National Insurance Contributions Bill

Jesse Norman Excerpts

2nd reading
Monday 14th June 2021 Commons Chamber

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move, That the Bill be now read a Second time.

The Bill before the House today is a short one, with just four measures: an employer’s national insurance contributions relief for employees in freeports; an employer’s NICs relief for employers of veterans; an exemption for Test and Trace support payments from self-employed NICs; and changes to the disclosure of tax avoidance schemes legislation with regard to national insurance contributions. The measures are all important, and I shall explain each of them in more detail.

I shall start with the employer’s NICs relief for employees in freeports. At the Budget, the Chancellor announced the locations of the first eight freeports. These sites, which range from Teesside to Tilbury, will become hubs for trade, innovation and commerce. They will attract new businesses and they will regenerate communities by creating jobs, boosting investment and spreading prosperity. Overall, freeports present an extraordinary opportunity to drive regional economic growth, and the Government want as many areas as possible to benefit.

An important part of the appeal of freeports for employers is undoubtedly the wide range and variety of tax reliefs that they provide. These include an enhanced 10% rate of structures and buildings allowance, an increased 100% capital allowance for companies investing in plant and machinery, and full relief from stamp duty on land or property purchases.

The employer’s NICs relief for workers in freeports contained in the Bill encourages employment while supporting regional growth. Under this measure, employers with premises in a freeport in Great Britain will be exempt from employer’s NICs on up to £25,000 of a new worker’s wages. This legislation applies to all new workers who spend 60% of their working time at a freeport tax site in the first three years of employment.

The relief will be available from April next year until at least April 2026. At that point, a sunset clause will require the Government to lay secondary legislation to extend the relief, if they wish, for up to a further five years to April 2031. Any decision to extend will only be taken upon review of the relief’s impact. However, even if the Government decided not to extend the relief, employers will be able to claim it for the full three years on new hires taken on before April 2026. While these measures relate to Great Britain, let me assure the House that it is the Government’s intention to legislate for this relief in Northern Ireland as soon as is practicable. Indeed, the Bill provides the Government with the power to set out the detail of employer NICs relief in Northern Ireland in secondary legislation once engagement with the Northern Ireland Executive is complete.

The second of our measures concerns NICs relief for employers of veterans. As colleagues will recall, this policy was announced at spring Budget 2020. It also fulfils a manifesto commitment to reduce employer NICs for a full year for every new employee who has left the armed forces. The House will know well that I am very closely connected to the astonishing work of special forces in Hereford, but the veterans of our armed forces across the United Kingdom give extraordinary service to this nation. We know that some face great challenges in obtaining secure and fulfilling employment, so it is only right that we should do all we can to change this situation. Under the Bill, employers will not pay employer NICs on earnings worth up to £50,270 in a veteran’s first full year of civilian employment. This amounts to a saving of up to £5,500 per hired veteran. I am sure that colleagues across the House will agree that this measure should give a real boost to veterans’ employment prospects, and should mean that many more businesses benefit from their often extraordinary skills and personal experience.

I now turn to the exemption of Test and Trace support payments from self-employed NICs. Last September, the Government announced the launch of a £500 support payment in England for low-income individuals who had been told to self-isolate but who could not work from home and would lose income as a result. Shortly afterwards, the Scottish and Welsh Governments announced similar schemes. These payments, which were provided by local authorities, would be subject to employee and employer class 1 and 1A and self-employed class 2 and class 4 NICs under long-standing legislation. Last year, however, the Government introduced secondary legislation to exempt payments under the support schemes from employee and employer class 1 and 1A NICs. The measure contained in the Bill will extend this exemption to the self-employed. It will ensure that these workers are treated consistently with their employed counterparts and do not have to pay NICs on support payments. The legislation will therefore retrospectively exempt Test and Trace support payments from class 2 and class 4 NICs for the 2020-21 tax year. It will also ensure that in future Test and Trace support payments will not be included in profit liable to class 2 and class 4 NICs.

The final measure in the Bill relates to changes in the disclosure of tax avoidance schemes—DOTAS—regime in relation to NICs. As colleagues will recall, the DOTAS legislation was introduced in 2004. It seeks to provide Her Majesty’s Revenue and Customs with early information about new tax avoidance schemes—information on how they work and about those who use them. The provisions in the Finance Act 2021 enhanced the operation of the DOTAS regime, and the Bill includes changes to an existing regulation-making power in the Social Security Administration Act 1992. This will ensure that HMRC can act decisively over a wider range of promoters and their supply chains if they fail to provide information on suspected avoidance schemes. It will also ensure that HMRC can warn taxpayers about suspected avoidance schemes at an earlier stage than at present. In addition, the Bill places responsibility for the obligations within DOTAS and for any failure to comply with them both on promoters of these schemes and their suppliers. I am sure all colleagues across the House will welcome these measures.

The Bill supports regional growth and, with it, the Government’s levelling-up agenda; boosts employment while helping to protect those on low incomes from the financial impacts of covid-19; and strengthens the Government’s powers to tackle promoters of avoidance schemes. For all those reasons, I commend it to the House.

--- Later in debate ---

[James Murray]

I was awaiting the hon. Gentleman’s intervention—I was definitely expecting it given the recent debates we have had in this place—and if he will wait just one moment, I will get on to setting out our position on freeports in more detail.

We were concerned at the recent Report stage of the Finance Bill that the Government themselves seemed to show a lack of certainty by voting against our simple amendment to the Finance Bill that would have seen the success of each individual freeport transparently evaluated. As I am sure the hon. Gentleman will remember, we wanted each freeport to be judged against the key tests of whether, across the country, they lead to any net increase in jobs, deliver improvements in training and skills for local residents, produce tangible transport and infrastructure improvements beyond the port itself and will be adequately protected against the risks of tax evasion, smuggling and criminal activity. It is disappointing that the Government voted against the transparent evaluation of their proposed freeports. Not only would this have enabled us to judge their success, but some of the factors we highlighted in our tests would in fact make investment in freeports more attractive to businesses.

Indeed, in response to the Government’s own consultation on freeports last year, many respondents argued that

“although tax incentives can be a significant driver behind businesses investing within an area, they were not usually the sole determinant.”

The Government’s summary of responses went on to explain:

“Some respondents also indicated the success of tax incentives was partially dependent on local factors, especially the quality of transport infrastructure and the skills and availability of local labour.”

As we consider the tax relief before us today, it is therefore important to remind the Government not to ignore the other aspects of the operation of freeports that may be key to their success.

On this tax relief, I would like to ask Ministers to address three specific points that arise from the Bill. First, while relief to employer’s national insurance contributions may be a reasonable part of a tax incentive package along with other tax incentive measures, it is hard to understand why this relief is conditional on employment not commencing until 6 April 2022. As the Chartered Institute of Taxation has pointed out, with freeports expected to start operating in 2021, that would surely hamper freeport employers this year and perhaps create perverse incentives about delaying the start of an employee’s work. I would be grateful if the Exchequer Secretary set out in her response the Government’s reasoning behind this condition on accessing the relief.

Secondly, clause 8 of the Bill enables the Government to set an upper secondary threshold for employer class 1 national insurance contributions specifically in relation to freeport employees—and, indeed, for armed forces veterans, which I will turn to shortly. In practice, this means that employers do not need to pay NICs until an employee’s earnings pass that threshold. We note that the upper secondary threshold for freeport employees will, according to a policy paper published by the Government on 12 May, be set at £25,000 for 2022-23. That is substantially less than the equivalent thresholds for employers’ relief for under-21s and apprentices, which is £50,270 in 2021-22. Just to be clear, this means that employers do not need to pay any NICs for under-21s and apprentices earning up to just over £50,000 a year, but they will have to pay contributions for freeport employees next year if they earn more than £25,000. It would be helpful to understand the Government’s rationale for picking this figure. According to the Office for National Statistics, the median income in all those local authority areas where the eight freeport sites are located is greater than £25,000, with the figures ranging from £25,200 in Kingston upon Hull, within the Humber freeport, to £33,200 in Thurrock, within the Thames freeport. I therefore ask the Exchequer Secretary to explain why the relief for freeport employers is set below median pay in all freeport areas and why this rate is half of that for those employing under-21s and apprentices.

Thirdly, as the plans for freeports stand, businesses taking advantage of their tax incentives will still pay corporation tax. British businesses that pay their fair share of tax will find it very hard to understand why the Chancellor has been for so long so lukewarm about a new, global minimum corporate tax rate to stop large multinationals undercutting them by exploiting tax havens around the world. The Chancellor welcomed the rate being cut from the original 21% proposed by President Biden down to 15%, even though that would cost Britain £131 million a week and leave British businesses being undercut. When I have asked the Financial Secretary before about the Government’s position, he said he did not think

“it is appropriate for Ministers to comment on tax policy in flight”.—[Official Report, 28 April 2021; Vol. 693, c. 418.]

Now, however, the outcomes of the G7 Finance Ministers’ meeting and the Carbis Bay summit are public, so perhaps his colleague, the Exchequer Secretary, could explain why the UK Government’s position has been to back a rate of 15%.

Let me move on to other measures in the Bill. As we have heard, an important relief, covered by clauses 6 and 7—

[Jesse Norman]

I am happy to give the hon. Gentleman some satisfaction on that question. What is extraordinary is how the Labour party has continuously sought to pretend that things are other than they actually are in relation to this deal. Let us just talk about that for a second. In the first case, the G7 is a package—it is a process. Were we, as Labour would have had us do, to ignore the pillar 1 aspects, there would then have been no argument, no debate and no proper taxation of platforms in the areas where the new taxing rights will reside. That would have been a serious, serious deficit. The whole point of the package is to see it as a package, and it predated the Biden Administration. We have greatly benefited as a world from their additional support, but it is by no means up to them; it is an OECD process, of which they have been an important recent supporter.

[James Murray]

I thank the Minister for engaging on what has happened in the negotiations about the new global deal, but I notice that he did not address the issue about the headline rate. I have asked him on several occasions, perhaps three or four times in recent months in this place, to explain why the Government have been so lukewarm about an ambitious rate of 21%, as proposed by President Biden, and instead favoured its being cut to 15%, which is indeed what has happened. I note that when the right hon. Gentleman got to his feet a few moments ago, he did not address the headline rate. Labour Members continue to worry that we are missing out on a once-in-a-generation opportunity to strike a truly ambitious global deal to stop a few large multinationals avoiding paying their fair share of tax.

[Jesse Norman]

rose—

[James Murray]

I will make some progress, if that is okay.

[James Murray]

I tell you what, Madam Deputy Speaker, I will give way if the right hon. Gentleman addresses the specific point about 15% and 21%.

[Jesse Norman]

As the hon. Gentleman knows, it is completely inappropriate for a Minister to comment on confidential negotiations with allies and other nations around the world. He is ignoring that this is a package and the package involves two pillars, the second of which is a 15% rate, globally agreed, one that reconciles and acknowledges different countries around the world which have different tax regimes and different supports. The Government have been in no way lukewarm on pillar 2. What the Government have insisted on, in contradiction to the Labour party and against the ill-fated and ill-advised suggestions that it has made, is pillar 1, which is the crucial component of this that allows us to tax platforms. It is extraordinary that the hon. Gentleman refuses to acknowledge that under a Labour party Administration, there would have been no taxation of these platforms. What on earth does he say to that?