National Insurance Contributions Bill
(9 years, 5 months ago)
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Lord Davies of Oldham (Lab)
My Lords, I rise to oppose Clause 1 standing part of the Bill, which ought to give the opportunity to explore in a little more detail the issues that we discussed previously. The Minister will appreciate that it was a fairly limited Second Reading, and I imagine he is anticipating that this Committee stage will also not be too prolonged. I certainly want to assure him that it is unlikely that I will ruin his Christmas Day and Boxing Day by giving him things to worry about on Report in the new year. We will move with some dispatch with regard to the Bill, because we are of course broadly in favour of it and have indicated that broad support at all stages. However, we have one or two anxieties, on which I would just like the Minister to give us the necessary reassurances that we have not detected thus far.
There are concerns about those who are going to be affected by the legislation. As the Minister will appreciate in particular, many who will be affected will be on low incomes, and therefore the issue of how and when payments are made is not a trivial matter but one that is bound to cause concern. We are worried about women claiming maternity allowance in the future. The Bill clearly recognises that pregnant women come into a particular category when it comes to claiming and we want to be certain about that, as well as about the rather broader category of those who claim universal credit. It would be very remiss if people on low incomes found themselves, as a result of this legislation, at a disadvantage when it came to claims for universal credit.
The self-employed will of course welcome the fact that the Bill introduces a simplification process and moves liability for NICs to the end of the tax year. However, that also means that there will be accumulated obligations that need to be paid, which for some low-paid workers could easily present very real problems indeed. We say this against the background of the Government making considerable play of the increase in the number of workers in the self-employed category. However, we detect that a very large number indeed are getting very little in terms of reward from this employment. We will come later on to those who were dangled a carrot—not, I hasten to say, by the Government but by unscrupulous intermediaries—about how to take a position with regard to the payment of NICs. We want reassurance from the Minister that he has fully taken on board the problems that may accrue for people who necessarily—we all know the evidence that establishes this—operate on the margin.
The Minister explained that the self-employed will continue to have the option of spreading the cost of paying NICs, but what is the method of payment? Is the Minister in a position to confirm that these payments may be made by monthly direct debit? That was the recommendation from the Chartered Institute of Taxation, and I would welcome his comment on that. Is the payment system due to be reviewed after implementation? We see it dealing with a group of people, some of whom—while many will find this very straightforward and will have welcomed the main proposals in the Bill, as indeed do the official Opposition—will find issues difficult. We wonder whether the Government have set in train a commitment to review the implementation of this part of the Bill.
The Government say that the simplification measure will help the self-employed, but of course it is the self-employed who have been the hardest hit in the cost-of-living crisis. A great number of the self-employed operate on very tight margins indeed, while those who have been self-employed for a considerable period of time, and are now subject to what may be an improvement in the way that NICs are collected, are likely to fall into the category of those who have lost significantly in recent years because average incomes have plummeted.
What other steps have the Government taken to address the impact that the cost-of-living crisis is having on self-employed people? It is clear that there has been a significant drop since this Government came into office, and therefore it would be a mistake on all our parts if, in thinking about the Bill as a progressive and helpful measure—a view that in broad terms we take—we failed to identify why those who are the hardest hit in our society might well find some difficulties in complying with the new arrangements.
Lord Newby (LD)
My Lords, I am extremely grateful to the noble Lord for his comments on Clause 1. He concentrated on the self-employed and the provisions for people to have a budget payment option available to them so that they can spread the cost. I assure him that budget payment plans will be operable and people can opt for them, paying by direct debit or standing order. They will allow an individual to decide the amount that they want to pay each week or month, change the regular payment amount, stop making payments for up to six months and cancel payments at any time. Indeed, even after they pay into the budget payment plan, an individual can choose to have the money repaid to them if they believe that there will be no eventual liability, or if they need it for another purpose. Indeed, we believe that this system is more flexible than what is currently available under the class 2 direct debit system, because someone is free to vary or cancel the arrangement at any time and there is no liability until a return is filed. They may request the money that they have paid through a budget repayment plan to be returned back to them, right up to the point when a future amount becomes a liability.
The noble Lord asked whether we would review the provision after implementation. The provision will indeed be kept under continuous review, because we are as keen as he is that everybody who operates it should be able to do so easily.
The noble Lord talked about the cost-of-living crisis as regards self-employed people and about the fact that, when many self-employed people become self-employed, they do so on a lower level of income than they were on when they were employed. That is undoubtedly true, but many people who start off on a lower level of income as self-employed build up a business and end up as well off as, if not better than, they were when they were employed. In addition, there is evidence that, for some people at least, being self-employed gives much more flexibility, which they welcome, and gives them a better work-life balance than they were able to achieve when they were in full-time employment.
The noble Lord talked about the cost-of-living crisis, but, as he is aware, the rate of inflation is low and falling and is likely to stay low; many prices—such as the price of petrol and food—are now falling and, as a result of the lower level of inflation, we are now seeing real wages rising across the board. All forecasters suggest that not just this year but for the next year and the next few years—indeed, for the entire forecast period—real wages are expected to rise. Therefore, while we do not in any way underestimate the impact of the recession on living standards, we believe that a very significant corner has been turned, and that the combination of low inflation, falling prices and rising real wages will mean that people will see greater prosperity than they have done as we have recovered from the great shock of 2008.
I hope that I have been able to give the noble Lord some reassurance on the specific questions that he raised.
Lord Davies of Oldham
My Lords, I am sure the Minister is pleased that we are making encouraging progress.
In moving that Clause 3 should not stand part of the Bill, I will reflect the fact that we are, of course, as committed as the Government to tackling tax avoidance and that we strongly believe that everyone must pay their fair share. As the Minister will recognise, tax avoidance is now a major issue as regards the operation of our economy, and there is not the slightest doubt that the public want things done. This is not the Bill in which to tackle the bigger of the issues—as regards multinationals and the problem of where they locate their profits as opposed to where they locate their sales and receipts—but the Bill is nevertheless a significant means of tackling tax avoidance, and we support that.
We are grateful in particular for the extension of measures to tackle high-risk promoters of NICs avoidance schemes, but we want some reassurance from the Minister that HMRC will be sufficiently resourced in order to implement both the measures and their safeguard. As the Bill has been considered, there has been constant reference on the government side to the amount of work that needs to be done—there is a great deal for Her Majesty’s Revenue & Customs to take on board. In a period when the major government priority seems to be to reduce the number of people who serve our society as national or local civil servants, he will forgive me if my party is anxious about how the Bill will be implemented as regards the manpower necessary to deal with these issues of tax avoidance.
We ask the Government to keep the measures on accelerated payments and follower notices under review, in addition to the new targeted anti-avoidance rule, as part of the review of all tax avoidance measures. It is quite clear that there are aspects of the collection of NICs—or the failure to collect NICs—which relate to quite a substantial business advising on how to avoid tax. We are pleased that the Government have recognised this as a significant problem, and the Bill represents their determination to act.
Lord Newby
My Lords, the noble Lord raises the key question about whether these provisions will actually have any impact. The statute book is littered with provisions that have not been fully implemented or properly policed. One has to think only of the minimum wage, which, when it was established, simply had no proper provisions attached to it to ensure that people were paying it. I am very pleased that this Government have been able to make considerable progress in implementing a measure that everybody agrees is a good one but which was not being effectively implemented in the past.
As far as these measures are concerned, the Government have provided significant reinvestment of around £1 billion specifically to combat revenue lost and at risk through non-compliance. This means that, while most of HMRC’s lines of business are reducing in size, the number of roles in compliance is increasing very considerably. HMRC has brought together all its work to tackle avoidance into a new counter-avoidance directorate. Around 100 staff have been recruited into the directorate to deal with the issue of accelerated payment notices, and a further 100 will be added in 2015. That is a very considerable additional resource. HMRC is also deploying additional staff to handle collection work and additional legal staff. HMRC is taking a flexible approach which will depend on the number and nature of legal challenges. The Tribunals Service is currently recruiting additional tribunal judges, both to handle the cases involving accelerated payments and follower notices and, more generally, to accelerate the number of cases going through the tribunal.
The noble Lord asked about the procedures which HMRC has in place in respect of follower notices. HMRC already has strong governance procedures in place to handle a range of complex issues such as these where significant amounts of tax are involved. Therefore, as with any of its responsibilities, it has put in place appropriate governance for follower notices and accelerated payments. The case team, advised by litigation specialists and solicitors, is responsible for analysing the decision to be used as the basis for the follower notice, identifying the relevant principles and reasoning and setting out how those apply to the potential follower notice cases. The recommendation is signed off by all relevant parties in the department before being submitted for approval. It is then presented to a senior governance body, chaired at senior Civil Service level, to consider whether or not to give that approval. The taxpayer can make representations that the judicial ruling is not relevant to their arrangements and must do so within 90 days of receiving the notice. The representations will be considered by an independent HMRC officer who is unconnected with the team which issued the follower notice and the governance panel which decided that the judicial decision relied upon was relevant.
In terms of how the department will monitor the effectiveness of the scheme, the purpose of the legislation is to change behaviour, so its success is not measured just by how many promoters are subject to the new information powers and penalties but by the number that improve their behaviour to acceptable levels and demonstrate this to HMRC without any need for action under the legislation. The frequency of use of the legislation will of course be monitored by HMRC, which is putting in place the governance arrangements that I have just described. But its wider success will have to be viewed more holistically—with regard, for example, to the need for additional legislation or for legislation to stop specific schemes in the future.
The noble Lord asked about a specific Statement to both Houses on the effectiveness of the scheme. The most logical way in which an annual report can be given on the effectiveness of the scheme will probably be in HMRC’s own annual report, which it is of course open for this House to debate and which is considered, I believe, by the other place. The Government are as keen as the noble Lord is to see how effective the scheme is, because we think it is an important way of improving the collection of tax. The Government will make sure that they constantly monitor its effectiveness and report on that. As I say, I think HMRC’s annual report would probably be the first way of doing that, but it would be open both for the Government to report separately, should they think it necessary, and for Parliament to keep HMRC and the Treasury up to the mark in terms of the information they provide to Parliament.
Lord Davies of Oldham
My Lords, let me say that this is an important provision in the Bill, which the Opposition support. We are glad to see that this important piece of legislation gives effect to certain promises that have been given on the overall issue of targeting tax avoidance.
In his previous answer, the noble Lord made it quite clear that there will be additional tribunal judges and so on, and I very much welcome that commitment because we all know the blockages that can occur in the work of tribunals. However, on the question of the staff in the new directorate, I was not too sure whether he was indicating that staff were being transferred from other parts of the department, because the department is so overladen with people with the expertise to get the work done that it is easy to effect such a transition, or whether further recruitment had been necessary. That point also applies to Clause 5, which deals with the important dimension of tax avoidance.
It is quite clear that the Government need to take further action to tackle the issue of false self-employment. In the past, many of the stories about that have issued from the construction industry, but it is quite clear that the vast growth in the number of self-employed applies far beyond the bounds of just the construction industry. It is clear that there have been occasions when self-employment levels have been very high in certain industries, but the construction industry stands out: the average is 14%, but in the construction industry it is 40%. What is the incentive among so many of the people who contribute to that industry being identified and set up as self-employed? Partially, it is to do with the nature of the work, but the construction industry is not that unique in the work that it does. For the construction industry to have such a substantial number of self-employed raises the obvious anxiety that it is of advantage to intermediaries, when considering taking on labour, to act in a way in which they take on “self-employed” workers, who are not really self-employed because they are effectively under the direction of those who see that their work gets done. This is a very real problem.
We want to confirm that the Government have committed themselves to monitoring closely the impact of changes introduced by this Bill on the issue of false self-employment. Ministers are aware, as we are, of the degree of self-employment that exists, which has probably been increasing in significant numbers in recent years. Are the Government committed to bringing forward new measures to tackle any continued abuse in this area? We would like a timeframe for some kind of review on this issue. It is commendable that the Government express the correct sentiments, but the Government are to be truly applauded only when they have properly served the nation by having delivered. We are interested in the question of delivery.
Let me say that we have reasons for anxiety. In the 2012 Autumn Statement, the Chancellor forecast that the Swiss deal would raise £3.12 billion. The latest figures from the ONS put the revenue to date as £868 million, which is a shortfall of £2.25 billion. As all Members of the Committee will recognise, that is a shortfall of almost two-thirds. In July, HMRC’s director-general of business tax told the House of Commons Treasury Committee that the actual amount recovered is now expected to be “reduced substantially” to around £1.7 billion, which is a shortfall of £1.42 billion. Despite the fact that the Government set out with the best of intentions, that is the result of ineffectiveness.
Lord Newby
My Lords, the noble Lord asked me a number of specific questions about this clause. The first question, on staffing, asked whether HMRC had the appropriate level of staffing and whether staff had been transferred across from other parts of HMRC or recruited specifically. HMRC carried out a review of the resource required and is committed to ensuring that the appropriate resource is in place to introduce the new changes. As regards where the staff came from, some were transferred and some were recruited. There is a maximum pace as regards how quickly you can beef up this kind of compliance department, because it is highly technical work, and in particular people coming in from outside need to have a considerable amount of training to get up to speed.
The noble Lord made the point that self-employment was high in a number of sectors and he mentioned in particular the construction industry, which is absolutely right. Of course the construction industry is very cyclical, and people literally move about if they are skilled workers in that sector. It is therefore not surprising that self-employment is somewhat higher there than in many other sectors—and the same applies to offshore workers. However, I completely agree with him that we need to keep a very close eye on that and see how it develops and how the measure is working.
HMRC is introducing a quarterly reporting requirement from 6 April 2015 in this area, with the first return due by 5 August next year. This will provide HMRC with almost real-time monitoring to ensure that the measure in the legislation is being used effectively. Obviously, the whole purpose of doing that is to keep the issue under review and, if necessary, to take action to rectify any further problems that apply.
The noble Lord pointed out that the Swiss tax deal had had a shortfall, which shows how difficult it is to estimate the amount of cash that such deals might generate. The reason for that is of course not too surprising: people deliberately secrete their money out of the gaze of the taxman, so when the taxman attempts to guess how much money there is, it is extremely tricky to get that right. The Swiss deal did indeed bring in a smaller amount of revenue than was expected—or it has to date—but I think it is fair to say that the Liechtenstein disclosure facility has brought in more than was originally thought and has proved exceptionally effective. All that one can expect HMRC and the Treasury to do in these circumstances, when specific areas are targeted to repatriate funds to the UK, is, first of all, to do it—which previous Governments have failed to do—and, secondly, to make their best estimate of how much money might be involved. There is a considerable degree of uncertainty at the point when that estimate is made. The important thing is to close the loophole.
The noble Lord also referred to the tax gap. All I would say to him is that in monetary terms the gap has risen by £1 billion over a period, but in real terms, and in relation to the size of the economy, I think it is fair to say that that is a fall. Although over a long period we might see the monetary value of the gap rising modestly, the key question is: is it falling as a proportion of the total amount of tax payable? The figures he quoted suggested that, if anything, on that basis the tax gap was falling rather than rising.
Perhaps I could have the indulgence of the Committee briefly, before we finish our Committee stage today, to say a little bit about the amendments to the Bill that the Government intend to introduce on Report. As noble Lords will be aware, in the Autumn Statement on 3 December the Chancellor announced that the Government will abolish employer class 1 NICs for apprentices under the age of 25 from April next year. As the Chancellor made clear, apprentices are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. It will provide a zero rate of employer class 1 NICs on earnings between the secondary threshold and the upper earnings limit in respect of apprentices under the age of 25 from 6 April 2016. It will provide the power to define “apprentice” in regulations, allowing the time discuss the definition with stakeholders. It will also contain powers to alter the age range to which the zero rate applies and introduce a threshold for apprentices. As with the other changes to which I am about to refer, the Government intend to table amendments to give effect to these measures in advance of Report.
Noble Lords will also be aware that the Delegated Powers and Regulatory Reform Committee published its report on the delegated powers contained in the Bill on 27 November. It drew attention to the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. The power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee has said that the justification given in HMRC’s delegated powers memorandum is not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and it has recommended that in this instance the power should be subject to the affirmative procedure. The Government have considered the report of the Delegated Powers and Regulatory Reform Committee and intend to table an amendment on Report so that, where regulations made under this power amend or repeal primary legislation, they will be subject to the affirmative procedure.
Finally, we intend to amend Schedule 1 to the Bill to ensure that the relevant self-assessment penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subjected to two different regimes, but this particular penalty was unintentionally omitted. This minor technical amendment will correct that omission.
I hope that noble Lords will have found that helpful. We will be tabling those amendments as soon as we possibly can.
Lord Davies of Oldham
My Lords, I am sure that the Committee is grateful to the Minister for indicating his response to the Delegated Powers Committee—that obviates the necessity of the Opposition chasing the Government on Report. We are very much in favour of the suggestion about the affirmative procedure, so we will be ensuring that the Report stage moves with maximum effect on that.
The only thing that I would add is that there is a certain justification for adding second thoughts and developments to a Bill as it proceeds. The Minister will recognise that it took the Delegated Powers Committee to bring this to the attention of the Government. We are only a couple of weeks from Christmas so I suppose we are bound to get a certain Christmas tree effect, but one of the consequences of this fixed-term Parliament is that, basically, since we came back in October we have had dangling bits of additional legislation added to Bills, whether they fit or not. In this respect I have no particular criticism, but I think for instance of the Infrastructure Bill, of which the first four parts were concluded before the Recess but then the minor issue of fracking was added to the Bill after it. The Government are not to take the fact that the Opposition very much approve of this initiative, which we will be supporting on Report, as in any way a feeling on our part that the Government are full of good conduct when it comes to adding bits to Bills whenever it suits them.