National Insurance Contributions (Increase of Thresholds) Bill

Debate between James Murray and Richard Thomson

Committee stage
Thursday 24th March 2022 Commons Chamber

[Richard Thomson]

The SNP is generally supportive of all the amendments that have been tabled, and I echo the comments of the right hon. Member for Hayes and Harlington (John McDonnell), who made a number of points about the importance of understanding the intended purpose and impact of legislation before it takes effect. I made that point ad nauseam during the passage of two Finance Bills, but I keep returning to it because it is important that we understand what we are doing and that we avoid, as far as possible, the law of unintended consequences.

Quite apart from the evidence base they would provide for legislative scrutiny, the amendments might provide a corrective to the poor policy choices that Ministers have made in recent times.

[James Murray]

As I said on Second Reading, we will support the Bill, but I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and my hon. Friends the Members for Reading East (Matt Rodda) and for Eltham (Clive Efford) for their important points about the impact the Bill will have. We recognise that raising the thresholds for national insurance contributions has benefits, and we welcome any help for people facing the Chancellor’s national insurance hike in April.

The explanatory notes explain that the increase to the primary thresholds for class 1 national insurance contributions and the lower profits limit for class 4 contributions will require changes to the systems of employers and HMRC, including those designed to facilitate pay-as-you-earn. The explanatory notes also explain that the Bill is being fast-tracked to give employers and HMRC as much time as possible to implement the changes, helping to make sure people are not overtaxed, and they confirm that the speed with which the Bill is going through Parliament means, unsurprisingly, there has been no consultation.

Although it is, of course, right to give employers and HMRC as much time as possible, the explanatory notes underline that the changes are being made very late in the day. Indeed, as we will come to later, the decision to implement this change from 6 July rather than 6 April reflects the last-minute nature of the Chancellor’s proposals. This approach to legislation does not inspire confidence that he is in control and has a well thought-through package to help people who are struggling to make ends meet. Indeed, it gives the impression of a Chancellor who has made the wrong choices and is now scrabbling at the eleventh hour to limit the damage.

Of course, according to the Chancellor, he only started work yesterday. He seemed proud to claim ahead of the spring statement that “the work starts today,” but the truth is that his choices have been hitting working people for far longer, and the Conservatives’ choices have been hitting our country for 12 years.

Clause 1 amends the Social Security (Contributions) Regulations 2001 to align the primary threshold for class 1 national insurance contributions with the income tax personal allowance. As I said, we support this measure as we recognise that raising the thresholds for national insurance contributions has benefits, and we welcome any help for people facing the Chancellor’s national insurance hike in April. However, this clause draws attention to the fact that the change to the primary threshold will not come into force until 6 July 2022. Indeed, subsection (4) explicitly states that the changes made to the primary threshold

“do not affect any liability to primary Class 1 contributions for any tax week commencing before that date”.

There will therefore be three months during which the Chancellor’s hike in national insurance will be in place, and hitting people’s pockets, and the changes to the primary threshold will not yet have taken effect. As I said a few moments ago, people looking at this will conclude that we have a Chancellor who knows he has made the wrong choices and is now scrambling around at the eleventh hour to limit the damage. So I wish to press the Minister on a few points about how and when the decision was taken to implement the threshold increase from July.

First, I have a simple question: when was a decision taken by the Chancellor to raise the threshold? Did he wake up on 23 March, the day he says was his first day of work, and make the decision then? Or had a policy decision been taken by the Treasury earlier, meaning that it could have been implemented earlier too? I realise the Minister may respond by trying to claim that announcements about changes to tax levels are made only at fiscal events, but that is not the case; the national insurance increase coming in April was announced by way of an unscheduled statement by the Prime Minister in September last year, and the arising legislation was pushed through Parliament in a day one week later.

If the Chancellor had decided to raise thresholds earlier this month, or even earlier this year, could his decision not have been announced and legislated for sooner? If that had been the case, these new thresholds could be in place from April, or at some point sooner than July, providing at least some extra help for people in the critical three months ahead when NI is being hiked and energy bills are set to soar. There are only two explanations possible for what has happened: either the Chancellor made the decision about thresholds only on the morning of 23 March, or he made it earlier, yet sat on it, when he could have acted to help people sooner. I would like the Minister to tell me which account is true. Given that the Bill introduces the threshold increase from 6 July, I would also be grateful if the Minister explained what consideration was given to backdating the increase to April. Is that an option that the Chancellor considered? If so, why was it discounted, and if it was not considered, why not?

Clause 2 raises the lower profits limit for class 4 contributions and ultimately aligns it with the income tax personal allowance. As before, we support this measure as we recognise that raising the thresholds for national insurance contributions has benefits, and we welcome any help for people facing the Chancellor’s NI tax hike in April. I note that the changes to the threshold for self-employed people’s class 4 contributions take effect in two stages. First, the lower profits limit is raised from £9,880 to £11,908 from April 2022, and then it is raised again to £12,570 in April 2023. The figure of £11,908 represents, as far as I can tell, a blended average for 2022-23 of the lower profits limit continuing at the level previously intended until July, and then being raised to £12,570 for the remaining months of the year. As with class 1 contributions, we will therefore have three months during which the Chancellor’s NI hike will be in place and hitting people’s pockets, yet the changes to the threshold will not yet have taken effect. I therefore ask the Minister again: are people missing out because the Chancellor made the decision about thresholds only on the morning of 23 March, or did he make that decision earlier, yet sat on it, when he could have acted to help people sooner?

Clause 3 gives the Treasury the power to make regulations to align the threshold for paying class 2 NICs with the lower profits limit. This clause also enables the Treasury to make sure that self-employed people with profits between the small profit threshold and the lower profits limit will continue to be able to build up NI credits but will not pay any class 2 national insurance contributions. As with the other changes in this Bill, we support this measure as we recognise the benefits of raising the thresholds. I would like, however, to press the Minister on two technical points that arise from clause 3. First, why are the changes to class 2 contributions to be made by way of regulations, rather than being implemented through this Bill? I note that clause 5(3) seems to make it clear that regulations arising from clause 3 will, as they would amend Acts of Parliament, have to be laid before and approved by a resolution of each House. Will the Minister explain why the detail on clause 3 will therefore be decided a later stage, and not with the class 1 and class 4 changes today? Secondly, clause 3(2)(b) makes it clear that the changes to class 2 contributions may be made to have retrospective provision from 6 April 2022. So why is it possible to backdate changes to class 2 contributions to April 2022, yet changes to class 1 and class 4 contributions can take effect only from July?

The remaining clauses include clause 4, which makes transitional and consequential provisions that are reasonable in the context of the Bill; clause 5, on which I have touched, relating to the making of regulations; and clause 6, on the short title. Before I close my speech, I should point out that nothing in those clauses addresses the secondary threshold for employers. We have warned since the national insurance hike was introduced that it would be a tax on working people and their jobs, yet none of the Bill’s clauses address the level at which employers will have to pay the raised rate of national insurance. We know from the Office of Budget Responsibility that this is not just an issue for employers who want to create jobs; the rise in employers’ national insurance contributions will also hit workers through a double whammy, as the increase is passed on by way of lower wages and higher prices.

National Insurance Contributions Bill

Debate between James Murray and Richard Thomson

Consideration of Lords amendments
Tuesday 1st March 2022 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

I thank the Minister for setting out the reasoning behind the Government’s amendments in the other place. Although we support many of the measures in this Bill, we cannot ignore the fact that we are discussing the Government’s plans for specific relief from NICs just one month before they raise national insurance for workers and businesses across the board. That is the crucial context for the Lords amendments we are being asked to consider.

Five weeks from today, a typical full-time worker will see their annual tax bill rise by £274. That will be the direct result of the Government’s decision to raise NI. It is the worst possible tax rise, at the worst possible time. We argued it was wrong last September, when the Government pushed this tax rise through Parliament. Since then, energy bills have begun to soar, making our case even stronger. Now, as we stand alongside the Ukrainian people, we know that that conflict will impact people here, with further price rises for petrol, energy and food. The Conservatives must think again. The impact of their NI hike is getting worse and worse. The Chancellor should finally do the right thing and scrap April’s tax rise on businesses and working people.

As we said when this Bill was being debated in the Commons last year, we support the intention behind many of its measures. However, throughout its passage, we and our colleagues in the other place have raised important questions with Ministers about some of the approaches the Government have decided to take. With that in mind, I turn to Lords amendments 2 and 4, which were successful in the other place and which we will be supporting here today. Lords amendment 2 seeks to add one further condition to those that already exist in the Bill for freeports. When it was introduced, this Bill included the conditions under which employers in a freeport could benefit from a zero rate of secondary class 1 NICs. This amendment adds one further condition to freeport employers’ relief. It would make sure this relief is available only if the freeport maintains a public record of the beneficial ownership of businesses operating within it. We, alongside right hon. and hon. Members from across the House, have long argued for transparency over the ownership of UK assets. In recent days, that has come to a head, with the Government finally admitting and accepting the urgent importance of establishing a public register of the overseas owners of UK property. Yesterday, when the Business Secretary made a statement to the House on “Corporate Transparency and Economic Crime”, no one could deny the damage caused by the Government’s failing to prioritise transparency of the overseas ownership of UK interests. As my hon. Friend the Member for Feltham and Heston (Seema Malhotra) told the House yesterday, although we clearly support the Government’s introducing a register of overseas owners of UK property, we are clear that:

“The UK would have been in a much stronger position to act with speed and our national security would have been better protected if the register had already been up and running.”—[Official Report, 28 February 2022; Vol. 709, c. 736.]

As my hon. Friend went on to say yesterday, we hope lessons will be learned for the future. The Government have a chance today to prove that they have learned those lessons. Let us avoid their pressing ahead today without that transparency condition, only to return to the matter in a rush at a later date when the opportunity for greatest impact may already have been missed. That is why we will support Lords amendment 2, and I urge Government Ministers and hon. Members on all sides to do likewise.

I turn now to Lords amendment 4, which was also successful in the other place and which we will support today. The Government’s Bill introduces a zero rate of national insurance contributions for employers of armed forces veterans for the period of one year beginning with the earner’s first day of civilian employment after leaving the armed forces. We believe it is crucial to ensure that all veterans get the support they need as they seek civilian employment.

Lords amendment 4 enables the Treasury to change the period of support offered if it is found to support employment. We believe it is a simple measure, giving the Government flexibility to adjust the operation of the relief if doing so might improve veterans’ ability to find long-term employment.

As the Financial Secretary may know, when the Bill was debated in the Commons last year we raised questions about the time period for which the relief would be available. When I discussed this Bill with her predecessor, the right hon. Member for Hereford and South Herefordshire (Jesse Norman), I asked him to explain in greater detail why the Government had chosen a period of one year for veterans’ employers. In response, he said that one year was appropriate because,

“the goal is to support a very specific process of transition”.

When we pressed him further on the importance of helping to maintain long-term employment, he acknowledged:

“If it were the case that veterans still had a serious problem of finding secure and stable employment, of course that would be a matter that the Government would wish to reflect on and consider.”

He assured me and several of my hon. Friends that he would,

“continue to reflect on this policy”,

and that those at the Treasury,

“already have in place processes of evaluation and assessment.”––[Official Report, National Insurance Contributions Public Bill Committee, 22 June 2021; c. 18-20.]

I am sure the right hon. and learned Member for South East Cambridgeshire (Lucy Frazer) will want to honour those commitments made by her predecessor.

Through Lords amendment 4, we seek simply to give the Government the power to change the period of relief, should their ongoing analysis conclude it is in the best interests of veterans to do so. On that basis, I urge the Financial Secretary and her colleagues to reconsider the Government’s position. I hope that Ministers and hon. Members on the Government Benches will see the value that Lords amendments 2 and 4 add to this Bill and that, even at this late stage, they might reconsider their position on them.

I end by urging Ministers to ensure that next time we are in this Chamber with national insurance on the Order Paper, it will be to agree to cancel the tax rise coming next month. The Chancellor has five weeks to do the right thing—five weeks to change his mind and avoid hitting working people and businesses with the worst possible tax rise at the worst possible time.

[Richard Thomson (Gordon) (SNP)]

I rise to support Lords amendments 2 and 4, but I will deal first with amendment 4.

As I said at earlier stages of this Bill, those who have experience of serving within the armed forces bring tremendous qualities to the workforce through both the skills they have learned while in uniform and their breadth of life experience. Despite our awareness of that and the best efforts of Governments and the third sector, for too many of our ex-servicemen who are leaving the services, the transition to civvy street is far more difficult than it often needs to be.

Having this exemption for national insurance contributions is therefore a very positive step as far as we are concerned, making it even more attractive to employers to hire those ex-service personnel and to bring their skills and experience into the workforce, helping to bring to fruition all the many economic and social benefits that can come from that. In that regard, we are attracted to Lords amendment 4 simply because it gives the Treasury that power to extend the eligibility period attached to the zero rate relief for armed forces personnel and veterans, should that be deemed desirable. That seems to us to be a perfectly reasonable addition to make to the Bill, giving the Treasury a degree of flexibility on how to implement the measure that would otherwise be lacking in the Bill as drafted.

On amendment 2, let me first place on record my satisfaction at the agreement that has eventually been reached by the Scottish Government and the UK Government over freeports, or green ports, of which two will now be established in Scotland, with the bidding process opening in spring this year and the first sites opening, hopefully, in spring 2023. I will go a little bit off piste here to say that that outcome was not always guaranteed, and at times, in at least some of the public discussions, there has been a bit more war-war than jaw-jaw, certainly on the part of individual Conservative politicians rather than between Ministers in Edinburgh and London. For example, the Scottish Business Minister, Ivan McKee, had to write six times to the UK Government to even try to get green port discussions under way in order to get them over the line. He said that the silence was deafening. That is a pretty damning account that rather sits at odds with the impression that we are often given from those on the Treasury Bench as to how they would like to work constructively with the Scottish Government.

The reason for holding out on the variation on the freeports option was quite simple. We felt very strongly that given the scale of the financial support that was on offer, it was vital to ensure that wider policy objectives such as environmental obligations, the commitment to net zero and fair play for those employed within freeport sites, were met. While it is up to the UK Government to decide how those objectives can be met in England, applicants for green port status in Scotland will be required to set out robust plans at the outset on how they plan to contribute to Scotland’s just transition to a net zero economy and how they will benefit the wider supply chain alongside embedding fair working practices such as at least paying the real living wage.

Freeports, it is fair to say, have had a somewhat mixed reception abroad, particularly as regards the relationship that they are perceived to have with criminality and tax evasion. While hardly the “Grand Theft Auto”-style dystopia that they have sometimes been portrayed as, the potential for criminality and non-compliance with taxation, employment rights, health and safety or environmental regulations and obligations is clear, as is the potential for broader economic displacement.

That brings me to the nub of amendment 2. In recent weeks, we have seen significantly increased demand from this House for scrutiny and visibility of financial transactions that take place in this country. We need to have that increased scrutiny over those who spend and invest in the UK, and also over where their money originates. It is very important when setting up freeports that we are able to answer the age-old question, “cui bono?” That is absolutely paramount. A requirement that the freeport deliverance body should be able to make reasonable efforts to verify who the beneficial owners of the business are and to ensure that that information is accessible not just to the relevant enforcement agencies but to the general public is the minimum amount of due diligence that we should expect in exchange for the status and the exemptions on offer.

I listened carefully to the Minister’s arguments about the beneficial register that will be in place and her view that as a third party under the local governance arrangements it would be inappropriate to release that information. Respectfully, I disagree with that. We all know how labyrinthine and byzantine corporate structures can be. Irrespective of any requirement in future legislation that may be coming into force, certainly on freeports, my party firmly believes that we should have transparency and accountability baked into the corporate structure and public reporting at the outset. On that basis, both Lords amendments have our support and we shall be voting accordingly.

Finance (No. 2) Bill (Fifth sitting)

Debate between James Murray and Richard Thomson

Committee stage
Tuesday 11th January 2022 Public Bill Committees

[James Murray (Ealing North) (Lab/Co-op)]

As we heard from the Minister, the purpose of clause 94 is to introduce schedule 15, which, in turn, introduces a new requirement for large businesses to notify HMRC when they have taken a tax position that is uncertain. The new requirement has effect for returns within scope that are due to be filed on or after 1 April 2022. We understand that large businesses are defined as those with a turnover above £200 million, or a balance sheet total of over £2 billion. Uncertain tax amounts with a tax advantage below the threshold of £5 million will not need to be notified to HMRC. We also understand that uncertain tax treatments are defined as those that meet one of two criteria: either a provision has been made in the accounts for the uncertainty, or the position taken by the business is contrary to HMRC’s known interpretation of the law.

The stated intention of the clause and schedule is to reduce the gap between taxes paid and taxes thought by HMRC to be owed that is attributable to differences in legal interpretation. The measure aims to ensure that HMRC is aware of all cases where a large business has adopted a treatment with which HMRC may disagree, and to accelerate the point at which discussions occur on these uncertain tax treatments. It also claims to identify areas of law that are currently unclear and to allow HMRC to focus on clarifying these areas of uncertainty, ultimately resulting in fewer disputes caused by uncertainty in the tax law.

We know from HMRC figures that in the financial year 2019-20, the tax gap attributable to differences in legal interpretation was £5.8 billion. Of this, £3.2 billion was attributed to large businesses. We do not oppose the broad intention of the measure. It is important that revenues are not lost to legislative ambiguity, and that tax liabilities are clear to large businesses. Measures that seek to reduce the administrative cost of dealing with uncertain tax treatment for both HMRC and businesses are worth pursuing. However, we note concerns raised by the Chartered Institute of Taxation. It was unconvinced that the measure would achieve its aim. It points to the additional compliance burden that all businesses will face, regardless of whether they have been transparent and open with HMRC about their tax dealings.

HMRC’s own figures suggest a cost of £1,300 for each business impacted, and the House of Lords Finance Bill Sub-Committee described that cost as disproportionate. I would be grateful if the Minister could tell us approximately how many large businesses the measure aims to change the behaviour of. I am sure that HMRC or Treasury officials will have estimated the scale of the problem before proposing a remedy, so I would be grateful if the Minister could share any figures she has.

On the operation of the measure, we understand that HMRC does not expect the legal interpretation part of the tax gap to be impacted immediately by the introduction of the measure alone, and it expects to have to take further action. It is therefore not immediately obviously why this extra measure is needed, and why HMRC’s existing powers are not enough. As the Chartered Institute of Taxation said,

“it is not clear to us how this measure will itself additionally impact on the legal interpretation tax gap, given that HMRC already have extensive powers to open an enquiry into, and investigate, a tax return, from which any disputes in respect of legal interpretation can be addressed.”

I would be grateful if the Minister addressed that point directly. Could she explain what practical advantage the new measures lend HMRC? Could she also comment on the penalties levied for non-compliance with the measure? Given that it targets a minority of non-compliant large businesses with a tax advantage above £5 million, the penalties for non-compliance seem rather small: £5,000 for a first offence, £25,000 for a second, and £50,000 for repeated failures to notify HMRC of uncertain tax treatments. Those amounts seem rather low for businesses with a £5 million-plus tax advantage. I would be grateful if the Minister explained how these figures were arrived at, and confirmed whether she believes these measures serve as a robust disincentive for large businesses to use differing legal interpretations to alter their tax liability.

[Richard Thomson (Gordon) (SNP)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I apologise for arriving slightly behind schedule this morning. It was good to see the ministerial team picking up exactly where we left off, getting their rebuttal in first, and telling us what was wrong with our new clauses before we had the chance to utter a syllable. I look forward to that continuing this morning—and this afternoon, if we get that far.

HMRC estimates that a potential £5.8 billion of the UK’s estimated £35 billion tax gap for the tax year 2019-20 is attributable to a difference in legal interpretation between HMRC and the businesses concerned. It is that situation that motivated us to draft new clause 7, which is in the name of my hon. Friend the Member for Glasgow Central. We support all and any reasonable and proportionate measures to try to narrow the gap. I would add, in passing, that it is disappointing that the third trigger has been dropped, which is that HMRC should be made aware by companies if there is a substantial possibility that either a court or tribunal might find that the taxpayer’s position was incorrect in certain material respects.

While there will always be a level of uncertainty around tax, it is useful to try to get a measure of the tax gap on its own terms—one that is as objective as possible. It is also very useful to compare, as far as possible, the estimated size and scale of our tax gap with the gap in other comparably advanced economies, so that we can see what we might learn from others.

I accept that direct comparisons might not be possible, but I do not accept the Minister’s argument that meaningful comparisons are impossible, because we can get an understanding of practices and of analysis; that is at the heart of the matter. This is about trying to get to grips with the scale, and developing an understanding of what will be a continually moving target, as entities seek to minimise their overall liability as legitimately as they can within the confines of the broader tax code. That backdrop of information would allow policy makers to reflect adequately on how the domestic tax code might be amended to ensure greater clarity and better compliance. It is on that basis that we tabled new clause 7.

Finance (No. 2) Bill (Third sitting)

Debate between James Murray and Richard Thomson

Committee stage
Wednesday 5th January 2022 Public Bill Committees

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve on a second Finance Bill Committee under your chairship, Dame Angela.

I will address the clauses that the Minister set out in her remarks, starting with clause 32, which notes that the new residential property developer tax will be applicable from 1 April 2022, as announced at the spring Budget of 2021. As we have heard, this is a new, time-limited tax on the profits of residential property development companies’ property development activity, with a rate of 4% over a £25 million allowance. The Government estimate that it will generate £2 billion over the course of a decade, and they said that the funds are earmarked to help with cladding remediation costs, according to the former Secretary of State for Housing, the right hon. Member for Newark (Robert Jenrick), who spoke to the Building Safety Bill in February 2021. The explanatory note for the clause states that the tax is to

“ensure that the largest developers make a fair contribution to help fund the Government’s cladding remediation costs.”

We support the principle behind the new tax, but I intend to use this Committee sitting to question the Ministers on the detail of its design and to probe their views on its place in the Government’s wider response to the cladding scandal. We know that the Bill has been consulted on, but we also note stakeholders’ disappointment that the consultation process was truncated, as stage 1 —setting out objectives and identifying options—was cancelled. Although we recognise the importance of moving quickly to raise revenue in order to help meet the costs of remediating unsafe cladding on buildings, it is disappointing that the Government were not able to conduct a thorough consultation.

Clause 33 sets the rate of the RPDT charge at 4% on profits that exceed the allowance of £25 million. The tax is charged as if it were an amount of corporation tax chargeable on the developer. As I mentioned earlier, the Government expect that £2 billion of revenue will be generated while the tax is in effect, so I will ask the Minister several questions in order to try to clarify the reasoning behind some of the Government’s decisions on the detail of the tax. First, we note that the tax does not come with a sunset clause, and therefore active legislation will be required to repeal it when it comes to an end. Will the Minister explain the reasoning behind that decision? If the tax is intended to be time-limited, why have the Government have chosen to leave it in need of active repeal, rather than simply adding a sunset clause?

Secondly, I mentioned that the expected revenue from the tax is £2 billion. We know, however, that that is just a fraction of the total cost of remediating unsafe cladding, which was estimated by the then Housing, Communities and Local Government Committee in April 2021 to be about £15 billion. What is more, labour and material shortages have significantly driven up the cost of construction. That is thought to add £1.2 billion to the overall cost of remediation, wiping out most of any gain from this tax. With the cost of cladding remediation already thought to be so much greater than the amount that the tax is expected to raise, and with that gap likely only to increase, will the Minister try to explain further why the rate was set at 4%? Will she confirm whether, if the amount raised should fall short of £2 billion or if costs should increase substantially, the Government would be open to considering raising the level of the tax?

It was in pursuit of an answer to that question that we tabled new clause 18, which would require the Government to publish a review of the residential property developer tax within three months of the end of the first year of it applying, and thereafter annually, within three months of the end of each subsequent year that the tax applies. The review, as updated, must assess how much the RPDT has raised in each year of its operation so far and how much it is estimated that it would have raised at levels of 6%, 8% and 10%.

As I mentioned, the cost of remediating unsafe cladding was estimated last year to be about £15 billion, and the cost of labour and materials has increased due to supply chain crises. Industry experts have estimated an 8% increase in the cost of cladding jobs, compared with last year. As I mentioned, that could increase the total cost by £1.2 billion. As I said, this tax aims to raise £2 billion, which is just a fraction of the total cost and much of which, it seems, will be wiped out by rising costs.

We have therefore tabled this new clause to ask the Government to assess how much they could raise through the tax and how much they could raise with different rates. Given the significant discrepancy between the estimated revenue raised by the RPDT and the estimated cost of remediation, will the Minister set out in further detail, when she responds, exactly how the rate of 4% was reached and what specific consideration was given to alternatives? It was with that in mind that we tabled the new clause. We will not seek to put it to a vote, but we hope that it will help us to debate and probe the important and central issue of the rate at which the RPDT has been set.

In summary, I will be grateful if, in her reply, the Minister could set out exactly how the figure of 4% was arrived at and, furthermore, how she expects the rest of the cost of cladding remediation to be met. I would be grateful if she could set out, either in her reply now or in writing, what other sources of funding she anticipates being used to meet the total cost of cladding remediation.

Finally in relation to this group, I will briefly mention clause 52, which is an anti-avoidance provision preventing taxpayers from adjusting their profits arising in an accounting period in order to obtain a tax advantage for the purposes of this tax. We welcome the intent behind that clause and will not oppose it.

[Richard Thomson (Gordon) (SNP)]

It is a pleasure to serve under your chairmanship, Dame Angela. I rise to speak to new clause 3, in the name of my hon. Friend the Member for Glasgow Central. As the Minister outlined, this new clause would require a Government assessment of the impact of the residential property developer tax being introduced by the Bill and of its effect on opportunities for tax evasion and avoidance.

We are all familiar with what this tax sets out to achieve and those on whom it should fall. There is a £25 million annual allowance for construction firms, and the tax will be levied above that at 4%. That does not take a great deal of time to say, but unfortunately, giving it effect requires 16 pages and a further eight pages across two schedules in the Bill and a great many more pages in the explanatory notes to say exactly how it will work in practice. Therefore, the opportunity for genuine confusion, for interpretation and, sadly, for evasion and avoidance is certainly a real and present danger in the legislation.

The anticipated impacts are set out in table 5.1 of the “Autumn Budget and Spending Review 2021”. We are not talking huge sums from this tax, but given its stated purpose and the means to which the revenues are going to be put, I think that reviewing its impact—not just in a financial sense, but in the sense of the unintended consequences that it could have and the havoc that it could wreak in terms of confusion, differences of interpretation, and avoidance and evasion—seems to be an eminently reasonable thing to do. I urge the Minister to reconsider how the Government intend to tackle that once the tax is implemented.

National Insurance Contributions Bill (First sitting)

Debate between James Murray and Richard Thomson

Committee stage
Tuesday 22nd June 2021 Public Bill Committees

[Richard Thomson]

There is a pretty basic principle that lies behind this: that you shouldn’t get owt for nowt. In exchange for the substantial package of reliefs that are on offer through this Bill, we believe that businesses must offer something in return, beyond their presence and their baseline economic activity within the bounds of a freeport.

In this case that would include, through amendments 1 and 2, meeting local environmental obligations. Many freeports are built on sites that have environmental sensitivities. We believe there need to be some enhanced obligations around that. Activities in a freeport should contribute to wider environmental objectives, such as the commitments to net zero and climate targets. It is very important to protect workers’ rights, not only within the perimeter of a freeport but anywhere else that has any kind of economic relationship with the freeport. That means taking steps to actively ensure that we are preventing the exploitation of slave labour at any stage in the value chain and ensuring that a living wage, as defined, is paid to the workers in the freeport.

Those are all important objectives in policy terms and are a fair exchange for the public goods being consumed through the creation of the freeport. They are modest asks in the context of the relief being offered and are worthy of support.

[James Murray]

Clause 2 sets out the conditions that employers must meet to qualify for the relief created by clause 1. Those conditions require that the freeport employment must begin between 6 April 2022 and 5 April 2026; the relief will apply for three years from the first day of each eligible employee’s employment; and the employee must spend 60% or more of their employed time in a single freeport tax site at which the employer has business premises.

We have a number of points to raise with the Minister on the details of the clause. First, as I mentioned on Second Reading, it is hard to understand why the relief is conditional on employment not commencing until 6 April 2022. As the Chartered Institute of Taxation pointed out, with freeports expected to start operating in 2021, that would surely hamper freeport employers this year, and perhaps even create perverse incentives to delay the start of an employee’s work. In her response to my raising this point on Second Reading, the Exchequer Secretary said:

“The Government have been clear that this relief is only available on new hires from April 2022, and set this out in the ‘Freeports Bidding Prospectus’ published in autumn 2020. The reason why is that having a clear start date is a simple approach that will support the freeport businesses.”—[Official Report, 14 June 2021; Vol. 697, c. 70.]

I found it hard to understand that the Minister’s point. Having a clear start date may well be a simple approach, but my question was not about whether the relief should have a clear start date, but why the Government had chosen a start date in 2022, rather than in 2021 when freeports are expected to start operating. To press Ministers on that, we suggest a simple review, as set out in new clause 1, which would require the Government to conduct a review of job creation in 2021-22 at each of the eight freeport tax sites. The review must assess the impact on job creation decisions of the relief becoming available from April 2022 rather than April 2021. I would be grateful if the Minister committed to carrying out such a review. If he is not willing to, perhaps he could explain why the Chartered Institute of Taxation is wrong to say that this choice of date could hamper freeport employers this year and perhaps create perverse incentives to delay the start of an employee’s work.

Alongside the start date for the relief, we want to raise questions about clause 2(1)(d), which states that at the time the qualifying period begins, a freeport employer must reasonably expect that the earner will spend 60% or more of their employed time in a single freeport tax site in which the freeport employer must also have business premises. That means that the relief introduced by clause 1 is available for employees who spend 60% or more of their working time in one freeport, but not for employees who spend 60% or more of their working time across more than one freeport, but less than 60% in any one freeport. If an employee splits their working time between two freeport sites, the employee may not qualify as a freeport employee, which might not be what is intended.

We have therefore proposed, in new clause 2, a review of the impact of that feature of the policy design on employers’ decisions about job creation. Again, I would again be grateful if the Minister committed to carrying out such a review. If he is not willing to, perhaps he could explain why he does not think that issue is likely to arise.

Finally, I would like to ask the Minister about clause 2(1)(a), which provides that the employed earner’s employment is a new employment commencing between 6 April 2022 and 5 April 2026. As the Chartered Institute of Taxation has pointed out, it is unclear whether an employee who is TUPE transferred from an existing employer to a new freeport business on or after 6 April 2022 qualifies for this relief.

Although clause 2(2) would prevent an employee from qualifying if the two businesses were connected, that would not always be the case—for instance, when a freeport business buys the trade of an unconnected business and commences that newly acquired trade at a freeport site. I would be grateful if the Minister could explain whether, in such a case, we can assume that the freeport business would be a “new” employer for the purposes of this relief, while recognising, of course, that its “new” employees would have continuity of employment for employment rights purposes.