National Insurance Contributions Bill

Kevin Hollinrake Excerpts

2nd reading
Monday 14th June 2021 Commons Chamber

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

Thank you, Madam Deputy Speaker, for the opportunity to speak about this Bill on behalf of the Opposition. We will not oppose the Bill on Second Reading. Indeed, we support the intention behind many of its measures. However, I would like to take this opportunity to raise important questions with Ministers about some of the approaches they have decided to take.

As we know, clauses 1 to 5 would introduce a new zero rate of secondary class 1 national insurance contributions for employers taking on employees in a freeport. The zero rate would apply from April 2022, and it would allow employers to claim relief on the earnings of eligible employees up to £25,000 per year for three years. As the House will recall from the Report stage of the recent Finance Bill, my hon. Friend the Member for Erith and Thamesmead (Abena Oppong-Asare) made it clear that we want every region and nation of the UK to succeed whether or not it has a freeport. We want secure new jobs with better pay to be created right across the country, and we want to support and protect British businesses and industries. Freeports may be part of the solution to increasing trade and investment across the UK, but we note that the International Trade Committee concluded in its recent report on UK freeports, published on 20 April, that

“it remains to be seen how successful freeports will be at achieving this objective.”

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Just to clarify, the hon. Member says that freeports might be part of the solution—to levelling up, I guess—but does he therefore support freeports or does he agree with his colleague in the shadow Treasury team, the shadow Chief Secretary to the Treasury, the hon. Member for Houghton and Sunderland South (Bridget Phillipson), who has said that they are “economically illiterate”?

[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—

--- Later in debate ---

[James Murray]

As the right hon. Gentleman well knows, I have set out many times that we believe that there should be a deal on both pillar 1 and pillar 2. However, pillar 2 stands to generate a huge amount of revenue for British public services and to stop a few large multinationals avoiding paying their fair share of tax and thereby undercutting British businesses that are paying their fair share of tax.

The Minister keeps referring to the idea that it is inappropriate for him to comment on the British Government’s position. The position is there in public, following the G7 Finance Ministers’ meeting and the G7 summit over the weekend. People have a right to know what our Government were arguing for and we can arrive at no conclusion other than that the British Government were at least lukewarm and perhaps even against the tax rate being set at 21% because it has fallen to 15%, thereby losing out on £131 million a week, meaning that we are potentially missing a once-in-a-generation opportunity for a truly ambitious global tax deal.

[Kevin Hollinrake]

Will the hon. Gentleman give way?

[James Murray]

Certainly. I am conscious, Madam Deputy Speaker, that this is not all entirely within the frame of the Bill, but I give way to the hon. Gentleman.

[Kevin Hollinrake]

The hon. Gentleman does keep mentioning it. Just on the point about corporation tax, he seems to imply that somehow we are in favour of lower corporation tax, but he is aware that the Government are increasing corporation tax from 19% to 25%. On pillar 2 and pillar 1, I have heard him at the Dispatch Box on numerous occasions urging the Government to sign up to a deal that was only on pillar 2. It did not involve pillar 1, so how can he say now that he was in favour of a wider negotiated agreement? That is not what he was saying at all.

[James Murray]

I am surprised—because the hon. Gentleman always seems to be here when I am speaking at the Dispatch Box—that he does not seem to remember me advocating for a deal on pillar 1 and pillar 2. I will happily send him the reference in Hansard after this meeting so he can refresh his memory. The point here is that we have President Biden suggesting 21% in pillar 2 as an ambitious global deal. We had the British Government being at least lukewarm and potentially anti the proposal of 21%. We have now settled on a position where it has dropped to 15%, and we will not cease pushing the Government to be more ambitious in what they seek to achieve, because this will mean that Britain will lose out on £131 million a week that could be invested in our public services and British businesses will continue to be undercut by a few large multinationals that do not pay their fair share of tax.

I will move on to other measures in the Bill. As I was saying, there is an important relief, covered by clauses 6 and 7, that sets out to help service personnel leaving the armed forces back into work. This is a vital issue. Veterans deserve the full support of the Government as they seek civilian employment after their service to our country. It is crucial to make sure that all veterans get the support they need. I noted that the Government’s consultation document for this measure refers to an existing career transition package to service personnel leaving the armed forces and explains how 6% of veterans accessing the service remain unemployed for up to a year after leaving the armed forces. We believe that this relief on employers’ national insurance contributions is a positive step, and we hope it will particularly help the 6% of veterans who the Government acknowledge are not benefiting from the current service on offer.

We recognise that this measure may not, on its own, be enough to get everyone into work, so I would like to ask the Exchequer Secretary to set out what further help the Government are offering the 6% of veterans, in particular, who need greater support. We also want to make sure that the employers’ relief is as effective as possible, so I ask why the employers’ relief for veterans is 12 months, which is much less than the relief for employers in freeports, which is 36 months. Perhaps the Exchequer Secretary could explain the Government’s thinking in setting the relief for just one year rather than three years, in line with the approach taken for employers in freeports.

Moving on to further measures in the Bill, clause 10 provides a national insurance contributions exemption for payments made under a self-isolation support scheme. Ministers will know that we in the Opposition have been calling on the Government to expand eligibility for this scheme for some time. It is crucial that people who need support to self-isolate receive it, so we welcome any steps that make the system of self-isolation payments more effective and subject to less administrative burden.

We note that the Government introduced secondary legislation to exempt self-isolation support scheme payments from class 1 and 1A national insurance contributions in October 2020 for England and January 2021 for Scotland and Wales. We recognise that the measure in front of us, which exempts self-isolation support scheme payments from class 2 and class 4 national insurance contributions, will bring the treatment of the self-employed in line with the employed. We also recognise that it will be retrospective for the year 2020-21, and so can be reflected in the relevant tax returns.

Can the Minister explain, however, why the exemption for class 2 and class 4 contributions was not implemented earlier, in line with the exemption for class 1 contributions? If the class 2 and class 4 exemptions had been announced earlier, that could have given much-needed certainty to self-employed people at an earlier point in the outbreak. I would be grateful if the Exchequer Secretary explained why that did not happen.

Finally, clause 11 widens existing regulation-making powers so that regulations can be made for national insurance to mirror the amendments to the disclosure of tax avoidance schemes procedures in the Finance Act 2021. Under DOTAS, introduced by the Government in 2004, promoters of tax avoidance schemes are required to notify the tax authorities of any new scheme they are planning to offer taxpayers. The measure in clause 11 and its counterpart in the recent Finance Act aim to help HMRC obtain details earlier than it can now where promoters fail to provide information about their avoidance under DOTAS.

We welcome any measures that help HMRC track tax avoidance schemes, and we believe it is crucial that it targets the promoters of such schemes. I therefore want to use this opportunity to ask Ministers how effective they think the measures that flow from clause 11 will be. As they may know, the Chartered Institute of Taxation believes that there is a hard core of between 20 and 30 promoters, identified by HMRC, who clearly do not play by the rules. Do Ministers recognise that number? If so, I would be grateful if the Exchequer Secretary set out what goals HMRC has to clamp down on those 20 to 30 hard-core promoters. Are there any targets, and are there dates by which Ministers expect the number of hard-core promoters at large to fall substantially?

As I set out at the beginning of my remarks, we will not oppose this Bill today. Indeed, we support the intention behind many of its measures. As I have explained, however, we have a number of questions about the design of the measures in it, and I look forward to the Exchequer Secretary addressing them directly in her reply. We want to see effective measures in place to support British businesses, jobs in every part of this country and veterans seeking work. On this Second Reading and in later stages of the Bill, we will be pushing the Government to make sure that is the case.

--- Later in debate ---

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak in this debate. When we talk about levelling up, we tend to think about things such as new railways or roads, or the dualling of carriageways such as the A64 in my constituency, which is long overdue, of course. It is absolutely right that we should think about those things—they are important—but they are just part of the picture.

Really, levelling up is about one very important thing: prosperity. We cannot achieve prosperity in some of the places that fall well behind the average income in this country without a combination of private sector and public sector investment. That is what the Bill is about—incentives for the private sector to invest.

Those are much needed, particularly in areas such as the north-east, which borders my constituency. In relative terms, the gap in productivity and economic output per person between London and the south-east, and the north-east, is as large as the gap between East Germany and West Germany prior to reunification. It took three decades and $2 trillion to narrow that gap, and it is still not fully narrowed, so this is a huge undertaking. To achieve what it has achieved so far, Germany required not just public sector investment—the roads and railways—but incentives for businesses to start up and scale up in East Germany.

Mark Littlewood, chief executive of the Institute of Economic Affairs, pointed that out in an interesting article in The Times a few months ago. He asked why, if prosperity is all about connectivity—roads and railways—Doncaster is not more prosperous. Doncaster, which you are obviously well aware of, Madam Deputy Speaker, is very well connected in terms of transport links, but in terms of prosperity it leaves much to be desired. That is what this is all about: freeports will create incentives for businesses, small and large, to relocate to those areas, or to start in those areas and grow.

That is why I am a little confused by some aspects of the Opposition’s approach. One of their shadow Treasury Ministers said that freeports are “economically illiterate”. Tell that to Teesside, which expects to create 18,000 jobs due to its freeport status. That is far from illiterate. The incentives are not just the waiving of national insurance contributions for employers, but things such as buildings allowances, capital allowances and stamp duty exemptions.

Of course, it required our leaving the EU to bring about this legislation, because the freeports that we are contemplating are far more comprehensive than the ones that could be delivered in the EU, particularly, as my hon. Friend the Member for Brecon and Radnorshire (Fay Jones) said, with things such as inverted tariffs, which are not an issue for us with freeports, and the very restrictive state aid regime in the EU.

Teesside freeport, my nearest, will be 4,500 acres. Ben Houchen, the very good Mayor of the Tees Valley, has established the South Tees Development Corporation. We heard the interesting news today that Northumberland Estates may be interested in bringing forward a bid for much of the Teesside freeport region on the back of these incentives. That is proof, if it were needed, that private sector capital will come in and invest in those regions. Of course, public sector capital is important, but Governments do not always have a great track record of allocating capital in the most efficient way, whereas those in the private sector are much more likely, because it is their money they are putting down, to allocate that capital reasonably. So I very much support the measures to exempt employers from paying national insurance contributions up to £25,000.

The other thing I would like to talk briefly about is in part 3 of the Bill. It covers the disclosure of issues around national insurance in relation to the arrangements for contribution avoidance for promoters of tax avoidance schemes. The Government have done much to clamp down on tax avoidance, with the digital services tax, the diverted profits tax and the recent negotiations at the G7 on minimum corporation tax, as well as a number of measures in the Finance Bill to clamp down on these tax avoidance promoters, which are absolutely key.

I draw the House’s attention to my entry in the Register of Members’ Financial Interests. In my own business background, the only time a tax avoidance scheme was ever discussed in our businesses was when our own advisers—our own accountants—came to us with a tax avoidance scheme. It looked pretty contrived, in our view, and it was not something for us at all. We were very clear about that. It is clear, I feel, that these advisers—these promoters—are the ones who are principally responsible for the number of schemes that are being used to avoid tax in the UK.

I know that the Government have done much on this, including in the Finance Bill, and that they are consulting on further changes. However, I am also an officer and vice-chair of the all-party parliamentary group on anti-corruption and responsible tax, along with the right hon. Member for Barking (Dame Margaret Hodge), my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and my hon. Friend the Member for Amber Valley (Nigel Mills), and the Minister will have heard us talk a number of times about a double reasonable test for tax promoters and the schemes that they are promoting. Indeed, he was kind enough to attend a roundtable on the issue. It would work very simply, and I often use the loan charge as an example. At the moment, the requirement, as I understand it, is that a promoter considers a scheme reasonable. I could argue that I thought a scheme was reasonable, and someone else could do the same, and a court could decide whether it was reasonable or not, but if it was not reasonable, I could still argue that, in my judgment, I thought it was reasonable.

We are seeking to bring forward a change in the form of a double reasonable test: would a reasonable person have considered that scheme reasonable? A promoter might offer a highly contrived underlying scheme behind a loan charge, in which someone would move their money into an offshore jurisdiction and bring it back as a loan, on which they would pay no tax. That is a highly contrived scheme. I could argue that I thought it was reasonable, but a court could not possibly decide that a reasonable person would describe that scheme as reasonable. In that way, it would be far easier for HMRC to take forward prosecutions against promoters to stop this stuff happening in the first place. So I ask the Minister to consider that proposal again; I know that he is fully aware of it. On that note, I wish the Bill a quick and easy passage through the House.