National Insurance Contributions Bill

Baroness Kramer Excerpts

2nd reading
Wednesday 1st December 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this may have been a short debate but, my goodness, it has been a full one. I feel rather privileged to be one of the winders.

I want to open with a point made by the noble Lords, Lord Davies and Lord Sikka, on the integrity of the national insurance contributions fund. Like them, I am troubled. The fund was created primarily to pay the state pension; that is its primary role. Compared to most other developed countries, the basic state pension in the UK is very low. Pensioners will face a particularly harsh 2022 because increases have been detached from earnings growth. It adds to my concern that the Government are now choosing to use that fund as a piggy bank for all kinds of other purposes. There will be a new NICs levy to fund the NHS and perhaps, eventually, social care; I suspect that we will see that money constantly having to go to the NHS so we will have to think again about social care, but so be it. This money for the NHS and social care should have been raised through income tax for a whole variety of reasons that I will not reiterate here but which we have discussed in this House before.

I also become increasingly concerned when I see NICs holidays to support niche activities, such as free ports, while at the same time the NICs burden for SMEs—the noble Lord, Lord Bilimoria, raised this issue—is increasing across the country. Again, like the noble Lords, Lord Sikka and Lord Davies, I very much hope that the Minister will finally tell us exactly how much the NICs relief for free ports will cost in forgone revenues because I cannot tease it out of any of the figures that we have been presented with in the Red Book or by the OBR.

Free ports are, by definition, free trade zones. I know that the Chancellor has a particular passion for them but he is making a serious mistake. Even those who are fans of free ports admit that, as free trade zones, they create new jobs only in countries where tariffs on intermediate goods are normally high. The United States is a good example of a country with high intermediate tariffs, which is why free ports have been popular—and, some would argue, successful—there. In the UK, tariffs on intermediate goods are either non-existent or tiny. The savings on duties are negligible. Indeed, these tiny savings will be completely wiped out by the new costs of trading with the EU. Can the Minister confirm that the port operators were correct when they recently told the European Affairs Committee that the costs of the new port infrastructure needed for the new checks as a consequence of Brexit will all fall on port operators? Are the free port operators going to pick up their share of their charges, or will they be exempt and their share picked up by other operators?

There are no meaningful benefits to removing duties, which is normally the essence of a free port. Of course, that is why the Government are now offering a raft of various other tax reliefs, including NICs holidays; it is really an attempt to salvage the free port project. The primary effect will be to favour the initial free port locations —of which there are eight so far—thus cannibalising the prospects of similar or even more disadvantaged areas. During the coalition—I do not hesitate to criticise things that the coalition Government did not get right—the Treasury created enterprise zones; as proposed, the free ports are barely different from enterprise zones. Only a quarter of the predicted jobs were created and, of those, a third came as a result of displacement; I take my information from a study by the Centre for Cities, which is a good and respectable source.

Overwhelmingly, the jobs created were low-skilled jobs. Indeed, interestingly, the NICs relief in this Bill is for low-paid jobs only, as others have pointed out. That tells you everything about the true expectations of this project. It will be a low-skill, low-job set of operations. Again, I will not repeat the OBR quotes mentioned by the noble Lords, Lord Sikka and Lord Davies, but, as far I can tell, essentially it says that it considers that the return from the free port investment will be so small and negligible that it is not even worth putting it into its forecast numbers.

The Government’s free port package promises users a vague array of benefits other than tax release, but I noticed one especially, which is deregulation. It is not yet specified how that deregulation will work. The UK is already a hub for money laundering and free ports of all kinds are notorious for their appeal to cheating and crime, not least because the absence of tax and duties enables the ownership of goods to be concealed. It is virtually impossible for enforcement agencies to be effective in a free port, which is one of the reasons why free port legislation was allowed to die on the vine, in the UK. The Government say that the absence of rules will lead to innovation. I am all in favour of innovation, but not in tax avoidance, money laundering, substandard products or the transfer of stolen assets.

In looking at other parts of the Bill, I support the proposal for NICs relief for ex-services personnel, but I join others in asking whether 12 months is long enough to encourage hiring sufficiently. I pick up the point of the noble Lord, Lord Davies, that this should be part of a holistic programme to help ex-servicemen to achieve that change into civilian life and not just one isolated measure hanging there alone. I also fully support the exclusion from NICs of income for the test and trace self-isolation support system.

However, I would like to ask some questions about the implications of extending the disclosure of tax avoidance schemes—DOTAS—to cover NICs. I take the Minister at his word, because it makes sense, that this is intended to be targeted at the promoters of wrongful avoidance schemes. I am delighted if they are being tackled more effectively. As the noble Lord, Lord Sikka, said, there are 20 or 30 promoters still out there, which the regulators have completely failed to lay their hands on in any way. Anything that can be done to tackle the promotion of wrongful avoidance schemes has to be positive.

I just want to be sure that this does not have implications for small businesses that hire freelance contactors and that no new burdens will be placed on the freelancers themselves. We have so many questions surrounding IR35 and this issue can be woven and caught up in parts of that, particularly for freelancers who work through personal services companies. I have put that question to HMRC; I do not know whether it reached the Minister and suggested that he might mention it. I hope at some point to hear from HMRC, but the Minister might be able to give me more immediate enlightenment.

I close by saying that I am convinced by the Delegated Powers and Regulatory Reform Committee’s assessment of the Bill and the need, in Committee, to deal with Henry VIII and other powers in ways that provide more parliamentary scrutiny. I very much hope that the Minister’s statement that the Government are taking that report seriously and will potentially come forward with proposals meets the test that we are all looking to satisfy.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

I would be more than happy to do that. The noble Lord takes a slightly cynical view of this. We need to go back to the basics of what the Government are trying to do with this, which is to encourage more jobs and investment into these free-port areas. It is really as simple as that. I am more than happy to debate the rationale behind the detail in Committee, but I hope the noble Lord takes me at face value on that point.

The noble Lords, Lord Davies and Lord Bilimoria, asked whether the policy will be effective in encouraging the employment of veterans and whether it is appropriate to target this type of support to veterans. The House will know that some veterans will face particular difficulties in accessing the job market due to injury or trauma suffered in the course of duty; the noble Lord, Lord Bilimoria, alluded to that. These veterans will benefit most from the measure. Given that securing stable and meaningful employment is a key aspect of a veteran’s transition into civilian life, the Government wish to reward employers who facilitate this.

The noble Lord, Lord Tunnicliffe, asked about the status of free-port sites in England. I hope I can address this with some detail. At the Spring Budget, the Chancellor announced eight free ports from eight regions of England following a fair, open and transparent assessment process outlined in the bidding perspective. That included East Midlands Airport; Felixstowe and Harwich, the so-called Freeport East; the Humber; Liverpool City Region; Plymouth and south Devon; Solent; Teesside; and Thames. The first free-port tax sites in Humber, Tees and Thames went live on 19 November. This ensured that those free ports were able to begin initial operations last month, meeting our commitment to get free ports operational in England this year. The Government will continue to work with the remaining free ports and expect the next set of free ports to begin operations in early 2022.

The noble Lord, Lord Sikka, asked how free ports differ from previous free ports. Prior to 2012, the UK had five free ports offering only customs and tariffs benefits, similar to the duty referral on customs warehousing schemes subsequently introduced by the EU. This did not offer any direct tax incentives, so stakeholders indicated that this policy offer was not a substantial enough incentive to invest in these free ports, given its widespread availability outside these free ports. The new free-ports offer provides a more attractive overall package of incentives for businesses. Businesses will be able to take advantage of five tax reliefs and a range of customs incentives, as well as to benefit from a package of other measures that support the development of free ports and make them attractive places to do business, including infrastructure funding and planning measures.

The noble Lord, Lord Sikka, asked why public bodies are excluded from the free-ports relief. I probably alluded to this earlier. The aim of the policy is to boost growth in undeveloped areas, not to subsidise public bodies.

The noble Lord, Lord Tunnicliffe, asked how the ongoing balance of opportunity and risk can be reviewed and reported, and whether Parliament would be given the information on the frequency of this. He essentially asked: if not, why not? This relief will significantly reduce the cost of taking on new employees and doing business in the free port, along with other tax reliefs, which I mentioned earlier, being offered. The take-up and use of NICs relief in free ports will be monitored to ensure that it is having its intended effect. I mentioned earlier that we have the sunset clause, which I have covered. More information on assessments will be available in the free ports monitoring and evaluation—M&E—strategy, which, to reassure the noble Lord, will be published in spring 2022. The Department for Levelling Up, Housing and Communities, as the department responsible for the delivery of free ports, is leading the monitoring and evaluation but working closely and collaboratively across government to ensure robust and rigorous evaluation.

The noble Lord, Lord Tunnicliffe, also asked about any delay in implementing the free ports recruitment. Our focus is on encouraging new investment from around the world and within the UK to create new businesses and new employment. The Government have been clear that this relief is available only on new hires from April 2022 and have set this out in the Freeports Bidding Prospectus published in the autumn of 2020. Having a clear start date is, I think, the answer to his question, as it is a simple approach that will support the free-port businesses. There are complexities with HMRC, I understand, so this cannot be set up earlier than the date the noble Lord mentioned.

I go back to veterans relief—I am chopping and changing slightly here. The noble Lords, Lord Tunnicliffe and Lord Bilimoria, and the noble Baroness, Lady Kramer, asked about veterans relief and why it was for only one year compared with that for free ports, which is, as we know, for three years. I think I can answer this by saying that the policy intent for the two reliefs is different, so the structures of those reliefs are also different. The aim of the free-port relief is to support new businesses in the free-port tax site with the cost of employment to boost growth in and around the free port. Therefore, the free-port relief provides more sustained support for the lower upper threshold. The aim of the veterans relief is to support veterans’ transition into civilian life through employment. The veterans relief therefore provides a greater immediate incentive for employers to hire a veteran

The noble Lord, Lord Bilimoria, asked why the free-port relief was only £25,000 but the veterans relief is up to £50,270. The veterans relief has been kept in line with similar reliefs that aim to boost employment of a particular group of people—for example, those aged under 21 or apprentices aged under 25. The free-port relief has been designed to support new businesses during their infancy. A policy decision was made to make the relief available for a prolonged period and therefore, in fairness to other taxpayers, the threshold of this relief is lower.

I move on to the DOTAS regime, raised by the noble Lords, Lord Davies and Lord Sikka, in terms of additional powers. DOTAS has been in play for several years, which has led to many promoters leaving the avoidance market. However, a small number of determined promoters continue to sell tax avoidance schemes and use delay and obstruction to frustrate HMRC action against them. The new powers modernise DOTAS and allow HMRC to tackle these promoters at an earlier stage. They also allow HMRC to better inform taxpayers of potential schemes through earlier publishing of scheme and promoter details. This will better inform taxpayers of the potential risks that they face and help them to steer clear of these schemes.

The noble Lord, Lord Tunnicliffe, linked with the noble Lord, Lord Sikka, asked about the gains expected from the change in each tax year. The aim of DOTAS is to ensure that HMRC gets the information about the schemes, so that it can take appropriate action. Those who devise and sell avoidance are always looking for new ways to sidestep the rules, so legislation needs to be refreshed to stay ahead of them.

The noble Baroness, Lady Kramer, asked about the NICs relief attracting low-value-added, labour-intensive jobs. I can give a fairly full answer to that, which is that the free ports policy, taken overall, aims—as I said earlier—at regenerating deprived areas through investment and job creation; that means quality jobs in high-value-added industries.

Free ports will offer a number of benefits for firms, including specific issues such as: simpler import procedures and suspended duties in customs sites to help businesses trade; planning changes to green-light much-needed development; spending to invest in infrastructure; and a free port regulatory engagement network to help regulators and firms work together to test new technologies safely and effectively. As well as enjoying enhanced structures and buildings allowance, and generous stamp duty and business rates relief, employers in capital-intensive sectors will benefit in particular from enhanced capital allowances that relieve 100% of qualifying expenditure in the first year on plant and machinery for use within free port tax sites.

[Baroness Kramer (LD)]

The Minister may not have the answer to this but I want to repeat the question. As I say, port operators reported to the European Affairs Committee of this House that they had been told by government that they would bear the full costs of putting in place the facilities for the new checks that are required to export to the EU. Within the free ports, people will presumably intend some of that product to be for export to the EU, so they will therefore need to have facilities for these new checks. If the Government do not intend to pick up that tab, will the operators in the free ports do so or will the cost be passed to operators of other ports as a kind of additional cost that will fall on them in order to subsidise the free ports? I am just not clear about that.

[Viscount Younger of Leckie (Con)]

I was not aware of the first part of the noble Baroness’s question but I will certainly look into that and write to her on the specific issue.

On the report of the Delegated Powers and Regulatory Reform Committee, which was mentioned by a couple of Peers, I repeat what I said earlier on this, which is very important. The Government are carefully considering the recommendations made by the committee and we are taking what it said with the degree of seriousness that it deserves. As I said earlier, we will write to the committee and keep the House informed on progress there.