National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Anneliese Dodds Excerpts

2nd reading: House of Commons & Ways and Means resolution: House of Commons
Tuesday 30th April 2019 Commons Chamber

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to follow the hon. Member for South Thanet (Craig Mackinlay), who always talks about these issues from a professional perspective, related to his work before he first entered this place. It was very interesting to hear his comments, and I will return to some of them as I set out the Opposition’s summary of our concerns about the Bill.

When the Minister was introducing these measures, he said that they were expected. As many Members have said, they most certainly were expected. In fact, they were introduced a lot later than we had anticipated, as the hon. Member for Aberdeen North (Kirsty Blackman) pointed out. In fact, the Government’s paperwork associated with the measures indicated that some revenue has been loss as a result of that late presentation. The hon. Member for South Suffolk (James Cartlidge) noted that the figures here were “baked in” to the Government’s accounts. Well, if he looks at the accompanying paperwork to these measures, he will see that it actually appears that those expectations have had to change given the late presentation of the Bill to the House. Of course, Labour would take very different decisions on taxation. We believe that the rates for the very best-off should be increased for the top 5%, that a different approach should be taken to corporation tax and, in particular, that we should not be focusing on trying to increase tax on those people who have, above all, lost their jobs—of course, that is part of the focus of this legislation.

I will, however, start by discussing the sporting testimonials element of the Bill. These measures would see NICs treatment of sporting testimonials charged to class 1A NICs, mirroring the tax liability. As has been mentioned, this would only apply to testimonial payments exceeding £100,000. Many members have already noted that the situation—I hesitate to say “playing field” because we have definitely had enough puns in this debate—has changed since these testimonials were introduced, when many players were not earning enough money adequately to save for their retirement. Particularly in football, which is the sport that I know best in this regard, players at the very top levels are earning more than enough throughout their lifetime not to have to rely on these testimonial payments for future revenue. It is therefore appropriate that clubs as employers, or the testimonial committees that would be providing the payments, look to make these national insurance contributions.

The public are rightly angry about the amount of tax avoidance that the wealthiest in this country engage in, but I am concerned that these measures do not come close to addressing systemic issues within football, particularly around taxation. As I understand it, as of January, HMRC was looking into the financial affairs of 173 players, 40 clubs and 38 agents. Now, I have little doubt that the Minister is itching to mention the case of Rangers football club when he responds to the debate—I am well aware of the case that was taken against Rangers—but I think we need to contrast what has occurred in our country with developments in Spain, for example, where firm action has been taken against the extremely well-paid players who sought to artificially avoid tax. We have not seen similar action taken here. For example, the problem around image rights companies was known about for quite a long time before action was firmly taken. It is an insult to the thousands of volunteers at clubs across the UK—who scrimp and save to ensure that the players are paid, the grounds and stands are properly maintained, and records are properly kept—to see some of those at the very top get away with sharp practices.

Ministers must be aware that testimonials are actually becoming less common as a means of ensuring financial security for players and that the funds from testimonials are very often donated to charity, as many hon. Members have mentioned. I would like some more detail from the Minister about the perceived impact of this legislation on funds being donated to charity. Yes, in some cases funds may pass straight to a charity, but in other situations they go to charity eventually—via a player. In fact, if one looks at the charities that have benefited from the most recent testimonials, many have been foundations associated with particular players. The Minister said that, of the previous 220 testimonials that have been examined in relation to coverage by such measures, most would not have been covered because the testimonial was contractual or because its value was less than £100,000, but he did not talk about testimonials where charitable donations were concerned. I am a little bit worried that this quite important source of funds for charities might not be getting the consideration it requires as part of the Bill. I hope that the Minister will reflect on that in his closing remarks or provide more detail in Committee.

I turn to the impact of the Bill on termination awards. The Bill would introduce a new 13.8% class 1A employer NICs charge to any part of a termination award that is already income tax liable. The Minister has stated his contention that abuse exists in this field, with the claim that some employers might be disguising final payments as termination payments. Again, we really need to see concrete evidence. We have probed on this issue in previous discussions on Finance Bills, but we have not been provided with evidence of abuse. Actually, from memory, consultations carried out in this area did not suggest that there was widespread evidence of abuse. Surely, we need that evidence before considering these measures in detail.

In fact, as my hon. Friend the Member for Bootle (Peter Dowd) explained very clearly, this measure on employers’ national insurance contributions on termination awards is likely to lead to employers being much less generous with non-statutory termination awards and to leave people worse off at a time when many of them are most vulnerable. That could have severe implications for the individuals concerned, but it could also have wider economic implications. I was interested to learn that around 30% of all small businesses founded in the UK in recent times have been started in response to redundancy, with many people only having the resources to pursue their entrepreneurial ambitions because of their termination award. It is necessary to think about those wider impacts.

The Government maintain—indeed, we heard it again this afternoon—that this measure does not affect individuals, as it is paid by the employer, but that surely is not the case. In fact, the Government themselves predict in the material presented alongside the Bill that the measure would reduce wages overall by 0.1% over the year 2020-21. It is crucial that the Government undertake more detailed consideration of the likely impact of this measure.

As has been discussed, this is not the first time that this Government have sought to narrow the scope of tax relief on redundancy and termination payments. In the 2017 Finance Bill, they removed any exemption for payments in lieu of notice from the tax-free scope of payments for injuries. As Members will remember, that was very concerning with regard to workers’ rights, which are one of the main aspects of compensation in discrimination cases. The Opposition rightly contested that change.

Again in the 2017 Finance Bill, the Treasury provided itself with the power to vary the tax-free amount for other termination payments. Trade unions raised their concerns about that measure, as they believed that if the Treasury further lowered the tax-free threshold, it would incentivise employers to lower non-statutory termination awards even further. Indeed, the TUC has suggested that the tax-free element should be increased rather than decreased. I was interested by the comments made by the hon. Member for South Thanet, who noted that the value of the £30,000 threshold has been eroded significantly over time and would be worth more than double the amount if it had kept pace with current prices.

The Opposition remain concerned that the Bill still includes the power to potentially vary the NICs threshold upwards or downwards without proper scrutiny in this place, and I hope the Minister will be able to rule that out today. I also hope he will return to this in legislative form, to make it crystal clear that the Government do not intend to reduce the threshold.

I note that the guidance published alongside the legislation emphasises that

“no statutory redundancy pay on its own will be affected”.

That implies that non-statutory redundancy pay could find itself affected, exactly as the Opposition have warned. Can we have a clear statement that we will not see, via secondary legislation, tax and NICs being applied to voluntary redundancy payments for individuals with two years, or more or less than two years, of continuous service?

The Minister will be aware that this kind of application of class 1A NICs to cash earnings is highly unusual, to put it mildly. That point has been underlined by the Chartered Institute of Taxation and was made eloquently by the hon. Member for Aberdeen North. This appears to be a set of rather ad hoc changes. The hon. Member for South Suffolk, in a wide-ranging and interesting speech, suggested that the Bill is part of a general push to simplify the tax landscape, particularly when it comes to the relationship between payment as an employee and other forms of payment. In reality, we have seen an increasing complication of that landscape. We have not seen an alignment between the tax treatment of individuals and their employment treatment. Instead, we see an increasing bricolage of measures to try to deal with the disjuncture, with what is happening around IR35 being a good example. One would hope that the Government will start to try to get a grip of this issue in a more determined and less ad hoc fashion in months to come—if, indeed, they have months to come.

There is one last administrative issue that I want to mention. We have had referred to us by experts in this area the fact that HMRC has suggested that the charge will arise and be paid in real time, rather than at the end of the tax year, as is the case with other class 1A charges. That seems to require a new process—again, additional complication—for submitting information through the pay-as-you-earn real-time information submission and for HMRC to have to adopt a different process for allocating the different elements of that payment. There are already many issues with it allocating real-time information payments into the wrong pots. This seems to suggest additional complication, and we need the Government to rethink this and consider an annual payment, rather than a real-time one. This change potentially comes at the same time as other significant forms of upheaval within the tax system, from making tax digital to preparations for Brexit.

As my hon. Friend the Member for Bootle stated very clearly at the end of his remarks, we will not oppose the Bill at this stage, but we hope that it will be possible to make some substantial changes in Committee, because they are very much needed, as has been reflected by the tenor of this debate.