National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Jim Cunningham Excerpts

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

[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.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Jim Cunningham Excerpts

3rd reading: House of Commons & Programme motion: House of Commons & Report stage: House of Commons
Monday 10th June 2019 Commons Chamber

[Peter Dowd]

Although he is not here, may I welcome the new Financial Secretary to the Treasury to his post, and congratulate his predecessor, the new Leader of the House, on his elevation to the Cabinet? I understand that the elevation was short-lived, as he realised that he still had to sit across a table—a Cabinet table rather than a Treasury one—from the Chief Secretary. I expect that if some of his colleagues get their way on proroguing Parliament, he may well even be put on a zero-hours contract, because there would be little else to do.

I have previously stated, both on Second Reading and in Committee, when we had wide ranging discussions on the Bill, as we always do with financial Bills—we talk about a whole range of issues and get into all sorts of discussions about various things, even quoting Cicero and going into all sorts of Greek mythology; it is helpful to broaden our horizons when dealing with these Bills—that the Bill is a pale imitation of the great national insurance reforms that the Government promised to enact just a few years ago, in those halcyon days of the 2010 to 2015 Tory Government, who were going to conquer the world and who proposed massive changes to national insurance contributions. Of course, in effect, nothing came of that. The former Chancellor went west and the proposals lay around gathering a little bit of dust, then more dust and then even more dust on the shelves at the Treasury.

As we all know, national insurance is paid by employees, employers and the self-employed, and it is used to fund a variety of contributory benefits such as the state pension, contributory employment and support allowance, maternity allowance and other benefits. In 2018-19, national insurance contributions raised around £137 billion, which is more than was raised by VAT but less than was raised by income tax, at £132 billion and £192 billion respectively. National insurance contributions are clearly a substantial revenue raiser for the Exchequer.

Along with the Prime Minister, the Government’s credibility and all sense of reason in the Tory party, gone are the proposed abolition of class 2 national insurance contributions and the planned expansion of class 4 national insurance contributions, along with the Government’s parliamentary majority to boot. Those proposals have been replaced with these meagre clauses, which masquerade as a real Bill. They will introduce a limited class 1A employer charge on termination payments over £30,000 and on payments over £100,000 related to non-contractual sporting testimonials.

While we are on the subject of sport—loosely—I reaffirm my congratulations to Liverpool football club on their win, albeit as an Everton supporter. As I said in Committee, I can say that in the clear knowledge that it probably will not get much further than the people present, so I will not be criticised by my Everton-supporting friends and family. Saying it here tonight makes it more or less a secret, in essence.

Consideration of the Bill’s remaining stages has been brought forward to pack out an empty parliamentary timetable. The timing could not be more fortuitous, as we enter the first official week of the long-running Tory leadership campaign. It is a burden for everybody else to have to put up with it, and I am sure it is a burden for those on the Government Front Bench and Back Benches, too. I suspect that they will not say that, but I will say it for them.

There is a backdrop to this debate. We have already seen a sneak preview of the chaos and dysfunction that any of the hard Tory Brexiteers who are running for Prime Minister will soon unleash on the country. The right hon. Member for Tatton (Ms McVey) has suggested purging the Cabinet of remain-supporting MPs. The frontrunner, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson), is flirting with the idea of the UK going AWOL with around £48 billion in October. That figure is almost as big as his ego. The Foreign Secretary, the right hon. Member for South West Surrey (Mr Hunt), has more positions on Brexit than the “Kama Sutra”.

Meanwhile, the right hon. Member for Esher and Walton (Dominic Raab) is threatening to put two fingers up to parliamentary sovereignty and prorogue the House, denying the elected representatives in this Chamber a say over the biggest issue facing this country since the second world war, and perhaps beyond that—I do thank you for your indulgence, Mr Deputy Speaker. So much for bringing back control. To what—an empty, locked Chamber? It is important, because had Parliament been prorogued, would we have been able to debate this Bill on national insurance contributions? No, we would not. Where would all the money go? We would not have it. We are here making the case for why Parliament should not be prorogued, but more importantly we are making the case because we have to get the cash in. All this is taking place while our European partners look on in polite bemusement, along with the rest of the country, as we are subjected to a month-long Conservative party psychodrama. That context is important to the matter at hand.

The Opposition continue to have concerns about how the new class 1A national insurance charge will impact on the level of termination awards that workers receive, particularly in respect of women, employees over 50 and pregnant women. Opposition new clauses 1 and 5 would require Ministers to adequately address our concerns. The tax and national insurance treatment of termination payments remains a sensitive topic to workers and employers alike. Employees facing redundancy often consider this final payment as an evaluation of the work that they have done for their employer, so it is psychologically important for them. As I have previously said, termination payments therefore have an emotional and a financial significance, and the amount awarded is often determined by painstaking and careful negotiations between managers and trade union representatives.

The Government’s rationale for the change apparently remains one of simplification: they cite many employers’ previous confusion as to what parts of a termination payment might qualify for exemption from tax and national insurance. However, Ministers have also 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. It is important to repeat that that seems to have been given as justification for wider reform. We do not necessarily accept that justification. 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 on the amount that has been lost to the Exchequer as a result. That is important, because if a case is going to be made for something, the least we could be given is a little evidence—a few facts and statistics—to back up the assertion.

[Mr Jim Cunningham (Coventry South) (Lab)]

The best way to describe it is as a stealth tax on people who are going to be unemployed for quite a long period. Women are going to be under the cosh. We have to remind ourselves that women seem to be paying the price. We have only to consider the long, drawn-out saga of the Women Against State Pension Inequality, who cannot even get justice out of this Government.

[Peter Dowd]

My hon. Friend makes a valid point. Assessments of the impact of austerity have found that 86% of the burden has fallen on women. The figures indicate that women are the most badly affected by austerity, and all this Bill does is overlay that and up the ante even further. I thank my hon. Friend for making that point, because in effect it is a stealth tax. That is what it amounts to: a stealth tax with no evidence base whatever to support it, other than the Government just wanting somehow to get more and more cash in because of their failed economic policies.

--- Later in debate ---

[Peter Dowd]

The hon. Gentleman can point that out to me as much as he wants. I admitted, or acknowledged—call it what you will—that even if it is not a stealth tax, it is a Tory Government putting up taxes. [Interruption.] We agree on that. [Interruption.] I am happy to have that conversation with him outside the Chamber, if need be, so that I do not get into trouble with either you, Mr Deputy Speaker, or those Members on the packed Benches. The bottom line is that what we have here is quite clearly and unambiguously an admission from the Tories that they are putting taxes up. That is what it comes down to. [Interruption.] My hon. Friend the Member for Coventry South (Mr Cunningham) says from a sedentary position that they do so in a sneaky way.

Ministers have claimed many times that they have a desire to simplify tax. They talk all the time about simplification of tax. They have an Office for Tax Simplification. They institutionalised it. Has there been much simplification? Not as far as I am concerned. There certainly has not been any simplification of national insurance contributions. Therefore, despite the many claims from Ministers that they have a desire to simplify the tax and national insurance treatment of termination awards, the Chartered Institute of Taxation and other tax experts have raised concerns about the lack of information in the Bill as to how this new class 1A charge will be collected. In their rush to try to get more money into the Exchequer, they have not even decided or worked out how they are going to collect it.

[Mr Jim Cunningham]

I thank my hon. Friend for giving way. I made a remark about sneaky tax from a sedentary position. I have a good example of why we should not trust what those on the Government Front Bench say: in their manifesto, they pledged to retain the free television licence for old-age pensioners. What did they do? They passed it on to the BBC. We have all seen the announcement today. How can we trust anything they say?

[Peter Dowd]

That is another stealth tax—the television licence. The fundamental point is important. It goes to the heart of this debate. This is a rise in taxes. We are not quite sure how it is going to be collected, but it is going to be collected from some of the most vulnerable people. Currently, Ministers plan to leave it up to secondary legislation to determine how it is going to be collected. That is another important point. This has happened so many times with this Government—no amendments to the law in relation to the Finance Bill. Again, this goes to the heart of the matter. The Government bring forward legislation, proposals and policies to this Chamber. They try to push something through, but they do not tell us how and when they are going to do it. But they are going to do it. We have no opportunity to challenge them because they close down the debate. They have done so on the last four Finance Bills, I think—I stand to be corrected on that one.

Currently, Ministers plan to leave that up to secondary legislation, which is clearly a break from normal practice. Furthermore, rather than simplifying the national insurance treatment of termination awards, they look set to confuse employers even more. Therefore, a fundamental attempt apparently to simplify these proposals has actually not simplified them. If the raison d’être for this is simplification —that is what we have been told—the Government are that incompetent that they cannot even get that right, because it is not simplifying matters at all.

The measure will also add additional administrative burdens on HMRC at a time when it continues to be hamstrung by the Government’s disastrous reorganisation of its estate, the introduction of Making Tax Digital and the preparations for a no-deal Brexit. These specific proposals are being introduced when HMRC is in flux, but do the Government care? They do not care at all. So what is the so-called rationale for the introduction of this new national insurance contribution charge on termination awards, if not to make things more confusing for employers? Another factor has been thrown in: this is a tax avoidance measure, apparently. [Interruption.] The Minister says that he is not sure about that. Read some of the documentation.