Oral Answers to Questions
Kirsty Blackman Excerpts(5 years, 6 months ago)
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Kirsty Blackman (Aberdeen North) (SNP)
In evidence to the Work and Pensions Committee, the Child Poverty Action Group said of the two-child cap:
“You could not design a better policy to increase child poverty than this one”.
Will the Minister use the spending review to ditch that policy?
Kirsty Blackman
That is not good enough. Analysis by Cambridge Econometrics states:
“In all of the Brexit scenarios, real wages for low-pay workers are depressed due to increases in prices and reduced levels of productivity, due to skills shortages and lower industry investment.”
Faced with this child poverty double-whammy, does the Minister agree that it is no surprise that the Tories are set for an absolute drubbing on Thursday?
National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (Second sitting)
Kirsty Blackman Excerpts(5 years, 6 months ago)
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Peter Dowd
I celebrate anybody getting a proper, secure, well-paid job. I am afraid that the hon. Gentleman should not expect me to celebrate somebody getting a job on two or three hours a week, and he should not expect me to celebrate the fact that £30 billion-worth of tax credits are going to subsidise people in poorly paid jobs, when only 20 years ago that was £1 billion. Do not ask me to celebrate that. Let us have the full picture. Yes, I always celebrate when somebody gets a decent well-paid, well-trained job with good terms of employment, but no, I do not welcome poorly paid, less well-trained jobs. I am sorry, but I cannot. But for the record, yes I welcome job creation—well-attuned job creation.
To get back to termination payments and their emotional significance, the amount awarded is often determined by painstaking and careful negotiations between managers and trade union representatives. A good employer might offer a generous termination payment to an employee as a sign that it is not a judgment on the intrinsic worth of the staff who are leaving, even though they have had to make them redundant. The job losses might be because of the Government’s economic policies.
The Government’s rationale for the introduction of a new class 1A employer NIC charge, which will be levied at 13.8% on termination awards above the £30,000 threshold, is to do with ease and simplification. In its “Review of employee benefits and expenses: final report” in 2014, the Office of Tax Simplification stated that
“many employers are unclear about which parts of a termination package qualify for the exemption”
from tax and national insurance. I stand to be corrected, but I am not sure whether we got a significant amount of clarity on that today.
Additionally, Ministers have cited the opportunity for well-advised employers to avoid paying the right amount of tax and national insurance on termination payments as justification for wider reform. However, neither the Office of Tax Simplification nor Treasury Ministers have been able to provide figures on the number of employers who have taken advantage of the existing loophole, or of the amount lost to the Exchequer as a result of that. That was probably confirmed today—we do not know.
Despite the many claims of Ministers about the desire to simplify the tax and national insurance treatment of termination awards, the Chartered Institute of Taxation and other tax experts have raised concerns around the lack of information in the Bill about how this new class 1A charge will be collected. We did not get a great deal of clarity on that today. Currently, Ministers plan to leave it up to secondary legislation, as alluded to earlier. That is not only a break from normal practice, but looks set only to confuse employers even more, rather than simplifying the national insurance treatment of termination awards. The people who came to speak to us today were probably a bit too polite to say that.
The provision will also add additional administrative burdens to HMRC at a time when it is hamstrung by what can only be described as the disastrous reorganisation of their estate by the Government—my hon. Friend the Member for Oxford East has been involved significantly with that—the introduction of Making Tax Digital, which has added to the problem, and of course the preparations for a no-deal Brexit, which have compounded it even further. Taken in the round, that is a challenge.
So what is the rationale for the introduction of this new NIC charge on termination awards, if not to make things less confusing for employers or to tackle tax avoidance, which is supposedly rife? I suggest that the Government’s rationale is wholly to do with the revenue they expect to raise, and is little more than an attempt to increase national insurance receipts for the Exchequer, while shying away from any major tax or national insurance policy change. I think that there was an acknowledgement of that today. This is just one element of what should have been a wider examination, as set out in the press release to which I referred, on 16 November 2016. This is certainly the opinion that the Office of Tax Simplification advocated in its 2014 report, in which it stated that a new NICs charge could raise revenue for the Exchequer and offset the costs of any tax treatment change affecting termination payments.
The report went on to concede that the policy was likely to lead to increased employer NIC costs and to individual employees receiving reduced termination payments, as employers would be unlikely to increase their redundancy budgets. Similarly, the Government’s own impact assessment notes that this measure will present an “additional cost to employers” that will be
“reflected in lower wages and profit margins with a reduction in total wages and salaries of 0.1%”
within the first year of its adoption. My hon. Friend the Member for Oxford East clarified that with the Minister in today’s evidence session.
To put it simply, this new NICs charge will lead to added costs to employers, some of whom will be small and medium-sized business owners, and less generous termination payments to employees as a result. At the same time, the Treasury has downgraded its forecast of the likely amounts this new charge will raise for the Exchequer from £485 million to £200 million a year. I am sure the Minister would like to provide clarity on that.
This issue goes to the heart of new clause 4, which seeks a review of the measure’s impact on the level of termination payments that employees receive and the cost to employers, and a distributional analysis of this new class 1A charge, which Treasury officials said had not been done. On the ground, it might have been too complicated and the cohort may not have been large enough under the circumstances. Given the likely cost to employers and of falling workers’ wages and termination payments, as well as the Government’s shrinking forecast of the amount of revenue the charge would raise, surely it makes sense to pause and gather further information before proceeding. After all, the Office of Tax Simplification noted in its original report that if Ministers were to follow its recommendations for a new NICs charge on termination awards, more data on the potential winners and losers would be needed. We were not able to establish who they were today. I specifically asked that question and could not get an answer. It was like an aggregate amorphous statement.
Sadly, Ministers have not provided that information, despite having years to do so. Treasury Ministers have refused to undertake a distributional analysis, citing the cost or that the cohort is not large enough as excuses, and they are still unable to provide credible figures on the number of workers who receive statutory redundancy payments versus those who receive non-statutory payments. Uncertainty also remains about whether the Government will seek to lower the £30,000 threshold at a later date through primary legislation or secondary regulations. The Minister said they have no plans to do this, but we already raised this issue during consideration of a previous Finance Bill—in fact, I think I raised it. The question was, “If you have no intention of doing it, why introduce legislation to do it and why introduce it through the process of secondary legislation?” If it were me doing that, I would not be banking a piece of legislation unless I intended to use it. That is the case here; the Government will use this. Otherwise, why take up parliamentary time to do so? If they are taking us on a run-around to fill time, that too is inappropriate.
New clause 4 seeks a review of the proposed class 1A charge, focusing on its impact on workers’ wages, on termination payments, added costs for employers and a distributional analysis of the measure. Without such a review, which will provide a wealth of information and further evidence of the likely effect on wages, termination payments and employers, the Opposition will not support this part of the Bill.
I will comment later on new clause 3, but at this particular point, that is all I want to say. I may ask questions of the Minister in due course.
Kirsty Blackman (Aberdeen North) (SNP)
I apologise—I expected to be called before the Opposition spokesperson on this section. I will do my best not to repeat things that he has said, but if I do, I shall try to do it in a different way at least.
It is good to be part of a Bill Committee that has taken evidence. We do not take evidence on Finance Bills and we are less knowledgeable and less good at scrutinising the information provided to us as a result. I hope the Minister agrees that the evidence sessions were incredibly useful this morning, even though he was in the hot seat and had questions asked of him. It meant that we will ask fewer stupid questions during this part of the scrutiny process, as well as being in a better position to drill down on some of the issues raised by different individuals.
Peter Dowd
I did not want to stop the hon. Lady in her flow, but on her earlier point, I was at a meeting yesterday with many people from the defence industry and in particular the aircraft industry. One Member who does not sit on the Opposition Benches indicated that when a large aerospace manufacturer closed down in his constituency, thousands of small businesses—or at least one or two thousand small businesses—arose as a result of those people getting redundancy payments. That goes to the heart of the hon. Lady’s point about the potential impact of the reduction in the amount of money people will get from redundancy payments.
Kirsty Blackman
I absolutely agree. I was thinking specifically of the toastie shop in Aberdeen that does unbelievable toasted cheese sandwiches. Members should look at its Facebook page; it is called Melt and it is absolutely amazing. It sells toasted cheese sandwiches with all your calories for a week in one sandwich. That business was started by a woman who had been made redundant. A lot of people in Aberdeen and Aberdeenshire have been made redundant because of the recent crash in oil and gas prices, and they have been starting new businesses as a result.
I am particularly concerned that any change might stifle the growth of new businesses. I asked the Treasury this morning whether it has figures on the number of new businesses started with termination payments. It does not. It is very difficult for the Treasury to say that this will not have an effect—to be fair, it has not said that, but it cannot because it does not have the quantifiable numbers and cannot project them; it appears not to be keeping track of the information.
Lastly, on Opposition new clause 4, the shadow Minister has also asked for a distributional analysis of the new class 1A liability. Again, it is incredibly important for us to have that information.
The Minister suggested that the Treasury is trying to be as transparent as possible. To be fair, this is one of the more transparent Bills, with more consultation than some of the other Bills that we have seen. The issue is that the information that we are provided with, and that is in the public domain, is not good enough for us to be able to make reasonable judgments about the effect of the policy. It is all well and good for the Minister to say that it will generate £200 million and that we would have a £200 million hole in the Budget. The OBR has verified that figure, but the reality is that we do not have enough of the drill-down information on the people who will be affected.
All of us on this side of the Committee are concerned about the reduced amount that employees will receive. It would have been sensible for the Treasury to have come armed with some kind of projection around that. That would have stopped us from asking all these questions. We might have criticised the figure and said that the measure should not be taken forward, but we would not be having this debate if the Treasury had come forward with detailed figures.
The Minister has spoken in favour of clauses 1 and 2, but for a huge number of employers they do not represent a simplification when it comes to dealing with the tax system. This is a revenue-raising measure and it is about closing a loophole. I am not criticising the Treasury for either of those things, but it has badged the change as a simplification when the two principal things that it tries to do are not that, but revenue raising and closing a loophole; we would have had a very different discussion if the Treasury had made that clear rather than said that it was all about simplification.
I completely agree that the measure came from an Office of Tax Simplification report, but that did not say that class 1A contributions had to be used to achieve this end. That may not be the best possible way to progress. I have already spoken about class 1A. It could have been done in a class 1 way, which would have been clearer for employers to understand.
On collection methods, I have real concerns about this being a real-time collection measure. Less than a year out from implementation, employers may not be aware of the correct computer system or understand correctly how it will work. Obviously, if an employer is making future projections, it is going to be looking at what upgrades it will need for its IT system and be planning that as far in advance as possible. On top of all the uncertainty of Brexit, the Government are adding more complexity and future uncertainty: they are not able to say, “This is exactly how the real-time collection measure will work.” They are not able to provide that information to businesses far enough out.
Finally, on the “negligible” reduction, as the Minister described it, of 0.1% on wages, I should say that we are seeing incredibly high levels of in-work poverty. Not a surgery or a day goes by without working people getting in touch with me to say they cannot live on the amount of money they receive. I get such correspondence on a regular basis, as I imagine do all MPs across the House.
The Minister spoke about the national living wage, which is not a living wage and is not for those under 25. As the shadow Minister said, the Government do not want to allow under-25s a wage they could vaguely live on, just in case there are fewer of them employed. I do not think there is any evidence to show that is likely to be the case. It does not cost any less to live at 24 than at 26.
A 0.1% reduction in wages for people who are literally living on the breadline and having to choose between feeding their children and heating their homes cannot be swallowed up by some families. The Government say they are quite happy with a 0.1% reduction in wages as long as they get £200 million in the Treasury’s coffers. I do not think that is a sensible way to play these things off. I do not think the measure is worth the £200 million if it means more families in poverty and destitution as a result.
The 0.1% might sound very small but, for someone living on not very much money it can be the difference between being able to feed the kids and not being able to. There are a number of issues with this measure, both technically and with the stance that the Government have chosen to take on it.
Robert Jenrick
I do not intend to repeat all the comments that I made earlier, which I think answered a lot of questions that were put to me. I will try to summarise some of the arguments made by the hon. Member for Aberdeen North. She made a point that came up in questioning around the choice of class 1A, which a number of members of the Committee have raised. We are clear that this is the right choice. We gave the matter careful consideration. There are a couple of central arguments. The choice of class 1A and, therefore, payment in real time was central to alignment with income tax. If we want to have greater alignment and simplicity, that is the way to deliver it.
Secondly, as we heard in evidence this morning, class 1A is a category of national insurance contributions that focuses on the employer. Because we have chosen not to introduce this from an employee NICs perspective, that was the most logical category.
As the hon. Lady and others have mentioned, if there were an intention in future to add employees’ national insurance contributions, one would perhaps have chosen class 1 national insurance as the most logical. By choosing class 1A, we made a clear statement that we had no intention of doing that. This is purely focused on the payment from the employer in respect of national insurance contributions.
Finally, as we may come on to later in the passage of the Bill with respect to sporting testimonials, for those individuals giving money to charity it is important for the contribution to be paid through class 1A, because that is the class of national insurance contributions that payroll giving uses. Had we chosen class 1 national insurance contributions, that route would have been closed; if we had wanted to protect charitable giving, we would have had to make alternative arrangements. There were a number of reasons, logical when they are thought through, why we reached this conclusion.
Kirsty Blackman
That is a useful clarification around class 1A and payroll giving that I had not quite understood this morning. If the Minister is saying that class 1A is eligible for real-time payments rather than collection at the end of the tax year, does he intend to move to a system where all class 1A is eligible for payment in real time and not at the end of the tax year?
Robert Jenrick
We do not have any plans to do that, but this measure is designed with termination payments in mind. The Bill does not make any changes elsewhere—other than, obviously, to sporting testimonials. We are trying to provide the greatest degree of alignment with the income tax changes that we have made, and the choice of class 1A enables us to deliver that. If we had chosen a different class, there would have been a greater degree of misalignment. I hope that the hon. Lady will consider those thoughts.
We have already debated at length whether this was a rushed Bill. I think that argument is difficult to support, on the basis that the policy decision has been around since 2015, consulted on, restated in multiple Budgets, and debated as part of two Finance Bills. The argument that this is a rushed policy decision cannot be sustained. We are bringing this Bill forward at this point so that, assuming it passes through both Houses as soon as possible, there is good time for practitioners in the accounting profession and employers to make the necessary changes to software packages and so on.
We will take seriously the communication that we will do through HMRC. As the Minister, I will follow that up to ensure that employers are properly communicated with and have sufficient guidance to make the changes.
Robert Jenrick
Before I address amendment 2 and new clauses 2 and 5, it may help the Committee if I briefly explain the background to clauses 3 and 4. As we have heard at length over the course of the day, a sporting testimonial is a one-off event, or a series of related events, held on behalf of sportspersons who have played for a certain club, usually for a long time. The testimonial can be used to raise money for the sportsperson before their retirement, in the event of their injury or, sometimes, to raise money for charity.
The historical tax treatment of sporting testimonials relied on the outcome of a tax case from before the second world war, which my officials referred to this morning. That case established the broad principle that the proceeds of a testimonial organised to demonstrate affection and regard for the personal qualities of a sportsperson are not earnings. Since then, other legislation has moved on, and income not directly from an employer is now typically subject to tax and national insurance contributions.
Prior to 2017, HMRC effectively operated an extra-statutory concession, which is clearly not sustainable over the long term, since HMRC must ensure that it operates within the law. As such, the Government announced at the summer Budget in 2015 that they would consult on proposals for clarifying the tax and national insurance contributions treatment of payments made from sporting testimonials. A consultation was published shortly thereafter, and the Government received responses from a range of groups, including tax professionals, accountancy firms and sporting interest groups, including the Football Association, the Professional Footballers’ Association, the England and Wales Cricket Board and the Rugby Players Association. In addition, two consultation meetings were held to discuss the detailed proposals, and the Government published draft legislation for consultation, adapting our approach, as I will describe, in response to further feedback.
The changes we are considering are part of that package of legislation, which puts the tax treatment of proceeds from sporting testimonials on the statute book and beyond doubt. This will provide clarity and certainty for sports clubs, sportspersons and those individuals who form the sporting testimonial committee that organises the event—if they are different—and ensure that there is limited impact on a practice that I think all of us support and want to continue.
The relevant income tax changes that form the first half of this package came into force from April 2017, following legislation in the Finance Act 2016. This confirmed that, while income from non-contractual, non-customary sporting testimonials would become taxable, there would be a generous £100,000 exemption to ensure that the change had a limited impact in most cases.
The rules governing sporting testimonials are changing to give clarity to the NICs treatment and align it with the changes to income tax that Parliament has already approved. At present, where a sporting testimonial is non-contractual or non-customary, it can be organised by a third party, rather than the employer, to raise money. As I mentioned earlier, although existing legislation implies that NICs liability already applies, the amounts raised through the third party may not have been subject to NICs because of this long-standing practice and ambiguity. Therefore, this concessionary treatment will end with the passage of this Bill on 6 April 2020, when clause 3 takes effect. Where the employer arranges the testimonial, it is part of the contract or there was an expectation that the sportsperson would be entitled to one, the testimonial is already subject to income tax and NICs in full.
From April 2020, non-contractual and non-customary testimonials arranged by third parties will be subject to NICs above the £100,000 threshold. The third-party testimonial committee will be liable to pay an employer class 1A NICs charge on the amount raised above £100,000, and not on any amount paid below that.
These types of testimonials will not be subject to employee NICs, to ensure that the sportsperson is not adversely affected. I would like to reassure hon. Members that we expect the vast majority of these payments to be unaffected by the Bill, as they will not exceed the threshold of £100,000.
Kirsty Blackman
I have a question that the Minister may not be able to answer now; if he cannot, hopefully he will answer it when he sums up. I am wondering about the definition of sporting testimonials. We are talking about sportspersons, but a lot of people said “sports players” earlier. Does this apply only to those people who have played sport, or does it apply if there is a sporting testimonial arranged, for example, for a manager? It would be incredibly helpful if the Minister could clarify that, either now or when he sums up.
Robert Jenrick
I will ask my officials for a better answer, but my understanding is that this measure applies only to sportspersons. Although there might be arguments for it, it does not apply to managers and auxiliary staff, just as it would not apply to other people who, as I said in answer to a question this morning, are also engaged in careers that can be cut short, such as a ballet dancer, a performing artist or a Minister, and who might deserve it, but who are not sportspeople.
Although this measure will bring in negligible revenue, its value comes in the alignment and simplification of the tax and NICs treatment of sporting testimonials. I cannot emphasise enough that our motivation here is not to raise revenue but to provide greater alignment and simplification. As has been said repeatedly, this measure will bring in only a negligible sum, as certified by the OBR.
The primary purpose of clause 3 is that, with effect from April 2020, the rules determining the NICs treatment of these payments will be aligned with the income tax treatment that has already been legislated for in the Finance Act 2016. This means that a 13.8% class 1A secondary (employer) NICs charge will be applied to income derived from a sporting testimonial that is already subject to income tax. Clause 4 makes the corresponding changes for Northern Ireland, ensuring that these changes apply throughout the United Kingdom.
In relation to the brief discussion that we had this morning about the definition of a customary testimonial, I would point out that this measure has now been in place, from an income tax perspective, for some time, and we have not had any feedback from sportspersons, sports clubs, sporting testimonial committees or indeed from sports bodies to suggest that there is a problem with that definition.
I can reassure the Committee that clauses 3 and 4 do nothing to affect the ability of sportspersons to make donations to their charitable foundations as part of a testimonial when it is organised by an independent committee and the donation is made through payroll giving. Given the line of questioning from the Committee this morning, and further to the point that I made earlier to the hon. Member for Aberdeen North, it is worth noting that our decision to choose class 1A helps with payroll giving, as this is the class to which it applies, and it would not have been possible if we had chosen another class of national insurance.
I turn now to amendment 2 and to new clauses 2 and 5, which tackle broadly similar issues. These provisions request that the Government report on the impact of the measures in the Bill on the amount of income received from sporting testimonials or sportspeople themselves and on charitable giving linked to a sporting testimonial. I will explain briefly to the hon. Members who tabled the provisions why the Government consider that, on this occasion, they are not necessary.
First, we expect that there will be a very limited impact on sporting testimonials and charitable giving linked to this practice. We expect the majority of non-contractual and non-customary sporting testimonials to fall below the generous £100,000 threshold, with the average income received from a sporting testimonial being around £72,000, based on the work that we did in 2013, although we admit that it is not easy to form a clear judgment, because we had to survey the details of those sporting testimonials that were in the public domain. We then doubled the tax-free and NICs-free threshold for testimonials following the consultation to ensure that there would be a very limited impact indeed. That appeared to supported and welcomed by sporting bodies. As I said earlier, donations made from sporting testimonials via payroll giving will not be subject to income tax and NICs at all—in which case, there would be no impact whatever. It is worth noting that the tax changes affecting this income have been in effect since 2017. As I said earlier, we have not had any representations since that point to suggest there has been a significant adverse impact.
Anneliese Dodds
I am grateful to the hon. Gentleman for his passion about this issue, and—I am sure—about the sport of cricket, but he has underlined the point that I was trying to make. He has talked about a particular period of time, “however that is defined”. My point is that the quote I read out indicates that, according to the England and Wales Cricket Board, there can be no definition of the period of time that can be used for these testimonials, because if there is an automatic trigger for such an event, that should not be grounds for a testimonial. One assumes that it should instead be due to the fans themselves, the people who are calling for such a testimonial, but there is not an automatic trigger for it. That leads again to the question of what the term “customary” actually means. When we make legislation, it is important that we are clear about what those concepts mean, and whether they have any content. If it is just an empty placeholder, I think we would all agree that the term should not be used.
The Minister maintains that HMRC provides guidance about this. In my lunch break, I tried to look this up—I know how to live, Sir Henry—and I found the information about income tax. This language is already applied to income tax liability, exactly as the Minister mentioned, and reference is made to “normal practice” and case law. However, that information does not specify what the case law is, or indeed what the normal practice is. If there is a pattern to testimonials, one concern is that it would potentially be possible to argue that a pattern somehow is not there, and that a particular testimonial is non-customary, in order to get around having to pay the employer’s NICs. Equally, there could be pressure on employers to reduce the number of testimonials that are called for—to dissuade calls for testimonials in order to make them less likely to occur.
Kirsty Blackman
Picking up on that point, we are relying on HMRC guidance, which can be changed in the future. The word “customary” is written here, but that is reliant on guidance alone. If there had been more explanation in the Bill of what “customary” means, or if it had just said “contractual and not customary”, we probably would not be in this situation. We would not be relying on guidance that may or may not be accessible, and may or may not change in the future.
Anneliese Dodds
I absolutely agree with that point. Looking at that guidance, it is interesting that there is a lot of detail about certain issues, such as what happens if there is a second testimonial for whatever reason. Let us say that £70,000 was received from the first one, and then the second one goes over the £100,000 threshold; there is detail about what the tax treatment should be. There is detail about what the tax treatment would be if the testimonial was for a player who had, very sadly, died on the pitch, and the money was going to their family. Just about every eventuality is covered, apart from this issue of “customary nature”. In the interests of clear tax policy, it would help if we had more detail about that.
Secondly, explicitly concerning the tax treatment of charitable giving, we had a discussion about this before and the Minister referred to it again in his comments. It was argued that testimonial committees could use payroll giving from the testimonial to route funds to charities, given that they would be class 1A employer NICs. Indeed, he mentioned that players could use the gift aid procedures if payments were made directly to them. My hon. Friend the Member for Bootle rightly pointed out—and it was confirmed during the session—that this would add an additional layer of complexity and administration to the process. To inform those reading Hansard, the Minister is shaking his head. Perhaps he can explain why that would not be the case. We are talking about potentially large sums here that could provide the largest of any cash boosts received by a player’s foundation. We need more detail.
Finally, new clause 5 asks for an assessment of the Bill’s impact on testimonial payments made to professionals from different sports, including footballers, cricketers, rugby league players, rugby union players and other sportspeople. It is important that all varieties of sport receive adequate support and it would be helpful to have a better understanding of the likely incidence of the charge in that regard—for example, whether there is a similar rate of use in other sports to that provided by the PFA for professional football, and whether a similar proportion of those testimonials are contractual or non-contractual. As I said before, the implication of the information provided by the England and Wales Cricket Board is that there would be no customary non-contractual testimonials. Is that the case in other sports? We do not know. It would be useful to understand that. We also need that information because favourable tax treatment is still being provided for that first £100,000 of non-contractual, non-customary testimonial payments.
It may well be the case that in different sports, the employment opportunities on retirement as a professional player are very different. Within football, some go on to be agents, coaches, commentators and so on; many others do not. Such roles may not be as available in other sports. It would help if we understood more of the background to this.
Kirsty Blackman
I will not add a huge amount to what the Opposition spokesperson has said on this. I am particularly concerned about the effect on donations to charities that would result from the sporting testimonial changes contained in the Bill. New clause 2 requests a report on the assessment of the expected impact of
“the total amounts received by individuals from sporting testimonials”
which is the other concern here, and also
“the donations made to charity from sporting testimonial proceeds.”
If the Government are contending that there will be no change in the amount of money given to charity from sporting testimonial proceeds, it would be useful if they said that. If they believe it is unquantifiable, it would be useful if they said that too, so that we are clear what the Government expect—or what they think they expect—from the changes they are putting forward in the Bill. Once again, the Government have said they are expecting a negligible Exchequer impact from this. It would be useful to know the trade-off: how much they believe charitable organisations will be losing in order to generate a negligible Exchequer impact.
I agree with both of the Labour party positions: on amendment 2, which is similar to mine on donations to charities, but also on the one on the review of different sportspeople. It is important that we work out what is almost a distributional analysis. We all know that footballers in the male professional game get paid an awful lot more money than any other individuals. If we see that people who are getting paid far less are subject to the highest percentage of impact, there is a problem in what the Government are suggesting.
Lastly, on clauses 3 and 4, I raised the issue this morning and I got an answer—but not a very descriptive one—on the reason that the Government have used the term “general earnings”, which is different from the wording used in part 1 of the Bill. I was told that there is a good reason for it, but I am still not clear what that good reason is, although I understand that the Minister believes there is one. It would be useful to know why that change has been made, and whether it makes it easier or harder for the Government to change the threshold level. If changing the £30,000 threshold level in part 1 is by affirmative secondary legislation, how does the difference in language affect whether or not affirmative secondary legislation is required to change the £100,000 threshold as well? Is there a different process because of the choice of language?
Mike Wood
On the example that I think the hon. Lady was starting to give, until fairly recently Reading football club had a tradition that anybody who had played for the club for 10 years received a testimonial. It was not a contractual term, but it is difficult to see how that is anything other than expected earnings as part of employment. Is it not right that it should be taxed accordingly?
Kirsty Blackman
The problem is working out the grey areas in this. It may be the case with everybody at Reading, but if there were only one or two people in that role before who met the same criteria and this is the third person who happens to meet the same criteria and they get a testimonial, is it the case that that could be considered customary, despite the fact that they had no expectation of the testimonial? I understand that this is only for a certain group of people who have a supported testimonial through third-party organisations, rather than through the club itself. I get that we are not discussing the widest possible definition here, but I am concerned that that particular part of the language is incredibly woolly and could have been made better so that all of us and sportspersons, clubs and third-party organisations could understand the meaning of “customary”.
Robert Jenrick
Let me respond to as many of those points as possible. We have had a discussion of the impact of these measures on charities. Without repeating myself too much, we expect this to have a minimal impact. Where the sporting testimonial committee and the sportsperson make use of payroll giving, there would be no impact whatsoever. Were an individual to receive the money themselves and then pay tax and take advantage of gift aid, there would be a different tax treatment. Obviously, that would be the choice of the individual. The sportsperson and the sporting testimonial committee could and should choose to use payroll giving, which is a very generous and unlimited relief.
The hon. Member for Oxford East queried whether the measure would create a new bureaucratic impact on testimonial committees. It should not create any more impact than is already in place because we have already legislated for this from an income tax perspective; that is on the statute book. If a sportsperson wanted to use payroll giving today to avoid the income tax liability and ensure that the greatest possible amount of money went to the charity, the sporting testimonial committee today would already have to register for payroll giving, which they would then be able to use a second time for income tax and for the employer’s national insurance liability. This measure does not add bureaucracy. One could argue about the measure that has already been legislated for, but that is already on the statute book and the level of bureaucracy involved is pretty low.
We have had another debate around the definition of customary or non-customary sporting testimonial. The hon. Lady has already used her lunch break to root out the guidance, in her usual assiduous manner. If Members look at it, they will see that it is thorough. It is several pages long and goes into a degree of detail. I am happy to circulate it to other members of the Committee. It sets out that while the concept of “customary” is not defined in legislation, it has its ordinary, everyday meaning. The guidance says that in general, “customary” means a practice that is recognisable as the norm and where a failure to observe it would be exceptional. I think that is pretty clear. That suggests that if it is normal practice, a sportsperson would have a legitimate expectation of that as part of their employment at the club, and if the sportsperson did not receive the testimonial that they were expecting, that would be an exceptional occurrence.
Robert Jenrick
No—with respect, I did not say that there would be zero income. I said that within the spectrum of zero to £3 million, the likely amount of revenue raised would be closer to zero than to £3 million. The sums involved are very low—negligible, in our terminology—so I do not have more precise figures, but it helps to give some guidance that it is unlikely to be closer to £3 million. Clearly, the vast majority of testimonials will be excluded, and will be below the £3 million level. I hope that I have been able to allay some of the concerns, and that the amendments will not be pressed.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4 ordered to stand part of the Bill.
Clause 5
Extent, commencement and short title
Kirsty Blackman
I beg to move amendment 1, in clause 5, page 5, line 39, at end insert—
‘(3A) No regulations may be made under subsection (3) until the Secretary of State has made a Statement to the House of Commons on how the Government intends to raise public awareness of the provisions of this Act, including awareness among people who may attend sporting testimonials that their donations may generate a National Insurance liability.”
Kirsty Blackman
A lot of the discussion on sporting testimonials, particularly on Second Reading, concerned potential behavioural change of the people who go along to sporting testimonials, and who pay money so that the person they are attempting to honour can receive the funding. Obviously, fans are aware that some of the money they give will be used to pay for the ground used for the testimonial match, and for food, drink and other costs. However, I am concerned that the Government’s introducing this measure without spending enough time ensuring that there is public awareness of the change will mean that fans are not necessarily aware that some of the money will be top-sliced, or will generate a class 1A national insurance liability that HMRC will require to be paid.
I certainly do not think that fans going through the turnstiles at such events imagine that some of their potential donations will go to HMRC. It is incredibly important, if the Government are keen to ensure transparency, that fans are aware of this when they go through the turnstiles. That is probably more important when payment is made on a donation basis rather than a fixed ticket price basis. People are then giving money that they choose to give. It is important that fans are aware of what proportion of that money beyond £100,000 is likely to go to HMRC, and what will be received by the sporting individual.
Robert Jenrick
I will briefly describe the purpose of clause 5 before turning to the hon. Lady’s amendment. First, the clause confirms that the Bill applies across the whole of the UK. That is because national insurance is an excepted matter under the Northern Ireland Act 1998. Secondly, it provides that the clause takes effect on the day that the Bill is passed.
The clause also provides that the provisions in the Bill come into force on a day that regulations specify. It is intended that they will take effect on 6 April 2020. That was previously announced at Budget 2018 and will ensure that the measures come into force at the start of the 2020-21 tax year.
Finally, the clause provides that the Bill, once passed, will be known as the National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019. Those are all technical matters and there is no substantive issue to discuss specifically in relation to the clause.
Let me deal with the amendment tabled by the hon. Member for Aberdeen North, which centres on how we might communicate the measure to raise public awareness. Without repeating myself, this is one of those Bills that has been around for some time, has been consulted upon and been part of Budget measures. I will not repeat the list I already read out. It is well known and is expected by members of the public who take an interest in these matters—perhaps a limited number—and by tax professionals and employers. I do not think that on this occasion a specific public communication awareness campaign is necessary.
On sporting testimonials, and whether there would be value in educating members of the public that in some circumstances a proportion of the money they spend on their ticket prices or donations will go to the Exchequer, it is worth remembering that any contractual testimonial is already subject to income tax, and also to employers’ and employees’ national insurance contributions, as a result of prior legislation in the Finance Act. The income taxes payable above £100,000 for those testimonials fit into that category. Unless it was specifically advertised by the organisation holding the testimonial, there is no way today that an individual would know which of these categories their particular testimonial would fall into. I am not sure that there would be any value in specifically advertising to members of the public that we have made this change. If anything, the changes we are making in the Bill increase alignment and simplicity, and increase the number of occasions when some tax will be paid to the Exchequer when a member of the public goes to a testimonial that raises a significant sum of money.
Without exactly knowing the feelings of all sports fans, in many cases I think they would expect that a particularly well-paid sportsperson holding the testimonial likely to raise in excess of £100,000 at the end of a successful career would be paying their fair share of tax, and that their sporting testimonial committee would be paying employers’ national insurance. I do not think that fans’ automatic assumption would be that well-paid sportspeople would pay no tax on the money they make. I appreciate that there are many examples of players being injured and so on, where people would feel particular sympathy for them as individuals.
On the wider point of HMRC’s communication, we regularly communicate with stakeholder groups, including representative bodies. We have employer bulletins that give news, including our latest developments, through quarterly updates. That would be particularly relevant to termination payments, where employers could access the latest information as a result of the passage of this Bill in due course. We are currently in consultation with software providers to advise them of these changes, should they become law. We hope that they will be able to make those changes as soon as possible.
As I said previously, the purpose of bringing this Bill forward now, rather than delaying it any further, was to ensure that there was good time available for employers to make the necessary changes. We hope that we will be able to have it on the statute book in sufficient time for all the relevant stakeholders to make the necessary changes, subject to the smooth passage of this Bill.
Kirsty Blackman
I thank the Minister for his response, particularly around general public awareness. It is important that sports fans in particular are aware that their donation is likely to generate a tax liability. The fact that that was not done before is a bit of a failure. It should be the case that sports fans should have a higher level of awareness. I do not intend to press the amendment at this stage, and I beg to ask leave to withdraw it.
Amendment, by leave, withdrawn.
Clause 5 ordered to stand part of the Bill.
New Clause 3
Report on Exchequer impact
‘(1) The Secretary of State must, within three years of this Act receiving Royal Assent, lay before Parliament a report on its Exchequer impact.
(2) That report must contain an assessment of the additional payments made to the Exchequer by third sector organisations in each industrial category.”—(Kirsty Blackman.)
Brought up, and read the First time.
Kirsty Blackman
I beg to move, That the clause be read a second time.
I put my hand up and say that I made an error in the drafting of the second part of this clause that probably confused everybody. Subsection (2) should not be there; only subsection (1) should be there. It is my error and I apologise. I will not therefore press the new clause to a vote, but I intend to speak on it.
The Minister will know from my questions this morning and our subsequent discussions of my concerns about the Treasury reporting back, and basically letting us know if a tax change has had the intended effect. I have raised this on a number of occasions, in several different forums, and now I have thought of tabling it as an amendment to the Bill, I may do it more often, particularly to Finance Bills—perhaps on each aspect.
I spoke to the previous Financial Secretary, and perhaps even the one before that, about this issue. When it comes to tax reliefs and such like, the Treasury says, “This is going to generate x amount of revenue for the Treasury.” We have no recourse to see whether that amount has been generated for the Exchequer. The Government say they constantly keep things under review. At one point, I asked the Library to provide me with a list of the reviews that it could find for the tax relief measures that had been put in place through Finance Acts to see whether they had generated the level of revenue that was expected. A number of them had not been reviewed.
We are not asking for much here. We are asking the Government to tell us whether the law that they have proposed and taken through Parliament—that they have stood up and told us will generate £200 million of revenue—has actually generated that revenue. We can make better law if we better understand the effects of the previous legislation that we have passed.
The new clause would require the Secretary of State, within three years of Royal Assent, to lay before Parliament a report on the Exchequer impact of the Bill. I appreciate the answers that were given by the Minister and HMRC this morning—within three to five years, a review is undertaken and the intention would be the same on this Bill, and that review would be sent to the Treasury Committee, which would examine it. I have a number of issues with that.
Perhaps no one from the original Bill Committee may be on the Treasury Committee, so we may not see the effect of what we have passed. It would be incredibly useful if the Minister would commit to ensuring that any reviews that happen—preferably all of them—are sent to members of the original Bill Committee, as well as the Treasury Committee. That would be very useful. I know we have a change of personnel sometimes, but that would be a good start.
I have previously criticised the lack of a link between the Treasury Committee and those who sit on Finance Bill Committees. The Treasury Committee does a lot of very good scrutiny, but those of us on Finance Bill Committees may not see or be part of that scrutiny, and therefore, unless we go and dig out the evidence, which we find out from a colleague was given six months ago, we do not necessarily know that it exists. I have criticised the lack of a link previously. It is important that any reporting that is done is not just to the Treasury Committee. I do not suggest for a moment that the Committee is not incredibly competent and very good at its job; I am just suggesting a lack of link-up and communication.
It would be much appreciated if the Minister could commit to taking this on board and to ensuring that there is wider transparency and communication about any review. If it were published in, say, a ministerial statement, and flagged to those of us on the original Bill Committee, that would give us the opportunity to follow up with written parliamentary questions, for example, even though we are not on the Treasury Committee and cannot ask questions in oral evidence sessions. We could do that much more easily if the Minister committed to providing us with that information.
Peter Dowd
We support the new clause, although we will not press it to a vote.
Given that there are not many people in the room and this probably will not be listened to very much, I can say that, as an Everton supporter, I none the less congratulate Liverpool on their 4-0 win. Not many people will hear that. I will deny I said it and will have it struck from Hansard. I also congratulate Man City on their win. I wish them the best of luck. At least there is a tenuous link with sporting testimonials.
Robert Jenrick
As a Wolves supporter, I am slightly bitter at the moment.
To answer the point made by the hon. Member for Aberdeen North, without repeating comments already made today, I appreciate her legitimate arguments. We feel that the measures in the Bill have been sufficiently consulted on. The long-standing tradition that a new piece of legislation will be reviewed within three to five years will apply. The review’s outcome will be in the public domain. It will be sent to the Treasury Committee. Ordinarily, it would be published on its website, and the hon. Lady or any other interested Members would be able to view it there. It will not be a private document only for the consumption of members of the Committee. I hope that will reassure her that we intend carry out a review in due course and that will be available for those who take an interest in it.
Kirsty Blackman
I thank the Minister for that response —that I should set in my diary between 2023 and 2025 to regularly check the Treasury Committee’s website to see whether the review has been published. I am being sarcastic but, to be honest, it would be better if the Treasury could just commit to sending it to those Members on the original Bill Committee in all circumstances, rather than us having to imagine when the Treasury happens to do the review and have to go on and happen to find it on the right possible day. That would make for better lawmaking in this place. I will not push this because of the drafting error—it would not make sense to press something that has a mistake in it—but I will probably return to it on Report. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Bill to be reported, without amendment.
National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill
Kirsty Blackman ExcerptsTuesday 30th April 2019
(5 years, 6 months ago)
Commons ChamberRead Full debate National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019 View all National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts
Kirsty Blackman (Aberdeen North) (SNP)
Let me start by saying that I agree with almost everything that the Labour shadow Minister said. I will not make any cricket puns because I do not know anything about cricket—I will just stay out of that one—but I will make a point of mentioning that Aberdeen is obviously the greatest football team and should be mentioned first in any discussion of sporting prowess.
First, on the issues raised by the Labour shadow Minister about the Bill process, I share his concerns about the fact that we were told we would be getting the Bill before it had been introduced to this place. That is a real concern. Perhaps the Treasury drew the short straw again, and when the Government announced that they would have a Second Reading of a Bill but panicked because they could not work out which Second Reading it should be, they scrambled around and said to the Treasury, “You guys must have something”, and the poor Treasury Ministers were dragged here to present this Bill.
The serious point is that this is a highly technical Bill and we have had a very short time to look through it. I looked through the explanatory notes, as I am wont to do in these circumstances, but they do not talk about the amount of consultation that was done or the number of people who contributed to that consultation. I am aware that perhaps there are tax information and impact notes that do talk about the amount of consultation that was done, but it would have been useful to have that information in the explanatory notes so that we could be clear about how many individuals and organisations had come to the Treasury and said, “These are the good things and the bad things about the Bill.” That would have put us in a much more informed position, although I am sure we will get into the meat of that discussion in Committee.
On the intention behind the Bill, it was announced some time ago that there would be changes in this policy area and it has taken a while for the Bill to come through. Why has it come through now? If it has been intended for some time, why has it taken so long for the Bill to come before the House? Was it just that the Treasury drew the short straw, as I said, and had to bring a Bill to the House today and just had to find something? It would be useful to know something about the timing for the Bill, why it has come along now and what the logic behind that is.
I have a couple of questions on some of the specific things mentioned in the Bill. In introducing it, the Minister said that if there is a contractual obligation that there will be a testimonial, that will be treated differently, but also talked about cases in which there is an expectation that there will be a testimonial, which to me does not mean the same thing as a contractual obligation. I am not clear what the Treasury means by an expectation of a testimonial. Somebody could score a goal in every single club game they have ever played, but that does not mean they have a contractual testimonial obligation. I would expect, though, that that person would probably get a testimonial for being such a big part of their football club. Is that what is meant by “expectation”? If not, will the Treasury confirm exactly what is meant by that word in the Bill?
On the amounts for testimonials, the explanatory notes say:
“The new Class 1A liability does not affect individuals as it is to be paid by the controller of the sporting testimonial.”
That seems a bit disingenuous to me, because although it does not affect the individual’s liability, it does affect the amount of money they will get. Has the Treasury done any maths on how much less sporting individuals will get from their testimonials because this liability might have to be taken off before the money is handed over to them? It seems to me that, rather than being something quite removed, it will have a direct impact on individuals.
The Chartered Institute of Taxation got in touch with me with queries about some things in the Bill. On the £100,000 limit, the institute said:
“The intention is that the NICs rules will replicate this and only impose Class 1A NICs on the amount chargeable to income tax. We have reviewed the NICs Bill and it charges to Class 1A the amount that is ‘general earnings’. We assume this means the amount above £100,000…but it is not clear. The termination payments legislation refers specifically to the amount chargeable under the Income Tax (Earnings & Pensions) Act 2003. It is surprising that the same approach has not been adopted here.”
Why has the Treasury taken a different approach to the drafting of this legislation to that taken to the drafting of the termination payments legislation that was passed previously?
Mr Jim Cunningham (Coventry South) (Lab)
There is another question, about the definition of who is an employee and who is an employer. There have been various examples in the courts of people being treated as employers when they were actually employees. There is still a bit of obscurity about that when it comes to tax, which creates a lot of difficulty for people.
Kirsty Blackman
I absolutely agree with the hon. Gentleman’s point. When in a moment I talk about the termination awards for individuals, I will discuss that specific issue.
On termination awards for employees, the explanatory notes say:
“The new Class 1A liability does not affect individuals as it is paid by the employer.”
The reality is that, again, it does affect individuals, because they will receive less money. If the employer is going to give out a pot of £40,000, they will be giving some of that to the Exchequer, instead of to the individual as they currently would. The details show that the Exchequer expects to receive £210 million for 2023-24 as a result of the change; do Ministers expect individuals to receive £210 million less and that that money will go to the Exchequer instead, or do they expect employers magically to find some more money and to continue to pay employees who are leaving their organisation the same amount as before, while paying a slice to the Treasury as well? It would be useful to know how much less the Treasury expects individuals to receive as a result of the change, not just how much the Treasury expects to receive.
The NICs change is the only example of a class 1A charge on cash earnings that the Chartered Institute of Taxation could find. Why has the Treasury decided to take the route it has chosen? Class 1A contributions are normally paid in respect of things such as benefits in kind, rather than on cash earnings. The Bill seems to me to make a fairly fundamental change to how NICs are treated and to the different classes of NICs. It would be useful to know why the Treasury has decided to make this change. Is it part of some sort of long-term plan to use class 1A charges on cash in other circumstances? Or will they continue to be used mainly on benefits in kind?
It seems to me that it is a bit of an ad hoc change. Perhaps the Treasury is putting forward some grand plan, or perhaps it is just a small change. I have asked similar questions about the recent changes to the Financial Conduct Authority and the Bank of England. It seems that a lot of small ad hoc changes have been coming through with no blueprint for where the Treasury expects to be at the end of the process and what it expects the system to look like at that point. It would be useful to know more about that.
I would like to know about a few main things. On the £100,000 for sporting testimonials, is the Bill intended to operate in the way things operated under the previous legislation on sporting testimonials, but the language in the Bill is just unintentionally a bit woollier? On employees, we have that issue with the class 1A charge; does the Treasury intend to make further changes to class 1A contributions, or is this the last change it expects to make? We expect secondary legislation to come through as a result of the Bill, to tighten things up and make further changes in future, but when is that expected to come—in this Session, or quite close to the Bill’s implementation in 2020? If it is the latter and the secondary legislation does not come through in enough time, it might be difficult for employers to make sensible decisions.
The Financial Secretary to the Treasury (Mel Stride)
I thank all right hon. and hon. Members for their contributions to this important debate, which is narrow in scope, as the Exchequer Secretary to the Treasury pointed out, but none the less important. There were a limited number of contributions, made up for, however, by their quality.
Let me bring us back to the essential element of what this Bill is all about, which is aligning the employer national insurance treatment in respect of termination awards and sporting testimonials with that of income tax. As a number of hon. Members pointed out, the rationale behind these measures is to bring in alignment and, with it, some elements of simplification. We should remind ourselves that, as we have heard, the genesis of this journey was back in 2013-14, with the report by the Office of Tax Simplification. Another rationale for these measures is to disincentivise any tendency towards the manipulation of payments as between earnings and termination payments on the tax side of things. There is, of course, additional revenue to the Exchequer of some £200 million per year as a consequence of these measures.
I turn now to some of the specific points that have been raised—first and foremost, by the hon. Member for Bootle (Peter Dowd). He told us some jokes about cricket that were not bad—well, by his standards, at least, they were passable. He managed to remember two of the three great football teams up in the Liverpool part of the country, proving conclusively, I have to say, that he knows far more about football than he does about economics and taxation. [Interruption.] Yes, cruel but fair. That was exemplified by his lamenting the fact that we did not abolish class 2 NICs. I was surprised to hear him say that, because he was at great pains, as he always is, to be the champion of the lower paid—as indeed are Conservative Members. The rationale for stepping back from that abolition, as he will know, is that it would have imposed a very significant burden on the very people he seeks to protect—the lower paid—by putting up the cost of the contributions that they would have to make in order to qualify for their state pension.
Curiously, the hon. Gentleman accused us, contrary to the assertions of the hon. Member for Oxford East (Anneliese Dodds), of having rushed the timetable for this legislation, despite the fact that its genesis was about five years ago. That is probably indicative of the speed at which a future Labour Government would get things done—five years is rushing it, in those terms. He also accused us of not taking the legislation seriously, but as he spoke there were precisely none of his hon. or right hon. Friends sitting on the Benches behind him.
My hon. Friend the Member for South Suffolk (James Cartlidge) gave a masterful performance in which he not only showed great in-depth knowledge of the issues at hand but understood the mentality and the challenges that we have as Ministers in the Treasury. It is indeed a restrictive environment where we do not want to put people’s taxes up, we make commitments not to do so, and we fight day in, day out to ensure that we stick to those pledges. But at the same time, we do of course have to raise revenue, as he described. He also cantered around the tax terrain, touching on IR35, auto-enrolment and various other aspects of tax. It was a very thoughtful contribution to the debate.
The hon. Member for Aberdeen North (Kirsty Blackman) specifically referenced the amount of consultation—or the lack of it, as she saw it—around the Bill. I should remind her that we have consulted on it twice. It was issued in draft in December 2016, and it was prefigured when we handled the income tax aspects of these issues in the 2016 and 2017 Finance Acts. Of course, the measures themselves were first mooted back in 2015, so we have been round the block with them.
Kirsty Blackman
The point I was making was not that there was necessarily a lack of consultation, but that we did not know how much consultation there had been, because the details are not in the explanatory notes, where they would often be. Normally, the explanatory notes will say a bit about the amount of consultation there has been, but they do not say anything at all. If that had been written down for us, and we had known how many consultation responses there had been, I would not have asked the question.
Mel Stride
The Exchequer Secretary to the Treasury has just reminded me that there has been a lot of information out there—we have, not least, written to Members to explain the background to these measures.
As to the hon. Lady’s specific point, she has raised the quality of information memorandums with me before in a different context. I said on that occasion, and I will restate now, that I am happy to look at the point she has raised. While we may have disagreements over policy across the House, I think we all accept that it is important that the relevant information is clearly provided and in the right place, and I will certainly be happy to look at that issue.
The hon. Lady raised the issue of tax treatment where there is an expectation that a testimonial payment will be made. She understandably asked how we know whether such a payment should be seen as having an expectation attached to it. The answer is if that payment is customary. If someone is involved in a sports club of some sort, and there is a testimonial every year for a particular player or group of players, and that had been going on for some time, that would be a customary testimonial situation. In those circumstances, the tax treatment would follow accordingly.
The hon. Lady also raised a point about employer NICS at 13.8% being applied above the £30,000 threshold. She raised the prospect that some of that may be borne by the employee, because the employer would have a certain amount that they were looking at. She raised the question of what the balance was between who bears that cost and the £200 million per year received by the Exchequer. I very much doubt that that information is available, but if it is, I will certainly make sure that we provide it to her. That may be an issue she wishes to come back to in Committee.
My hon. Friend the Member for South Thanet (Craig Mackinlay) specifically majored on the threshold—the £30,000—and pointed out that it first came into effect in 1988. What I would say to him is that, in the case of Germany and the United States—certainly in the case of income tax—the threshold is effectively zero, so in terms of international comparisons, the figure of £30,000, while it is true that it has not increased by inflation since 1988, is none the less set at a reasonable and proportionate level. As a number of speakers have also pointed out, 80% of termination payments are below the £30,000 threshold in any event and would therefore not fall under this employers’ national insurance.
The hon. Member for Oxford East, as well as helpfully pointing out that Labour’s mission is to increase corporation tax, came on to the issue of avoidance and evasion, particularly in the area of football. She thought I would mention the Rangers case, and it is important to do that, because it does indicate that we will take cases right the way to the Supreme Court when we believe that issues such as disguised remuneration are in play. Whether it is in football or other areas of commerce and economic life, we will make sure that the right amount of tax is paid. I will not rehearse the arguments that the hon. Lady has heard from me on many occasions about the tax gap and how successful the Government have been in that respect compared with Governments of the past.
The second issue the hon. Lady raised was charitable giving. She set up the prospect of a testimonial being held and the money going through the committee and then on to a charity. She asked what the tax treatment would be in those circumstances. It is open to a committee in that situation to route some of the money via payroll giving to the charity—that is without limit—to make sure that that is done in the most tax-efficient manner possible. However, she may wish to return to that matter in Committee, where we can perhaps have a more detailed debate about it.
The hon. Lady asked about seeking evidence of the abuse of termination payments—in other words, disguising what are essentially earnings by transferring them into a termination payment, thereby reducing taxation. HMRC is clear that there has been evidence of that in the past. I am sure that she will wish to revisit the matter in more detail in Committee.
The hon. Lady mentioned the impact of these measures on wages, citing the correct figure of 0.1% for the reduction by 2020-21. However, I point out that we have now had 10 months of increased real wages, due to our success in keeping inflation down and generating nominal wage growth. Of course, with regard to employment, which is part of the issue we are addressing, we now have among the highest levels of employment in our history, and the lowest unemployment since the mid-1970s.
The hon. Lady asked what guarantees there are that we will not reduce the threshold in either case. Of course, it is up to this Government, or any future Government, to take a view on these matters, but I can assure her that we have no expectation or intention at the present time to lower the thresholds. If we did, that would of course be by way of an affirmative statutory instrument, which means the measure would have appropriate scrutiny.
In conclusion, I thank the Opposition and all Members for their contributions, and for not opposing Second Reading.
Question put and agreed to.
Bill accordingly read a Second time.
National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the National Insurance Contributions (Termination Awards and Sporting Testimonials) 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 Thursday 16 May 2019.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion two hours after the commencement of proceedings on Consideration.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption that day.
(6) Standing Order No. 83B (programming sub-committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Mel Stride.)
Question agreed to.
National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purpose of any Act resulting from the National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill, it is expedient to authorise provision adding termination awards chargeable to income tax to the amount by reference to which, in the case of Class 1A National Insurance Contributions, the appropriate national health service allocation (for England, Wales and Scotland) and the appropriate health service allocation (for Northern Ireland) are to be calculated.—(Mel Stride.)
Question agreed to.
Oral Answers to Questions
Kirsty Blackman Excerpts(5 years, 7 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Elizabeth Truss
I would have thought that the hon. Lady would welcome the fact that unemployment in Scotland is at a record low level, thanks to our policies of getting more people into work and of making work pay.
Kirsty Blackman (Aberdeen North) (SNP)
Yesterday marked the beginning of the fourth year of the benefits freeze. Since it was brought in in 2016, the consumer prices index has increased by 6.6%, but working-age benefits have been frozen. That literally means that those in the most need can afford fewer necessities. The Joseph Rowntree Foundation says that by 2020, the benefits freeze will have pushed 400,000 into poverty. How can the Chancellor justify that?
Elizabeth Truss
I would have thought that the hon. Lady would welcome the fact that we are ending the benefits freeze. It is responsible to do so only when people in work’s wages are rising. Thanks to our economic reforms, our reforms to employment law and our welfare reforms, we are now able to do that.
Kirsty Blackman
The benefits freeze is a political choice made by this Conservative Government and this Conservative Treasury; it is not a necessity. It is one of the biggest cuts to social security we have seen in recent times. The entire cost of the work allowance concessions over three years amounts to less than the benefits freeze takes away in one year. When FTSE 100 chief executive pay has increased by 11% in the past year, is it not now time that the UK Government got their priorities in order and protected those who need it most rather than giving tax cuts to the richest?
Elizabeth Truss
The hon. Lady obviously has not heard my answer that we are now moving to a situation in which benefits will rise in line with inflation, but let us be honest about the choices that the Scottish Government are making. Their choice is to raise taxes on people earning £50,000 by £1,500 a year, driving business out of Scotland and making the Scottish economy less successful.
Beer Taxation and Pubs
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Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to take part in this debate. I congratulate the hon. Member for Dudley South (Mike Wood) and other Members on ensuring that this debate took place. I thank the Backbench Business Committee and all those who have contributed to what has been a very good-humoured debate with very little disagreement. We need to support our local pubs, and we need appropriate taxation regimes that ensure, in particular, that responsible drinking can take place.
I want to talk about a few issues in relation to Scotland and make some wider points on tax. In Scotland, we pioneered minimum alcohol pricing. It mostly affects cheap supermarket alcohol and ensures that, for example, incredibly cheap high-alcohol-content ciders that are sold in supermarkets have to be sold at a higher price. That, however, is not what we would in an independent Scotland. In an independent Scotland, we would be looking for a comprehensive review of alcohol taxation overall. In fact, we asked the Government to do that, and we moved such a provision in a previous Finance Bill. We can only look at individual elements of alcohol taxation for a few years before an overall review is needed. We think that that review should be based on the amount of alcohol in each drink, and that taxation should therefore be levied on an appropriate basis.
I know that this debate is about beer and the taxation of pubs, but in pubs 42% of alcohol sold by value is wines and spirits, so it is important that that is considered in any decisions made. Given that women consume three times as much wine as beer, it is important to consider wine in this context and not just beer. As someone who likes a pint rather than a glass of wine I am on the other side of this argument, but I understand that an awful lot of people are concerned about wine taxation.
On post duty point dilution, which has been mentioned by a number of Members, I am pleased the Government are bringing forward a review. I have been approached by constituents who are keen to see a change. It would be useful if the Minister, in his summing up, could let us know what is happening with the timescale for that. I am not clear about the timescale going forward, although the Government may have talked about it in the past.
I think there are three different reasons for taxation in general: to generate revenue for the Government; to discourage negative behaviour; and to encourage positive behaviour, particularly in the case of reliefs. In assessing taxation on alcohol and pubs, the Government need to think of those three things going forward. What do they want to encourage? What do they want to discourage? How much revenue do they need to generate from any decision that they take? I think the view around the House is that responsible social drinking is the way forward, rather than people drinking at home and choosing drinks with incredibly high alcohol volumes.
On business rates, in Scotland we have the friendliest environment for business rates in the UK. Two out of every five pubs in Scotland receive the small business bonus and pay zero or reduced business rates as a result. In Scotland, 90% of properties also pay a lower poundage than they would if they were in the rest of the UK. We have done everything we can to ensure that we have the most competitive taxation regime for properties.
Let me just say a wee bit on the contribution of beer and pubs to the economy in Scotland, which is £1.7 billion a year. The brewing and pub industry supports the employment of 60,000 people in Scotland, which is significant. In my constituency, although I do not have breweries, I have the first pubs for Fierce Beer, six°north and BrewDog, so it is nice to be able to give them a shout-out.
I appreciate the tone in which this debate has taken place. If the Minister could answer my question on the post duty point dilution review, that would be incredibly useful. If he could also commit to a review of alcohol taxation in general, that would be great, but I am not sure that he will be able to go that far today.
Clydesdale Bank and SMEs
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John Glen
Again, I thank my hon. Friend for the work he has done in this area. I met representatives of UK Finance just a few hours ago, and I am aware of his correspondence overnight on this issue as he joins the board imminently. The key concern I would have is the extrapolation of one case, or a few celebrated cases—tragic cases—to say that they are normative of practices across the sector as a whole. He smiles because he knows that is a conversation we have had frequently. This historical dispute resolution mechanism is not designed as some sop, but as a meaningful mechanism to interrogate wrongdoing in the past and seek resolution for those individuals who remain dissatisfied.
Kirsty Blackman (Aberdeen North) (SNP)
I congratulate my hon. Friend the Member for Lanark and Hamilton East (Angela Crawley) on securing this urgent question.
The issue of transferring funds to an organisation such as Cerberus is far from the only one. The hon. Member for Thirsk and Malton (Kevin Hollinrake) mentioned businesses that did not have any debt issues whose loans were restructured and who were offered incredibly high and arbitrary repayment terms with incredibly high interest rates. That was completely inappropriate. The restructuring of debt should be tackled in the first place, and not just the transferring over. Nobody should be in the situation in which my hon. Friend’s constituent found himself.
The Minister said that these cases are not necessarily indicative of how everybody has been treated, but we have seen enough of them coming forward, and enough people losing their homes, losing their families, and, in some cases, losing their lives as a result. We know as parliamentarians that we see only the tip of the iceberg in the cases that come into our offices, and that there are probably many, many more that we have not seen and have not raised here.
It is clear from cases like the one that my hon. Friend describes that any system of voluntary redress is not working, and is probably not working in many of the cases that we see coming into our offices. I am concerned that the issue with voluntary redress schemes will also happen with the ombudsman scheme given that it is voluntary and not as all-encompassing as it could be. The Government can still take action and save face. What the Minister has said about the ombudsman system is interesting, but it is not the independent tribunal that we on the fair business banking APPG have been calling for. It does not go far enough on that basis.
The other thing that the Government have failed to do so far is to bring forward a massive, comprehensive review of banking culture to ensure that nothing like this happens again in future so we know that SMEs will not be treated in the same way as they were previously. It is incredibly important for our economy that SMEs can borrow, and they will not be able to do so if they do not trust the banking sector to treat them fairly. If the Government have to step in and ensure that this happens, then that is what needs to happen.
John Glen
I thank the hon. Lady for her comments. There are two things there, and one is the adequacy of the voluntary mechanism. To be fair, it is unclear how it will play out, because it has only just been established. I see from my engagement with the chief executives and chairmen of the banks a massive desire to ensure that this has teeth and can deliver. This is not about the Government saving face. It is about ensuring that this process is effective. I will have deep engagement with and take a close interest in this process, because it must be effective and thorough in its examination of these cases.
I take the wider point that the hon. Lady makes about banking culture. A lot has changed in the last 10 years, and many of these cases arose before that. We now have a very different regulatory environment, with the Prudential Regulation Authority and the FCA, which has changed things considerably, but I will reflect carefully on her comments.
Spring Statement
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Mr Hammond
I can confirm to my right hon. and learned Friend that the OBR’s central forecast is based, as before, on an assumption of a deal done with the European Union so that we exit via a transition mechanism and have a future close trading relationship with it. I can assure him—I am sure he needs no reassurance—that I will not be remotely tempted by the policies or the profligacy of the shadow Chancellor. My right hon. and learned Friend is absolutely right that until such time as we are sure that we will not exit via a disorderly no deal, I have to keep that fiscal powder dry, but no one will be happier than me when I can release some of that headroom to support public services, capital investment and lower taxes in this economy.
Kirsty Blackman (Aberdeen North) (SNP)
There is no certainty about the future health of the economy. Whatever happens regarding the Prime Minister’s deal—whether this House eventually accepts or continues to resoundingly reject it—we are still not clear about what the UK’s future trading relationship with the EU will look like. What is clear is that Brexit is bad for the economy. So far, the picture is bleak. Key economic indicators show that the UK economy grew by a meagre 0.2% in the fourth quarter of 2018. The OBR previously forecast growth of 1.6% for 2019. Even with the assumption of a smooth Brexit, it has downgraded that to 1.2%. Whatever the Chancellor’s spin, is that not the cost of Brexit?
Of course, the Chancellor predicted that himself. He told Radio 4:
“The economy will be slightly smaller in the Prime Minister’s preferred version of the future partnership.”
We now face the prospect of a no-deal Brexit, which would have a severe impact on the economy, people and businesses across Scotland. It could push the Scottish economy into a deep recession, similar in scale to the financial crash of 2008. The British Retail Consortium estimates that no deal could hike food prices by some 29%. My constituents cannot afford that. Will the Chancellor commit to voting against no deal tonight?
Given such massive uncertainty, we needed a bit more than this damp squib of a statement. It is a laudable aim to have only one Budget a year, but in these circumstances, the Chancellor should have brought forward an emergency Budget, and I call on him to do so.
We need the Chancellor to explain how he will fix the fiscal gap created by discouraging immigration. We know that the average EU citizen who chooses to live and work in our country contributes £34,400 annually to the Scottish economy. How will he plug that gap? Will he exempt those coming for PhD-level roles from the salary cap, as well as from the visa numbers cap? We need the Chancellor to provide funding to small businesses that are not prepared to cope with Brexit. Only 8% of Scottish firms feel fully ready.
We need concrete action to tackle the lack of productivity growth. It was woeful anyway, compared with our European neighbours, but over the past two years business has been so focused on Brexit damage limitation that it has lacked the resources to increase growth and productivity.
This week the New Financial think-tank said:
“Our conservative estimates show that banks and investment banks are moving around £800bn in assets; asset managers have so far transferred more than £65bn in funds; and insurance companies have so far moved £35bn in assets.”
That appears to have entirely passed the Chancellor by.
People who live in these islands have suffered through a decade of austerity. According to the Joseph Rowntree Foundation, the current benefits freeze has made life harder for more than 27 million people across the UK. It is the biggest policy behind rising poverty, costing families an average of £340 a year. If the freeze continues, by 2020 it will have driven 400,000 people into poverty. It must end now.
While the poor get poorer, the rich get richer under this Government. FTSE 100 CEO pay has gone up by 66% while the Tories have been in government, while wages for the rest have failed to reach 2008 levels. The Chancellor has had many opportunities to press his colleagues to halt the roll-out of universal credit. The system is broken and it must be fixed before more misery is inflicted. His emergency Budget should end the benefits freeze and halt the roll-out of universal credit. He has managed to find money for plenty of other things—he has allocated billions of pounds to the Democratic Unionist party to buy its support, but he has failed to allocate the £3.4 billion to Scotland that should have been our share of that largesse. Will the Chancellor ensure that the Barnett formula is properly applied to the new funding he has announced today, unlike his actions regarding the DUP deal?
Scotland’s resource block grant for 2019-20 is almost £2 billion lower in real terms than in 2010-11. That is a direct consequence of the Chancellor’s continued obsession with austerity. He has created the stronger towns fund, pumping money into leave-voting areas as yet another bribe. How well did that work this week? The Chancellor has not yet announced details of the shared prosperity fund. Especially important is whether it will replace the £2.4 billion a year that communities across the UK currently receive as a result of EU structural funds. Will he provide us with full details now? Will he give a cast-iron guarantee that the Scottish Government will be treated as equals and will continue to distribute the funding in Scotland, as has been the case under the EU programmes?
Yesterday, a majority of Scottish MPs put their names to an amendment saying that the best future for Scotland would be as an independent country within the EU. With independence, we will be able to encourage immigration, recognising the benefits brought by those who come to live, love and work in our country. We will be able to reject austerity, supporting our citizens when they need it most. We will be able to increase productivity, improve participation in our workforce and encourage and support companies to grow. We will be able to trade frictionlessly with Europe, a market eight times the size of the UK. Scotland has been badly served by consecutive Westminster Governments. We need to take our lifeboat and get off this sinking Brexit ship.
Mr Hammond
I am sure it was a momentary oversight by the hon. Lady that she did not say anything about the decommissioning measures that will be so important to her local industry in Aberdeen and that are listed in the written ministerial statement. She says that no deal will be bad for the economy, and I absolutely agree, but if she understands that, why did she not vote for the deal? I have a great deal of respect for her, but I am afraid she is creeping towards the practices of those on the Labour Front Bench when she quotes the fourth quarter growth figure of 0.2% without mentioning the more recently published growth figure of 0.5% for the first quarter of this year. [Interruption.] If she does the maths, she will find that is okay.
The hon. Lady talked about the downgrade that the OBR has applied to the 2019 growth figure. We would of course like it to be higher, but she has to see the figure in the global context. I know she understands this. Germany’s economy has slowed down and France’s economy has slowed down. Across the G7, we are exactly in the middle of the pack. We will grow faster than Germany, Japan and Italy this year. We will grow exactly the same as France and slower than Canada and the US. That is a perfectly creditable performance. Would I like to do better? Of course I would. If she is going to be honest with the House, she needs to put what she says in the context of what is happening across the global economy.
The hon. Lady asked about PhD-level roles. They will be completely exempt from the visa cap. She asked about assets being moved abroad. Of course I am concerned about that, and £35 billion of insurance company assets moved abroad is £35 billion more than I would like, but she needs to understand that that is in the context of the many trillions of pounds of assets that the companies are managing in London and, increasingly, in Edinburgh. Edinburgh’s ranking in the global asset management league table has once again risen, which we are extremely pleased about.
The hon. Lady talked about pay for the lowest paid. Those on the national minimum wage and the national living wage have seen their incomes increase by an average of £2,750 a year since 2016. She asked about universal credit. Universal credit delivers. People on universal credit are more likely to be in work than those trapped on legacy benefits. I have put billions of pounds into the system over successive fiscal events to smooth the transition to ensure that the movement of people from legacy benefits on to universal credit operates smoothly.
Finally, Scotland gets its share of the increased spending on capital and resource, but precious little thanks do we ever hear from those on the SNP Benches in exchange for it.
Oral Answers to Questions
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Mel Stride
We have already brought in some important measures to do just that, not least by increasing the annual investment allowance from £200,000 to £1 million, as announced at the previous Budget. We keep all taxes under review and I will certainly bear my hon. Friend’s important point in mind.
Kirsty Blackman (Aberdeen North) (SNP)
In a recent survey by the Fraser of Allander Institute, 62% of Scottish businesses said that they did not feel ready for Brexit. Will the Chancellor bring forward an emergency Budget to provide support for small and medium-sized enterprises so that they can cope with the Brexit that he proposes?
Mel Stride
My right hon. Friend the Chancellor has made it clear that, in the event of a no-deal Brexit, we will take stock of the situation and take whatever measures are necessary to ensure that we protect and support businesses throughout the United Kingdom.
Kirsty Blackman
I was specifically talking about the Brexit that the Chancellor is proposing, which is presumably not a no-deal Brexit, although it looks like 100,000 jobs could be lost in Scotland as a direct result of no deal. However, in relation to the deal Brexit, the Bank of England has said that unemployment could be up to 4% higher by 2023 if the Prime Minister’s deal is approved. Does the Chancellor believe that keeping his job is worth costing thousands of others?
Mel Stride
I do not believe that the figure to which the hon. Lady refers is accurate. This Government have seen employment at a record high and unemployment at the lowest level since 1975, and youth employment is half what it was in 2010—unlike the Labour Government, who saw youth unemployment increase by almost 50%.
Leaving the EU: Economic Impact of Proposed Deal
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Mel Stride
The analysis, as demanded by the House, sets out the different possible outcomes, including modelling a range of options between those contained in the White Paper of June last year and an FTA, as well as a point somewhere between the two of them, to allow an informed look at the likely impact of the various outcomes implicit in the future declaration. The hon. Gentleman will know that that is, of necessity, the way in which this analysis has to be conducted, given that we have a period during which we will be negotiating a precise exit arrangement with the European Union.
Kirsty Blackman (Aberdeen North) (SNP)
This is Schrödinger’s analysis—even the Minister does not know whether or not it exists at this moment in time. Will he answer a simple question: does he believe that the UK would be better off if it were to leave the EU with the Prime Minister’s deal or if it were to stay in the EU?
Mel Stride
I have been asked this question a couple of times, and the reality is that it is entirely hypothetical. To end up staying within the European Union would be to fly in the face of the result of the June 2016 referendum —the referendum had a higher turnout than any other electoral event in our country’s history—and this Government are going to respect the outcome of that referendum.
Making Tax Digital
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Kirsty Blackman (Aberdeen North) (SNP)
There is a lot going on in HMRC just now: MTD, the incredible number of additional staff being put in to deal with Brexit, and the downsizing and changing of HMRC offices. It is interesting that the Minister says he is not in favour of centralisation in the provision of software but is in favour of centralisation in relation to closing all the offices so that there are only super-offices, not local ones.
HMRC has not yet provided even the most basic information that taxpayers will require in order to take part in MTD. Some have received a letter—an overly complicated and fairly cursory letter—telling them of the start date, but they have not received information on their specific queries about how to sign up to MTD and how it will work for them. It would be useful for the Minister to provide more information around what HMRC is doing on that.
The Minister said 81% of the businesses that are expected to sign up by April are aware of MTD. It is a damning indictment that only 81% are aware of it; HMRC and the Government should be doing a better job of making sure these businesses are aware of it, because 19% are not aware, and in fact a significant number of businesses are hearing about this potentially for the first time today.
Because there is no one approved software provider recommended by HMRC, I am concerned that 160 choices is a baffling array that businesses will have to decide between with no idea which of these software choices will work, which will work well and which will suit their business. It is not helpful to have that many software choices.
On penalties on businesses, I understand that when businesses sign up to MTD, their previous records are transferred from the old system to the new one and are lost from the old system. Can the Minister confirm that businesses that hold out until later than April but before their filing date will not be penalised for holding out in order for them to make sure the system is working properly and to make appropriate software choices before they make that switch, and potentially lose all their old records?
On Brexit staff and the changes HMRC has been making to focus on Brexit, can the Minister confirm how much resource has been put into MTD and communicating this to taxpayers compared with how much resource has been put into preparing for Brexit? If significantly more has been put into Brexit, is now really the right time to be trying to make changes around MTD when there is potentially not enough HMRC resource to go around, never mind enough resource within businesses to try to deal with both these things coming down the line at once?
Mel Stride
I thank the hon. Lady for her various questions and will deal with them in turn. She referred to the matter of awareness and the 81% figure. We would expect that figure to rise through time quite strongly, not least because of our communications programme. We will be writing by the end of this month to the 1.2 million businesses and individuals in scope of this measure. We of course have our VAT helpline for where there are queries, and there is a huge amount of information available on gov.uk.
The hon. Lady made a pertinent and perfectly reasonable point about how businesses and individuals will navigate their way around the various software suppliers and the 160 different products. First, all that information is available on gov.uk, and, secondly, we will shortly be releasing further information that will allow businesses to put in their requirements and then reduce that number of products to a subset that is particularly relevant to their needs.
The hon. Lady asked about the resources put into MTD compared with those put into our Brexit preparations. That of course probably begs several other questions as to what aspects of our preparation for Brexit she wishes to make for that particular comparison, and I would be very happy to discuss that with her in further detail after this statement.