1) A primary Class 1 contribution is not to be payable in respect of any Scottish Government Covid payment.
(2) For the purposes of subsection (1), a ‘Scottish Government Covid payment’ means a payment of £500 pro rata to any NHS Scotland or social care worker in accordance with the announcement made by the Scottish Government on 30 November 2020.”—(Richard Thomson.)
This new clause provides exemptions for Scottish Government Covid payments to social care workers.
Brought up, and read the First time.
Richard Thomson
I beg to move, That the clause be read a Second time.
As this will be my penultimate contribution, I would like to offer my thanks to the Clerks and everyone who has helped the proceedings to move so smoothly, through your chairmanship, Ms Nokes, which has helped considerably with that objective.
On Second Reading, I remarked on the unfairness that was caused by the Treasury’s refusing to exempt income tax on the thank-you payment that the Scottish Government made to health and social care workers. It was in the form of a £500 thank-you bonus to reflect how health and social care workers were valued for their contribution during the incredibly challenging period that we have been through. The full benefits of that payment have been put at risk by the UK Government’s ability to tax us. Contrary to a number of assertions, the Scottish Government do not have the ability to get round that, other than by paying far more than the £500. It would therefore be far better to have the exemption in place.
Although an exemption for the bonus would be welcome, we recognise that the majority of welfare employment powers reside with the UK Government. We therefore want to press the new clause to ensure that clarity is provided and that any future payments for health and social care workers can be exempt from national insurance contributions.
Jesse Norman
I thank the hon. Gentleman for his comments and, again, his attention to the Bill. The Government recognise, as he does, that covid-19 is the biggest threat the UK has faced socially, economically and in many other respects for many decades. Key workers, including social care workers and workers in the NHS, have demonstrated an astonishing commitment to keeping the public safe in the fight against the disease. The Government massively value and appreciate those contributions. However, in this case, although I understand where the hon. Member is coming from, the Government do not believe that the new clause is appropriate or necessary. We fully recognise the hon. Member’s concern, but we do not believe the new clause is the appropriate way to proceed.
Under long-standing rules, any payments made in connection with an employment are chargeable to income tax and national insurance contributions. They also count as income for the purposes of calculating entitlement to certain benefits. The £500 payments made by the Scottish Government to health and social care workers function as a top-up to wages. We therefore consider that those payments are taxable as earnings under normal rules, as I think has been recognised by the Welsh Government.
The UK Government have provided more than £5.9 billion of additional funding for the Scottish Government this year through the Barnett formula. If the intention of the Government in Scotland is for health and social care workers to benefit by at least £500, it remains open to them to gross up the payment to take into account the tax and NICs liabilities, as the Welsh Government have done.
Richard Thomson
I think everything that needs to be said has been said. On that basis, I would like to move to a vote.
Question put, That the clause be read a Second time.
National Insurance Contributions Bill
Tuesday 7th September 2021
(3 years, 2 months ago)
Lords ChamberRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Amendment Paper: Notices of Amendments as at 6 September 2021 - (6 Sep 2021)
National Insurance Contributions Bill
Wednesday 1st December 2021
(2 years, 11 months ago)
Lords ChamberRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Amendment Paper: Notices of Amendments as at 6 September 2021 - (6 Sep 2021)
Viscount Younger of Leckie (Con)
My Lords, national insurance Bills, as I am sure many noble Lords are aware, occur regularly, often every two to three years, and NICs—as I will refer to them—have been debated countless times in this House since their introduction in 1911.
The Bill before noble Lords today is short but important, and it allows the Government to implement two new national insurance reliefs to support employers to hire new staff and deliver on manifesto commitments. It contains just 14 clauses and introduces four new measures: first, an employer NICs relief for new employees in free ports; secondly, an employer NICs relief for employers of veterans; thirdly, an exemption for test and trace support payments from self-employed NICs; and fourthly, changes to disclosure of tax avoidance schemes legislation with regards to NICs. I will explain each of these measures in more detail.
I will start with the employer NICs relief for new employees in free ports, which is contained in Clauses 1 to 5. This measure will support the delivery of the Government’s free ports programme, which will attract new businesses and regenerate communities by creating jobs, boosting investment and spreading prosperity.
Free ports present a great opportunity to drive regional growth, and the Government want as many areas across the UK as possible to benefit, including in Scotland, Wales and Northern Ireland. At the Budget, the Chancellor announced the locations of the first eight free ports in England. These sites, which range from Teesside to Tilbury, will become hubs for trade, innovation and commerce. They will attract new businesses and regenerate communities by creating jobs, boosting investment and spreading prosperity.
Noble Lords will be aware that a large part of the appeal of free ports for employers will be the wide variety of tax reliefs available. The incentives aimed at promoting regional growth include: an enhanced 10% rate of structures and buildings allowance; an increased 100% capital allowance for companies investing in plant and machinery; and full relief from stamp duty on land or property purchases.
In addition to these measures, we are also encouraging firms located in free ports to recruit employees based locally. The employer NICs relief for new workers in free ports, contained in this Bill, will help to achieve this goal, while supporting regional growth. Under this measure, employers with premises in a free port in Great Britain will be exempt from employer NICs on up to £25,000 of a new worker’s wages. This legislation applies to all new workers who spend 60% of their working time at a free port tax site in the first three years of employment. The relief will be available from 6 April next year, and it is the Government’s intention to make this relief available for up to nine years.
By April 2026—at the four-year mark of the scheme—the use and effectiveness of the relief will be reviewed and a decision will be required by the Government on whether to extend the relief beyond its earliest end date of 5 April 2026. Any decision to extend will be taken only on review of the relief’s impact. However, even if the Government decide not to extend the relief, employers will be able to claim it for the full three years on new hires taken on or before 5 April 2026.
Although these measures relate to Great Britain, I assure the House that it is the Government’s intention to legislate for this relief in Northern Ireland as soon as it is practicable. The Government remain in constructive discussion with the Northern Ireland Executive about the detail of the offer in Northern Ireland, and it is right that we ensure that the appropriate time is given for these discussions to continue to ensure that the offer is right for ports, businesses and communities in Northern Ireland, and meets our international legal obligations. Noble Lords will be aware that the Bill provides the Government with the power to set out the detail of the employer NICs relief in Northern Ireland in regulations that are subject to the affirmative procedure, once engagement with the Northern Ireland Executive is complete.
I now turn to the measure concerning the NICs relief for employers of veterans, which is contained in Clauses 6 and 7. As Noble Lords may recall, this policy was announced at Spring Budget 2020. It also fulfils a manifesto commitment to reduce employer NICs for a full year for every new employee who has left the Armed Forces, and to support veterans as they transition into civilian life. The UK’s veterans have given extraordinary service to our nation, but we know that some face great challenges in obtaining secure and fulfilling employment. It is only right that we do all we can to help them.
As noble Lords will be aware, this House has just passed the Armed Forces Bill, which, among other measures, fulfils the 2019 manifesto commitment to incorporate further the Armed Forces covenant into law. The new provisions in that Bill relating to the covenant are part of Government’s programme to ensure that members of the Armed Forces, veterans and their families are treated fairly.
Under this legislation, organisations will not pay employer NICs on earnings worth up to £50,270 in a veteran’s first full year of civilian employment. This amounts to a saving of up to £5,500 per hired veteran for the 2021-22 tax year. Indeed, the Federation of Small Businesses has urged
“every small employer to consider the value this relief can bring in helping them take on a new member of staff”.
This measure constitutes a real boost to veterans’ employment prospects. It should mean that many more businesses benefit from our veterans’ brilliant skills and experience.
I turn to the next measure included in this Bill: the exemption of test and trace support payments from self-employed NICs. At every stage of the coronavirus crisis, this Government have done what it takes to support the people of this country. However, if we are to contain the spread of the virus, it is crucial that those told to self-isolate by NHS Test and Trace do so.
Last September, the Government announced the launch of a £500 support payment in England for low-income individuals who had been told to self-isolate but could not work from home and would lose income as a result. As of 17 November 2021, local authorities have reported 362,573 successful claims since the start of the scheme, totalling £181.3 million in payments in England. Happily, the Scottish and Welsh Governments announced similar schemes shortly afterwards.
These payments, which were provided by local authorities, would ordinarily be subject to employee and employer, class 1 and 1A, and self-employed, class 2 and 4, NICs under long-standing legislation. Last year, we introduced secondary legislation to exempt payments under the support schemes from employee and employer, class 1 and 1A, NICs. The measure contained in this Bill will extend this exemption to the self-employed.
This legislation is intended to ensure these workers are treated consistently with their employed counterparts and do not have to pay NICs on support payments. It will therefore retrospectively exempt test and trace support payments from class 2 and 4 NICs for the 2020-21 tax year. It will also ensure that, in future, test and trace support payments will not be included in profits liable to class 2 and 4 NICs.
I turn to the final measure in this Bill: the changes to the disclosure of tax avoidance schemes regime for NICs, contained in Clause 11. Noble Lords may recall that the so-called DOTAS legislation was introduced in 2004. It seeks to provide HMRC with early information about new tax avoidance schemes, how they work and those who use them. The provisions in the Finance Act 2021 enhance the operation of the DOTAS regime, ensuring that HMRC can act decisively when promoters fail to provide information on suspected avoidance schemes.
In this regard, the NICs Bill includes changes to an existing regulation-making power in the Social Security Administration Act 1992. It will also ensure that HMRC can warn taxpayers about suspected avoidance schemes earlier than at present. In addition, this Bill places responsibility for the obligations within DOTAS and any failure to comply with them on both promoters of these schemes and their suppliers. The measure will not adversely impact legitimate businesses giving legal and commercial advice. Only those actively participating in the promotion, marketing or enabling of avoidance will be pursued.
By strengthening the existing anti-avoidance regimes and tightening rules we will ensure that those involved in promoting these unscrupulous schemes face the full consequences of their actions. I assure noble Lords that the Government will continue vigorously to tackle all avoidance schemes and their promoters.
I would like to say a few words about the report of your Lordships’ Delegated Powers and Regulatory Reform Committee, which has recently come out. I wish to reassure the committee and noble Lords here today that the Government are carefully considering the recommendations made by the committee. We will write to the committee with our response to the recommendations made, ensuring full transparency, in due course.
I conclude by briefly reminding the House of this Bill’s key purposes. It supports regional growth, and with it our levelling-up agenda; it boosts employment, while helping to protect those on low incomes from the financial impacts of Covid-19; and it strengthens our powers to tackle promoters of avoidance schemes. With that, I commend the Bill to the House.
Lord Davies of Brixton (Lab)
My Lords, I thank the Minister, the noble Viscount, Lord Younger of Leckie, for his clear and—given the time—concise exposition of the Bill. I hope that if, in my remarks, I express less than total support, he will not take that personally.
There are many aspects of this Bill that cause me some concern. Maybe there are not many of us left, but I believe in the National Insurance Fund, going back to the National Insurance Acts of the post-war Labour Government—a fund that you pay into while you are at work and that pays you benefits when you are sick, unemployed or retired; a fund that is guaranteed by the Government. Regrettably, it has come to be treated by successive Governments as a catch-all source of short-term political fixes that are nothing to do with a logical system of national insurance. Today’s Bill is a prime example.
One point that I particularly regret is the almost complete absence of any sort of financial information on how the Bill will affect the financial state of the National Insurance Fund. To me it is axiomatic that when changes are made to the contributions paid into or the benefits paid from the fund, Parliament should be presented with a report from the Government Actuary. Instead, we have a few figures in the Explanatory Memorandum and a few more—somewhat tardily—in the budget report from the Office for Budget Responsibility. Notably, the OBR spends some time explaining how uncertain the figures are.
None of the figures can be taken seriously, because this is what can be described as “performative legislation”. It is not being put before us because there is any sound logical or evidential basis, or even a clear idea of the effect of the legislation. It is just a performance, with the only idea behind it being the political benefit—its source in manifesto commitments gives that game away. It is here only because the Government want to say, “Look, here’s what we are doing: we are supporting veterans—who can object? We are promoting economic development—who can object?” But there is no evidence that it will have any sort of material impact, least of all on the stated objectives.
It is worth reading out the views of the OBR on the freeports issue. It said that
“given historical and international evidence, we have assumed that the main effect of the freeports will be to alter the location rather than the volume of economic activity, so the costs have been estimated on the basis of activity being displaced from elsewhere. To the extent that activity is genuinely additional, it will be revealed in GDP and receipts data over time, though given the small scale relative to the whole economy, such effects would probably be difficult to discern even in retrospect.”
So the promise to have a review of the policy is nonsense. We will not have any idea whether it achieves what the Government say it will. This is no surprise. Anyone who knows anything about the history of government efforts to promote local economic development knows that the same mistakes will be made time and again. There are a host of factors that we know lead to additional growth—connectivity is the big one—but relatively trivial tax incentives are way down the list.
I also draw the House’s attention to the evidence on the freeport provisions presented to us by the Chartered Institute of Taxation. It raises several technical issues that we will come to in Committee, but there are some more general points which I will paraphrase—these are my words, not the institute’s, but my comments are based on its evidence. Its questions are as follows. What evidence do the Government have for believing that these proposals will achieve their intended benefits? What about the risk that economic activity will be diverted from other, fully taxed areas, rather than increased overall? Will the impact not be felt through a rise in commercial property prices in the areas concerned, rather than fully in increased activity? These are serious questions; perhaps the Minister can start to enlighten us on these points.
The truth is that the Government’s policy of levelling up, of which freeports are a part, is a slogan in search of policies. However facile the proposal, it is the press coverage that counts, rather than the impact on the ground. The same general point applies to the national insurance relief for veterans. Again, there are technical difficulties that we will have to deal with in Committee but, to put it bluntly, the idea itself is bogus.
Of course, this is no attack on veterans, who deserve our support, but does anyone honestly believe that this policy will make any material difference to their employment prospects? If the Government are serious about the employment prospects of our veterans when they leave service, they should undertake a comprehensive review of the difficulties they face. Education and training opportunities are obviously the key, with direct financial support where necessary—resettlement grants and so on. I have little doubt that a comprehensive review would find that this money would be better spent in ramping up support for the existing services available for veterans. Again, this is all about presentation rather than substance.
Finally, I want to ask a question on Clause 11, about the disclosure of contributions avoidance arrangements. We will of course want to oppose avoidance arrangements for national insurance contributions, just as we are against avoidance arrangements for income tax, and it seems entirely reasonable that the two should be brought in line. But it would be helpful if we knew a bit more about what the Government have in mind here. Are there examples of national insurance contributions avoidance where action has proved difficult or impossible under existing arrangements? More specifically, what about the example of salary sacrifice? These are arrangements that are established specifically to permit employees and employers to pay less in national insurance contributions.
We are in the odd position that some of these arrangements—for example, pensions—get HMRC’s blessing, but others do not. It is difficult to see how all the arrangements do not fall, in everyday language, under the heading of avoidance. We need some certainty here. Will the Minister provide us with a clear explanation of what impact Clause 11 is intended to have?
Lord Bilimoria (CB)
My Lords, on 7 September, as president of the CBI, I spoke of the Government’s plan for social care reform and funding and said:
“There is genuine consensus in the country that social care reforms and greater investment are long overdue.
Businesses accept difficult choices need to be made, but are already set to be hit by a substantial rise in corporation tax in 2023.
After all that business has gone through during the pandemic and the fantastic Government support that followed, now is not the time for tax increases. It’s time to stimulate investment and growth in the economy.
National Insurance increase will directly hurt a business’s ability to hire staff, at a time when businesses have faced a torrid 18 months and are now fighting crippling labour shortages.
Government must be wary of heaping further pressure on businesses who will be central to the recovery, particularly by making it more expensive to recruit.”
I said at that time that this autumn and winter
“will be a critical period if we are to drive a sustainable recovery. The Government must use all the levers it has in its power to encourage more businesses to invest in the months to come and do everything it can to encourage growth.”
That is exactly what the Minister said when he said that parts of this Bill support regional growth.
The National Insurance Contributions Bill introduces new measures regarding national insurance contributions. National insurance is a tax on earnings—some people call it a tax on jobs. It raises huge amounts for the Exchequer. National insurance contributions were forecast to raise almost £150 billion in 2021-22, so they are one of the main ways in which tax is raised.
As I mentioned earlier, on 7 September the Government announced plans to increase the funding of health and social care through a new tax: the health and social care levy, which will be applied from April 2022 via 1.25 percentage point increases on national insurance for employees and employers. The Bill is of course separate from these rises.
Of course, the Bill introduces relief for employers based within free port tax sites. As the noble Lord, Lord Davies, just mentioned, it also introduces national insurance contribution relief for employers of ex-servicepeople. Anything that the Government can do to help them is brilliant, and I applaud them for making an effort.
There are eight new free ports that would be hubs for trade and help to regenerate communities. Of course, we know that, for the eight in England, the successful bidders have been East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth and south Devon, Solent, Teesside and Thames. I have personally met with the young mayor of Teesside, Ben Houchen, who is championing his area, and I heard first-hand about his exciting plans for increasing investment in Teesside, including with the free port.
Clause 1 will allow an employer to qualify for a zero rate of secondary class 1 national insurance on the earnings of an employee at a UK free port site. This would be zero up to the UST, which has been set at £25,000. This was challenged in the debate in the other place, and I ask the Minister: why is it £25,000? In areas where there are other relief schemes, it is set at over £50,000. The more generous it is, the more it will attract investment—if that is the objective, should we not do that? For ex-service personnel, the NIC relief is only for 12 months, while for the free port scheme it is three years. Why cannot the relief period for ex-servicepeople be longer?
The principle of free ports is to encourage investment, including by reducing taxes, to generate growth and jobs and, therefore, eventually raise more revenue. The Bill could have gone so much further in incentivising investments and reducing taxes. There is much research from around the world that shows that lowering taxes actually increases growth. I cite Mertens and Olea: a one percentage point decrease in tax increases real GDP by 0.78% by the third year after the tax change. In America in 2019, Zidar found that a tax decrease of 1% of state GDP for the bottom 90% of earners increases state GDP by 6.6%. I could go on. In 2018, Ljungqvist and Smolyansky looked at 250 state corporate tax changes from 1970 to 2010 to assess their impact on employment and income. They found that a cut of one percentage point in statutory corporate tax leads to increases of 0.2% in employment and 0.3% in wages. They find tax increases almost uniformly harmful, while tax cuts seem to have their strongest positive impact during recessionary environments.
Of course, the most famous of them all is Arthur Laffer, the American economist. The Laffer curve suggests that when the tax level is too high, lower taxes will boost government revenue and create higher economic growth. This theory formed the basis of the growth that took place in the 1980s with so-called Reaganomics, which saw low levels of inflation, a steep rise in private investment and rising incomes. In fact, between 1982 and 1990, the foundations of the Laffer curve enabled the second longest peacetime economic expansion in the history of the United States. Of course, Arthur Laffer advised President Reagan and Margaret Thatcher.
In this country spending is at its highest level since the 1970s and the tax burden is the highest in 70 years. Inflation has already hit 4.2%, and the Resolution Foundation estimates that real wages in 2024 will be just 2.4% higher than in 2008, compared with a 36% rise in the 16 years before the financial crisis. In 2016, the IMF said that austerity policies do more harm than good.
In September, the CBI’s director-general, Tony Danker, gave a speech on business investment. He said we should be doing everything we can to flip business taxes on their head and reward firms which invest; that is essential to high growth and a sustainable recovery. He said that one of the key levers the Government can use to get businesses investing more is smarter taxation. They should reward the firms which invest and stop punishing, for example, greening UK building stock through business rate increases. Does the Minister agree that the business rates system is not competitive and needs huge reform? Does he agree that business investment in the UK has been seriously underpowered since the 1990s? It has deteriorated from 14.7% of GDP in 1989 to a low of 10% at the end of 2019. Of course, we have had the pandemic, and we are still set to be 5% below our pre-Covid levels by the end of 2022. So, we need to do everything we can to increase investment.
However, between 2021 and 2025, the UK Government are projected to invest an average of 3.4% of GDP, compared to 3.9% in America, 4.1% in Canada, 5.9% in Japan and 9% in China. In 2019, net zero and green spending represented 3.8% and 1.8% of the US and EU economies, compared to just 0.55% for the UK’s climate funding. So, we have a huge opportunity here. The Government’s innovation strategy says all the right things to capitalise on the UK’s potential to be a global innovation hub and leader, but the ambition needs to be backed right now.
Our business rates are four times higher than Germany’s, three times higher than the OECD average and higher than those of any other G7 country. Surely, we need to do things such as reform business rates to increase investment. We invest 1.7% of our GDP in research and development and innovation. In 2019, the figure in Germany was 3.2% and 3.1% in the US. Just imagine the impact on our productivity if we invested just one percentage point more.
To conclude, one of the objectives of the Bill is very important, but I do not think it is going anywhere near far enough to genuinely increase investment. The Government say they want a high wage, high growth, high investment, high productivity, high skill economy. I agree with that 100%, but right now we are facing a high tax economy, including the planned corporation tax and national insurance increases, the business rates I have just spoken about and the highest tax burden in 70 years. We need to stop hiking taxes and focus on boosting investment, because that will create the jobs that will pay the taxes that will pay for the debt.
Lord Sikka (Lab)
My Lords, this Bill hangs on the failed concept of free ports, which are effectively a state within a state where vast amounts of money are showered on few, with little, if any, tangible benefits for the public at large.
We have had free ports before. They were created under Section 100A of the Customs and Excise Management Act 1979. Seven operated at various times between 1984 and 2012. In July 2012, the Government let the enabling statutory instrument lapse. Freeports morphed into enterprise zones, and many of those still exist.
In May 2014, the House of Commons Public Accounts Committee’s report, Promoting Economic Growth Locally, concluded that the Government’s claims of job creation in enterprise zones were “particularly underwhelming”. The Government promised 54,000 new jobs in these zones. BBC-commissioned research found that by 2017, only 17,307 jobs had been created against that claim of 54,000. These jobs were created in 24 zones, and in two others, the number of jobs actually fell. The Government seem to forget that it is investment in education, healthcare, social infrastructure and equitable distribution of income that gives people the spending power with which to buy goods and services. All these things are neglected by the Government. Unsurprisingly, these jobs were never fully created. I look forward to having a debate with the noble Lord, Lord Bilimoria, about the Laffer curve, one of the overstated theories that I would love to debunk. However, that will have to wait for another day.
This history of failures of the enterprise zone and freeport zones informs the OBR’s assessment. Page 211 of its commentary on this year’s Budget, it says that there is
“broader uncertainty around how much of the economic activity that takes place within a freeport will have been displaced from other UK regions and how much is genuinely additional”.
In the light of that, it would be helpful if the Minister can provide an impact assessment of the Bill assessing the gains, or the assumed gains, in freeports, and the losses that will be caused to other parts of the economy. What will happen to the towns that lose some of their economic activity to freeports?
The zero-rate contribution mentioned in the Bill is available to an employer other than a public authority. This is very strange. The Bill says that “public authority” includes any person whose activities involve the performance of functions which are of a public nature. It is hard to think of any entity which does not do anything of a public nature these days. This definition is not helpful at all. Many public functions are outsourced these days. Would a company performing public functions be precluded from making zero-rate contributions? An energy company located in a freeport zone can enjoy the benefit of the zero-rated national insurance under the Bill, but if a local council becomes an energy supplier, as many have in recent years, I do not think that it would then qualify under this Bill for the zero-rate national insurance contributions.
The Bill does not provide any clarity on the concept of public authority, and it is also utterly unfair. I hope the Minister can shed some light on this. Why is it that a company that might provide energy, cleaning, lighting and other services can somehow get zero-rate contributions, but if a local authority does the same, it will not?
The Government have not published a full impact assessment of the Bill. What will be its impact on the national insurance revenues, a point already touched on by my noble friend Lord Davies of Brixton? On page 11, the Explanatory Notes accompanying the Bill estimate the cost of the
“zero-rate secondary Class 1 Contributions for armed forces veterans”
over the next three years to be £55 million. However, for the zero-rate secondary class 1 contributions for freeport employees, which is a major part of this Bill, the Explanatory Notes say:
“This measure is expected to decrease receipts. The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event”.
This is not satisfactory. Do the Government not have any idea of the cost of this policy? Why are they giving national insurance concessions to a select few without knowing the full cost?
The Treasury Red Book shows that the cost of free-port tax perks, which includes
“reliefs on Stamp Duty, Enhanced Capital Allowances … NICs and Business Rates”
over the next five years is £270 million. These numbers could not have been calculated without some assumptions about the number of jobs, the details of national insurance and other things. What assumptions did the Government make in coming up with these numbers? I invite the Minister to share the information with us, so that we can see how realistic the Government’s numbers are.
The Bill is offering a national insurance holiday to employers, which will result in lower revenues in the National Insurance Fund account. However, the Bill does not require the Government to remit or repay the cost of the national insurance concessions to the National Insurance Fund account. The net result is that this Bill will reduce the amount deposited in the National Insurance Fund account, or the surplus in it, and will reduce the ability of the account to pay state pensions and other benefits in the future. The cost of the Government’s ideological experiment is being borne by the poorest and vulnerable sections of our society. There is a wealth transfer from the poor and the vulnerable to a select few corporations. What is the justification for this wealth transfer? If the Government want to give a holiday, then please pay directly into the National Insurance Fund account.
The disclosure of tax avoidance schemes—DOTAS—was originally introduced in 2004, and the new measures are outlined in Finance Bill 2021. As the Minister said, they will now apply to cases of national insurance avoidance. But in the absence of robust enforcement, it is unlikely to yield significant results. That has been the case with tax abuses. The Government have been very soft on big enablers of tax abuses. Ministers constantly refer to laws tackling tax abuses, but it is the enforcement which is a big problem. If the Minister disagrees with my assessment, then I invite him to name any big accounting firm which has been investigated, prosecuted or fined after the courts judged that it had peddled unlawful tax avoidance schemes. One example will do, and if the Minister gives me an answer, I think that will be my lucky day and I will rush out and buy a lottery ticket—I can assure you of that.
The Government actually reward these firms with public contracts. The partners of the big four accounting firms have chaired and sat on the board of HMRC, while they have been simultaneously selling unlawful—that is what the courts have decided—tax avoidance schemes. Their partners sit on the general anti-abuse rule advisory panel, often known as the GAAR panel. They determine what counts as abusive. When I look at these arrangements, the phrase “foxes guarding the henhouse” comes to mind. I would like to hear what exactly the Minister is going to propose to deal with this.
Perhaps nobody will go out to avoid national insurance contribution payments because the Government already facilitate luxuries for the rich. The wealthy can easily convert their income to capital gains. Capital gains are not only taxed at a lower rate than earned income, but there is no national insurance payable on them at all. This favour to the rich, just on capital gains, costs us around £8 billion a year. We can see that the Government are enabling the rich to avoid paying national insurance. Why are these concessions given? Could the Minister please tell us why there is no national insurance on unearned income at all in this country?
Baroness Kramer (LD)
My Lords, this may have been a short debate but, my goodness, it has been a full one. I feel rather privileged to be one of the winders.
I want to open with a point made by the noble Lords, Lord Davies and Lord Sikka, on the integrity of the national insurance contributions fund. Like them, I am troubled. The fund was created primarily to pay the state pension; that is its primary role. Compared to most other developed countries, the basic state pension in the UK is very low. Pensioners will face a particularly harsh 2022 because increases have been detached from earnings growth. It adds to my concern that the Government are now choosing to use that fund as a piggy bank for all kinds of other purposes. There will be a new NICs levy to fund the NHS and perhaps, eventually, social care; I suspect that we will see that money constantly having to go to the NHS so we will have to think again about social care, but so be it. This money for the NHS and social care should have been raised through income tax for a whole variety of reasons that I will not reiterate here but which we have discussed in this House before.
I also become increasingly concerned when I see NICs holidays to support niche activities, such as free ports, while at the same time the NICs burden for SMEs—the noble Lord, Lord Bilimoria, raised this issue—is increasing across the country. Again, like the noble Lords, Lord Sikka and Lord Davies, I very much hope that the Minister will finally tell us exactly how much the NICs relief for free ports will cost in forgone revenues because I cannot tease it out of any of the figures that we have been presented with in the Red Book or by the OBR.
Free ports are, by definition, free trade zones. I know that the Chancellor has a particular passion for them but he is making a serious mistake. Even those who are fans of free ports admit that, as free trade zones, they create new jobs only in countries where tariffs on intermediate goods are normally high. The United States is a good example of a country with high intermediate tariffs, which is why free ports have been popular—and, some would argue, successful—there. In the UK, tariffs on intermediate goods are either non-existent or tiny. The savings on duties are negligible. Indeed, these tiny savings will be completely wiped out by the new costs of trading with the EU. Can the Minister confirm that the port operators were correct when they recently told the European Affairs Committee that the costs of the new port infrastructure needed for the new checks as a consequence of Brexit will all fall on port operators? Are the free port operators going to pick up their share of their charges, or will they be exempt and their share picked up by other operators?
There are no meaningful benefits to removing duties, which is normally the essence of a free port. Of course, that is why the Government are now offering a raft of various other tax reliefs, including NICs holidays; it is really an attempt to salvage the free port project. The primary effect will be to favour the initial free port locations —of which there are eight so far—thus cannibalising the prospects of similar or even more disadvantaged areas. During the coalition—I do not hesitate to criticise things that the coalition Government did not get right—the Treasury created enterprise zones; as proposed, the free ports are barely different from enterprise zones. Only a quarter of the predicted jobs were created and, of those, a third came as a result of displacement; I take my information from a study by the Centre for Cities, which is a good and respectable source.
Overwhelmingly, the jobs created were low-skilled jobs. Indeed, interestingly, the NICs relief in this Bill is for low-paid jobs only, as others have pointed out. That tells you everything about the true expectations of this project. It will be a low-skill, low-job set of operations. Again, I will not repeat the OBR quotes mentioned by the noble Lords, Lord Sikka and Lord Davies, but, as far I can tell, essentially it says that it considers that the return from the free port investment will be so small and negligible that it is not even worth putting it into its forecast numbers.
The Government’s free port package promises users a vague array of benefits other than tax release, but I noticed one especially, which is deregulation. It is not yet specified how that deregulation will work. The UK is already a hub for money laundering and free ports of all kinds are notorious for their appeal to cheating and crime, not least because the absence of tax and duties enables the ownership of goods to be concealed. It is virtually impossible for enforcement agencies to be effective in a free port, which is one of the reasons why free port legislation was allowed to die on the vine, in the UK. The Government say that the absence of rules will lead to innovation. I am all in favour of innovation, but not in tax avoidance, money laundering, substandard products or the transfer of stolen assets.
In looking at other parts of the Bill, I support the proposal for NICs relief for ex-services personnel, but I join others in asking whether 12 months is long enough to encourage hiring sufficiently. I pick up the point of the noble Lord, Lord Davies, that this should be part of a holistic programme to help ex-servicemen to achieve that change into civilian life and not just one isolated measure hanging there alone. I also fully support the exclusion from NICs of income for the test and trace self-isolation support system.
However, I would like to ask some questions about the implications of extending the disclosure of tax avoidance schemes—DOTAS—to cover NICs. I take the Minister at his word, because it makes sense, that this is intended to be targeted at the promoters of wrongful avoidance schemes. I am delighted if they are being tackled more effectively. As the noble Lord, Lord Sikka, said, there are 20 or 30 promoters still out there, which the regulators have completely failed to lay their hands on in any way. Anything that can be done to tackle the promotion of wrongful avoidance schemes has to be positive.
I just want to be sure that this does not have implications for small businesses that hire freelance contactors and that no new burdens will be placed on the freelancers themselves. We have so many questions surrounding IR35 and this issue can be woven and caught up in parts of that, particularly for freelancers who work through personal services companies. I have put that question to HMRC; I do not know whether it reached the Minister and suggested that he might mention it. I hope at some point to hear from HMRC, but the Minister might be able to give me more immediate enlightenment.
I close by saying that I am convinced by the Delegated Powers and Regulatory Reform Committee’s assessment of the Bill and the need, in Committee, to deal with Henry VIII and other powers in ways that provide more parliamentary scrutiny. I very much hope that the Minister’s statement that the Government are taking that report seriously and will potentially come forward with proposals meets the test that we are all looking to satisfy.
Lord Tunnicliffe (Lab)
My Lords, this has been a short but interesting debate. There has been a heavy focus on the Government’s policy on free ports, the first of which has now opened on Teesside. Seven more are due to follow, after sites were confirmed in the Spring Budget. Perhaps the Minister could provide an update on the status of these sites today. It will be interesting to see how free ports operate in practice. There is no doubt that they have potential benefits in jobs, economic activity and infrastructure improvement. However, it is unclear to what extent they are merely displacement benefits and there are certainly risks, as the noble Baroness, Lady Kramer, pointed out, of tax evasion, smuggling and other forms of criminal activity.
In the other place, the Government opposed a sensible Labour amendment to the Finance Bill, which would have required transparent evaluation of the success or otherwise of each individual site. That would have given us a clear picture of exactly where benefits are being derived and the extent to which they exist. It would also have given the Government much needed data to inform any tweaks to policy in the months and years ahead. Can the Minister inform your Lordships’ House of exactly how the ongoing balance of opportunity and risk will be reviewed and reported on? Will Parliament be given information and, if so, at what frequency and in what form? If not, why not?
Turning to the Bill, Clauses 1 to 5 introduce NICs relief for employers based in free-port tax sites. Such relief lasts for three years but, presumably for reasons of expediency, applies only to employment commencing from April 2022. With the Teesside site now operational and others due on stream soon, does the Minister not think that it is counterproductive to exclude these key early months? Does he foresee a situation in which employers delay recruitment?
Clauses 6 and 7 introduce a one-year period of NICs relief for employers of Armed Forces veterans to assist ex-service personnel in their transition back to civilian life. It is no secret that I believe the Government have a range of duties towards our service personnel and veterans. Supporting veterans into lasting work is one of those. The relief forms one part of that duty but its time-limited nature is a cause for concern. In the Commons, Sir Mike Penning observed that the first 12 months outside the forces is the most challenging period for former service men or women. In many senses, it is a case of sink or swim. That may be true and we welcome the temporary NICs relief, but the Government have thus far been unable to justify why free-port firms should enjoy three years of relief—the Minister hinted at a longer period—compared to those hiring ex-service personnel. Would the noble Lord the Minister care to have a go today?
The changes made in Clauses 10 and 11, bringing the self-employed into NICs relief for test and trace support scheme payments and extending the disclosure of tax avoidance schemes rules to NICs avoidance, are welcome. As I have made clear on several occasions, we do not feel that the Government do nearly enough to tackle or otherwise disincentivise tax avoidance, which deprives our public services of much needed funds. This measure provides HMRC with a further tool, which is positive, but can the Minister comment on what gains are expected from this change in each tax year? Some in the sector have expressed concern that the Government’s actions on tax avoidance are limited in scope and ambition, and have reached the point where they are achieving diminishing returns. The Bill may not be the right vehicle to discuss the ways forward but I hope that the Treasury and HMRC are able to broaden their horizons.
Indeed, the recently leaked Pandora papers once again highlighted the sheer number and complexity of tax avoidance arrangements. Those revelations arguably strengthen the case for a change of approach. In response to the emergence of those documents, Mr Sunak pledged that the Government would look through them,
“to see if there’s anything we can learn.”
That does not relate directly to NICs, so I will not ask the Minister to comment now but will he be kind enough to provide a written update on that project?
We did not oppose the Bill in the Commons and have no intention of doing so here. It has already had a long gestation period, having trundled through the other place over the course of many months. While there are areas where we would like clarification from the Minister, it is not the role of your Lordships’ House to unduly hold these measures up. I hope, however, that the Government will engage meaningfully with the Delegated Powers and Regulatory Reform Committee, which has made several modest recommendations. I look forward to the Minister’s response on the range of issues raised throughout this debate and would appreciate correspondence on any topics he is unable to cover in his winding speech.
Viscount Younger of Leckie (Con)
My Lords, this debate was initially down to have at least a dozen speakers. I am sorry to say that, as the day has worn on—for a very good reason, I am sure—the number of speakers has somewhat diminished. I am sure that they will reappear in Committee and we will have a greater number of Peers interested in this important Bill.
I will start by addressing some of the remarks of the noble Lord, Lord Davies. He gave me due warning of his remarks at the beginning of his speech but, as he will expect, I do take issue with quite a lot of the overly pessimistic comments he made. He said that this was not to do with national insurance and indicated that it was very much a PR exercise and simply a presentation. He is nodding at that. I am afraid that I do take issue with that, but of course it is up to me to prove today and particularly in Committee that this is not the case and that the matters we are bringing forward on this Bill are serious and have serious points and facts behind them.
I gently point out to the noble Lord that the Bill passed through the Commons with just one minor government amendment, which corrected a reference to another Act. On his point about the evidence of free-port clauses working, he will know that Labour tabled some amendments but ultimately withdrew them. That was on the basis that the Government argued they were unnecessary, as we have already indicated that we will review the effectiveness of the NICs relief before deciding whether to extend it.
On that, to answer the point made by the noble Lord and the noble Baroness, Lady Kramer, on whether the NICs relief will be an effective use of taxpayers’ money—which frankly is a fair question—the relief will significantly reduce the cost of taking on new employees and doing business in a free port. This, along with other reliefs being offered as part of the wider package that I mentioned in opening, will support businesses setting up and expanding in free-port tax sites.
The take-up and use of NICs relief in free ports will be monitored to ensure that it is having its intended effect. The Government have written a sunset clause into legislation that will allow us to review the relief’s effectiveness after four years and make a decision on its continuation accordingly. The noble Lord, Lord Sikka, asked about an impact assessment. I steer him towards the fact that a tax impact and information note—a TIIN—has been published alongside this Bill. If he has not seen it, I am more than happy to make him aware of it.
A number of questions, some quite technical, were raised in the debate and I will do my best to answer them. First, on free-port costing, which was very reasonably raised by the noble Lord, Lord Sikka, the OBR approved costings, including estimates, for all the tax and customs reliefs within the wider free-port offer. The programme is at an early stage of delivery, with the first sites beginning operations last month, but we have already seen significant investment. So there is more to come, but the noble Lord’s question is a fair one.
The noble Lord, Lord Davies, asked specifically about the link between NICs and benefits. The National Insurance Act and the National Assistance Act established the modern welfare state that continues today, as he may know. National insurance continues to fund contributory benefits, including the state pension. NICs receipts are paid directly into the National Insurance Fund and are kept completely separate from all other tax receipts.
The noble Lord, Lord Sikka, asked why NICs are not on unearned income. NICs is part of an earnings replacement scheme to provide help to workers when they are unable to work or retired. Unearned income is excluded as it does not rely on a person’s labour.
The noble Lord, Lord Davies, asked about the design of free ports and whether they will displace economic activity from other local areas. Our focus is on encouraging new investment from around the world and within the UK to create new businesses and new economic activity in free ports. This will create jobs in deprived communities across the country rather than harmful displacement. Employer NICs relief can be claimed only for new employees, encouraging employers and businesses to grow and create new jobs rather than relocate existing ones.
Finally, when designating free ports, the Government require bidders to explain how their choice of tax site location minimises displacement of economic activity from wider local areas, especially other economically disadvantaged areas. Displacement will be assessed in greater detail as part of the formal tax site approval process. Tax sites will be designated only once mitigation of displacement and other factors has been demonstrated by the successful bidder.
Lord Sikka (Lab)
The Minister just said that we do not charge national insurance because unearned income is not the result of labour. Many a person, instead of taking wages, draws dividends, which are inevitably the outcome of the investment of human capital—labour—yet there is no national insurance on dividends either, which is another example. Could it be that there are other ideological reasons why the Government do not levy this, rather than simply the investment of human capital? I agree that from 1911 onwards, when national insurance appeared on the scene, the focus initially was on employment, but we have moved a long way away from that. I wonder whether we can have this debate another day, if not today.
Viscount Younger of Leckie (Con)
I would be more than happy to do that. The noble Lord takes a slightly cynical view of this. We need to go back to the basics of what the Government are trying to do with this, which is to encourage more jobs and investment into these free-port areas. It is really as simple as that. I am more than happy to debate the rationale behind the detail in Committee, but I hope the noble Lord takes me at face value on that point.
The noble Lords, Lord Davies and Lord Bilimoria, asked whether the policy will be effective in encouraging the employment of veterans and whether it is appropriate to target this type of support to veterans. The House will know that some veterans will face particular difficulties in accessing the job market due to injury or trauma suffered in the course of duty; the noble Lord, Lord Bilimoria, alluded to that. These veterans will benefit most from the measure. Given that securing stable and meaningful employment is a key aspect of a veteran’s transition into civilian life, the Government wish to reward employers who facilitate this.
The noble Lord, Lord Tunnicliffe, asked about the status of free-port sites in England. I hope I can address this with some detail. At the Spring Budget, the Chancellor announced eight free ports from eight regions of England following a fair, open and transparent assessment process outlined in the bidding perspective. That included East Midlands Airport; Felixstowe and Harwich, the so-called Freeport East; the Humber; Liverpool City Region; Plymouth and south Devon; Solent; Teesside; and Thames. The first free-port tax sites in Humber, Tees and Thames went live on 19 November. This ensured that those free ports were able to begin initial operations last month, meeting our commitment to get free ports operational in England this year. The Government will continue to work with the remaining free ports and expect the next set of free ports to begin operations in early 2022.
The noble Lord, Lord Sikka, asked how free ports differ from previous free ports. Prior to 2012, the UK had five free ports offering only customs and tariffs benefits, similar to the duty referral on customs warehousing schemes subsequently introduced by the EU. This did not offer any direct tax incentives, so stakeholders indicated that this policy offer was not a substantial enough incentive to invest in these free ports, given its widespread availability outside these free ports. The new free-ports offer provides a more attractive overall package of incentives for businesses. Businesses will be able to take advantage of five tax reliefs and a range of customs incentives, as well as to benefit from a package of other measures that support the development of free ports and make them attractive places to do business, including infrastructure funding and planning measures.
The noble Lord, Lord Sikka, asked why public bodies are excluded from the free-ports relief. I probably alluded to this earlier. The aim of the policy is to boost growth in undeveloped areas, not to subsidise public bodies.
The noble Lord, Lord Tunnicliffe, asked how the ongoing balance of opportunity and risk can be reviewed and reported, and whether Parliament would be given the information on the frequency of this. He essentially asked: if not, why not? This relief will significantly reduce the cost of taking on new employees and doing business in the free port, along with other tax reliefs, which I mentioned earlier, being offered. The take-up and use of NICs relief in free ports will be monitored to ensure that it is having its intended effect. I mentioned earlier that we have the sunset clause, which I have covered. More information on assessments will be available in the free ports monitoring and evaluation—M&E—strategy, which, to reassure the noble Lord, will be published in spring 2022. The Department for Levelling Up, Housing and Communities, as the department responsible for the delivery of free ports, is leading the monitoring and evaluation but working closely and collaboratively across government to ensure robust and rigorous evaluation.
The noble Lord, Lord Tunnicliffe, also asked about any delay in implementing the free ports recruitment. Our focus is on encouraging new investment from around the world and within the UK to create new businesses and new employment. The Government have been clear that this relief is available only on new hires from April 2022 and have set this out in the Freeports Bidding Prospectus published in the autumn of 2020. Having a clear start date is, I think, the answer to his question, as it is a simple approach that will support the free-port businesses. There are complexities with HMRC, I understand, so this cannot be set up earlier than the date the noble Lord mentioned.
I go back to veterans relief—I am chopping and changing slightly here. The noble Lords, Lord Tunnicliffe and Lord Bilimoria, and the noble Baroness, Lady Kramer, asked about veterans relief and why it was for only one year compared with that for free ports, which is, as we know, for three years. I think I can answer this by saying that the policy intent for the two reliefs is different, so the structures of those reliefs are also different. The aim of the free-port relief is to support new businesses in the free-port tax site with the cost of employment to boost growth in and around the free port. Therefore, the free-port relief provides more sustained support for the lower upper threshold. The aim of the veterans relief is to support veterans’ transition into civilian life through employment. The veterans relief therefore provides a greater immediate incentive for employers to hire a veteran
The noble Lord, Lord Bilimoria, asked why the free-port relief was only £25,000 but the veterans relief is up to £50,270. The veterans relief has been kept in line with similar reliefs that aim to boost employment of a particular group of people—for example, those aged under 21 or apprentices aged under 25. The free-port relief has been designed to support new businesses during their infancy. A policy decision was made to make the relief available for a prolonged period and therefore, in fairness to other taxpayers, the threshold of this relief is lower.
I move on to the DOTAS regime, raised by the noble Lords, Lord Davies and Lord Sikka, in terms of additional powers. DOTAS has been in play for several years, which has led to many promoters leaving the avoidance market. However, a small number of determined promoters continue to sell tax avoidance schemes and use delay and obstruction to frustrate HMRC action against them. The new powers modernise DOTAS and allow HMRC to tackle these promoters at an earlier stage. They also allow HMRC to better inform taxpayers of potential schemes through earlier publishing of scheme and promoter details. This will better inform taxpayers of the potential risks that they face and help them to steer clear of these schemes.
The noble Lord, Lord Tunnicliffe, linked with the noble Lord, Lord Sikka, asked about the gains expected from the change in each tax year. The aim of DOTAS is to ensure that HMRC gets the information about the schemes, so that it can take appropriate action. Those who devise and sell avoidance are always looking for new ways to sidestep the rules, so legislation needs to be refreshed to stay ahead of them.
The noble Baroness, Lady Kramer, asked about the NICs relief attracting low-value-added, labour-intensive jobs. I can give a fairly full answer to that, which is that the free ports policy, taken overall, aims—as I said earlier—at regenerating deprived areas through investment and job creation; that means quality jobs in high-value-added industries.
Free ports will offer a number of benefits for firms, including specific issues such as: simpler import procedures and suspended duties in customs sites to help businesses trade; planning changes to green-light much-needed development; spending to invest in infrastructure; and a free port regulatory engagement network to help regulators and firms work together to test new technologies safely and effectively. As well as enjoying enhanced structures and buildings allowance, and generous stamp duty and business rates relief, employers in capital-intensive sectors will benefit in particular from enhanced capital allowances that relieve 100% of qualifying expenditure in the first year on plant and machinery for use within free port tax sites.
Baroness Kramer (LD)
The Minister may not have the answer to this but I want to repeat the question. As I say, port operators reported to the European Affairs Committee of this House that they had been told by government that they would bear the full costs of putting in place the facilities for the new checks that are required to export to the EU. Within the free ports, people will presumably intend some of that product to be for export to the EU, so they will therefore need to have facilities for these new checks. If the Government do not intend to pick up that tab, will the operators in the free ports do so or will the cost be passed to operators of other ports as a kind of additional cost that will fall on them in order to subsidise the free ports? I am just not clear about that.
Viscount Younger of Leckie (Con)
I was not aware of the first part of the noble Baroness’s question but I will certainly look into that and write to her on the specific issue.
On the report of the Delegated Powers and Regulatory Reform Committee, which was mentioned by a couple of Peers, I repeat what I said earlier on this, which is very important. The Government are carefully considering the recommendations made by the committee and we are taking what it said with the degree of seriousness that it deserves. As I said earlier, we will write to the committee and keep the House informed on progress there.
Lord Tunnicliffe (Lab)
Will that response come in time for us to take account of it as the Bill goes through?
Viscount Younger of Leckie (Con)
I asked about that, so I will say yes; we want to get a response as soon as we can. I do not yet have the dates for Committee but I should press to say that we want to get this as soon as possible, and certainly well before Committee.
I will conclude by talking about a point that was raised by the noble Lord, Lord Bilimoria, about investment in the UK, which is a bigger issue that he raised. There are very many reasons to be positive about the UK economy. We have been talking about free ports and NICs relief, but both the OECD and the IMF are forecasting that the UK will have the highest annual growth in the G7 this year. Decisions this Government have taken have provided around £400 billion of direct support to the economy during this year and last year, and the Bill helps towards that.
I thank all noble Lords for their comments. As the noble Baroness, Lady Kramer, said, this was a short debate but it has been quite intense and extremely helpful. I greatly look forward—
Lord Davies of Brixton (Lab)
Before the Minister concludes, does he have a reply on the salary sacrifice point? I will be happy to take a letter.
Viscount Younger of Leckie (Con)
Absolutely; I will look at Hansard to check on all the questions raised. I suspect that there were one or two that I have not responded to, and I will certainly write as soon as I can to respond to them. With that, I commend the Bill to the House.
National Insurance Contributions Bill
Monday 10th January 2022
(2 years, 10 months ago)
Grand CommitteeRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Amendment Paper: HL Bill 48-I Marshalled list for Grand Committee - (6 Jan 2022)
Baroness Kramer
Member’s explanatory statement
This amendment would ensure employers have declared the beneficial ownership of goods or assets in the freeport before being eligible for zero-rate contributions under this Bill.
Baroness Kramer (LD)
My Lords, I shall try not to add too much to the hot air in the Room so that we can crack through all of this.
Free ports have historically been a magnet for illicit activity, including, and these days almost especially, money laundering. Some of the UN reports give people a sense of how large the scope of money laundering is; the reports reckon that something like $800 billion up to $2 trillion a year—2% to 5% of the world’s GDP—is put through the laundry machine. In May 2020, RUSI’s Centre for Financial Crime and Security Studies said in written evidence to the International Trade Committee of the other place:
“there is evidence of criminal activity taking place in multiple freeports around the world. It often involves trade in counterfeit goods, drug trafficking, smuggling of untaxed goods or trade-based money laundering”.
By definition, free ports do not require declarations that are associated with customs, excise or tax, which are the principal ways in which transparency as to the nature of imported items, their origins, destinations and ownership, is achieved. When extensive processing of those imports is also available in the free port site, especially when, as in this case, the processing is granted all kinds of fiscal favours, including the waiver of national insurance contributions, the lure for criminals and money launderers is very much magnified. Obviously, the more processed the illicit product, the harder it is to trace or track and the harder it is for enforcement. Exploring safeguards against illicit behaviour is the motive behind Amendment 1, which I recognise is very much a probing amendment.
I thank the Minister and his office for taking this issue seriously in our meeting last Thursday. It was a very useful meeting, and we appreciate it. The follow-up information provided has alleviated some of my concerns, because, as the email from the Treasury explained, some relevant measures were included in the freeports bidding prospectus, which says:
“the Freeport Governance Body will be required to maintain a record of all the businesses operating or applying to operate within the tax site.”
Up to date information will be held on the “beneficial owner” of each business and the body will be required to make
“reasonable efforts to verify the beneficial owner”.
This information will be made accessible to HMRC, the NCA and Border Force. However, as it stands it will not be available for public scrutiny; the Minister will correct me if I have got this wrong. HMRC will spend little effort looking at what is happening in free ports; by definition, there are no customs, duties or tax requirements. Therefore, the NCA becomes, as it were, the strongman for enforcement in this case. This led me to look at the National Crime Agency inspection report from July 2021. I will quote from the summary—it was a fairly scathing report:
“There is insufficient capacity in the investigations command to meet the demand being developed by the intelligence command and the reactive demand (such as seizures at the border).”
In other words, we have a problem. The National Crime Agency, even without the addition of free ports, is significantly underresourced and needs to upskill, although this is less to do with the capacity of the people; there is also a lack of technical resource. We are turning to that body at the same time as introducing new avenues for money laundering and other illicit behaviours.
This House and this Government have always taken the view that it is the public nature of any register of beneficial ownership that brings the necessary scrutiny and deterrence to make that register effective. The UK already has a public register of the beneficial ownership of UK companies, and the Government have promised a public register of the beneficial owners of UK property. In addition, the Government insist that they have been working very hard to achieve public registers in the overseas territories and Crown dependencies, so it seems really odd to create a new situation here where one of the primary tools will be a register of beneficial ownership that is not being made public. At the very least, this undermines those discussions with the overseas territories and the Crown dependencies.
I would very much like the Government to have a rethink and see whether they can make this information publicly available, at the very least. It would also be really helpful to know whether some additional resource will be put into the National Crime Agency, because without that we will be on a very uncomfortable wicket in this world where money laundering is frankly a growth industry, not a declining one.
Lord Tunnicliffe (Lab)
I start by reiterating the Labour Party’s position on the Bill, as originally stated at Second Reading. We have never understood the Government’s fanaticism over free ports and are sceptical that they will deliver the scale of economic benefit promised in recent years. Nevertheless, we do not intend to oppose the various measures, some on free ports and some on other issues, contained in the legislation. The Government will get their Bill through and it will be up to Ministers to prove that their way is the right way. If that proves not to be the case, they must own their failures of judgment.
As a general point, there are several important questions that the Government were unable to answer in the other place or at Second Reading. Today is an opportunity to explore some of those concerns in more detail. It is also a chance for me to record my thanks, along with those of the noble Baroness, Lady Kramer, to the Minister and his officials for their engagement between Second Reading and today. Not all our questions were answered, but I hope they will be addressed as the Minister responds to the nine amendments before us.
Amendment 1, tabled by the noble Baroness, Lady Kramer, has enabled a short debate on beneficial ownership. As she noted in her introduction, we have been waiting for quite some time for the Government to deliver on their numerous promises in this area. I am sure the Minister himself has delivered assurances on at least a few occasions. The case for stronger action has been made time and again. Light is cast on shady practices, yet despite stern warnings from the Chancellor, meaningful action never seems to materialise. I hope colleagues will forgive the slightly dry analogy, but as we are in January it is almost as if the Treasury and BEIS are treating this like a new year’s resolution. It sounds positive, and we are promised that the Government will follow through, but within weeks or months the ambition quietly falls away. Questions about beneficial ownership are not best dealt with in this Bill, but I appreciate the noble Baroness’s efforts to raise them. I doubt the Minister will be able to offer all the assurances that we seek, but I hope he can go some way to proving me wrong.
Viscount Younger of Leckie (Con)
My Lords, I start by thanking the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, for raising these important points. I also found it useful to have a discussion prior to Committee on the points that both noble Lords raised, which are being taken forward today. Ensuring that the free-port tax reliefs are effectively targeted is a government priority, and this will be the general theme of my remarks.
Before I go into the detail of the specific amendment, I will provide a brief overview of what the Government are looking to achieve through free ports, and I hope this will be helpful to the noble Lord, Lord Tunnicliffe, in particular. It is, first, to establish national hubs for global trade and investment, intensifying the economic impact of our ports and generating increased economic activity across the UK. Secondly, it is to deliver jobs, sustainable economic growth and regeneration in the areas that need it most. Thirdly, it is to create centres of innovation that bring together innovators to develop and trial new ideas and technologies.
To these ends, each free port will contain specific tax sites where businesses can claim reliefs on new investment and jobs, including the national insurance contributions relief discussed here today and as part of this Bill. Each free port will also contain specific customs sites where importers, exporters and manufacturers can benefit from duty reliefs and simplified customs procedures. Also, each free port will receive a capital grant for infrastructure improvements, alongside planning flexibilities and trade, investment and innovation support.
Amendment 1 seeks to support the government’s commitment that only legitimate businesses operate in free ports. I can assure the House that the Government have taken steps to ensure that only those whom this policy is intended to benefit will benefit. Specific to this policy, the Government have included conditions requiring free-port employers to have a physical business premises in the free-port tax site, so that only employers that are investing in free ports can benefit from this relief. Next, employees are required to spend 60% of their working time in the free-port tax site. Both these conditions ensure that the relief is effectively targeted.
In relation to free ports more broadly and the specifics of the amendment, the Government have three stages before businesses can claim reliefs in tax sites. The noble Baroness, Lady Kramer, mentioned the bidding process. I am pleased that we have got to this point in the debate. The bidding process, run by the Department for Levelling Up, Housing and Communities, considered a wide range of criteria, including what steps the bidders would take to ensure that their free port would be secure against illicit activity. As I think the noble Baroness picked up, eight out of the 14 bids were taken forward, which means that six were not.
Secondly, each free port has to agree its proposed tax sites with HMT and HMRC, with consideration given to HMRC’s ability to enforce the conditions of the tax reliefs within each site. So far, three of the free ports have had a total of eight tax sites designated. Thirdly, each business within a tax site will need to submit a return to HMRC to claim this relief and demonstrate that it has met the relevant conditions. Compliance checks will be carried out to ensure that only those who are eligible for the relief benefit from it.
To support all this, as part of successful bids the Government have required free-port governance bodies to undertake rigorous efforts to verify the beneficial owner of businesses operating within the free-port tax site. This is a proportionate approach that means that the local area can take effective measures to ensure the security and propriety of operations within the free port. In practice, many free-port governance bodies are taking further steps to ensure that firms moving into tax sites will support delivery of the free ports’ overall objectives. Similarly, for the customs sites, there are three stages: first, the overall free-port bid process that I referred to earlier; secondly, HMRC approval of each customs site; and, thirdly, HMRC approval of each business operating within each customs site.
Baroness Kramer (LD)
My Lords, I will indeed withdraw the amendment, but I put the Minister on notice that when every opportunity occurs I will keep pressing, as I suspect will others in this Room, for public, not just private, registers of beneficial interest. I am convinced that until we do that we will not crack this problem. I beg leave to withdraw the amendment.
Baroness Kramer
Member’s explanatory statement
This amendment would limit the regulations that could be made under section 3(3) to those that would ensure compliance with the UK’s international obligations with respect to subsidy control.
Baroness Kramer (LD)
My Lords, this amendment reflects the concerns of the Delegated Powers and Regulatory Reform Committee. I suspect that everyone, including the Minister, is familiar with its comments, and I shall be interested to hear the Minister’s response above and beyond the letter that was sent to us. The position of the DPRRC, which has a great deal of logic, is that the powers conferred by Clause 3(3) are inappropriate. They would enable the Treasury to rewrite the conditions that employers must meet to receive NICs relief.
The Treasury in its memorandum asserted that it had two purposes behind those powers. The first is a potential change in economic circumstances, although that must apply to every Bill that comes through this place. It is impossible to conceive of urgency when it comes to the nature of free-port rules. However, should that urgency arise, Parliament is frankly very good at dealing with urgent legislation, as we have proved over the last couple of years.
The second purpose the Treasury discussed is the need to make the relief compatible with a subsidy control regime that is not yet in place. The committee recognised that concern, as do I, so the amendment allows powers to make changes to achieve that compatibility.
But the powers sought by the Government are actually much wider than either of the purposes mentioned by the Treasury. Indeed, they can be exercised for any purpose. In effect, regulation can almost without limit change the primary legislation that designates the character of free ports. This amendment therefore fundamentally seeks to limit the untrammelled nature of the powers. I say to the Government more broadly that they need to mend their ways, because we constantly see legislation of this kind—Bill after Bill. I am glad that the noble Lord, Lord Tunnicliffe, is also speaking on this amendment because it is clear that the Labour Party would benefit from untrammelled powers should there ever be a change in power. Perhaps it is a salutary thought for the Government that, if they constantly pursue the shift of power to the Government away from Parliament, it will not revert when the day eventually happens and Governments change.
Lord Tunnicliffe (Lab)
My Lords, I was pleased to add my name to Amendment 2 and several other amendments to be discussed later today, which aim to implement the recommendations of the Delegated Powers and Regulatory Reform Committee. It goes without saying that the Government and the DPRRC will not always see eye to eye on these matters. However, we have long trusted the committee to take a balanced approach to the scope of ministerial powers, so that the Government can meet their objectives while respecting the vital role of Parliament. I will pick up the noble Baroness’s challenge about the hazy days of summer when we are in power. I am old enough to remember when we were in power, and we almost always implemented the recommendations of the DPRRC or whatever was its equivalent at that time, so I am sure we will receive her approval in how we behave.
The power in Clause 3(3) does not appear to strike the appropriate balance. As the committee notes in its 11th report of the Session, the current draft is significantly broader than required to fulfil the indicative purposes listed in the Treasury’s memorandum. The noble Baroness, Lady Kramer, has adopted the terminology suggested by the DPRRC and we support that. Maybe there is some middle way, which will give the Treasury some but not all of the flexibility that it seeks.
I am grateful to the Minister for sending me a copy of his response to the committee, enabling us to have a more informed debate today than would have otherwise been the case. Sadly, like the noble Baroness, Lady Kramer, I was disappointed by his response, particularly in relation to the power in Clause 3(3). I continue to side with the committee in relation to the non-binding status of the Treasury’s memorandum. While the historic example of the 2014 Act was somewhat interesting, I am not sure that makes the argument persuasive. I hope that he can provide some further detail today, but what we will really need in the run-up to Report is a change in attitude from the Treasury.
It would be better if the department were to think again of its own accord but, if that is not possible, I would not be surprised to see a similar amendment tabled at a later stage of the Bill.
Viscount Younger of Leckie (Con)
My Lords, I thank the noble Baroness, Lady Kramer, for raising this point, which reflects a recommendation by the Delegated Powers and Regulatory Reform Committee.
As background, Clause 3 ensures that the Government retain the flexibility to react to the economic realities of free ports and to protect the taxpayer, and it therefore contains a number of regulation-making powers, in subsections (3) and (4). Free ports are novel in the UK. The Government have undertaken an ambitious plan to invest in underdeveloped areas and level up the UK. So that the Government can continue to meet their international obligations and retain the power to exclude employers that seek to abuse this policy, they have taken a power to add, remove, or alter the conditions set out in Clause 2, which is contained in subsections (3) and (4) of Clause 3. A similar approach was taken with other free-port measures legislated for in the Finance Act 2021. My point is that there is a precedent here.
I turn to the substance of Amendment 2, tabled by the noble Baroness, Lady Kramer, and supported by the noble Lord, Lord Tunnicliffe. It seeks to limit the regulations that could be made under Clause 3(3) to those that would ensure compliance with the UK’s international obligations with respect to subsidy control. This is in response to the report of the DPRRC, which recommended that this power, which may amend Part 1 of the Bill and which is subject to the draft affirmative procedure, should be restricted to specified purposes only.
I would like to explain to noble Lords why the Government consider this amendment unnecessary, and will go into the reasons, as the Committee would expect me to. Examples of when this power could be used are provided in the department’s delegated powers memorandum of ensuring compliance with the UK’s international subsidy control obligations. The Government believe that this amendment would be overly restrictive and could result in primary legislation being needed in the near future. The subsidy control landscape in this case is complicated, uncertain and difficult to predict, and the power needs to be capable of dealing with a wide range of possibilities. The Government believe that it would be difficult to narrow it while at the same time allowing it to be flexible enough to deal with a wide range of possibilities within the subsidy control landscape.
I shall go further. It may help the Committee if I also explain what in the Government’s view is a clear precedent for this power, in Section 5(1)(b) of the National Insurance Contributions Act 2014. This measure provides a power exercisable by the Treasury to make regulations to add, reduce or modify the cases in which a person cannot qualify for an employment allowance or in which liabilities to pay secondary class 1 NICs are excluded liabilities. It enables the Treasury to make changes to Sections 2 and 3 and Schedule 1 of that Act. The Delegated Powers and Regulatory Reform Committee’s 18th report of Session 2013-14 considered the delegated powers in the NICs Act 2014 but, interestingly, did not comment on the power in Section 5(1)(b) of the Act.
The power in Section 5(1)(b) has so far been used three times, including to exclude companies with employer NICs over £100,000 to focus the relief on small businesses. This policy change was not foreseen when the power was introduced and, if there had been a similar restriction in the legislation on the use of the power, such a change would have subsequently required primary legislation. This could have risked a delay to implementing the policy as, unlike Finance Bills, NICs Bills are not guaranteed to be annual.
In view of the above, and that similar powers are also included in the Finance Act 2021, the Government believe that the draft affirmative procedure remains appropriate without further restrictions on the power. With this rather lengthy explanation, I hope that the noble Baroness will withdraw her amendment.
Baroness Kramer (LD)
My Lords, once again, I shall at this stage withdraw, although I am sure that the Minister heard the comments of the noble Lord, Lord Tunnicliffe, on this issue a few moments ago. It is salutary constantly to hear the word “precedent”. I am sure that when the terms were drafted for the national insurance Bill dealing with employment allowance, there were constant reassurances that the power would be used very narrowly and only to deal with very particular circumstances. That is the problem—it then becomes a precedent for the door to be opened more widely and yet more widely. The clause here is a particularly wide one. We have underlying concerns that, once again, we are getting a design of legislation that is not appropriate—but, at this stage, I beg leave to withdraw.
Baroness Kramer
“Review of the impact of section 1
(1) Within six months of the day on which this Act is passed, the Secretary of State must carry out a review of the impact of section 1 of this Act.(2) The review in subsection (1) must cover but is not limited to—(a) an estimation of the loss in National Insurance revenue as a result of section 1;(b) the number of jobs created as a result of section 1; and(c) the impact of section 1 on small and medium-sized enterprises.(3) The Secretary of State must lay a copy of the review before Parliament.”Member’s explanatory statement
This amendment would require the Secretary of State to review the impact of section 1 of this Bill.
Baroness Kramer (LD)
My Lords, I must apologise—three in a row, here—but this amendment deals with rather a different issue from those which we have so far discussed. Your Lordships will be well aware from Second Reading and other comments that I have made that one of my main concerns about free ports is that they displace growth in businesses, jobs and opportunities from other areas of disadvantage rather than create additional growth. There is a very interesting study by the Centre for Cities, which showed that in the first five years of enterprise zones in the UK—2012 to 2017—only a quarter of the predicted jobs were created but, of those, a third came as the result of displacement, and the jobs were overwhelmingly low skilled. That ran counter to all the expectations, discussion, promises and arguments. Other experience also suggests that SMEs do not benefit: if anything, it is larger companies that benefit, so it is not a pro-SME strategy.
We have plenty of global experience to demonstrate that free ports do not aid economic growth. Very few people would look at existing free ports and argue that they have contributed in any significant way. There is now a different argument about the United States, which has intermediate taxes on processing, an entirely different situation which does not exist in the UK. That is usually the only example anyone can come up with that has any weight behind it, but its circumstances are so utterly different that it does not apply in this case. We have really no evidence that free ports aid economic growth, and neither do we have evidence that enterprise zones create economic growth. In effect, this policy combines the two in one location. That is pretty unlikely to overcome the weaknesses of either. Because of that, I am very concerned that we have a prompt review of the impact of the Bill, because we will have to see whether a course correction is required. That is what the amendment would do in a number of different but, to anyone reading the amendment, obvious ways.
Lord Tunnicliffe (Lab)
My Lords, this is a very straightforward amendment, and one which mirrors the Labour Party’s text tabled at this stage in the House of Commons. I shall not detain the Committee with a lengthy contribution, as the case for a review of the NICs relief enabled by Clause 1 has already been well made. We may quibble over the timescale and precise details of any review, but it appears sensible that the Treasury outline whether the realities of this policy live up to the expectations. As stated earlier this afternoon, Ministers must own their decisions. An amendment along these lines would significantly increase the accountability attached to this tax break.
Although I am sure he will argue that such a review does not need statutory underpinning, I hope the Minister will respond positively to the proposal. A concrete commitment to a review along these lines would be of great comfort. Others, including the National Audit Office, will no doubt analyse the performance of free ports in the months and years to come but, in the interim, it would be a shame if the Treasury were not open about the successes or otherwise of its measures.
Viscount Younger of Leckie (Con)
My Lords, I in turn thank the noble Baroness again and the noble Lord, Lord Tunnicliffe, for raising these concerns. In particular, I will address the point she made about displacement slightly later in my remarks.
Amendment 3 would require the Government to conduct a review, six months from the date this Act receives Royal Assent, into the effectiveness of the policy. The Government acknowledge the importance of monitoring reliefs of this nature and evaluating ambitious programmes such as these free ports. It is for that reason that the Government have already committed to reviewing the use and effectiveness of this relief before deciding whether to extend it further. This review will look at the data available through HMRC’s systems.
More broadly, the Department for Levelling Up, Housing & Communities—the department responsible for delivery of free ports, as I mentioned during an earlier debate—is leading the monitoring. It will work closely and collaboratively across government to ensure a robust and rigorous evaluation. Given that the free ports policy is focused on generating long-term benefits to local areas, six months is unlikely to be an appropriate timescale for any review, as free ports will not have fully reached their operating potential within that six months. For example, ports will still be looking to attract additional investment and continuing to develop their sites. In addition, this policy relates to new employees. As I imagine the noble Baroness will understand, the hiring process can take a number of months, which would take us well beyond the six months she suggests.
The department for levelling up has committed to publishing its monitoring and evaluation strategy in spring 2022. This strategy will be in line with key principles and best practices from the Magenta Book, which provides guidance on evaluation within government, and will ensure a robust and rigorous evaluation of the free ports programme.
Furthermore, the Government have taken on board suggestions and feedback from stakeholders and the public as part of the consultation process to ensure that the UK has an ambitious and attractive offer for businesses. Our new free ports offer is far more ambitious than our previous one, including simplified customs processes, targeted tax measures to incentivise private business investment, carefully considered planning reforms and targeted funding for infrastructure. This new, ambitious free ports policy offer is already proving attractive to domestic and international investors looking to start or grow their UK operations.
Throughout the development and delivery of the free ports policy, the Government have taken steps to ensure that the tax, spending and policy levers deployed in free ports are used effectively. That takes us back to the first debate we had this afternoon. For example, to minimise displacement of economic activity, we required bidders to explain how their choice of tax locations would attract new economic activity to the area which would not have been possible without free ports. Subsequently, tax sites were not designated until the Government were confident that this had been successfully demonstrated. This approach has been recognised by the OBR in its Economic and Fiscal Outlook, which says that
“the Treasury has taken steps to try to reduce displacement through the bidding process, requiring bidders to demonstrate how they would generate additionality and minimise displacement from other locations.”
We are already seeing positive evidence of new investment at free ports. For example, DP World announced an investment of £300 million to support the Thames free port.
It is prudent to work within these existing frameworks so that we can get a holistic view of the success of free ports. We believe that conducting the review less than six months from when the relief comes into effect will produce an incomplete dataset and will not give a fair reflection of the policy. With this explanation and these reassurances, I hope that the noble Baroness will withdraw her amendment.
Baroness Kramer (LD)
Once again, I will of course withdraw the amendment. I note with some irony that the Minister suggests that a review in six months is way too soon, yet here we are with a piece of legislation and we do not even know what the monitoring criteria will be. We are already putting horses and carts in the wrong order.
I am very concerned that there really should be a rigorous review of this process because we will see some significant losses in forgone national insurance contributions, which will have some serious consequences, particularly at a time of such fiscal constraint. We ought to have a running and prompt evidence base to be able to judge whether those forgone taxes are justified by the change in behaviour that is taking place. I hope we will see something vigorous in terms of a review. I am not very convinced. I am slightly distressed that the review is apparently being thought of after the legislation and not before it, but at this point I beg leave to withdraw the amendment.
Lord Tunnicliffe
Member’s explanatory statement
This amendment alters the conditions attached to zero-rate relief for armed forces veterans, ensuring that such relief is available for a period of three years after the veteran begins civilian employment, rather than one.
Lord Tunnicliffe (Lab)
My Lords, in moving Amendment 4, I express my gratitude to the noble Baroness, Lady Kramer, for her support. The amendment provides me with a rare opportunity to combine two of my great loves in life: helping veterans while studying the minutiae of fiscal policy. On the face of it, it is a simple amendment and reflects a question asked of the Government at Second Reading: why, given that they have chosen to offer a three-year tax break to businesses operating within free ports, are they able to fund only a single-year incentive to firms hiring Armed Forces veterans?
Let me be clear from the start that, like organisations such as the Federation of Small Businesses, the Labour Party welcomes the new form of NICs relief. In my view, even if it were to help only a small number of veterans into civilian work, it will have been a success. However, as I have given more thought to the question in recent weeks, I am increasingly sceptical that this form of time-limited NICs relief is the right one. It feels more like a means for the Government to say that they are delivering on their duty to former service personnel, as enshrined in the Armed Forces covenant, rather than a scheme that matches the realities of veterans’ lives.
Many service personnel leave the Armed Forces with a variety of fantastic experience and skills. This may not have been gained via traditional learning routes, but employers know that veterans bring with them practical know-how and a first-class attitude. Some veterans readjust to civilian life immediately. They will be lucky enough to find stable accommodation, apply for jobs and find themselves with a new career. However, for others, this period of adjustment is particularly difficult. Finding a permanent place to live may prove tricky, or they may struggle integrating into the labour market in their chosen area. For every veteran who settles into a job within 12 months, there is likely to be another who, for a period of some years, finds themselves moving between living accommodation or jobs.
Lord Tunnicliffe (Lab)
This new NICs relief will be hugely beneficial for veterans in the first group, but I fear that it does nothing for the second. Indeed, I worry that, if you are an individual who cannot get up to speed with civilian life within 12 months, there is the chance that you will be left behind as firms seek the savings of hiring somebody from the next batch of new veterans.
I have always been concerned about the covenant. I feel that I have been representing the Labour Party on defence ever since it was first mooted. I have always been deeply suspicious that it is all about words and very little about resources. However, the forces’ charities, particularly the Royal British Legion, have argued that it is a force for good. Here, we have something real; we have real resources being devoted to the covenant to make it work. The Government clearly believe that it will make a difference. Clearly they have accepted the principle. All we are debating is the price.
It seems to me that three years would be fairer. It is difficult to see why a very generous three years will be there for free ports, whereas people who have laid their lives on the line for their country will have to manage with one year. It would be better for society as a whole. Unfortunately, too many veterans do not fit into society very well. They become if not a drag on society then nothing like the contribution that they could make. Time is required to make a difference. I know and meet some of these individuals. I suppose I tend to meet the ones that have successfully merged into civilian life. They talk about how difficult it is at first and how surprisingly long it takes them to settle down and into jobs that are productive for society and good for themselves as individuals. The extension to three years will be especially useful for what I loosely call “difficult cases”.
I am very committed to this and will undoubtedly come back on Report if no progress is made in any discussions that we might have in the meantime. All that is clear to me at this stage is that the scheme, although a step in the right direction for veteran support, is also a missed opportunity. Let us seize the opportunity and do better. I beg to move.
Baroness Kramer (LD)
My Lords, my comments will be brief, but I hope the Minister will not read that as meaning that I lack an interest in this. I am passionately supportive of this amendment and thank the noble Lord, Lord Tunnicliffe, for bringing it forward.
We all know that military veterans have a wide range of skills to offer civilian employers, especially SMEs, but we also know that quite a few—although far from all—veterans need support to make the adjustment to the civilian workforce, whether that be in updating skills or dealing with the adjustment back to civilian life or with service-related trauma. I have always looked at the zero rating that the Government propose not as a saving for the company as an incentive to employ the veteran but as a means to enable that company to provide the necessary support—the upskilling and the more social forms of support—to enable the veteran much more quickly to belong and be part of the company that he or she has joined, and to be successful in that role. For that reason, three years seems eminently sensible. The idea that it is a virtually instant process for someone to make that transition from military to civilian life is, I think, artificial.
If I understood it correctly from some of our off-piste discussions, the cost of providing support is in the range of £20 million a year. That is trivial in terms of any departmental budget. To, in effect, triple that, which is what this proposal is doing by calling for three years, does not seem an unreasonable ask—nor does the amount of money involved. It will disappear somewhere to the right of the decimal point in the Treasury accounts. I hope the Minister will take this opportunity to rethink. It would look well for the Government to take a more generous approach, and it would also underpin the success of what is, I think, a good strategy.
Viscount Younger of Leckie (Con)
My Lords, Amendment 4, tabled by the noble Lord, Lord Tunnicliffe, and supported by the noble Baroness, Lady Kramer, seeks to extend the veterans relief from one to three years, as has been pointed out.
Stable and fulfilling employment is a vital part of a successful transition from the Armed Forces to civilian life. The Government provide an effective career transition package to service personnel leaving the Armed Forces, which, the latest figures indicate, supports 84% into employment. The training, experience and resources available to service personnel ensure that veterans have a valuable skill set to offer employers, as the noble Lord, Lord Tunnicliffe, described so eloquently. However, 7% of veterans using this service remain unemployed up to a year after leaving the Armed Forces.
The noble Lord and the noble Baroness both put it well. To an extent, their thoughts chime with mine. This relief has been introduced to support veterans as they transition into civilian life and to encourage employers to utilise the vast skill sets of veterans. Between 10,000 and 15,000 people leave the Regular Armed Forces each year; their employers will be able to benefit, in the 2021-22 tax year, from up to £5,500 worth of relief.
This measure fulfils the Government’s 2019 manifesto commitment and builds on the UK-wide Strategy for our Veterans, launched in November 2018, which includes specific commitments to support veterans to “enter appropriate employment”. The Government have also established an Office for Veterans’ Affairs and have launched initiatives including the Civil Service’s guaranteed interview scheme for veterans. In March 2021, the Government also announced the Op COURAGE service, creating a single point for veterans to access mental health services, and NHS England published Healthcare for the Armed Forces Community: A Forward View, which included commitments to help the transition to civilian life and to improve veterans’ and their families’ mental health.
Although the free port relief is available for three years, as is well known, employers of veterans have a higher threshold before they pay any NICs. These reliefs have been designed in this way because they serve fundamentally different purposes. The free port relief is part of the Government’s levelling-up agenda and is aimed at incentivising long-term investment and employment growth. By contrast, the veterans relief is aimed at reducing the barriers to employment that some veterans face when they leave the forces to transition into civilian life. Therefore, it provides a relief for a shorter duration but at a higher threshold, providing employers up to £5,500 in savings per veteran they employ, as was mentioned earlier.
The Government consulted extensively on the relief, including a policy consultation which ran from July to October 2020 and a technical consultation which ran from January to March 2021. A significant number of respondents agreed that this relief was a positive step towards supporting the recruitment of veterans and could break down the barriers and negative perceptions surrounding veterans. The cost savings were also welcomed by stakeholders, with the Federation of Small Businesses and X-Forces Enterprise jointly welcoming the announcement.
If such an amendment were passed by this House, it would reduce receipts into the National Insurance Fund and therefore create a cost to the Exchequer. Financial matters are normally the responsibility of the other place, as both the noble Lord and the noble Baroness will know. With those reassurances and broader explanation of why we see one year as appropriate as opposed to three years, I hope that he will withdraw his amendment.
Lord Tunnicliffe (Lab)
My Lords, I acknowledge that the Government have made some good progress in improving the services to veterans, but the noble Baroness, Lady Kramer, touched on an important point about the social form of support. We are not talking about a single firm; we are talking about a three-year period to adjust. It is all very well to say that many veterans leave the forces with attractive skills, but a rather important number of veterans leave with the skill of how to kill people, and there is not a great deal of call for that in civilian life. A very structured society under military laws has, in a lot of cases—not the majority, by any means—been good for people who come in with a difficult lifestyle and a certain waywardness; it works for them. But if they come into the civilian world and that falls away, without a specific set of skills they find it difficult.
We are talking about not just settling down but building up a CV in these three years. As I said, I conversed with some individuals, and a point made to me by one person—it was some time ago—was that his CV for employers was rather weak. He needed to prove not only that he was a good chap in the military but that he had been a good citizen in perhaps not particularly exciting jobs, which then allowed his career to progress. I would hate the Government to get into a position where they had to argue for this programme being, in a sense, underfunded—that they thought it generally speaking a good idea, but would look too mean and, in saving a little, would allow victory to escape. As ever, I beg leave to withdraw the amendment.
Lord Davies of Brixton
“Reimbursement of the National Insurance Fund
In section 2(2) of the Social Security Act 1993 (payments into National Insurance Fund out of money provided by Parliament)—(a) after “not exceeding in aggregate” insert “—(a) ”, and(b) at the end insert “, and(b) the reduction in secondary Class 1 contributions in that tax year arising from the provisions of section 1 and section 6 of the National Insurance Contributions Act 2022.””Member’s explanatory statement
The new Clause is to probe whether it might be desirable for the Secretary of State to pay to the National Insurance Fund from the Consolidated Fund the reduction in contribution income that will be received by the National Insurance Fund due to the zero-rate relief in secondary Class 1 contributions introduced by the Bill for employers of Freeport employees and the employers of forces veterans.
Lord Davies of Brixton (Lab)
My Lords, the main function of this amendment is to offer brief respite to the noble Baroness, Lady Kramer, and my noble friend. However, the amendment is on a serious matter and I want to take this opportunity to raise it and see if I can elicit a response from the Government. It could be argued that it is on more of a Second Reading point, but it occurred to me only subsequent to Second Reading, and the amendment fits here.
I also accept that it is a probing amendment and far from perfect. In practice, I would have to rewrite extensive legislation to achieve what I want, which would probably fall foul of the rules on financial privilege anyway. However, I am still raising a point that is important, although I do not intend to detain the Committee overlong.
Baroness Kramer (LD)
My Lords, I will be quite quick. The noble Lord, Lord Davies, does himself a disservice; this is a very important issue. I certainly missed it, and I think only someone with his expertise and acuity would have picked up this very fundamental point of principle. The National Insurance Fund and its Northern Ireland equivalent are used to pay social security benefits, as the noble Lord said, including the state pension. Messing with the state pension certainly reverberates with the general public. Without the change proposed by the noble Lord, Lord Davies, these funds are in effect being raided by the Government to pay for economic growth subsidies. Is that now their purpose?
The Government may argue that their new national insurance contribution social care levy, to be used for the NHS and perhaps eventually for social care—many of us doubt we will ever get there—sets the precedent for raiding the fund. We come back to the word “precedent” yet again. I doubt that this has been declared openly to the British people. It matters not just because of the promises inherent in the fund and its role but because NICs fall on workers earning well below the tax threshold. To raid their contributions—which they will have thought are paid towards benefits and pensions—to provide a subsidy for businesses is certainly a fundamental change of purpose.
I hope we can have some explanation from the Minister, because this seems to me a point of principle. With precedent established, I very much question where this whole track will take us. I again thank the noble Lord, Lord Davies, for raising a very fundamental point of principle which needs to be answered and dealt with openly.
Lord Tunnicliffe (Lab)
My Lords, I will not make much of a speech because it would dilute the excellence of the points made in the debate so far. It seems that we are on an edge here; if we do not do something about this, we will throw away these terms. They will become meaningless unless we preserve them.
There is a big debate about what I loosely call hypothecation, and so on; sometimes we wander into it and sometimes we do not. However, if you are going to wander into this area, you should keep it clean. The use of this fund in this way pollutes the concept and is a retrograde step. I hope that the Government will think twice about it. We do not object to what is being done in the Bill but, somehow or other, a device needs to be found to keep these terms clean. I support the amendment.
Viscount Younger of Leckie (Con)
My Lords, I thank the noble Lord, Lord Davies of Brixton, for raising these interesting points. I hope that I can provide for him, as I wish to do, a full and rounded answer.
This amendment seeks to ensure that the National Insurance Fund, or NIF, remains in good health by allowing a transfer of funds from the consolidated fund to account for the reduction in revenue as a result of the zero-rate relief in secondary Class 1 contributions as introduced by the Bill for employers of free ports employees and the employers of forces veterans. I would like to explain to noble Lords why the Government consider that such an amendment is unnecessary. However, to start with, it may be helpful to provide some background on how the National Insurance Fund operates. Obviously, this is for the benefit of the Committee; I am aware that the noble Lord, Lord Davies, will be well versed in this particular matter. I will not go into the history too much, but it may be helpful for the Committee.
The majority of NICs receipts are deposited into the NIF, which in turn funds most contributory benefits, including the state pension. The NIF is funded on a collective basis, meaning that today’s NICs receipts pay for the benefits being paid today. In 2021-22, the Government Actuary’s Department estimated that total NICs receipts in the NIF would equate to approximately £122 billion, exceeding the £112 billion in benefit payments and associated costs. The cost of the veterans and free ports reliefs are therefore small in comparison to the NIF’s surplus and will not impact on the NIF’s ability to pay out contributory benefits.
Furthermore, the Government already have an established process in place to ensure that the NIF always maintains a sufficient working balance to continue to pay out contributory benefits. It has been the practice since 1983 to maintain a balance of at least one-sixth of projected annual benefit expenditure—in broad terms, two-months’ worth of benefit expenditure—to be able to deal with unexpected contingencies. As the NIF has no borrowing powers, Section 2 of the Social Security Act 1993 permits the Treasury to pay a grant from the consolidated fund into the NIF up to a specified percentage, at almost 17%, of estimated benefit expenditure.
Before the start of each financial year, the Government use the information provided by the Government Actuary’s Department in its uprating report to determine a ceiling for the grant that may be paid in the following year which is then subject to approval by Parliament. For example, in the 2021-22 financial year, the Government legislated for a Treasury grant provision of 17%, although, given the current surplus of the NIF, this provision is not needed to be drawn upon. This secondary affirmative legislation was debated by noble Lords on 8 February 2021. Therefore, we feel that such a provision that the noble Lord has proposed is unnecessary as the Government already have the ability to top up the National Insurance Fund should they need to.
A wider point has been made, particularly by the noble Baroness and the noble Lord, Lord Davies, on the legitimacy of this. However, there are already reliefs in the NICs system with regard to the employment allowance, the under-21 relief and the under-25 apprentice relief. I therefore reassure the Committee that this policy and the thinking behind it is not new, and that obviously it is used for different purposes.
Finally, if such an amendment was passed by this House, it would likely engage the financial privilege of the other House.
With those assurances, I hope that the noble Lord will withdraw the amendment in his name.
Lord Davies of Brixton (Lab)
I will withdraw the amendment. I will read carefully what the Minister said, but I maintain my position that there is a point of principle here. I agree that there are precedents for using national insurance relief, but I was not here then so I was unable to raise it. I am raising it now because, as I said in my introductory remarks, I believe in a national insurance system and the National Insurance Fund. If it is to be treated as just a source of general taxation, which effectively this does, it dilutes the principle. I shall read what the Minister said, and I thank him for his reply.
Baroness Kramer
Member’s explanatory statement
This amendment would require the Treasury to make a designation under section 10(2)(d) by regulations, as recommended by the DPRRC.
Baroness Kramer (LD)
I thank the noble Lords, Lord Davies and Lord Tunnicliffe, for a little relief from leading off. I shall be very brief. Amendments 6, 8 and 9 again revert to the recommendations of the DPRRC.
I start, briefly, with Amendment 6. I really do not understand the Government’s argument that they should be able to create new self-isolation support schemes and make them exempt from NICs without even alerting Parliament, never mind providing any public notice or any means of scrutiny. That is the problem that Amendment 6 seeks to tackle.
The Treasury’s view, as I understand it as written in the legislation, is that it can create as many schemes as it likes without a statutory instrument, provided that, in its view, they are “similar” to the schemes listed in the Bill. I deal on such a frequent basis with the Treasury, and the Treasury’s view of “similar” is, frankly, as long as a piece of string.
This turns into yet another precedent for being able to create all kinds of schemes, with just some sort of underpinning or general linking theme, without any scrutiny. All that the DPRRC asks is that these powers should be subject to a negative resolution. At least then there would be something that the public can look at and some element of scrutiny. That is not a big ask and one that the Government should be prepared to provide.
Amendments 8 and 9 are rather different, in that they would require affirmative rather than negative resolution for all of Clause 3, not just Clause 3(3), all dealing with free ports, and Clause 6, which deals with NICs relief for veterans. I cannot understand the Government’s position that the Henry VIII powers they seek are, again, trivial; I am entirely with the DPRRC on this. The various subsections in Clause 3 enable free ports to be extended to 2031 and widely change the conditions to be met. Surely that needs affirmative resolution. Similarly, in a strange way, Clause 6 sets no limit on the number of years that can be added to the veterans scheme and how often. Again, surely that is sufficiently significant, as the committee said. With the free ports issue, I would say that in some cases it is even controversial. I am very grateful to the DPRRC for its vigilance, and the arguments for Amendments 8 and 9 is that the provisions are of a standing that meets the test for an affirmative rather than a negative resolution.
Lord Tunnicliffe (Lab)
My Lords, once again, I welcome the various amendments tabled by the noble Baroness, Lady Kramer. I am pleased to support them and remain disappointed that the Government are refusing to accept any of the DPRRC’s modest suggestions. As with the previous amendment on this topic, we will hear the Government’s defence arguments for these additional delegated powers. The Minister suggests that, in relation to Clauses 3(1) and 6(6), considering the extension of NICs relief beyond the original end dates is somehow not a worthwhile use of parliamentary time. I am not sure why the Minister feels able to speak on behalf of Parliament in this matter. I can assure him that I would find a debate on the opportunity cost of extending NICs reliefs for free ports far more worthy of debate than some of the very narrow debates we hold on Treasury instruments subject to the affirmative procedure. He may counter that I and the noble Baroness, Lady Kramer, would be welcome to table regret Motions, but this ignores the principle that Parliament should be afforded a proper scrutiny role when it comes to the use of public finances. I will not go through each of the other justifications in the Minister’s letter to the chair of the committee, but suffice it to say that I am yet to be dissuaded from backing the committee’s recommendations.
Viscount Younger of Leckie (Con)
My Lords, I thank the noble Baroness, Lady Kramer, who is back on her feet again, and the noble Lord, Lord Tunnicliffe, for their contributions. These amendments are in response to the Delegated Powers and Regulatory Reform Committee’s report. I am grateful for its report and sympathetic to its arguments for the importance of parliamentary scrutiny and consistent publication of primary and secondary legislation. However, the Government believe that the current procedures remain appropriate and that these amendments are therefore unnecessary. I have listened carefully to the remarks from the noble Baroness and the noble Lord and, as they would expect, would like to give some explanation for our reasons, at some length.
Amendment 6, tabled by the noble Baroness and the noble Lord, would make the power in Clause 10(2)(d) subject to the negative procedure, rather than no procedure. I will explain to noble Lords some of the context to this power. Lump sum payments of £500 are available to be claimed under separate schemes in England, Wales and Scotland for people who have been asked to self-isolate by the relevant authority, but who cannot work from home and will suffer financial consequences as a result. Of course, this is subject to the eligibility criteria of the relevant scheme. Payments are intended to provide additional financial support during periods of self-isolation.
Regulations have already been introduced under existing powers in Section 3 of the Social Security Contributions and Benefits Act 1992 to exempt these payments from NICs for employees and their employers. Therefore, all that Clauses 10(1) and 10(2)(a) to (c) do is specify that the schemes specified are also exempt from self-employed NICs, ensuring consistency. The Government believe that the power designating self-isolation support schemes to be exempt from self-employed NICs is narrowly drawn in that such schemes have to provide support for those who cannot work due to self-isolation. In addition, the Government’s intention is that they will use this power only where further regulations are made to exempt payments from possible similar future schemes from NICs for employees and their employers.
I want to pick up on that point, because the noble Baroness, Lady Kramer, asked how different such a designated scheme would be from those on the face of the Bill. I pick up on the word “similar”, which has been used to provide some flexibility as to the details of any future scheme. This is because the changing circumstances of the pandemic may mean that the detail of a scheme, for example its eligibility criteria, needs to be adapted to account for the latest situation faced by individuals required to self-isolate. Indeed, the three schemes specified on the face of the Bill have changed in their particular detail since introduction and are not identical to one another.
The Government are also of the view that, as the power to designate is necessary to be able to respond to the changing circumstances of the coronavirus pandemic as quickly as possible, the current parliamentary procedure is right given the current circumstances and means that the legislation can be introduced more quickly than the other side of the coin, which is a statutory instrument subject to the negative procedure.
Amendments 8 and 9, tabled by the noble Baroness, Lady Kramer, and supported by the noble Lord, Lord Tunnicliffe, would make the powers in Clauses 3(1) and 6(6) to extend the end dates of the free ports and veterans relief, and the power in Clause 3(2) to treat a condition of the free port relief as being met, all subject to the affirmative procedure. They are currently subject to the negative procedure. These amendments are also in response to the DPRRC’s report.
The powers in Clauses 3(1) and 6(6) provide flexibility for the Government to extend the reliefs past their current end date. In particular, the power relating to the free ports relief will allow the Government to extend the relief after a review into its effectiveness in meeting its policy intention in 2026, although any extension would be no further than 5 April 2031. Before they are extended, the Government will carry out an evaluation of the reliefs to ensure that they are effective. This takes us back to a previous debate. Once they have been evaluated, and should the Government’s view be that the reliefs should be extended, we believe that the negative procedure offers the opportunity for sufficient parliamentary scrutiny without using more of Parliament’s time than is necessary.
The Government believe that the powers in Clauses 3(1) and 6(6) should continue to be subject to the negative procedure. Both powers are wholly relieving and, as I set out, where this is the case, regulations are usually subject to the negative procedure. To be absolutely clear, the powers cannot be used to decrease the amount of relief that an employer can claim.
As to how the power in Clause 3(2) may be used, the department’s delegated powers memorandum gave an example of cases where people with certain protected characteristics are unable to meet the rule that, to be eligible for the relief, employees must spend at least 60% of their working time in the free port site. For example, a health condition or pregnancy may mean that an individual needs to work just from home for periods of time. The effect of these regulations would be to treat the 60% as being met so that the relief applies to employees who may not otherwise qualify.
In this case, the negative procedure also allows the Government to react much more quickly than if the affirmative procedure applied if external factors become apparent that would prevent employers qualifying for this relief. With that slightly extended response, I hope these reassurances will cause the noble Baroness to withdraw her amendment.
Baroness Kramer (LD)
My Lords, again, I will withdraw the amendment. If the Minister seriously thinks that a review of the whole free ports issue will be so completely uncontroversial that the consequences of that review can be implemented through a negative resolution, then he really misunderstands the sense of discomfort that exists around the whole free ports scheme and really has not been listening to Parliament’s level of concern. As I said, I will obviously withdraw the amendment, but I hope the Government will start to take note much more seriously of the work done by an extraordinary committee, with a great deal of knowledge and a real understanding of Parliament, its wishes and its intentions—as we know, we live in a parliamentary democracy—and pay much more attention to the level of scrutiny that the DPRRC recommends.
Baroness Kramer
“(2) Within six months of this section coming into force the Government must publish guidance to assist businesses in complying with their obligations under this section.”Member’s explanatory statement
This amendment would require the Government to publish guidance relating to Clause 11.
Baroness Kramer (LD)
My Lords, I promise I will be genuinely brief on what is our last piece of business in this Committee. I tabled Amendment 7 to seek reassurance. Sitting behind my amendment are actions that HMRC is taking to go after the promoters of tax avoidance schemes. I totally support that, and it makes sense that NICs avoidance schemes are tackled in the same way.
Lord Sikka (Lab)
My Lords, I was not going to speak but the eloquent speech of the noble Baroness, Lady Kramer, has persuaded me to say a few words. I do not think the DOTAS legislation, on which this particular legislation in this Bill is modelled, has been that effective. I have challenged the Minister and his colleagues on a number of occasions to name even one big accounting firm that has ever been investigated, disciplined or fined after the courts have said that their tax avoidance scheme was unlawful.
When it comes to national insurance, the Government themselves have created avoidance schemes. For example, there is no national insurance payable on unearned income. Accountants are busy—as they will be in these cases as well—converting income to capital gains as it attracts absolutely none. I sense in this Bill that the Government are playing to the Public Gallery saying, “We are really serious—we are going to clamp down on this kind of avoidance”, but they do not have the means to do so. There is no logic whatever as to why unearned income should be exempt; it is simply a way of avoiding.
When the Government talk about avoidance, I wonder, first, what they mean by that. We have had numerous disclosures, whether in the Paradise papers, Panama papers, or other leaks, which show that many of the national insurance tax avoidance schemes have been marketed by offshore entities. The Government are in absolutely no position to go after those enablers and have not done so.
I am just giving more fuel and ammunition to the arguments put by the noble Baroness, Lady Kramer, that the Bill is all about public impression management. That is why I have stayed silent for so long and why I did not table any amendments—because fairly soon after this is implemented, we will hear, just as with the previous free port legislation, that it will not achieve very much.
Lord Tunnicliffe (Lab)
My Lords, I welcome the tabling of this amendment and hope the brevity of my contribution is not taken as evidence to the contrary. Amendment 7 asks the Government to publish guidance relating to the operation of Clause 11. It is my understanding that such guidance will indeed be published later this year; I would be grateful if the Minister will confirm that and perhaps give us some idea of when this year. I hope that, with the guidance, there will be a more general update on the Treasury’s and HMRC’s work in this area.
Viscount Younger of Leckie (Con)
My Lords, I thank the noble Baroness, Lady Kramer, once again, for her contribution. I hope to persuade her, with the information that I am about to provide, that her amendment is unnecessary. On this occasion, my remarks will be relatively short.
I am pleased that the noble Baroness has raised this point, because communication is extremely important. HMRC will be publishing detailed guidance which will cover the changes to the DOTAS regime, explaining when HMRC can issue a notice requiring promoters or suppliers in the avoidance chain to provide information on suspected avoidance schemes. It will also explain what will happen if they do not provide information, or where they do and HMRC considers the scheme is notifiable, the issue of the scheme reference number—the so-called SRN—their right of appeal against the issue of the SRN, and their right to make representations before HMRC publishes details. Finally, the guidance will explain the obligations of the promoter or supplier if the SRN is not withdrawn.
I can say to the noble Lord, Lord Tunnicliffe, that the new guidance is anticipated for the end of February this year, but it will not adversely impact small businesses that do not participate in avoidance schemes.
I turn to a question from the noble Lord, Lord Sikka —and I appreciate his late intervention and contribution in Committee. First, he asked why NICs are not due on unearned income. He may know this, but national insurance contributions are part of the UK’s social security system, which is based around the long-standing contributory principle and centred around paid employment and self-employment, with employers, employees and the self-employed paying towards the protection of those who have been in the labour market. Payment of NICs builds an individual’s entitlement to claim contributory benefits, which then replace earnings in certain circumstances—for example, if someone is unable to work or, indeed, has retired. Unearned income is generally excluded from liability to NICs, as it is not derived from paid employment.
The noble Lord also asked about tackling the promoters of tax avoidance and what success had been had in that regard. I took note of his points about DOTAS and appreciate his raising this issue. HMRC has undertaken more than 500 compliance interventions on promoters and their supply chains—that takes account of the year 2020-21. However, there is no single approach that will force all promoters to leave the market, and it requires a multipronged approach. This includes HMRC prioritising the most active promoters and their supply chains, and vigorously challenging schemes and promoters under the disclosure of tax avoidance schemes, or DOTAS, as we are discussing today, the promoters of tax avoidance schemes, or POTAS, and the enablers regime. The Government have taken strong action to tackle tax avoidance and those who promote it, introducing a number of anti-avoidance regimes that have helped reduce the avoidance tax gap from £4.7 billion in 2005-06 to £1.5 billion in 2019-20.
I hope that, with those answers, the noble Baroness will withdraw her amendment.
Baroness Kramer (LD)
My Lords, I make the slightly ironic comment that, in the speech the Minister just made, he essentially made the case for the amendment of the noble Lord, Lord Davies, dealing with the integrity of the National Insurance Fund. “Interesting”, as they say.
Yes, of course I will withdraw the amendment. I just desperately hope that, internally, we can try to get HMRC to take a much more interactive view of how to talk to small businesses, in particular. We fully recognise that people are captured by the many different fraud schemes that are around every day. In a sense, these various promoters of tax avoidance schemes use the same psychology, methodology and ability to communicate to identify potential victims. Somehow, HMRC has to be able to get down to that level and communicate with businesses so that they understand the real risks they are taking. I recognise that my amendment would not actually achieve that, but I hope that it created an opportunity for a small discussion. I beg leave to withdraw the amendment.
National Insurance Contributions Bill
Monday 7th February 2022
(2 years, 9 months ago)
Lords ChamberRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Amendment Paper: HL Bill 48-R-I Marshalled list for Report - (3 Feb 2022)
16:34 - Division on Amendment 2 - Ayes: 195 / Noes: 179 - Amendment 2 agreed.
17:07 - Division on Amendment 6 - Ayes: 197 / Noes: 175 - Amendment 6 agreed.
Member’s explanatory statement
See the explanatory statement for the first amendment tabled in the Minister’s name to Clause 8.
Viscount Younger of Leckie (Con)
My Lords, this group of government amendments in my name responds to the recommendations of the Delegated Powers and Regulatory Reform Committee report and sets the upper secondary threshold, the so-called UST.
I thank the committee for its diligent care in scrutinising the Bill and noble Lords for their thoughtful comments in Grand Committee. The Government have further reflected on these views and have tabled Amendments 12, 13 and 14 in response to the report of the DPRRC and noble Lords’ comments in Committee.
Clause 10 provides an exemption from self-employed NICs in respect of self-isolation payments provided to support those on low incomes so that they can self-isolate and help stop the spread of coronavirus. Clause 10(2)(d) currently provides that the Treasury may, in relation to any part of the United Kingdom, designate new schemes that are corresponding or similar to the schemes specified in Clause 10(2)(a) to 10(2)(c). Payments under schemes designated in that way will benefit from the exemption in Clause 10(1) and will not be taken into account for the purposes of computing the amount of profits in respect of which class 4 and 2 contributions are payable. The committee recommended that the power in Clause 10(2)(d) be subject to the negative procedure rather than no procedure. The amendment in my name to Clause 10 makes this change.
Secondly, Clauses 3(1) and 6(6) allow the Government to extend the period for which the freeport and veterans relief are available. The committee recommended that the power to extend the relief for freeport employers and employers of veterans should be subject to the affirmative procedure rather than the negative procedure. The Government have taken on board the DPRRC’s recommendation and agree that it is appropriate that these powers are subject to the draft affirmative procedure. The two amendments to Clause 12 make these changes. In summary, the Government take the work of the DPRRC very seriously, and Amendments 12, 13 and 14 go a long way towards accepting its recommendations.
I turn to the amendments that set the upper secondary threshold for these measures. Government Amendments 1, 4 and 7 to 11 simply put on the face of the Bill what secondary legislation is out of time to do. This is not new policy or a change to public expectation. Ordinarily, rates and thresholds are set annually through a rerating exercise, which involves the Government of the day laying affirmative regulations. The debates for the 2022-23 rates and threshold will take place in this House on 23 February. However, due to the timing of this Bill and to ensure that the thresholds are in place for 6 April, the upper secondary thresholds for these measures need to be set in primary legislation.
I will now explain what an upper secondary threshold is. It is the threshold up to which employers can claim a zero rate of NICs. After this point, employers will be liable to secondary class 1 NICs at the standard rate. Without an upper secondary threshold, employers would be eligible for unlimited relief. There is a threshold for freeport employers and a separate threshold for employers of veterans.
The upper secondary threshold for the freeport measure is £25,000 per annum and was first announced in the Freeports Bidding Prospectus published in November 2020. The upper secondary threshold for the veteran measure is £50,270 per annum and was first announced when the policy was consulted on in July 2020. Both these figures have been reconfirmed by Ministers in this House and in the other place during the passage of this Bill. The Chancellor also confirmed these thresholds at the Autumn Budget 2021.
There are justified policy reasons for the different thresholds. The freeport measure has been designed to support growth in underdeveloped areas, so general support is required. The veteran measure has been designed to support veterans as they transition into civilian life, and therefore a targeted, more generous annual threshold is required to help them to overcome the barriers to employment.
I trust that noble Lords will recognise that this is a formality and will vote in favour of this amendment. I beg to move.
Baroness Kramer (LD)
My Lords, this group of amendments includes government Amendments 13 and 14, which, as the Minister described, respectively change Clause 3(1) on freeports and Clause 6(6) on veterans, so that any extension to the zero rating of employers’ NICs in these schemes is subject to the affirmative, rather than the negative, resolution procedure. Changing negative to affirmative for both these clauses was an important recommendation of the Delegated Powers and Regulatory Reform Committee. The noble Lord, Lord Tunnicliffe, and I both asked for the changes that it recommended to be enacted, and I thank the Government for delivering them on Report.
As the Minister knows, I was particularly exercised by the original drafting of Clause 10, which designates that payments under certain “self-isolation support schemes” should not be included in computing NICs. I have no problem with the principle but, unamended, the clause would have allowed new schemes to be added without any change to the regulations or any reference to Parliament. The Delegated Powers Committee objected that this offered far too much leeway, and recommended that any designation under the relevant parts of Clause 10 should be “contained in regulations” and subject to the negative resolution procedure. Again, I thank the Minister for delivering on that.
I read the remaining amendments in this group as being technical, and we have no objection. The Delegated Powers Committee will not be fully satisfied by these amendments because certain recommendations have not been agreed by government—for example, the recommendation that the power to modify the criteria for the schemes in freeports should be affirmative, not negative. But we have made progress on some important points, and I hope that the Minister will make sure that the message goes back to those who draft Bills that it is important to take note of the appropriate constitutional balance. He has done so, and I thank him for it.
Lord Tunnicliffe (Lab)
My Lords, I am grateful to the Minister for bringing forward these amendments. As he outlined in his introduction, several of the texts clarify the upper secondary limit for the 2021-22 and 2022-23 tax years, with future amounts to be set in regulations. Given our proximity to the new tax year, it seems sensible to include these figures on the face of the Bill, rather than rush to lay regulations following Royal Assent. Oh, I should take my mask off; that is much better.
The remainder of the Minister’s amendments address three of the five recommendations put forward by the Delegated Powers and Regulatory Reform Committee. It is disappointing that the Government have chosen not to constrain the powers conferred by Clause 3(3), which the DPRRC labelled “inappropriate”. However, we have got quite a bit further than anticipated, following the Minister’s remarks in Committee. We thank him for this but, as a generality, we hope that the Government will get back to the convention of taking the DPRRC’s recommendations more seriously; I think that is a fair comment. However, the concession on Clause 10 is important, and I look forward to the short debates that will follow regulations made under Clause 3(1) and Clause 6(6).
Viscount Younger of Leckie (Con)
My Lords, I will reply very briefly to the comments of the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer. I simply say that I am grateful for their support for our amendments. Perhaps more than that, I thank them and others who contributed, particularly in Committee, on these amendments. I also thank the DPRRC; the comments that I made in my opening remarks say it all in terms of my view on it.
Baroness Kramer
“(e) the freeport governance body of any freeport tax site in which the employer has business premises maintains a record of all the businesses operating, or applying to operate within the tax site and this record—(i) contains information, which the freeport governance body must make reasonable efforts to verify, about the beneficial owner of the business; and(ii) is easily accessible to relevant enforcement agencies and to the general public.”Member’s explanatory statement
This amendment adds an additional condition whereby the relief would only be available if the freeport maintained a public record of the beneficial ownership of businesses operating on the site.
Baroness Kramer (LD)
My Lords, I am afraid that I carry responsibility for Amendments 2 and 3. I will start with Amendment 3, because it is one that I will not move today. It would provide for a review of the effectiveness of the NIC exemption for employers in freeports. Is it delivering additional jobs and economic growth, rather than displacing jobs and growth from other areas? How much is it costing in lost NIC payments at a time when we are requiring the lowest-paid workers to pay higher NI contributions? Are the big companies benefiting rather than SMEs? Those are the issues that we hope a review would look at and report back to this House. I will not repeat the evidence that suggests that freeports deliver few new jobs, mostly of low quality, but I am putting the Government on notice that we will look at these issues and demand evidence from them as the policy on freeports is implemented.
Lord Tunnicliffe (Lab)
My Lords, we welcome the tabling of these amendments by the noble Baroness, Lady Kramer. It is fair to say that there is huge scepticism around the Government’s freeports policy. This was reflected at Second Reading. There is no need to go over these arguments again. Sites are coming on stream and time will tell whether the many promised benefits are realised. I was very pleased to sign Amendment 2, and I hope the Minister will respond positively in his remarks.
The topic has taken on additional significance in recent weeks but these concerns are by no means new. Promises of increased transparency have been made year after year. Some limited reforms have come but the level of ambition has been low. We are all aware of the risks involved in freeports. If the Government are serious about mitigating these risks and moving towards a public register of beneficial ownership in a wider sense, why not start here? It feels like an easy win. If the Minister is unable to give the noble Baroness, Lady Kramer, the assurances she seeks, we will join her in any Division she calls.
We are also supportive in principle of the review clause, which would enable us to see the practical impacts of freeport tax relief. Freeports are a leap of faith. The Government hope that they will bring both local and national benefits, but we cannot be sure on either front. The Government will no doubt be keeping all these things under review—to do otherwise would be inconceivable—but can the Minister assure us today that we will get to see the data? I am sure that he will want to shout from the rooftops if their predictions on job and wealth creation are correct, but what if they are not? Sadly, we cannot always expect transparency and honesty from this Administration. If the Prime Minister is serious about turning over a new leaf, perhaps we can start here.
Viscount Younger of Leckie (Con)
My Lords, I start by directly addressing Amendment 2, which seeks to create an additional condition whereby freeports relief would be available only where the freeport maintained a public record of the beneficial ownership of the businesses operating on the freeport site. I thank the noble Baroness, Lady Kramer, for raising this important issue. Before I go any further, I would like to broaden the debate, as the House will be aware of the considerable interest that continues to be shown in related matters—as the noble Baroness touched on—taking account of the register of overseas entities’ beneficial ownership, economic crime in general, illicit finance and money laundering. Because of this, I hope that the House will forgive me if I give a full and considered response to the noble Baroness and, indeed, the noble Lord, Lord Tunnicliffe.
The Government are taking firm and co-ordinated action to crack down on economic crime and are determined to go further. We will not tolerate criminals profiting from illicit money and will do whatever is necessary to bring these criminals to justice. The Home Office and the Treasury lead the policy response for government. We have well-established governance structures that oversee activity across the system, building on the landmark Economic Crime Plan, which brought the public and private sectors together to tackle economic crime.
The ever-evolving nature of economic crime means that it cannot be combated by law enforcement alone; the capabilities, resources and experience of a wide range of partners from across justice agencies, government departments, regulatory bodies and, of course, the private sector, are required. The Government are bringing forward significant investment to tackle these crimes, including through legislating for the Economic Crime (Anti-Money Laundering) Levy. The upcoming fraud action plan and second Economic Crime Plan this year will further enhance the public and private sector’s response in cracking down on economic crime and fraud.
In recent years we have taken important actions to strengthen our fight against economic crime. Let me give noble Lords some examples. The first was the creation of the new National Economic Crime Centre to co-ordinate the law enforcement response to economic crime. The second was the establishment of the Office for Professional Body Anti-Money Laundering Supervision to improve oversight of anti-money laundering compliance in the legal and accountancy sectors. The third was the Criminal Finances Act 2017, which introduced new powers, including unexplained wealth orders and account freezing orders. Finally, we introduced a global human rights sanctions regime.
The UK is fully committed to coming down firmly on entities which contravene the UK’s robust counter-illicit finance regime, as demonstrated by the actions of our anti-money laundering supervisors. This is apparent in the FCA’s recent success in securing its first criminal prosecution against NatWest bank under the money laundering regulations. NatWest pleaded guilty to three offences of breaching the regulations, resulting in a £268.4 million fine. Similarly, in April 2019 the FCA fined Standard Chartered bank £102.2 million, which was the second largest financial penalty ever imposed by the FCA for anti-money laundering control failings.
The noble Baroness touched on Russia, as I thought she might. The UK has also taken decisive action to tackle Russian illicit finance. We have acted, in unison with our key partners, most notably the European Union and the United States, against Russia directly on issues that have arisen in areas such as anti-corruption. We have introduced the global anti-corruption sanctions regime and have already sanctioned 14 individuals involved with the $230 million tax fraud in Russia, perpetrated by organised crime groups and uncovered by the brave Sergei Magnitsky. The Government are also bringing forward investment to tackle economic crime. The combination of this year’s spending review settlement and private sector contributions through the economic crime levy, as mentioned earlier, will provide funding to tackle economic crime totalling around £400 million over the spending review period.
Let me now return to corporate transparency. The UK is a global leader in beneficial ownership transparency. The Financial Action Task Force’s 2018 assessment recognised this: the UK is one of only five advanced economies to have achieved a pass mark for beneficial ownership transparency. The UK is the only G20 country with a free, fully public and easily accessible beneficial ownership register. The people with significant control register—the so-called PSC—at Companies House has more than 5.6 million names of people with significant control over nearly 4.4 million UK-registered companies. As well as the PSC, the Government intend to implement a register of beneficial owners of overseas entities that own or buy property in the UK. This register will be one of the first of its type in the world and will go further to bring transparency to the UK property market. This, in turn, will make it easier for regulators, legitimate businesses and the general public to know who the true owners of UK property are, and enable law-enforcement agencies to carry out effective investigations.
We are also committed to leading international reform efforts on beneficial ownership. Last year, under the UK’s leadership, all G7 countries committed to strengthening and implementing beneficial ownership registers. This builds on discussions we are driving forward at the Financial Action Task Force to bolster wider international standards on company beneficial ownership. Our actions are helping to ensure there are no weak links in the global financial system. The Government’s proposed reforms to Companies House will further strengthen our position as a world leader in corporate transparency, therefore enabling us to tackle economic crime and protect the UK from hostile actors, thereby enhancing the attractiveness of the UK as a place to invest.
The Companies House reforms will deliver more reliable information on the companies register via verification of the identity of people who manage, control or set up companies; greater powers for Companies House to query and challenge the information submitted to it; and the removal of technological and legal barriers to allowing enhanced cross-checks on corporate data with other public and private sector bodies. To ensure that these changes can be delivered as swiftly as possible, at last year’s spending review the Government committed to an additional £63 million to facilitate Companies House reform. These reforms require primary legislation and, as noble Lords will have heard from the Prime Minister last week, we are committed to bringing this legislation forward. However, in anticipation of any questions on this, I am not in a position, I am afraid, to announce timings or refer to any Queen’s Speech.
I turn now to freeports, which are really the subject of the remarks of both the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe. We have gone further: throughout the bidding process and subsequent business case processes, prospective freeports have been required to set out how they will manage the risk of illicit activity, with those plans being scrutinised by officials in the Border Force, HMRC, the National Crime Agency and others.
On beneficial ownership specifically, I start with a reminder that the freeports bidding prospectus stipulated that each freeport must agree a governance structure with the Government. The precise governance structure is tailored to each freeport’s needs but it must be consistent with the requirements set out in the publicly available freeports bidding prospectus.
The Government already require each freeport governance body to undertake reasonable efforts to verify the beneficial owner of businesses operating within the freeport tax site and to make this information available to not only HMRC but law enforcement agencies and other relevant public bodies. This is a condition of freeport status. It is a proportionate approach which means that local area law enforcement can take effective measures to ensure the security and propriety of operations within the freeport.
Baroness Kramer (LD)
My Lords, the Minister has not persuaded me. In fact, if anything, most of his speech reinforced my position. We already have a public register of ownership of companies in the UK. We hope that this will be strengthened through verification when we next see this legislation. The Government have committed to a public register of the beneficial ownership of property in the UK. We think that the legislation is sitting somewhere in the department. We hope that it will see the light of day very soon.
Last week, the Minister, the noble Lord, Lord Ahmad, assured us that he had brought the overseas territories to the point at which they were committed to public registers of beneficial ownership by 2023, but here we have a new register which is suddenly not public. We do not need this anomaly or backward step. I do not understand the Government’s resistance. I am afraid that, although I very much respect the Minister, his arguments reinforced my conviction, as I hope that it will have reinforced the conviction of this House, that we need to divide on this issue.
Member’s explanatory statement
See the explanatory statement for the first amendment tabled in the Minister’s name to Clause 8.
Lord Tunnicliffe
“(3A) Relief under this section may apply in respect of any employment of an earner who meets the veteran conditions, irrespective of whether it has applied to a concurrent or previous employment of that earner.”Member’s explanatory statement
This amendment clarifies that employer zero-rate relief when employing veterans may apply to multiple employers, in cases where a veteran has more than one form of employment during the eligibility period.
Lord Tunnicliffe (Lab)
My Lords, I will also speak to Amendment 6 in this group, which brings us to the issue of zero-rate relief for employers of new Armed Forces veterans. I am grateful to the noble Baroness, Lady Kramer, for her support on this issue at Committee, and for signing Amendment 6, which is in this group.
As we discussed in Grand Committee, many veterans make a smooth transition back to civilian life. They will find stable accommodation and a job within a year, becoming happy and productive members of society. However, while this applies to a clear majority of ex-service personnel, there are a sizeable number who struggle with the process of adaptation. The reasons for this are varied and complex. Some veterans simply are not adequately prepared for life outside the forces. This is an area where improvements have been made in recent years, but individual experiences of leaving active service suggest more needs to be done.
Others may find themselves contending with issues in their personal lives: living in temporary or sub-standard housing, facing difficulty reintegrating back into their family or friendship group, or dealing with mental or physical health issues. Any one of these would make the process of finding and holding down a job more difficult; a combination may make it impossible.
Many veterans will eventually settle, although they may not do so within 12 months. They may find that their first job or two do not suit them. These challenges cannot be fully addressed in the Bill—we know that. But we are generally supportive of the NIC relief being offered to employers of veterans. I continue to be of the view that if this policy helps just a single person, it will have been worth it.
The question before us today is whether—and how —we can make the relief work for as many veterans as possible. The Treasury’s policy note is clear that the relief can cover multiple periods of employment—concurrent or subsequent—within the qualifying period. However, as drafted, the Bill is silent on this point. I do not wish to be a cynic, but policy notes can change. Paragraphs of text can mysteriously disappear with no explanation. Amendment 5 has been tabled with this in mind, to protect that important point of clarification. I hope the Minister can accept the text. If the wording is not quite right, it can be addressed at Third Reading.
I also hope the Minister will feel able to accept Amendment 6, which would grant the Treasury the power to change the one-year period specified in Clause 7(1)(c) of the Bill. In Committee, we argued for three years of relief. This would have ensured consistency with the relief offered to employers in freeports, while affording veterans more time to adjust. The Treasury seems certain that a single year’s relief will do the job. We hope it does, but that will become apparent only with time. If it becomes clear that a longer period of 18 months, two years or perhaps longer would have a beneficial impact on the employment and retention of veterans, Amendment 6 would allow that change to be made quickly and simply, and—crucially—outside the Budget and Finance Bill cycle. The Government would not be compelled to use the power, but the option would be available to Ministers should the scheme be extended.
I hope that noble Lords—and the Minister—respond positively to these amendments. They are offered in a spirit of co-operation. We want to be helpful to the Government and we want the Government to be helpful to the men and women who have defended this great nation. It is our duty to serve the interests of those who have served us. I beg to move.
Baroness Kramer (LD)
My Lords, we on these Benches fully support these Labour-led amendments. The noble Lord, Lord Tunnicliffe, has made the arguments in powerful terms, and I will not repeat what has been said so well. Most service men and women return smoothly to civilian life, but it is often those who have experienced the most trauma on our behalf who find themselves in a difficult place. Nothing would be more frustrating than putting in place a scheme such as that proposed in the Bill and then finding that, in many cases, the support does not last long enough as life events throw people temporarily off course. Frankly, the cost of providing a longer employment incentive for this group would cost the Treasury next to nothing, so we find it a privilege to support these amendments.
Viscount Younger of Leckie (Con)
My Lords, the veterans’ relief legislated for in the Bill and consulted on publicly has been introduced to support veterans as they transition into civilian life, and to encourage employers to utilise the considerable and often formidable skill sets of veterans. Between 10,000 and 15,000 leave the regular Armed Forces each year, whose employers will be able to benefit from this measure. This measure fulfils the Government’s 2019 manifesto commitment and builds on the UK-wide Strategy for our Veterans launched in November 2018, which includes specific commitments to support veterans to “enter appropriate employment”.
Amendment 5 tabled by the noble Lord, Lord Tunnicliffe, seeks to clarify that multiple employers can claim that relief on behalf of the same veteran. However, the amendment is not necessary as this is already the policy intent, and the legislation, as drafted, supports this. It may be helpful to explain exactly how the relief works. Any employer can claim the relief during a veterans’ first 12 months in civilian employment. That period is calculated by taking the veteran’s first day of civilian employment after leaving the Armed Forces and adding 12 months. Concurrent and subsequent employers can claim the relief in that period. That approach ensures that a veteran does not use up access to the relief if they take on a temporary role immediately after leaving the Armed Forces. Where the first day of civilian employment is before 6 April 2021, the period for which an employer can claim the relief will be from 6 April 2021 to 12 months after the first day of civilian employment.
It may help the House if I provide it with an example. Veteran A starts their first civilian employment on 30 August 2022. On 30 November 2022, veteran A enters into a separate employment with employer B. Employer B will also qualify for this relief, and both employers can continue to claim this relief until 29 August 2023. That approach has been communicated publicly to employers in the Government’s response, published on 11 January 2021, to the policy consultation; in the tax impact and information note that accompanies the Bill; in guidance for employers published ahead of this measure being available from 6 April 2021; and in speeches made by Ministers in both this House and the other place. I hope that the noble Lord is reassured about the policy and withdraws his amendment.
Amendment 6, tabled by the noble Lord and supported by the noble Baroness, Lady Kramer, gives the Treasury a power to extend the qualifying period of this relief, as defined at Clause 7(1). The Government have considered this measure in detail and consulted extensively on the relief, including a policy consultation which ran from July to October 2020 and a technical consultation which ran from January to March 2021. A significant number of respondents agreed that the relief is a positive step towards supporting the recruitment of veterans and could help to break down the barriers and negative perceptions surrounding veterans. After considering the responses, we felt that a 12-month qualifying period struck the right balance between supporting veterans as they transitioned to civilian life and wider taxpayers’ interests. Noble Lords may want to note that employer representatives such as the Federation of Small Businesses welcomed the 12-month relief when it was announced.
This policy provides employers in the 2021-22 tax year with up to £5,500 of relief and is one part of the Government’s broader strategy to support veterans. The Government recently published the veterans’ strategy action plan for 2022-24, which contains over 60 policy commitments worth over £70 million in a diverse range of areas, reflecting the varied streams of government support offered. Furthermore, at the 2021 Budget and spending review, £10 million was provided to support mental health via charity provision and £5 million to the Health Innovation Fund. In August 2021, £2.7 million was provided to further strengthen veteran health support, including facilitating the expansion of Op COURAGE, and a further £5 million in September 2021 for those struggling after the Afghanistan withdrawal.
Furthermore, the Bill already contains other levers to increase the generosity of this relief if needed, such as increasing the upper secondary threshold, as debated earlier, and extending the overall period of the relief. These proposed additional powers are therefore not necessary. With these reassurances, I hope that the noble Lord and noble Baroness will not press their amendments.
Lord Tunnicliffe (Lab)
My Lords, I thank the noble Lord for his response. I hope that I am wise in not pressing Amendment 5 any further. I will, however, be pressing Amendment 6 to a Division. The Government believe that this process is good, and we agree. There is consensus that the NICs relief is a benign piece of legislation and, if it is successful and cost effective, it may need to be extended. This amendment permits extension without further primary legislation. It is entirely within the control of government. It can do no harm and may do some good. I commend Amendment 6 to the House. In the meantime, I beg to withdraw Amendment 5.
Lord Tunnicliffe
“(3) The Treasury may by regulations amend the period specified in subsection (1)(c) where it believes this will contribute to improved employment and retention rates among veterans.”Member’s explanatory statement
This amendment would grant the Treasury a power to extend the eligibility period attached to zero-rate relief for armed forces veterans, should that be deemed desirable to improve the ability of veterans to find long-term employment.
“(A1) For the purposes of section 1, for the tax year beginning with 6 April 2022—(a) the upper secondary threshold is £481, and(b) the prescribed equivalent for earners paid otherwise than weekly is—(i) where the earnings period is a month, £2,083;(ii) where the earnings period is a year, £25,000;(iii) where the earnings period is a multiple of a week, £25,000 divided by 52 and multiplied by the multiple;(iv) where the earnings period is a multiple of a month, £25,000 divided by 12 and multiplied by the multiple;(v) in any other case, £25,000 divided by 365 and multiplied by the number of days in the earnings period.(A2) For the purposes of section 6, for the tax years beginning with 6 April 2021 and 6 April 2022—(a) the upper secondary threshold is £967, and(b) the prescribed equivalent for earners paid otherwise than weekly is—(i) where the earnings period is a month, £4,189;(ii) where the earnings period is a year, £50,270;(iii) where the earnings period is a multiple of a week, £50,270 divided by 52 and multiplied by the multiple;(iv) where the earnings period is a multiple of a month, £50,270 divided by 12 and multiplied by the multiple;(v) in any other case, £50,270 divided by 365 and multiplied by the number of days in the earnings period.(A3) Amounts determined in accordance with—(a) subsection (A1)(b)(iii) or (iv), or subsection (A2)(b)(iii) or (iv), if not whole pounds, are to be rounded up to the next whole pound;(b) subsection (A1)(b)(v) or (A2)(b)(v) are to be calculated to the nearest penny, and any amount of a halfpenny or less is to be disregarded.”Member’s explanatory statement
This amendment, together with the other amendments tabled in the Minister’s name to Clause 8, and the amendments tabled in the Minister’s name to Clauses 1 and 6, set upper secondary thresholds and prescribed equivalents for the purposes of Clause 1, in relation to the tax year 2022-23, and Clause 6, in relation to the tax years 2021-22 and 2022-23, and make consequential amendments.
Member’s explanatory statement
See the explanatory statement for the first amendment tabled in the Minister’s name to Clause 8.
Member’s explanatory statement
See the explanatory statement for the first amendment tabled in the Minister’s name to Clause 8.
“(4) The regulations may prescribe an equivalent of an upper secondary threshold in relation to earners paid otherwise than weekly (and references in any Act to the “prescribed equivalent”, in the context of an upper secondary threshold for the purposes of section 1 or 6, are references to the equivalent prescribed in reliance on this subsection in relation to such earners). (4A) The power to prescribe an equivalent includes power to prescribe an amount which exceeds, by not more than £1.00, the amount which is the arithmetical equivalent of that threshold.”Member’s explanatory statement
See the explanatory statement for the first amendment tabled in the Minister’s name to Clause 8.
“(5) The regulations may amend this section.”Member’s explanatory statement
See the explanatory statement for the first amendment tabled in the Minister’s name to Clause 8.
Member’s explanatory statement
This amendment provides for the designation of schemes for the purposes of Clause 10 to be by regulations.
“(za) section 3(1);”Member’s explanatory statement
This amendment provides for regulations under Clause 3(1) to be subject to the draft affirmative procedure.
“(ba) section 6(6);”Member’s explanatory statement
This amendment provides for regulations under Clause 6(6) to be subject to the draft affirmative procedure.
National Insurance Contributions Bill
Tuesday 1st March 2022
(2 years, 8 months ago)
Commons ChamberRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Commons Consideration of Lords Amendments as at 1 March 2022 - (1 Mar 2022)
18:22 - The House divided: - Ayes: 295 / Noes: 198 - Question accordingly agreed to.
18:36 - The House divided: - Ayes: 298 / Noes: 199 - Question accordingly agreed to.
Madam Deputy Speaker (Dame Rosie Winterton)
I must draw the House’s attention to the fact that financial privilege is engaged by all of the Lords amendments 2, 4, 1, 3, 5, 6, 7, 8, 9, 10, 11 and 12. If any of the Lords amendments are agreed to, I will cause the customary entry waiving Commons financial privilege to be entered in the Journal.
Clause 2
Freeport conditions
5.51 pm
The Financial Secretary to the Treasury (Lucy Frazer)
I beg to move, That this House disagrees with Lords amendment 2.
Madam Deputy Speaker
With this it will be convenient to discuss the following:
Lords amendment 4, and Government motion to disagree.
Lords amendments 1, 3 and 5 to 12.
Lucy Frazer
I welcome this small but important Bill on its return to this House and I am pleased to speak to it for the first time. I pay tribute to my ministerial colleague, Viscount Younger of Leckie, for his work on it in the other place, and to my right hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman), who so capably led it when it was first before the House.
There are 12 Lords amendments for our consideration today and I will first address Lords amendments 2 and 4, which, as Madam Deputy Speaker has highlighted, engage the financial privilege of this House. The Government ask the House to reject them for the reasons that I will set out. Lords amendment 2 is the first of two amendments on which the other place voted to make changes to the Bill. It adds an additional condition whereby freeport national insurance contribution relief would be available only if the freeport governance body maintained a public record of beneficial ownership of businesses operating in the freeport tax site.
The Government believe that the Lords amendment, which was made by the other place, is unnecessary and should not be accepted. Throughout the bidding prospectus and subsequent business case processes, prospective freeports were required to set out how they will manage the risk of illicit activity. Those plans were scrutinised by officials in the Border Force, Her Majesty’s Revenue and Customs, the National Crime Agency and others.
Additionally, the freeports bidding prospectus set out that each freeport must agree a governance structure with the Government. While each port can design its own governance structure to meet the local needs of the port, it must meet the criteria set out by the Government in the freeports bidding guidance. That means that the Government already require each freeport governance body to undertake reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site and to make that information available to HMRC, law enforcement agencies and other relevant public bodies. It is therefore a condition of being granted freeport status that there is an appropriate level of oversight.
That is a proportionate approach, which means that the local area and law enforcement can take effective measures to ensure the security and propriety of operations within the freeport. The difference between the amendment and the existing requirement on freeport governance bodies is simply a requirement for the freeport governance body to make its record of beneficial ownership available to the general public, as well as to law enforcement.
Given the nature of the information, we do not think it would be appropriate for the freeport governance body to release this information publicly. This is because the freeport governance board is a third party, and therefore does not have the locus to release such information about a business to the public. The second reason is that such a requirement would also partially duplicate the People with Significant Control register at Companies House where there is already an onus on the company itself to provide information.
However, hon. Members will also be aware that, as a Government, we are bringing in a number of measures to ensure that we have transparency. Last week, the Prime Minister announced the Economic Crime (Transparency and Enforcement) Bill to further crack down on dirty money and maintain the UK’s position as a world leader in corporate transparency, and we have heard much of that in this House today. That Bill will introduce a register of overseas entities beneficial ownership of UK property to crack down on foreign criminals using UK property to launder money. It will reform our unexplained wealth orders regime to help target more corrupt elites and it will strengthen the Treasury’s ability to take action against sanction breaches.
We will also publish details of the planned fundamental reform of Companies House, which is designed to clamp down on money laundering and illicit finance. Once the register of overseas entities is implemented, it will be the first of its kind in the world. That is good news for the UK, enhancing our strong reputation as an honest and trusted place in which to do business. I hope that, with these assurances, this House will reject Lords amendment 2.
Lords amendment 4 is the second amendment on which the other place voted to make changes to the Bill. It provides the Treasury with the power to amend the eligibility period attached to zero-rate relief for armed forces veterans. The Government believe that this amendment made by the other place is not necessary and should not be accepted. I will explain to this House why that is the case. The Government have considered this measure in detail and consulted extensively on the relief. It included a policy consultation that ran from July to October 2020 and a technical consultation that ran from January to March 2021. A significant number of respondents agreed that the relief is a positive step forward towards supporting the recruitment of veterans and could help break down the barriers and negative perceptions surrounding veterans.
After considering the responses, we felt that a 12-month qualifying period struck the right balance between supporting veterans as they transitioned to civilian life and wider taxpayers’ interests. Members should also be aware that employer representatives, such as the Federation of Small Businesses, welcomed the 12-month relief when it was announced. This policy provides employers in the 2021-22 tax year with up to £5,500 of relief. It is also one part of the Government’s broader strategy to support veterans.
The Government recently published the veterans’ strategy action plan for 2022 to2024. That contains more than 60 policy commitments worth more than £70 million in a diverse range of areas, reflecting the varied streams of Government support on offer.
Furthermore, at the 2021 Budget and spending review, £10 million was provided to support mental health via charities provisions and £5 million to the health innovation fund, providing cutting-edge treatment for veterans. In August 2021, £2.7 million was provided to strengthen veteran health support further, including facilitating the expansion of Op Courage, and a further £5 million was provided in September 2021 for those struggling after the Afghanistan withdrawal. The Bill already contains other levers to increase the generosity of this relief, if needed, such as increasing the threshold that employers of veterans start paying NICs and extending the overall period of the relief. These proposed additional powers are therefore not necessary. With these reassurances, I hope that the House will reject Lords amendment 4.
The remaining 10 Lords amendments were tabled by the Government and I hope that this House will support them. Lords amendments 1, 3 and 5 to 9 legislate for the threshold at which employers that qualify for these reliefs start to pay NICs. The amendments set the threshold for the 2022-23 tax year for freeport employers and for the 2021-22 and 2022-23 tax year for the employers of veterans. These thresholds have been set at £25,000 per annum for freeport employers and £50,270 for employers of veterans. Both those figures have been publicly communicated during the Bill’s passage. These thresholds are normally set through regulations, but due to the timing of this Bill they are being set in primary legislation.
James Murray (Ealing North) (Lab/Co-op)
I thank the Minister for setting out the reasoning behind the Government’s amendments in the other place. Although we support many of the measures in this Bill, we cannot ignore the fact that we are discussing the Government’s plans for specific relief from NICs just one month before they raise national insurance for workers and businesses across the board. That is the crucial context for the Lords amendments we are being asked to consider.
Five weeks from today, a typical full-time worker will see their annual tax bill rise by £274. That will be the direct result of the Government’s decision to raise NI. It is the worst possible tax rise, at the worst possible time. We argued it was wrong last September, when the Government pushed this tax rise through Parliament. Since then, energy bills have begun to soar, making our case even stronger. Now, as we stand alongside the Ukrainian people, we know that that conflict will impact people here, with further price rises for petrol, energy and food. The Conservatives must think again. The impact of their NI hike is getting worse and worse. The Chancellor should finally do the right thing and scrap April’s tax rise on businesses and working people.
As we said when this Bill was being debated in the Commons last year, we support the intention behind many of its measures. However, throughout its passage, we and our colleagues in the other place have raised important questions with Ministers about some of the approaches the Government have decided to take. With that in mind, I turn to Lords amendments 2 and 4, which were successful in the other place and which we will be supporting here today. Lords amendment 2 seeks to add one further condition to those that already exist in the Bill for freeports. When it was introduced, this Bill included the conditions under which employers in a freeport could benefit from a zero rate of secondary class 1 NICs. This amendment adds one further condition to freeport employers’ relief. It would make sure this relief is available only if the freeport maintains a public record of the beneficial ownership of businesses operating within it. We, alongside right hon. and hon. Members from across the House, have long argued for transparency over the ownership of UK assets. In recent days, that has come to a head, with the Government finally admitting and accepting the urgent importance of establishing a public register of the overseas owners of UK property. Yesterday, when the Business Secretary made a statement to the House on “Corporate Transparency and Economic Crime”, no one could deny the damage caused by the Government’s failing to prioritise transparency of the overseas ownership of UK interests. As my hon. Friend the Member for Feltham and Heston (Seema Malhotra) told the House yesterday, although we clearly support the Government’s introducing a register of overseas owners of UK property, we are clear that:
“The UK would have been in a much stronger position to act with speed and our national security would have been better protected if the register had already been up and running.”—[Official Report, 28 February 2022; Vol. 709, c. 736.]
As my hon. Friend went on to say yesterday, we hope lessons will be learned for the future. The Government have a chance today to prove that they have learned those lessons. Let us avoid their pressing ahead today without that transparency condition, only to return to the matter in a rush at a later date when the opportunity for greatest impact may already have been missed. That is why we will support Lords amendment 2, and I urge Government Ministers and hon. Members on all sides to do likewise.
I turn now to Lords amendment 4, which was also successful in the other place and which we will support today. The Government’s Bill introduces a zero rate of national insurance contributions for employers of armed forces veterans for the period of one year beginning with the earner’s first day of civilian employment after leaving the armed forces. We believe it is crucial to ensure that all veterans get the support they need as they seek civilian employment.
Lords amendment 4 enables the Treasury to change the period of support offered if it is found to support employment. We believe it is a simple measure, giving the Government flexibility to adjust the operation of the relief if doing so might improve veterans’ ability to find long-term employment.
As the Financial Secretary may know, when the Bill was debated in the Commons last year we raised questions about the time period for which the relief would be available. When I discussed this Bill with her predecessor, the right hon. Member for Hereford and South Herefordshire (Jesse Norman), I asked him to explain in greater detail why the Government had chosen a period of one year for veterans’ employers. In response, he said that one year was appropriate because,
“the goal is to support a very specific process of transition”.
When we pressed him further on the importance of helping to maintain long-term employment, he acknowledged:
“If it were the case that veterans still had a serious problem of finding secure and stable employment, of course that would be a matter that the Government would wish to reflect on and consider.”
He assured me and several of my hon. Friends that he would,
“continue to reflect on this policy”,
and that those at the Treasury,
“already have in place processes of evaluation and assessment.”––[Official Report, National Insurance Contributions Public Bill Committee, 22 June 2021; c. 18-20.]
I am sure the right hon. and learned Member for South East Cambridgeshire (Lucy Frazer) will want to honour those commitments made by her predecessor.
Through Lords amendment 4, we seek simply to give the Government the power to change the period of relief, should their ongoing analysis conclude it is in the best interests of veterans to do so. On that basis, I urge the Financial Secretary and her colleagues to reconsider the Government’s position. I hope that Ministers and hon. Members on the Government Benches will see the value that Lords amendments 2 and 4 add to this Bill and that, even at this late stage, they might reconsider their position on them.
I end by urging Ministers to ensure that next time we are in this Chamber with national insurance on the Order Paper, it will be to agree to cancel the tax rise coming next month. The Chancellor has five weeks to do the right thing—five weeks to change his mind and avoid hitting working people and businesses with the worst possible tax rise at the worst possible time.
Richard Thomson (Gordon) (SNP)
I rise to support Lords amendments 2 and 4, but I will deal first with amendment 4.
As I said at earlier stages of this Bill, those who have experience of serving within the armed forces bring tremendous qualities to the workforce through both the skills they have learned while in uniform and their breadth of life experience. Despite our awareness of that and the best efforts of Governments and the third sector, for too many of our ex-servicemen who are leaving the services, the transition to civvy street is far more difficult than it often needs to be.
Having this exemption for national insurance contributions is therefore a very positive step as far as we are concerned, making it even more attractive to employers to hire those ex-service personnel and to bring their skills and experience into the workforce, helping to bring to fruition all the many economic and social benefits that can come from that. In that regard, we are attracted to Lords amendment 4 simply because it gives the Treasury that power to extend the eligibility period attached to the zero rate relief for armed forces personnel and veterans, should that be deemed desirable. That seems to us to be a perfectly reasonable addition to make to the Bill, giving the Treasury a degree of flexibility on how to implement the measure that would otherwise be lacking in the Bill as drafted.
On amendment 2, let me first place on record my satisfaction at the agreement that has eventually been reached by the Scottish Government and the UK Government over freeports, or green ports, of which two will now be established in Scotland, with the bidding process opening in spring this year and the first sites opening, hopefully, in spring 2023. I will go a little bit off piste here to say that that outcome was not always guaranteed, and at times, in at least some of the public discussions, there has been a bit more war-war than jaw-jaw, certainly on the part of individual Conservative politicians rather than between Ministers in Edinburgh and London. For example, the Scottish Business Minister, Ivan McKee, had to write six times to the UK Government to even try to get green port discussions under way in order to get them over the line. He said that the silence was deafening. That is a pretty damning account that rather sits at odds with the impression that we are often given from those on the Treasury Bench as to how they would like to work constructively with the Scottish Government.
The reason for holding out on the variation on the freeports option was quite simple. We felt very strongly that given the scale of the financial support that was on offer, it was vital to ensure that wider policy objectives such as environmental obligations, the commitment to net zero and fair play for those employed within freeport sites, were met. While it is up to the UK Government to decide how those objectives can be met in England, applicants for green port status in Scotland will be required to set out robust plans at the outset on how they plan to contribute to Scotland’s just transition to a net zero economy and how they will benefit the wider supply chain alongside embedding fair working practices such as at least paying the real living wage.
Freeports, it is fair to say, have had a somewhat mixed reception abroad, particularly as regards the relationship that they are perceived to have with criminality and tax evasion. While hardly the “Grand Theft Auto”-style dystopia that they have sometimes been portrayed as, the potential for criminality and non-compliance with taxation, employment rights, health and safety or environmental regulations and obligations is clear, as is the potential for broader economic displacement.
That brings me to the nub of amendment 2. In recent weeks, we have seen significantly increased demand from this House for scrutiny and visibility of financial transactions that take place in this country. We need to have that increased scrutiny over those who spend and invest in the UK, and also over where their money originates. It is very important when setting up freeports that we are able to answer the age-old question, “cui bono?” That is absolutely paramount. A requirement that the freeport deliverance body should be able to make reasonable efforts to verify who the beneficial owners of the business are and to ensure that that information is accessible not just to the relevant enforcement agencies but to the general public is the minimum amount of due diligence that we should expect in exchange for the status and the exemptions on offer.
I listened carefully to the Minister’s arguments about the beneficial register that will be in place and her view that as a third party under the local governance arrangements it would be inappropriate to release that information. Respectfully, I disagree with that. We all know how labyrinthine and byzantine corporate structures can be. Irrespective of any requirement in future legislation that may be coming into force, certainly on freeports, my party firmly believes that we should have transparency and accountability baked into the corporate structure and public reporting at the outset. On that basis, both Lords amendments have our support and we shall be voting accordingly.
Sarah Olney (Richmond Park) (LD)
I spoke on Second Reading and at other stages before the Bill went to the Lords, but it is fair to say that I now stand in a very different environment. Since the full-scale invasion of Ukraine last week, so many aspects of our economy, our international relations and our defence strategy have been cast in a new light.
In that spirit, I rise to support Lords amendment 2, which was introduced by my good friend and Richmond Park predecessor, Baroness Kramer. In the past week, we have had cause to look again not just at our defence spending and at the importance of our international relationships, but most importantly at how the UK— London in particular—has become a haven for Russian money, at what it has done to us as a nation and at how it has undermined our efforts to stand with the brave people of Ukraine.
Lucy Frazer
With the leave of the House, I will make a few comments in response to hon. Members.
The hon. Member for Ealing North (James Murray) mentioned tax rises and national insurance contributions. The Government recognise the impact that they will have on those to whom they are applied, but it is vital that we tackle social care—we cannot avoid taking it on. He will know, because we have debated them many times, the measures that the Government are taking to ensure that those on the lowest incomes get the protection that they need. For example, we are increasing the national living wage and cutting tax for low-income families in relation to universal credit.
This, however, is a debate about some other measures, and one of the important measures that have been raised relates to transparency. The hon. Member for Ealing North suggested that we had been slow to act, while the hon. Member for Richmond Park (Sarah Olney) rightly said that we should pause and look again. Let me emphasise that we have not been slow to act, in the sense that we were the first country in the G20 to create a free, fully public beneficial ownership register, and on that register we have 5.6 million names and more than 4.4 million UK companies. We have not been slow to act, and we have looked again, because we are introducing a register of beneficial owners of overseas entities, we are introducing further powers in relation to unexplained wealth orders, and we are introducing further powers to sanction for the Office of Financial Sanctions Implementation.
Moreover, today the Government are publishing a detailed White Paper that will upgrade the powers in relation to Companies House. For example, anyone setting up, running, owning or controlling a company in the UK will need to verify their identity with Companies House. Companies House will be given the power to challenge information that appears dubious, and will be empowered to inform security agencies of potential wrongdoing. Company agents from overseas will no longer be able to create companies in the UK. So we are taking measures now, and we have reflected before taking those steps.
The hon. Member for Gordon (Richard Thomson) raised the issue of veterans, and I too am proud that we are introducing measures to make it easier to employ them. We have set out our reasons for keeping the measure in relation to the 12-month period, and I highlighted them in my opening speech, but, as Members will know, we will review that policy in 2023. I am also pleased that, as the hon. Member for Gordon said, the UK and Scottish Governments announced the establishment of two freeports earlier this month.
For those reasons, I hope that the House will agree with the points that I have made.
Question put, That this House disagrees with Lords amendment 2.
National Insurance Contributions Bill
Monday 14th March 2022
(2 years, 8 months ago)
Lords ChamberRead Full debate National Insurance Contributions Act 2022 Read Hansard Text Amendment Paper: HL Bill 124-I Marshalled list for Consideration of Commons Reasons - (11 Mar 2022)
Viscount Younger of Leckie
That this House do not insist on its Amendment 2, to which the Commons have disagreed for their Reason 2A.
Viscount Younger of Leckie (Con)
My Lords, I welcome this small but important Bill that has returned to this House—I hope for the final time. I again thank the noble Lord, Lord Tunnicliffe, and the noble Baroness, Lady Kramer, who have previously contributed to an engaging debate on these important issues.
Two amendments have returned for our consideration today. Both relate to amendments previously narrowly passed in this House. They have returned to the House after being carefully considered by the other place and having been convincingly rejected, with financial privilege cited as the reason. I will summarise both.
The first amendment that the Commons have rejected would have added an additional condition to Clause 2 of the Bill whereby the freeport NICs relief would be available only if the freeport governance body maintained a public record of beneficial ownership of businesses operating in the freeport tax site. The House of Commons has considered the issue and decided that the amendment made in your Lordships’ House is subject to the financial privilege of the House of Commons and should not be accepted. However, I will mention what the Government are doing to ensure that firm and co-ordinated action is taken to crack down on economic crime, as I know that this House has kept the issue very much at the forefront of its mind, given the unfolding events in eastern Europe, and contributed vastly to furthering this particular debate.
Baroness Kramer (LD)
My Lords, I will be brief because we have a heavy agenda today, and we are going to be talking about the Economic Crime Bill, which is not unrelated to the issue I want to raise, which is that of freeports. The amendment this House introduced would have made that register of beneficial ownership of businesses in freeports public. There may have been a mistaken impression sometimes—I am sure the Minister did not intend this—that that information would be available to people, either through the properties register or through the revised Companies House register. But that is not the case except in the very rare circumstances where the business in the freeport would be a headquarters for the entity and therefore its legal address, or where the entity had sought to purchase property. Those are mistakes that no criminal organisation or kleptocrat would make. They would take advantage of the lack of disclosure that otherwise frames freeports.
I found the reasons the House of Commons gave quite extraordinary. It said this amendment was rejected:
“Because it affects a charge on the public revenue.”
If there is to be a register of beneficial ownership of businesses in a freeport, uploading that to a public website rather than the internal site essentially has no cost difference. So, public revenue cannot possibly be the reason that this is an issue. So, where could public revenue come in? It is because the additional transparency that allows civil groups, activists, journalists and others to look at what is happening in the freeports would, in effect, deny to criminals, money launderers, kleptocrats and others of similar ilk the ability to claim exemptions in national insurance contributions. In other words, it would have reduced the demand on the public purse; it would have reduced the demand for public spending. Yet that seems to be the reason being given for overturning this particular arrangement. So I would just be curious to know, if the Minister speaks again—but we can deal with this in relation to other cases—why denying to criminals and money launderers various tax exemptions and reductions in national insurance payments is considered to be an issue of public revenue and therefore a reason for not including this particular measure. I am exceedingly confused.
On other matters, I supported the issues raised by the noble Lord, Lord Tunnicliffe, and I am sure he will speak to them. But I do regret that both these measures have been overturned.
Lord Tunnicliffe (Lab)
My Lords, we need to move quickly to today’s main business, so I will be brief. During Prime Minister’s Questions on 9 February, the Conservative MP Stuart Anderson asked
“whether veterans will always be at the heart of this Government’s strategy and whether everything will be done to see that they always get what they need.”
The Prime Minister responded that
“we ensure that veterans receive particular support and encouragement in employment, and we encourage employers to take on veterans as well.”—[Official Report, Commons, 9/2/22; col. 940.]
The Minister knows that we welcome the new NICs relief for employers of veterans. Our amendment did not compel the Government to do anything. It merely gave Ministers the option of extending the 12-month relief, if that would have had a beneficial impact on veterans’ employment and retention. I struggle to understand why both the Prime Minister and Mr Anderson voted against that proposition, given their stated support for veterans. However, in a phrase I have heard throughout my career, we are where we are. Your Lordships’ House has fulfilled its role and, having done so, should now let this Bill pass.
Viscount Younger of Leckie (Con)
My Lords, I have some very brief return remarks to thank the noble Baroness and the noble Lord for their remarks. Of course, I listened carefully to the disappointment expressed by them both in terms of the outcome. However, perhaps I can give a little chink of light: I think we can look forward to continuing to debate some of the themes raised, perhaps more appropriately, as I mentioned earlier, during the course of the economic crime Bill. But with that, I beg to move.
Viscount Younger of Leckie
That this House do not insist on its Amendment 4, to which the Commons have disagreed for their Reason 4A.
Viscount Younger of Leckie (Con)
My Lords, I have already spoken to Motion B, and I beg to move.
Royal Assent
Monday 14th March 2022
(2 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: HL Bill 126-R-I Marshalled list for Report - (14 Mar 2022)
Lord Ashton of Hyde (Con)
My Lords, in begging to move that the House do now adjourn, I say a big thank you on our behalf to all the staff of the House for remaining so late.