No Recourse to Public Funds

Debate between Kirsty Blackman and Robert Jenrick

Thursday 11th May 2023 Commons Chamber

[The Minister for Immigration (Robert Jenrick)]

I congratulate both the Backbench Business Committee and in particular the right hon. Member for East Ham (Sir Stephen Timms) on securing the debate and his characteristically thoughtful and intelligent approach which raised some very important questions, and it is right that the Government and indeed the whole House carefully consider them. I thank Members from all parts of the House for their contributions and the tone and thoughtful nature of this discussion. As my hon. Friend the Member for Harrow East (Bob Blackman) noted, as a former Local Government Secretary I have been interested in this issue for some time and in fact took the decision not only to create the Everyone In programme but to ensure that, as the name suggested, it included those who had no recourse to public funds. I appreciate the difficulties some of those individuals have found themselves in, particularly during the unique circumstances of the pandemic, which put huge pressure on both them and, as the right hon. Member for East Ham reminded me before the debate, their families back home in their countries of origin, some of whom might have been sending them help in times of straitened circumstances but were not able to do so during that particularly difficult period.

The right hon. Gentleman and others across the House are clearly aware of the context of NRPF policy, which has evolved over decades, but it might be helpful to set that out again. It is a well-established principle that migrants coming to the UK should be able to maintain and support themselves and their families without posing a burden on the welfare system. Successive Governments have taken the view that access to benefits and other publicly funded services should in general reflect the strength of a migrant’s connections to the UK and, in the main, only become available to migrants when they have become settled here with indefinite leave to remain.

We operate a comparatively permissive legal migration system in this country, enabling people to come here particularly for work and study purposes, and with respect to work at a relatively low salary threshold of approximately £26,000 per year plus other conditions. In order to maintain a relatively permissive legal migration system, it is important that we have regard for the taxpayer and encourage people to come who are able to look after themselves and their families. The alternative would be to tighten the legal migration system, and, for example, as some argue, to increase the salary threshold considerably. There are pros and cons to either approach, but I think there is broad consensus across the House that NRPF is required although we must manage it carefully to ensure that people who are in this country, particularly for a sustained period of time, can live appropriately and decently and we look after those in the most challenging situations. The position the Government therefore take is to ensure that those seeking to establish a life in the UK must do so on a basis that prevents burden on the taxpayer and promotes integration, and the vast majority of temporary migrants coming to visit, study or work here are subject to NRPF as a result.

It is recognised that some migrants will find themselves at risk of destitution, as I have said, and a response to that would be to say they can return home to their own country, but I appreciate that that is challenging in some circumstances and we do not want people to be in periods of sustained destitution in the United Kingdom. Appropriate safeguards have been introduced for circumstances whereby an individual is destitute or at risk of imminent destitution. Migrants with permission under the family or private life routes, permission outside the rules on the basis of article 8 of the European convention on human rights or the Hong Kong British national overseas route, can apply for free to have the NRPF condition lifted by making a “change of conditions” application. The latest data published in February, for quarter 4 of 2022, shows that 68% of the decisions taken on “change of conditions” applications were granted and that the Home Office and its associated organisations have now restored that process to pre-pandemic levels, which is the right thing to do. We have provided flexibility around the immediate impact on immigration status for accessing public funds. Families are no longer automatically moved from the five-year to the 10-year route to settlement when their NRPF condition is lifted; their circumstances are reassessed when they next apply for permission to stay, and they can remain on the five-year route only if they continue to meet all the requirements.

To give proper effect to the Government’s schemes in response to the cost of living crisis, the Home Office ensured that those with NRPF could access the measures as intended: for example, the energy bills support scheme, which has delivered £400 non-repayable Government discounts on electricity bills to help households in Great Britain, as well as the council tax rebate for those living in certain council tax bands. Subject to the relevant income thresholds, those with NRPF can access free school meals and early years education for two-year-olds. I am grateful to the right hon. Gentleman both for welcoming that and for having played a part in encouraging the Government to do so.

Statutory benefits including statutory sick pay, statutory maternity pay and contribution-based jobseeker’s allowance are accessible to all those who have made sufficient tax contributions, including those with NRPF. Local authorities can provide basic safety-net support regardless of immigration status. I take the points made by a number of hon. Members about the variable application of that by local authorities and the guidance that the Home Office provides. We have a responsibility to improve those things.

[Kirsty Blackman]

May I check whether the Minister is making a commitment from the Dispatch Box to have a look at the guidance and ensure that it is as clear as it can be and applied consistently by local authorities?

[Robert Jenrick]

I am happy to do so, because that is a valid point that has been raised.

In the limited time that I have available, I would like to address the important question raised about the quality of data. As the right hon. Gentleman noted, data in this area will always be imprecise because, by its nature, it is hard for the Home Office to accurately assess the number of individuals in the UK in these circumstances, and particularly the cohort who have entered the UK illegally. However, it is right that we understand the number of people to whom we are granting leave in the UK who are part of the NRPF cohort.

In answer to the right hon. Gentleman, we have previously said that the right time to do that will be when we have completed the migration from the case information database to the new Atlas system, which is expected to be in the coming months. I am happy to commit to him today that, as soon as that is in place, we should publish statistics on the number of individuals subject to NRPF to whom the Home Office is granting leave. If I may, I will revert to him with a more precise date and our current estimate of when we will be able to do that. I hope that that is at least one useful outcome for him from his investigations and from the debate.

With that, I will bring my remarks to a close and thank him once again for organising the debate.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Debate between Kirsty Blackman and Robert Jenrick

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

[Kirsty Blackman]

I thank the hon. Gentleman for his intervention. The liability only arises for testimonials of more than £100,000, but I understand his point. For example, I do not know how it would work if a committee were to receive £80,000 on the day of the sporting testimonial and then another £25,000 afterwards in charitable donations. I hope that the Minister will make plain which period the income from a sporting testimonial covers. If the income arises after the sporting testimonial, does it breach the £100,000 cap, and would the liability for class 1A contributions therefore arise, even though it did not occur on the day of the sporting testimonial?

There is also a difference between contractual and non-contractual sporting testimonials. The hon. Member for Oxford East (Anneliese Dodds) made this incredibly clear in Committee and discussed in some detail the definition of “contractual”. The issue is not only the word “contractual”, but whether a sporting testimonial was expected. For example, if everybody who plays centre forward for a football club is given a sporting testimonial, does that mean that everybody should expect a sporting testimonial, or does it just happen that the last five people who played centre forward were amazing at scoring goals and therefore received a sporting testimonial? My concern is that people who did not expect a sporting testimonial will end up, through no fault of their own, in a situation where the Government consider it to be one that they expected to get.

My concern in both cases is the impact on HMRC, which will have a job of work to do in deciding whether the sporting testimonial income creates liability for class 1A contributions. Is it a contractual testimonial? Is it one that the sportsperson should have expected to receive? That will be a difficult set of cases for HMRC to deal with, to come to the correct decisions.

New clause 4 simply says:

“The Secretary of State must, within three years of this Act receiving Royal Assent, lay before Parliament a report on its Exchequer impact.”

Before a Treasury Bill comes before Parliament, explanatory notes and a TIIN—a tax information and impact note—are provided, which we all are able to access. A TIIN projects how much the Treasury expects to receive as a result of tax changes, whether it is a tax relief or an additional tax. I have pushed Ministers before on how we know whether the expected impact was actually received.

The information that I was given in Committee was not as strong as I hoped for. I understand that at an unspecified point in the future, the Treasury Committee will be given a report on the Exchequer impact of tax changes. I do not know who keeps track of when those reports are published or whether a report is provided to the Treasury Committee on all measures that have an Exchequer impact. However, I do know that the Members who serve on the Bill Committee—whether Opposition or Government Members—and who scrutinise the Bill, raise concerns about its progress and ask questions about the potential Exchequer impact do not get a copy of the report. Only the Treasury Committee gets a copy of the report and has the right to scrutinise it.

If the Government cannot accept new clause 4—it would be nice if they did, so that a report was laid before Parliament that we could all see—I ask that when reports are published and sent to the Treasury Committee, all Members who serve on the Bill Committee also receive a copy. It would not be a massive administrative burden on the Treasury to ensure that we were all emailed a copy; I am not even asking for a paper copy. It would mean that Parliament and the Government’s decisions were more transparent. It would also mean that the next time we were asked to take a decision on national insurance contributions or anything else, we could look back at whether the impact that the Exchequer projected was actually received.

I get that there are various reasons why we change taxation. We can change taxation to discourage behaviour that we do not want, to encourage behaviour that we do want, to raise revenue or, as the Government say they are doing in this case, to simplify things—although I have given a number of reasons why this is not the way to simplify national insurance contributions or termination payments. This House can only make sensible decisions about taxation if we understand how accurate the Treasury’s projections are. It would be much better if the Government committed to send us a copy of this report when it goes to the Treasury Committee.

I will not press new clause 4 to a Division, but I am happy to vote with the Opposition on any measures that they press. I hope that the Minister will say yes to the small request I have made, because it would not have a huge administrative impact or cost him anything.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

I am grateful for the opportunity to respond to the comments and questions posed by the hon. Members for Aberdeen North (Kirsty Blackman) and for Bootle (Peter Dowd). I shall not detain the House long, but I will try to respond to as many points as possible. I am surprised that the hon. Member for Bootle has raised those concerns and indicated that he intends to vote against this measure, given that he did not divide the House on Second Reading and did not divide the Committee on a single clause.

[Robert Jenrick]

Let me respond to the amendments tabled by the hon. Gentleman and the hon. Member for Aberdeen North. It is a bit like groundhog day, because we have been through these arguments before. I will first address new clauses 1 and 2, which seek to amend the legislation that deals with termination awards, and then new clause 5.

New clauses 1 and 2 seek to commit the Government to report to Parliament on the impact of the changes to termination awards legislation within one year of implementation. They both seek further information on the impact of this measure on individuals whose contracts have ended and on employers. New clause 1 also asks specifically about distributional analysis, while new clause 2 asks the Government to consider the impact on businesses using termination payments to fund a start-up—a matter that we also discussed in Committee.

First, the Government consider that producing such reports is unnecessary, because we have already considered these issues in detail as part of the policy development and extensive consultation process. As we have discussed on a number of occasions, this Bill has been known about for some time. It was published for the first time in 2015. It has been restated in Budgets. It has been consulted on. This is not a new measure; it is well known to individuals and stakeholders who might be affected and to the tax and professional community who will be involved in advising businesses. There is little more to be said on that.

[Kirsty Blackman]

As the Minister has said, we discussed this in Committee, as well as on Second Reading. As we have discussed it before and he knew this question was coming, can he tell us how many businesses use termination payments for their start-up and how many fewer will use it for their start-up as a result of these changes?

[Robert Jenrick]

As I said in answer to the hon. Lady in Committee, that is not information that HMRC collects. Studies are made by independent bodies, some of which I highlighted to her during the previous stage of the Bill. I could direct her to them, but I cannot vouch for the veracity of those studies, which are produced by independent bodies. Of course, there is anecdotal evidence of the number of start-ups created in the event of significant redundancies at particular businesses, but that is not something HMRC collects or would be able to do easily. With great respect to the hon. Lady and the point she is trying to make, I do not agree that that is something we should attempt to do in this case.

The point the hon. Lady raised in her closing remarks was about the review that HM Treasury does in the ordinary course of business. We do intend to do that, and we do so within three to five years of Royal Assent to a Bill. As I explained in Committee, the conclusions on the Bill will be communicated publicly to the Treasury Committee. I understand the point she has made on a number of occasions that we could at that point specifically notify certain Members of this House should they be in this House and remain interested. However, again with respect, I suggest it is perfectly reasonable that we send that to the Treasury Committee, which will publish it. It will be in the public domain, and if she or other right hon. and hon. Members are interested at that stage, they will be able to view it and take it from the Treasury Committee website.

[Kirsty Blackman]

Could the Minister please let us know whether that will be in three years’ time or five years’ time, or at what point in that two-year period should I be watching the Treasury Committee’s website?

[Robert Jenrick]

I cannot tell the hon. Lady that at the present time, and for good reason. We do not know at this moment when will be an appropriate time to review this particular tax. Clearly, it can take time to gather the correct evidential base, and that will vary from tax to tax. We will choose the correct moment when we have the greatest degree of evidence to make an informed decision, but it will be within the three-to-five year window.

The existing processes I have described allow time for the Government to consider an adequate amount of evidence, including administrative and taxpayer data. These do take time to collect. They often involve external research, stakeholder views and other relevant analysis. After one year, as is proposed in new clauses 1 and 2, is rarely the appropriate time to review a new tax. Accepting these new clauses at this stage would mean rushing into reviewing these polices prematurely, without proper consideration and without enough evidence to do so robustly, which is what I think all right hon. and hon. Members would wish us to do.

Secondly, the Government have already explicitly considered the impact on employers and individuals as part of this policy development and the consultation process I have already outlined. We decided on an approach that protected those losing their jobs—for example, by retaining the important £30,000 exemption. We have stressed on a number of occasions throughout the passage of the Bill that the Government certainly have no intention of changing that. Were this or a future Government to do so, it would require an affirmative statutory instrument, which could then be debated and voted on by the House. We have also chosen not to change employee national insurance contributions as well, which we could have done for even greater simplification. We chose not to do so to protect employees in a difficult period in their working lives.

At this point, I would add that this policy has been costed. That was certified by the independent Office for Budget Responsibility, and the methodology for this assessment is described in the Budget policy costing document. The suggestion from the hon. Member for Bootle that this was not properly costed is not correct; it has been independently certified.

New clause 1 also requests that the Government conduct a distributional analysis. As I have set out on a number of occasions, the Government have already assessed the distributional impacts of this policy using the information that is available to us. We are confident that the termination awards affected by these changes will be disproportionately paid by higher and additional rate taxpayers. It will not be possible to make a further assessment until we have collected the administrative data on the impact of this policy, which we will do in due course, and it will of course inform the review we have already described in three to five years’ time.

New clause 2 asks that we consider the impact on start-ups. I have answered the question from the hon. Member for Aberdeen North: we do not hold this data. It is not an easy statistic to collect. It requires tracking the behaviour of an individual across time and between different employments.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (Second sitting)

Debate between Kirsty Blackman and Robert Jenrick

Tuesday 14th May 2019 Public Bill Committees

[Kirsty Blackman]

I absolutely agree. I was thinking specifically of the toastie shop in Aberdeen that does unbelievable toasted cheese sandwiches. Members should look at its Facebook page; it is called Melt and it is absolutely amazing. It sells toasted cheese sandwiches with all your calories for a week in one sandwich. That business was started by a woman who had been made redundant. A lot of people in Aberdeen and Aberdeenshire have been made redundant because of the recent crash in oil and gas prices, and they have been starting new businesses as a result.

I am particularly concerned that any change might stifle the growth of new businesses. I asked the Treasury this morning whether it has figures on the number of new businesses started with termination payments. It does not. It is very difficult for the Treasury to say that this will not have an effect—to be fair, it has not said that, but it cannot because it does not have the quantifiable numbers and cannot project them; it appears not to be keeping track of the information.

Lastly, on Opposition new clause 4, the shadow Minister has also asked for a distributional analysis of the new class 1A liability. Again, it is incredibly important for us to have that information.

The Minister suggested that the Treasury is trying to be as transparent as possible. To be fair, this is one of the more transparent Bills, with more consultation than some of the other Bills that we have seen. The issue is that the information that we are provided with, and that is in the public domain, is not good enough for us to be able to make reasonable judgments about the effect of the policy. It is all well and good for the Minister to say that it will generate £200 million and that we would have a £200 million hole in the Budget. The OBR has verified that figure, but the reality is that we do not have enough of the drill-down information on the people who will be affected.

All of us on this side of the Committee are concerned about the reduced amount that employees will receive. It would have been sensible for the Treasury to have come armed with some kind of projection around that. That would have stopped us from asking all these questions. We might have criticised the figure and said that the measure should not be taken forward, but we would not be having this debate if the Treasury had come forward with detailed figures.

The Minister has spoken in favour of clauses 1 and 2, but for a huge number of employers they do not represent a simplification when it comes to dealing with the tax system. This is a revenue-raising measure and it is about closing a loophole. I am not criticising the Treasury for either of those things, but it has badged the change as a simplification when the two principal things that it tries to do are not that, but revenue raising and closing a loophole; we would have had a very different discussion if the Treasury had made that clear rather than said that it was all about simplification.

I completely agree that the measure came from an Office of Tax Simplification report, but that did not say that class 1A contributions had to be used to achieve this end. That may not be the best possible way to progress. I have already spoken about class 1A. It could have been done in a class 1 way, which would have been clearer for employers to understand.

On collection methods, I have real concerns about this being a real-time collection measure. Less than a year out from implementation, employers may not be aware of the correct computer system or understand correctly how it will work. Obviously, if an employer is making future projections, it is going to be looking at what upgrades it will need for its IT system and be planning that as far in advance as possible. On top of all the uncertainty of Brexit, the Government are adding more complexity and future uncertainty: they are not able to say, “This is exactly how the real-time collection measure will work.” They are not able to provide that information to businesses far enough out.

Finally, on the “negligible” reduction, as the Minister described it, of 0.1% on wages, I should say that we are seeing incredibly high levels of in-work poverty. Not a surgery or a day goes by without working people getting in touch with me to say they cannot live on the amount of money they receive. I get such correspondence on a regular basis, as I imagine do all MPs across the House.

The Minister spoke about the national living wage, which is not a living wage and is not for those under 25. As the shadow Minister said, the Government do not want to allow under-25s a wage they could vaguely live on, just in case there are fewer of them employed. I do not think there is any evidence to show that is likely to be the case. It does not cost any less to live at 24 than at 26.

A 0.1% reduction in wages for people who are literally living on the breadline and having to choose between feeding their children and heating their homes cannot be swallowed up by some families. The Government say they are quite happy with a 0.1% reduction in wages as long as they get £200 million in the Treasury’s coffers. I do not think that is a sensible way to play these things off. I do not think the measure is worth the £200 million if it means more families in poverty and destitution as a result.

The 0.1% might sound very small but, for someone living on not very much money it can be the difference between being able to feed the kids and not being able to. There are a number of issues with this measure, both technically and with the stance that the Government have chosen to take on it.

[Robert Jenrick]

I do not intend to repeat all the comments that I made earlier, which I think answered a lot of questions that were put to me. I will try to summarise some of the arguments made by the hon. Member for Aberdeen North. She made a point that came up in questioning around the choice of class 1A, which a number of members of the Committee have raised. We are clear that this is the right choice. We gave the matter careful consideration. There are a couple of central arguments. The choice of class 1A and, therefore, payment in real time was central to alignment with income tax. If we want to have greater alignment and simplicity, that is the way to deliver it.

Secondly, as we heard in evidence this morning, class 1A is a category of national insurance contributions that focuses on the employer. Because we have chosen not to introduce this from an employee NICs perspective, that was the most logical category.

As the hon. Lady and others have mentioned, if there were an intention in future to add employees’ national insurance contributions, one would perhaps have chosen class 1 national insurance as the most logical. By choosing class 1A, we made a clear statement that we had no intention of doing that. This is purely focused on the payment from the employer in respect of national insurance contributions.

Finally, as we may come on to later in the passage of the Bill with respect to sporting testimonials, for those individuals giving money to charity it is important for the contribution to be paid through class 1A, because that is the class of national insurance contributions that payroll giving uses. Had we chosen class 1 national insurance contributions, that route would have been closed; if we had wanted to protect charitable giving, we would have had to make alternative arrangements. There were a number of reasons, logical when they are thought through, why we reached this conclusion.

[Kirsty Blackman]

That is a useful clarification around class 1A and payroll giving that I had not quite understood this morning. If the Minister is saying that class 1A is eligible for real-time payments rather than collection at the end of the tax year, does he intend to move to a system where all class 1A is eligible for payment in real time and not at the end of the tax year?

[Robert Jenrick]

We do not have any plans to do that, but this measure is designed with termination payments in mind. The Bill does not make any changes elsewhere—other than, obviously, to sporting testimonials. We are trying to provide the greatest degree of alignment with the income tax changes that we have made, and the choice of class 1A enables us to deliver that. If we had chosen a different class, there would have been a greater degree of misalignment. I hope that the hon. Lady will consider those thoughts.

We have already debated at length whether this was a rushed Bill. I think that argument is difficult to support, on the basis that the policy decision has been around since 2015, consulted on, restated in multiple Budgets, and debated as part of two Finance Bills. The argument that this is a rushed policy decision cannot be sustained. We are bringing this Bill forward at this point so that, assuming it passes through both Houses as soon as possible, there is good time for practitioners in the accounting profession and employers to make the necessary changes to software packages and so on.

We will take seriously the communication that we will do through HMRC. As the Minister, I will follow that up to ensure that employers are properly communicated with and have sufficient guidance to make the changes.

--- Later in debate ---

[Robert Jenrick]

Before I address amendment 2 and new clauses 2 and 5, it may help the Committee if I briefly explain the background to clauses 3 and 4. As we have heard at length over the course of the day, a sporting testimonial is a one-off event, or a series of related events, held on behalf of sportspersons who have played for a certain club, usually for a long time. The testimonial can be used to raise money for the sportsperson before their retirement, in the event of their injury or, sometimes, to raise money for charity.

The historical tax treatment of sporting testimonials relied on the outcome of a tax case from before the second world war, which my officials referred to this morning. That case established the broad principle that the proceeds of a testimonial organised to demonstrate affection and regard for the personal qualities of a sportsperson are not earnings. Since then, other legislation has moved on, and income not directly from an employer is now typically subject to tax and national insurance contributions.

Prior to 2017, HMRC effectively operated an extra-statutory concession, which is clearly not sustainable over the long term, since HMRC must ensure that it operates within the law. As such, the Government announced at the summer Budget in 2015 that they would consult on proposals for clarifying the tax and national insurance contributions treatment of payments made from sporting testimonials. A consultation was published shortly thereafter, and the Government received responses from a range of groups, including tax professionals, accountancy firms and sporting interest groups, including the Football Association, the Professional Footballers’ Association, the England and Wales Cricket Board and the Rugby Players Association. In addition, two consultation meetings were held to discuss the detailed proposals, and the Government published draft legislation for consultation, adapting our approach, as I will describe, in response to further feedback.

The changes we are considering are part of that package of legislation, which puts the tax treatment of proceeds from sporting testimonials on the statute book and beyond doubt. This will provide clarity and certainty for sports clubs, sportspersons and those individuals who form the sporting testimonial committee that organises the event—if they are different—and ensure that there is limited impact on a practice that I think all of us support and want to continue.

The relevant income tax changes that form the first half of this package came into force from April 2017, following legislation in the Finance Act 2016. This confirmed that, while income from non-contractual, non-customary sporting testimonials would become taxable, there would be a generous £100,000 exemption to ensure that the change had a limited impact in most cases.

The rules governing sporting testimonials are changing to give clarity to the NICs treatment and align it with the changes to income tax that Parliament has already approved. At present, where a sporting testimonial is non-contractual or non-customary, it can be organised by a third party, rather than the employer, to raise money. As I mentioned earlier, although existing legislation implies that NICs liability already applies, the amounts raised through the third party may not have been subject to NICs because of this long-standing practice and ambiguity. Therefore, this concessionary treatment will end with the passage of this Bill on 6 April 2020, when clause 3 takes effect. Where the employer arranges the testimonial, it is part of the contract or there was an expectation that the sportsperson would be entitled to one, the testimonial is already subject to income tax and NICs in full.

From April 2020, non-contractual and non-customary testimonials arranged by third parties will be subject to NICs above the £100,000 threshold. The third-party testimonial committee will be liable to pay an employer class 1A NICs charge on the amount raised above £100,000, and not on any amount paid below that.

These types of testimonials will not be subject to employee NICs, to ensure that the sportsperson is not adversely affected. I would like to reassure hon. Members that we expect the vast majority of these payments to be unaffected by the Bill, as they will not exceed the threshold of £100,000.

[Kirsty Blackman]

I have a question that the Minister may not be able to answer now; if he cannot, hopefully he will answer it when he sums up. I am wondering about the definition of sporting testimonials. We are talking about sportspersons, but a lot of people said “sports players” earlier. Does this apply only to those people who have played sport, or does it apply if there is a sporting testimonial arranged, for example, for a manager? It would be incredibly helpful if the Minister could clarify that, either now or when he sums up.

[Robert Jenrick]

I will ask my officials for a better answer, but my understanding is that this measure applies only to sportspersons. Although there might be arguments for it, it does not apply to managers and auxiliary staff, just as it would not apply to other people who, as I said in answer to a question this morning, are also engaged in careers that can be cut short, such as a ballet dancer, a performing artist or a Minister, and who might deserve it, but who are not sportspeople.

Although this measure will bring in negligible revenue, its value comes in the alignment and simplification of the tax and NICs treatment of sporting testimonials. I cannot emphasise enough that our motivation here is not to raise revenue but to provide greater alignment and simplification. As has been said repeatedly, this measure will bring in only a negligible sum, as certified by the OBR.

The primary purpose of clause 3 is that, with effect from April 2020, the rules determining the NICs treatment of these payments will be aligned with the income tax treatment that has already been legislated for in the Finance Act 2016. This means that a 13.8% class 1A secondary (employer) NICs charge will be applied to income derived from a sporting testimonial that is already subject to income tax. Clause 4 makes the corresponding changes for Northern Ireland, ensuring that these changes apply throughout the United Kingdom.

In relation to the brief discussion that we had this morning about the definition of a customary testimonial, I would point out that this measure has now been in place, from an income tax perspective, for some time, and we have not had any feedback from sportspersons, sports clubs, sporting testimonial committees or indeed from sports bodies to suggest that there is a problem with that definition.

I can reassure the Committee that clauses 3 and 4 do nothing to affect the ability of sportspersons to make donations to their charitable foundations as part of a testimonial when it is organised by an independent committee and the donation is made through payroll giving. Given the line of questioning from the Committee this morning, and further to the point that I made earlier to the hon. Member for Aberdeen North, it is worth noting that our decision to choose class 1A helps with payroll giving, as this is the class to which it applies, and it would not have been possible if we had chosen another class of national insurance.

I turn now to amendment 2 and to new clauses 2 and 5, which tackle broadly similar issues. These provisions request that the Government report on the impact of the measures in the Bill on the amount of income received from sporting testimonials or sportspeople themselves and on charitable giving linked to a sporting testimonial. I will explain briefly to the hon. Members who tabled the provisions why the Government consider that, on this occasion, they are not necessary.

First, we expect that there will be a very limited impact on sporting testimonials and charitable giving linked to this practice. We expect the majority of non-contractual and non-customary sporting testimonials to fall below the generous £100,000 threshold, with the average income received from a sporting testimonial being around £72,000, based on the work that we did in 2013, although we admit that it is not easy to form a clear judgment, because we had to survey the details of those sporting testimonials that were in the public domain. We then doubled the tax-free and NICs-free threshold for testimonials following the consultation to ensure that there would be a very limited impact indeed. That appeared to supported and welcomed by sporting bodies. As I said earlier, donations made from sporting testimonials via payroll giving will not be subject to income tax and NICs at all—in which case, there would be no impact whatever. It is worth noting that the tax changes affecting this income have been in effect since 2017. As I said earlier, we have not had any representations since that point to suggest there has been a significant adverse impact.

--- Later in debate ---

[Kirsty Blackman]

The problem is working out the grey areas in this. It may be the case with everybody at Reading, but if there were only one or two people in that role before who met the same criteria and this is the third person who happens to meet the same criteria and they get a testimonial, is it the case that that could be considered customary, despite the fact that they had no expectation of the testimonial? I understand that this is only for a certain group of people who have a supported testimonial through third-party organisations, rather than through the club itself. I get that we are not discussing the widest possible definition here, but I am concerned that that particular part of the language is incredibly woolly and could have been made better so that all of us and sportspersons, clubs and third-party organisations could understand the meaning of “customary”.

[Robert Jenrick]

Let me respond to as many of those points as possible. We have had a discussion of the impact of these measures on charities. Without repeating myself too much, we expect this to have a minimal impact. Where the sporting testimonial committee and the sportsperson make use of payroll giving, there would be no impact whatsoever. Were an individual to receive the money themselves and then pay tax and take advantage of gift aid, there would be a different tax treatment. Obviously, that would be the choice of the individual. The sportsperson and the sporting testimonial committee could and should choose to use payroll giving, which is a very generous and unlimited relief.

The hon. Member for Oxford East queried whether the measure would create a new bureaucratic impact on testimonial committees. It should not create any more impact than is already in place because we have already legislated for this from an income tax perspective; that is on the statute book. If a sportsperson wanted to use payroll giving today to avoid the income tax liability and ensure that the greatest possible amount of money went to the charity, the sporting testimonial committee today would already have to register for payroll giving, which they would then be able to use a second time for income tax and for the employer’s national insurance liability. This measure does not add bureaucracy. One could argue about the measure that has already been legislated for, but that is already on the statute book and the level of bureaucracy involved is pretty low.

We have had another debate around the definition of customary or non-customary sporting testimonial. The hon. Lady has already used her lunch break to root out the guidance, in her usual assiduous manner. If Members look at it, they will see that it is thorough. It is several pages long and goes into a degree of detail. I am happy to circulate it to other members of the Committee. It sets out that while the concept of “customary” is not defined in legislation, it has its ordinary, everyday meaning. The guidance says that in general, “customary” means a practice that is recognisable as the norm and where a failure to observe it would be exceptional. I think that is pretty clear. That suggests that if it is normal practice, a sportsperson would have a legitimate expectation of that as part of their employment at the club, and if the sportsperson did not receive the testimonial that they were expecting, that would be an exceptional occurrence.

--- Later in debate ---

[Robert Jenrick]

No—with respect, I did not say that there would be zero income. I said that within the spectrum of zero to £3 million, the likely amount of revenue raised would be closer to zero than to £3 million. The sums involved are very low—negligible, in our terminology—so I do not have more precise figures, but it helps to give some guidance that it is unlikely to be closer to £3 million. Clearly, the vast majority of testimonials will be excluded, and will be below the £3 million level. I hope that I have been able to allay some of the concerns, and that the amendments will not be pressed.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Clause 5

Extent, commencement and short title

[Kirsty Blackman]

I beg to move amendment 1, in clause 5, page 5, line 39, at end insert—

‘(3A) No regulations may be made under subsection (3) until the Secretary of State has made a Statement to the House of Commons on how the Government intends to raise public awareness of the provisions of this Act, including awareness among people who may attend sporting testimonials that their donations may generate a National Insurance liability.”

--- Later in debate ---

[Robert Jenrick]

I will briefly describe the purpose of clause 5 before turning to the hon. Lady’s amendment. First, the clause confirms that the Bill applies across the whole of the UK. That is because national insurance is an excepted matter under the Northern Ireland Act 1998. Secondly, it provides that the clause takes effect on the day that the Bill is passed.

The clause also provides that the provisions in the Bill come into force on a day that regulations specify. It is intended that they will take effect on 6 April 2020. That was previously announced at Budget 2018 and will ensure that the measures come into force at the start of the 2020-21 tax year.

Finally, the clause provides that the Bill, once passed, will be known as the National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019. Those are all technical matters and there is no substantive issue to discuss specifically in relation to the clause.

Let me deal with the amendment tabled by the hon. Member for Aberdeen North, which centres on how we might communicate the measure to raise public awareness. Without repeating myself, this is one of those Bills that has been around for some time, has been consulted upon and been part of Budget measures. I will not repeat the list I already read out. It is well known and is expected by members of the public who take an interest in these matters—perhaps a limited number—and by tax professionals and employers. I do not think that on this occasion a specific public communication awareness campaign is necessary.

On sporting testimonials, and whether there would be value in educating members of the public that in some circumstances a proportion of the money they spend on their ticket prices or donations will go to the Exchequer, it is worth remembering that any contractual testimonial is already subject to income tax, and also to employers’ and employees’ national insurance contributions, as a result of prior legislation in the Finance Act. The income taxes payable above £100,000 for those testimonials fit into that category. Unless it was specifically advertised by the organisation holding the testimonial, there is no way today that an individual would know which of these categories their particular testimonial would fall into. I am not sure that there would be any value in specifically advertising to members of the public that we have made this change. If anything, the changes we are making in the Bill increase alignment and simplicity, and increase the number of occasions when some tax will be paid to the Exchequer when a member of the public goes to a testimonial that raises a significant sum of money.

Without exactly knowing the feelings of all sports fans, in many cases I think they would expect that a particularly well-paid sportsperson holding the testimonial likely to raise in excess of £100,000 at the end of a successful career would be paying their fair share of tax, and that their sporting testimonial committee would be paying employers’ national insurance. I do not think that fans’ automatic assumption would be that well-paid sportspeople would pay no tax on the money they make. I appreciate that there are many examples of players being injured and so on, where people would feel particular sympathy for them as individuals.

On the wider point of HMRC’s communication, we regularly communicate with stakeholder groups, including representative bodies. We have employer bulletins that give news, including our latest developments, through quarterly updates. That would be particularly relevant to termination payments, where employers could access the latest information as a result of the passage of this Bill in due course. We are currently in consultation with software providers to advise them of these changes, should they become law. We hope that they will be able to make those changes as soon as possible.

As I said previously, the purpose of bringing this Bill forward now, rather than delaying it any further, was to ensure that there was good time available for employers to make the necessary changes. We hope that we will be able to have it on the statute book in sufficient time for all the relevant stakeholders to make the necessary changes, subject to the smooth passage of this Bill.

[Kirsty Blackman]

I thank the Minister for his response, particularly around general public awareness. It is important that sports fans in particular are aware that their donation is likely to generate a tax liability. The fact that that was not done before is a bit of a failure. It should be the case that sports fans should have a higher level of awareness. I do not intend to press the amendment at this stage, and I beg to ask leave to withdraw it.

Amendment, by leave, withdrawn.

Clause 5 ordered to stand part of the Bill.

New Clause 3

Report on Exchequer impact

‘(1) The Secretary of State must, within three years of this Act receiving Royal Assent, lay before Parliament a report on its Exchequer impact.

(2) That report must contain an assessment of the additional payments made to the Exchequer by third sector organisations in each industrial category.”—(Kirsty Blackman.)

Brought up, and read the First time.

[Peter Dowd]

We support the new clause, although we will not press it to a vote.

Given that there are not many people in the room and this probably will not be listened to very much, I can say that, as an Everton supporter, I none the less congratulate Liverpool on their 4-0 win. Not many people will hear that. I will deny I said it and will have it struck from Hansard. I also congratulate Man City on their win. I wish them the best of luck. At least there is a tenuous link with sporting testimonials.

[Robert Jenrick]

As a Wolves supporter, I am slightly bitter at the moment.

To answer the point made by the hon. Member for Aberdeen North, without repeating comments already made today, I appreciate her legitimate arguments. We feel that the measures in the Bill have been sufficiently consulted on. The long-standing tradition that a new piece of legislation will be reviewed within three to five years will apply. The review’s outcome will be in the public domain. It will be sent to the Treasury Committee. Ordinarily, it would be published on its website, and the hon. Lady or any other interested Members would be able to view it there. It will not be a private document only for the consumption of members of the Committee. I hope that will reassure her that we intend carry out a review in due course and that will be available for those who take an interest in it.

[Kirsty Blackman]

I thank the Minister for that response —that I should set in my diary between 2023 and 2025 to regularly check the Treasury Committee’s website to see whether the review has been published. I am being sarcastic but, to be honest, it would be better if the Treasury could just commit to sending it to those Members on the original Bill Committee in all circumstances, rather than us having to imagine when the Treasury happens to do the review and have to go on and happen to find it on the right possible day. That would make for better lawmaking in this place. I will not push this because of the drafting error—it would not make sense to press something that has a mistake in it—but I will probably return to it on Report. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Bill to be reported, without amendment.

Oral Answers to Questions

Debate between Kirsty Blackman and Robert Jenrick

Tuesday 29th January 2019 Commons Chamber

[Robert Jenrick]

We have made a number of interventions in this space, because as my hon. Friend says, while the UK is generating record numbers of start-ups, there is evidence that we need to help businesses to scale up and achieve their full potential. We launched the patient capital initiative, and we put £2.5 billion behind the British Business Bank to help small businesses in all parts of the country, including Scotland, and it is making good progress.

[Kirsty Blackman (Aberdeen North) (SNP)]

I am pleased to let the Minister know that in the next financial year, 90% of businesses in Scotland will pay less in business rates than they would if they were elsewhere in the UK. Following on from the question from the hon. Member for Stirling (Stephen Kerr), it is important that new firms have access to banking and lending facilities. What is the Minister doing to encourage banks to lend to businesses?

[Robert Jenrick]

We are taking a range of steps to ensure that banks are able to finance small businesses. For example, as I have just described, we are establishing the British Business Bank, which is supporting tens of thousands of businesses across the country, including many in Scotland, and helping to ensure that finance is available. The venture capital sector is vibrant and maturing in all parts of the country—not just the areas traditionally associated with venture capital, such as London, Oxford and Cambridge—and helping those businesses to scale up.

[Kirsty Blackman]

The news that Santander is to close 15 branches across Scotland will leave firms across the country without access to basic banking services. When did the Treasury become aware of that news, and what action has it taken to protect those services and those jobs in our local communities?

[Robert Jenrick]

We have taken action already to ensure that banks, including Santander, work more closely with post offices, so that there are always banking services available in all parts of the country. We give post offices over £50 million in financial support a year to help keep branches open, particularly in rural and harder-to-serve communities.

Finance (No. 3) Bill (Seventh sitting)

Debate between Kirsty Blackman and Robert Jenrick

Committee Debate: 7th sitting: House of Commons
Thursday 6th December 2018 Public Bill Committees

[Kirsty Blackman (Aberdeen North) (SNP)]

I appreciate that the Minister is providing all this information in answer to issues raised by the amendments. Given that he has all the information, it would be great if he just put it into a review, as the amendments would require, so that we could see it written down in six months’ time.

[Robert Jenrick]

I take the hon. Lady’s point, but the information is mostly already in the public domain. It is not clear to me what information is not available. With respect to air quality, the Government will very shortly publish our ambitious clean air strategy. I encourage her and other hon. Members who, perfectly understandably, want to scrutinise our clean air commitments to pay attention to that document and scrutinise the Environment Secretary at that point. No doubt he will come to the House to make an announcement on the strategy.

The hon. Member for Norwich South also mentioned London. London already has a separate comprehensive funding settlement from the Department for Transport, which includes measures to deliver compliance with legal air quality limits. The Mayor has significant powers to take additional measures. Londoners also receive further funding for ultra low emission vehicles such as taxis. Indeed, measures in the Bill support the uptake of ultra low emission taxis. We took those measures a year early, as we will discuss later, and they have had a significant impact on the number of taxis on the streets of London. There are now between 500 and 600 electric or ultra low emission taxis that did not exist at the beginning of the year, incentivised by the measures taken by the Treasury. We are also supporting low emission buses and charging infrastructure. The Committee has already discussed the £200 million public investment in charging infrastructure, which we hope will spur at least a further £200 million of private investment. That will support charging infrastructure in all parts of the United Kingdom.

I hope hon. Members respect the fact that we consider the funding settlement for London’s roads as separate from that for the rest of the United Kingdom. That is a long-standing convention. We occasionally provide additional money. For instance, in the Budget the Chancellor provided more than £400 million for potholes. He included London in that, so London boroughs are able to take advantage of that money, but in general the funding settlement for London’s roads is separate from the negotiation with respect to Highways England.

I urge the Committee to reject the amendments, as I believe the reports they would require are unnecessary. The changes outlined in the clause will ensure that the Government continue to support motorists with the cost of living while ensuring that they continue to make a fair contribution to the public finances. As a result of our decision to hypothecate VED revenues, we will see a major increase in investment in our strategic roads, which I hope will benefit everyone in all parts of the United Kingdom. I therefore commend the clause to the Committee.

--- Later in debate ---

[Kirsty Blackman]

If we are going to disincentivise people from using HGVs or charge them more for using HGVs, we need to make sure that we have a positive route with alternative methods of transport. There has been a massive increase in the number of light goods vehicles, which is negative if we end up with older diesel models.

We could develop the rail freight network. I understand that it is pretty difficult for those who are looking to increase rail freight to get time on the lines because of the number of passenger trains. Solutions to assist that would be very helpful in ensuring that freight is moved around the UK in the least carbon-emitting way possible.

Subsection (6)(b) relates to Euro 6. It describes the definition of Euro 6, saying that it is as in the EC directive. I am keen for the Government to lay out what would happen about the development of new standards after Brexit and any transition period. Is it their intention that we would have our own standards on vehicle emissions? If so, how much does the Minister believe it will cost to assess vehicles? What would be the cost of UK-EU regulatory divergence, which will result in issues for car manufacturers?

Alternatively, do the Government intend that we should not diverge from using the European Commission directive standards? Obviously technology is developing and there will be new standards to which we should peg our decisions on tax rates. If the UK Government plan not to have their own assessment centre, with regulatory divergence, do they plan to continue to follow EC directives? What preparation are the Government making in that case to scrutinise or comment on the directives, given that we will not be in the room after Brexit, and will therefore not be able to influence the standards, either to support our car manufacturers or secure the best standards for the British public and get improved air quality?

I understand that the Minister may not have the answer at his fingertips, but I hope he can say something.

[Robert Jenrick]

I shall try to respond to the many points that have been raised. My hon. Friend the Member for Poole in part answered the challenge from the hon. Member for Norwich South as to whether hauliers pay their fair share. It is worth remembering that they pay a range of taxes, as my hon. Friend pointed out. They pay the levy that we are discussing and vehicle excise duties. They also pay tax on fuel. Taken as a package, hauliers pay a considerable amount of tax. British hauliers as an industry are highly taxed, going by European and international comparisons. The reforms mean that some hauliers will pay more. The VED system is based on both weight and axles, so to some extent it reflects wear and tear on the roads, although I appreciate the point made by the hon. Member for Norwich South that HGVs make a significant impact on the roads. I did not realise it was 100,000 times that of a Ford Focus, but that puts things in perspective.

The hon. Gentleman asked whether the HGV levy was specifically hypothecated to tackle such issues as potholes and strategic roads. It is not. However, as I have described, the VED system will be, which will significantly increase the amount of investment that the country makes in roads at every level: £28.8 billion is the spending envelope for roads investment announced by the Chancellor in the Budget, and £25 billion of it will be spent on strategic roads in the road investment strategy that will be announced later next year. That will be about 170% of the first road investment strategy, so there is almost double the amount of investment going into roads to tackle congestion and improve strategic roads in all parts of the country.

The hon. Member for Aberdeen North made a valid point about the European standards. It is our intention to remain closely aligned to those. That seems sensible and it is our intention in a number of respects, such as climate change, emissions and carbon budgets, as is indeed set out elsewhere in the Bill. For example, we have not yet made a final decision on carbon trading, but we shall monitor it and review the matter. If I can give the hon. Lady any further information I will write to her to set out the position of the Department for Transport.

On the broader question of why we are not using the VED system for HGVs to encourage greater take-up of zero-emission or ultra-low emission HGVs, it comes back to the point made by the hon. Lady: currently there are very few commercially available ultra-low emission alternatives for HGV drivers, which prevents the broad uptake of new vehicles. Clearly, we would like to do all we can to stimulate the market and see rapid progress, but we have to be mindful of that. Through the Road to Zero strategy that was published earlier this year, the Government have committed to working with the industry to reduce HGV greenhouse gas emissions significantly by 2025. The strategy sets out the Government’s plans to use a variety of different tools to meet that commitment.

The hon. Member for Norwich South made a number of important points about HGVs and road safety. I will write to him on that and find out what information I can about DFT’s work, because it is important that we take note and see what can be done to improve road safety, particularly as the number of vehicles going down smaller roads and country lanes as a result of online shopping is becoming more important. Through the Road to Zero strategy and other initiatives, DFT is paying attention to how we can improve the last mile of delivery to tackle air quality and reduce the number of vehicles on our roads.

The clause introduces a lower rate of HGV levy for vehicles that meet the latest emission standard, and a higher rate for vehicles that do not. As we have discussed, the change will incentivise hauliers to move to cleaner, less-polluting vehicles. It is only right that everyone plays their part in protecting our natural environment so that we leave a cleaner, greener Britain for our children. HGVs currently account for approximately 20% of harmful nitrogen oxide emissions from road transport but only 5% of total miles travelled, so they will play an important part in tackling the problem.

The changes made by the clause will reduce HGV levy rates by 10% for vehicles that meet the latest emission standards, reflecting the fact that they generate 80% less NOx emissions than the older HGVs. The clause will also increase rates by 20% for HGVs that do not meet those standards. Many hauliers will pay less as more companies move to cleaner lorries—we have introduced it to improve air quality and not to raise revenue.

On amendments 115 to 118, to which the hon. Member for Norwich South spoke, the Government have published a tax information impact note outlining the impact assessment of these reforms, including the forecasted revenue effects, which have been certified by the Office for Budget Responsibility. I believe those amount to £25 million over the scorecard period. These reforms to the HGV levy are part of wider action by the Government to tackle challenges in the areas highlighted by the amendments. Isolating the impact of the HGV levy reforms would be extremely challenging and, I suspect, of limited use, as they cannot be separated from other actions the Government is taking in these areas.

The Government’s draft clean air strategy sets out an annual reporting process for the monitoring of air pollution, which is the appropriate mechanism for assessing the effectiveness of those changes and others over time, rather than introducing a new method to review it, as proposed by the amendments. I therefore urge the Committee to reject the amendments. The changes outlined in the measure will ensure that both foreign and domestic HGVs play their part in meeting the Government’s air quality targets.

Finance (No. 3) Bill (Eighth sitting)

Debate between Kirsty Blackman and Robert Jenrick

Thursday 6th December 2018 Public Bill Committees

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

I will respond to as many comments as I can. I will come to the amendment tabled by the hon. Member for Aberdeen North, but we agreed and legislated to devolve air passenger duty to the Scottish Government. The delay in so doing is unfortunate—it is not what we wished to happen—but it is a result of the Scottish Government’s asking us to postpone the implementation of devolution. They did so for the perfectly understandable reason that they wished to pursue the measure with respect to the highlands and islands, but it was essentially their decision, which we respected in agreeing to postpone the turning on of devolution, if that is the right phrase, at their suggestion.

[Kirsty Blackman]

Yes, but the UK Government were trying to hand APD over in such a way that the highlands and islands exemption would no longer exist, so it would have been completely deficient and would not have operated in the way we hoped or, presumably, the way it was intended to work when its devolution was first mooted.

--- Later in debate ---

[Robert Jenrick]

The clause makes changes to ensure that penalties may be raised against businesses registered for the soft drinks industry levy that do not submit a quarterly return or fail to submit a quarterly return on time. The changes ensure that a penalty can still be raised for non-payment of the soft drinks industry levy in the event that certain provisions in the Bill are enacted.

The soft drinks industry levy was announced at Budget 2016. The levy commenced on 6 April 2018 and has been successful in its stated objective of driving reformulation, to such an extent that over half of all drinks by volume that would have been in scope of the levy have now been reformulated, and in fact were reformulated even before the tax came into effect. This measure will support that success by allowing penalties to be issued for late returns and non-submission of returns for accounting periods ending after 1 April 2019, should they be required.

[Kirsty Blackman]

I appreciate what the Minister says about the effects of the soft drinks industry levy, but it still does not apply to milk-based drinks. Will the Government consider extending the levy to milk-based drinks, given that it has been so successful?

[Robert Jenrick]

The hon. Lady makes a valid point. When we announced the policy, we said that we would consider milk-based sugary drinks in 2020, which is when more information, including Public Health England data, will be available to inform that decision. We have reiterated that commitment, so there will be a review in just over a year, which could lead to such a decision, although we have no plans to extend the levy at this moment.

The changes made by the clause will help to provide a proportionate and fair penalty regime and to drive compliance. The changes will affect only soft drinks industry levy-registered businesses that do not submit a quarterly return and payment by the due date. Furthermore, although the clause gives us the powers to act, at present there is no evidence of fraud or non-compliance with the soft drinks industry levy on any material scale.

Clause 67 makes changes to amend section 1 of the Isle of Man Act 1979, to add the soft drinks industry levy to the list of common duties. It will ensure that the movement of liable soft drinks between the UK and the Isle of Man will not be seen as either an import or an export under the levy, as long as the levy rates of the UK and the Isle of Man remain aligned. This change will have effect from 1 April next year.

Finance (No. 3) Bill (Fifth sitting)

Debate between Kirsty Blackman and Robert Jenrick

Tuesday 4th December 2018 Public Bill Committees

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

It is a pleasure to serve under your chairmanship, Ms Dorries. After two days in the reassuring embrace of the Financial Secretary to the Treasury, the Committee has a brief interlude.

Clause 32 will make changes to end, from April 2020, first-year allowances for all products on the energy technology list and the water technology list, including the associated first-year tax credit. The environmental first-year allowances aimed to encourage greater take-up of environmentally friendly technology. Capital expenditure by businesses on plant and machinery normally qualifies for tax relief by way of capital allowances. Environmental first-year allowances allow 100% of the cost of an investment in qualifying plant and machinery to be written off against taxable income in the year of investment, providing a cash-flow benefit. The first-year tax credit provides a tax credit for loss-making businesses that invest in qualifying items.

The first-year allowance was introduced in 2001 for products on the energy technology list, and in 2003 for products on the water technology list. However, the allowances have made the tax system more complex, and there is very limited evidence that they have driven greater uptake of such technologies. A report by the Office of Tax Simplification found significant barriers to accessing the allowances, including the administrative burden of making claims. Government analysis suggests that less than 25% of energy managers would increase investment in energy-saving technology because of the allowances, while fewer than 20% of manufacturers report a positive impact on sales.

[Kirsty Blackman (Aberdeen North) (SNP)]

The Minister makes an interesting case, but it is what I would have expected as part of the report required by amendment 75. Will the Government accept the amendment and provide us with the information in report form, rather than having the Minister stand up here and tell us?

[Robert Jenrick]

I will come to the amendment in a moment, but I hope I will be able to reassure the hon. Lady and the hon. Member for Stalybridge and Hyde that we have already given the matter a great deal of thought and spoken to a number of stakeholders in the sector. Our actions are led by precisely the businesses that benefit from the existing reliefs.

For 99% of businesses, all plant and machinery is already eligible for full relief under the annual investment allowance, so the enhanced capital allowances provide no additional incentive. Smaller businesses such as those to which the hon. Gentleman refers have little if any reason to make use of those reliefs. The Government therefore believe that there are better ways to support energy efficiency.

The changes made by clause 32 will end the first-year allowances and the first-year tax credits from April 2020. In answer to the hon. Gentleman’s question about little notice, there is a significant amount of notice, beginning with the Budget this year, and these first-year tax rates not ending until April 2020. That is the point at which the industrial energy transformation fund will be available. Those rates will still be available until then, which will give businesses the time they need to prepare for change. The Government will look to lay secondary legislation in 2019 and update the lists of eligible technology, so that they can still be used and will be updated to include the most efficient technologies in the meantime. There is no sense in which those measures will fall behind with technological change.

To give some extra detail on some of the flaws with the current first-year allowance for energy technology, we found very low levels of awareness, as I have already described. Manufacturers estimate that less than a quarter of their customers are even aware of the scheme, and it provided little additionality. As I have set out, fewer than 25% of energy managers reported that the scheme influenced their investment decisions, and fewer than 20% of manufacturers reported that, if they did use it, it made a positive impact on their sales and businesses.

Many tax advisers reported to us that their clients decided to make claims after they had chosen to invest in efficient technology, so it did not have the impact that we would have hoped. Small companies are much less likely than larger companies to benefit, and 99% of companies would already be able to make such investments under the annual investment allowance. A 2017 survey by the Federation of Small Businesses found that only a quarter of small business owners were even aware of the scheme.

[Kirsty Blackman]

Is the Minister not making the case for more consultation in advance of any tax changes? Clearly, this tax change did not achieve what the Government thought it would. The consultations and information asked for are even more vital if the Government are making mistakes and not achieving what they had hoped.

[Robert Jenrick]

It is pretty clear from the evidence I have just laid out that the current tax reliefs do not work. We are making the changes required to ensure that smaller businesses, through the increased annual investment allowance, will have the allowance they need to make these investments. We will now work closely with other businesses, through the design of the industrial energy transformation fund, and a full consultation on that will be launched at the beginning of next year. We encourage the hon. Lady, businesses and other members of the Committee to take part in that consultation, as we design the successor fund to these reliefs.

The Government remain committed to increasing environmental efficiency, and the savings from ending first-year allowances and tax credits will be used to fund the industrial energy transformation fund. That fund will help businesses with high energy use to cut their energy bills and reduce their carbon emissions, by supporting investment in energy efficiency and other innovative decarbonisation technologies that may become available in the years ahead. Those could include, for example, investment in carbon capture and storage, or fuel-switching technologies. However, decisions on the scheme design, including eligibility and the technologies that will be supported, will be subject to the consultation with industry that I have just described. Establishing the scheme will fulfil our manifesto commitment to establish an energy efficiency scheme for industry, and that has been widely welcomed, including by groups such as EEF, the manufacturers’ organisation; UK Steel and the Energy Intensive Users Group. Since the Budget, I have spoken to a number of heavy users of energy, including car manufacturers, who all welcome this measure.

--- Later in debate ---

[Robert Jenrick]

Clause 36 and schedule 14 introduce a transferable tax history—TTH, as it has become known—mechanism, and clause 37 amends the petroleum revenue tax rules for retained decommissioning costs. Both measures will apply to oil and gas companies operating on the UK continental shelf, and to transactions that receive approval from the Oil and Gas Authority or relevant regulator on or after 1 November 2018.

These measures are designed to encourage investment in late-life oil and gas assets that are approaching the point of decommissioning, prolonging the life of the basin and sustaining jobs across the UK, but in particular in north-east Scotland. Decommissioning costs are generally incurred at the end of a field’s productive life, when taxable profits are not being generated. To provide tax relief for those costs, oil and gas companies within the UK’s ring fence tax regime can carry them back against taxable profits generated since 2002. That prevents decommissioning from being performed early for tax purposes, thereby helping to achieve the Government’s goal of maximising economic recovery of oil and gas.

When a new entrant without a history of taxable profits acquires an old field, there is a risk that the decommissioning costs of the field will exceed the taxable profits generated by the new owner, preventing effective tax relief via the traditional carry-back mechanism and leaving the buyer in a worse position than the seller would have been in. That can make old fields unattractive to new entrants and deter much-needed investment in this important industry. That is a growing problem in an ageing basin, but one that we now believe can be resolved by our innovative TTH measure.

The change to the PRT rules addresses the increasingly common scenario of a seller retaining some or all of a decommissioning liability after selling a field. The PRT system currently requires the seller to remain on the relevant production licence to receive tax relief for any retained costs. However, doing so often requires complex tax structuring that serves no particular purpose other than to protect the seller’s tax position.

The changes made by these measures will create the right environment for much-needed new investment in our older fields. They will introduce a TTH mechanism that provides new investors with the certainty that they require about the tax relief they will receive for decommissioning costs. That will allow new deals to proceed, injecting new energy into a basin that still has 10 billion to 20 billion barrels of oil remaining. Initial feedback from the industry has been extremely positive—this change is already well received internationally and is helping new deals to continue.

TTH will allow companies selling oil and gas fields to transfer some of their tax payment history to the buyers of those fields. The buyers will then be able to set the costs of decommissioning the field against the TTH to generate a repayment. It should be noted that that should not be an extra cost to the Exchequer, as the repayment only replaces what would otherwise have been made by the seller. It will level the playing field between sellers and buyers of oil and gas fields, encouraging investment by providing new entrants with certainty on the tax relief available for their decommissioning costs. The new investment into the basin as a result of TTH is expected to increase tax receipts from the sector by £75 million over the scorecard period.

The clause also makes changes to enable petroleum revenue tax relief when a seller retains a decommissioning liability. A tax deduction will now become available to the buyer where the seller subsequently incurs decommissioning expenditure or where the seller contributes to the buyer’s decommissioning costs. That will simplify the way that older oilfields can be sold to new investors and help to prolong their productive lives. Before turning to the amendments, I thank all hon. Members, including the hon. Member for Aberdeen North, who participated in the discussions that led to this important measure, which we believe will help the community around Aberdeen in particular, but also those across the country.

Amendments 81 and 89 seek to amend the definition of a decommissioning security agreement within the TTH legislation in schedule 14. Decommissioning security agreements are specific commercial agreements that provide assurance to partners in a field for which funds will be available for decommissioning. The proposed changes to the definition would make the decommissioning security agreement required for a TTH election incompatible with the industry standard decommissioning security agreement, which, in our opinion, would make TTH elections impracticable and unworkable for the vast majority of our oil and gas fields, which rely on the well-established and respected industry standard agreement. TTH has been carefully designed to leverage estimates of decommissioning costs, which are already used in decommissioning security agreements, taking note of the history of the agreements. The agreements are confidential and, as one might imagine, highly commercially sensitive and are typically shared only between the joint venture partners and HMRC, in accordance with taxpayer confidentiality.

[Kirsty Blackman]

Will the Minister tell us a little bit about the process that the Government went through in creating the Bill, and the work done between the Government and industry to ensure that the legislation works?

--- Later in debate ---

[Robert Jenrick]

Yes, I will turn to that. As the hon. Lady knows—she participated in and attended at least one meeting I held in Aberdeen with the Oil and Gas Authority and stakeholders—we have carried out a great deal of careful consideration and consultation with the industry, because TTH will succeed only if it works for both the buyers and the sellers. Our sole objective is not to raise revenue for the Exchequer but to extend the life of the basin and to create jobs and investment for an important part of the United Kingdom.

The new investment encouraged by TTH will prolong the life of the basin, which has 10 billion to 20 billion more barrels left, helping to protect the hundreds of thousands of jobs I have already mentioned. We believe that the amendments would introduce counterproductive additional requirements and inhibit the use of TTH. I urge the Committee to reject them. They may be well intentioned, but they would be contrary to the objective of the measure.

Amendment 84 would limit the maximum amount of tax history that a seller can transfer under a TTH election. The TTH legislation currently caps the maximum amount of tax history that can be transferred under a TTH election to double the decommissioning cost estimate agreed for a decommissioning security agreement. Decommissioning costs are inherently uncertain and can increase significantly for reasons outside the control of the operator and for reasons that were unknown at the time of the sale. For that reason, they are typically subject to a very large range of accuracy. For fields still years away from decommissioning, the range often includes a 100% cost increase. TTH has been designed to be compatible with this regularly accepted range of estimates and to ensure that the buyer cannot end up in a worse position than the seller.

[Kirsty Blackman]

I agree with the Minister’s point about fluctuations. Does he agree that the cost of hiring boats has fluctuated massively over the past five years? If we had looked at this in 2010, we could not have predicted the fluctuations in just that small but nevertheless incredibly expensive area for oil and gas companies.

[Robert Jenrick]

The hon. Lady speaks from her deep knowledge of this area. It is absolutely right that some costs have fallen, particularly since the fall in the oil price, which has driven significant efficiencies in the sector, but other costs are rising. New technologies are coming on board. Taking on a project that entails such uncertainty while being tied to a single estimate of decommissioning costs, without a wide range as we have allowed in the measure, would be a major disincentive for a buyer coming in to one of these projects.

Let me address the concern inherent in the amendments about disincentivising cost-reduction, or that the measure, in providing such a wide field, would make it unlikely for buyers to try to reduce the cost and therefore would gain higher tax relief as a result. I think the buyer will retain a strong incentive to minimise total costs, as they will be liable for meeting the remainder of the decommissioning costs. The amendment is therefore unnecessarily restrictive and would harm TTH.

Amendments 85, 86 and 87 and schedule 14 would change the TTH activation mechanism to restrict decommissioning tax relief on a field, so that it could not exceed the level of new capital investment made by a purchaser. Decommissioning costs generally occur at the end of a field’s life, when its reserves are exhausted and new capital investment will not result in further economic recovery of oil or gas reserves. For many purchasers it would therefore not be practical to make significant capital investment during the decommissioning process.

Furthermore, requiring the purchaser to match what can be very high decommissioning costs with an equal level of new capital investment could easily bankrupt many of the smaller operators that we want to take part in the industry. The best way to ensure that we get new investment into the industry, to protect jobs and create new ones, and to maximise economic recovery of our natural resources, is to have an effective TTH mechanism. That is exactly what we believe we have achieved, as a result of the deep consultation that we have conducted with industry, which I will explain in a moment. The amendments would make TTH completely unattractive and ineffective. I therefore urge the Committee to reject them.

In answer to the hon. Member for Aberdeen North, I will briefly summarise the steps that we have taken to consult with the industry since TTH was announced at Budget 2017. Even prior to Budget 2017, the topic had been discussed with stakeholders for some time. We have built on numerous discussions held between July and December 2016, by issuing at the time of the Budget a discussion paper on tax issues affecting late-life oil and gas assets. We received 28 detailed responses and then held an expert panel, working with the industry to design the measure. I myself held two meetings in Aberdeen this year with the Oil and Gas Authority and stakeholders. Draft legislation was published over the summer on L-day, for technical consultation with the industry. We received further feedback as a result and much of that has been incorporated into the final legislation. Although there are always ways to take the measure further, we believe we have reached a point where the industry is satisfied and welcomes the steps we have taken.

--- Later in debate ---

[Robert Jenrick]

I will briefly answer some of those points. There has been a misunderstanding about the cost of the policy to the Exchequer. We believe, as is set out quite clearly, that over the scorecard period the measure will raise £65 million of revenue for the Exchequer. Because of the nature of the oil and gas industry and oil price fluctuations, that is a difficult assessment to make. However, we see no evidence for the more outlandish estimates in the press of a £3 billion cost to the Exchequer. Neither did the independent OBR, which checked our figures in relation to the measure and agreed that £65 million was an appropriate estimate over the forecast period. We believe that the measure is fiscally responsible because no additional tax relief will be due until the field is decommissioned. That will enable more fields to be developed, and decommissioning costs will be as they always were.

We see no evidence that the measure will disincentivise efficiency savings and productivity increases. As the hon. Member for Aberdeen North said, there is a great incentive on all parties to reduce the cost of decommissioning. The industry has signed up with Government to a target of reducing the costs of decommissioning by 35%. We would like them to go even further in the years ahead, and there is a lot of work going on to achieve that. We believe that the United Kingdom, particularly the area around Aberdeen, could be a world centre for decommissioning, and we are investing in facilities and training in that regard. We would like to work on that with the industry, because we see it as creating knowledge, new technology and jobs, which would then be exported to other fields around the world.

[Kirsty Blackman]

I am really pleased to hear the Government make that commitment in relation to the world centre for decommissioning. We are talking about one of the first oil and gas fields to decommission on a mass scale. It is important that the lessons that we learn from that are used to improve and export the technology.

[Robert Jenrick]

I think I have answered those points. There was a misunderstanding about decommissioning security agreements, which I hope I have answered. Decommissioning security agreements are confidential and commercially sensitive documents. Amendment 89 would not achieve the aim that the hon. Member for Norwich South set out, because such agreements will not be in the public domain. The documents will be received by HMRC, and decommissioning costs are regulated by the Offshore Petroleum Regulator for Environment and Decommissioning.

Finance (No. 3) Bill (Sixth sitting)

Debate between Kirsty Blackman and Robert Jenrick

Tuesday 4th December 2018 Public Bill Committees

[Sir Robert Syms]

I am sure it is, but I suspect the hospitality industry is 10 times that. The other factor about the drinks industry generally is that it is very regionally diverse, with the scotch industry in Scotland, and wine, cider and beer producers. We all have representations from the owners of breweries, which employ people and are sometimes very important parts of the local economy. We have all had representations from people who run public houses, which are also central to the community. One of the worst things that has happened over the past few decades is the number of public houses that have closed, which has had a material impact on many people and communities. This is a matter of balance, and the Government may be wrong or they may be right, but I think they are more likely to be right because their approach is more likely to secure jobs in the hospitality and brewing industries, and to achieve a proper balance so that people can enjoy a meal or a drink out.

There is a serious alcohol issue, but the producers of wine and beer label things very clearly to show the strength of alcohol. There is a strong “Drinkaware” campaign, so it is not difficult for people to find out the impact of alcohol, but we know there is a hard core of heavy drinkers, many of whom use A&Es and ambulances. It costs about half a million pounds a year to keep an ambulance on the road, and many of them are disproportionately used by people who abuse alcohol. The focus, if there is any focus, ought to be on addiction services and trying to intervene with those who abuse alcohol rather than on the vast majority of people who enjoy a drink.

The hon. Member for Bootle, in his amusing speech—we will miss him on Thursday when he is no doubt raising a cheer to Cicero in whatever he is doing—noted that the industry contributes substantially to the Treasury. Some of those billions of pounds have to go to the NHS because of drinking, but the industry also generates a lot of money for good causes and things that the Government need to provide.

This is a matter of balance, and I think the Government have it right. There may come a time when prices have to go up. If incomes start to rise more substantially—we hope that will be a factor in a few years and that there is evidence that pay is picking up a bit—it may be time to review the taxes, but I think the Government have got this one right.

[Robert Jenrick]

I gather there may be a vote in a few moments’ time, but I will begin by addressing, in no particular order some of the points that have been raised by the hon. Member for Aberdeen North. We are interested in the Scottish and indeed the Welsh Government’s actions on minimum unit pricing. It is fair to say that the jury is still out on whether that has been effective, but we will be watching with interest, as will the Department of Health and Social Care and Public Health England, and that will inform the decisions we take at future Budgets.

The hon. Lady asked about post duty point dilution. This is an issue that she has rightly highlighted, and a number of the producers who are likely to be affected by this and who are based in the UK will no doubt be asking the question she has asked. We intend to give this further consideration and lay draft legislation on L-day next year, in the early summer of 2019, with a view to legislating on it in the autumn Budget 2019 and its coming into force from April 2020. While I have spoken to some of the small number of British producers who will be affected and I note their concerns, this is a question of fundamental fairness in the duty system.

[Kirsty Blackman]

Perhaps I did not express myself very well. My constituents are lobbying for the change to be made; they are not lobbying against the change being made. I was asking when this would come in, because they are hoping for it to come in.

Finance (No. 3) Bill

Debate between Kirsty Blackman and Robert Jenrick

Committee: 1st sitting: House of Commons
Monday 19th November 2018 Commons Chamber

[Kirsty Blackman]

I rise to speak in favour of SNP amendments 7 to 10 and new clauses 10 and 11. I would also like to mention amendments 14, 15, 22, 20 and 2 and new clause 17, all of which we would be comfortable supporting, if any of them are pushed to the vote.

There has been a lengthy discussion across the Committee on trade deals. People are confusing free trade agreements and trade deals. It is perfectly possible to make arrangements that improve the flow of trade without signing an FTA; they are two very separate things. It is not understood widely enough that any trade agreement between countries involves compromise. Whatever is signed up to between, let’s say, the UK and the USA will involve the UK having to give some things away as well as gaining something.

The consultation on trade deals looked at trade deals with New Zealand and Australia, with the comprehensive and progressive agreement for trans-pacific partnership, and with the US. However, despite the fact that UK Government Members have talked about how important our trade is with countries such as South Korea and how fast it has grown, the Government have not consulted on that and they did not do so because we have those trade deals already, as a member of the EU. That is why our trade has grown so quickly with South Korea.

Thank you for your indulgence, Dame Rosie. I will move now to the actual subject of the debate. Our amendment 7 asks that clause 89 be subject to the affirmative resolution procedure. I appreciate that the Minister has put a list in the Library, and I will take a look at the list of tax changes he proposes to make under the clause, but I am on the Committee that is sifting the statutory instruments the Government are bringing forward, and some of those SIs that the Government think should be taken under the negative procedure should never have been so proposed. Some are fairly dramatic changes to the law—to powers or new institutions, for example—and yet are being put to the statutory instrument sifting Committee as negative instruments.

I hope that the Minister will forgive me, but I do not trust the Government to introduce only measures in the category that we believe should be subject to the negative procedure. I will look carefully at that list, but I will still press amendment 7, because, given my experience of Ministers, I do not yet have the level of comfort that I need.

[Robert Jenrick]

I hope that in due course the hon. Lady will have an opportunity to read the letter that is in the Library and see that these are truly minor technical amendments, changing, for example, a reference to the EU to a reference to the EU and the UK, and a reference to euros to a reference to pounds sterling. I hope that, in due course, she will be comfortable with those minor technical changes.

Office for Budget Responsibility

Debate between Kirsty Blackman and Robert Jenrick

Tuesday 24th July 2018 Westminster Hall

[Robert Jenrick]

I would not characterise the IFS’s criticisms of the Labour party’s manifesto as “small”. They were pretty fundamental; the remarks I have just described speak for themselves. The IFS did analyse the policies of the Conservative party in the lead-up to the last manifesto, but let us stick to the question before us today, and apologies to you, Mr Gray, for deviating from it.

A number of arguments have been made today for widening the remit of the OBR. Over previous years, such arguments have been looked at in some detail. Back in 2014, Robert Chote wrote in response to Andrew Tyrie, now Lord Tyrie, who at the time was Chair of the Treasury Committee, setting out his views on the matter. He said that, while some of those arguments undoubtedly had merit and deserved proper consideration by the Government and by Parliament, it was important that we consider

“the significant practical issues that would need to be addressed”.

Let me briefly set out some of those, which we would all need to consider.

My hon. Friend the Member for Ochil and South Perthshire referred to the US Congressional Budget Office. That is a good comparison, although the US system varies from our ours in a number of ways—in particular, Congressmen, Congresswomen and Senators have a much greater ability than Members of the House to initiate legislation that carries with it significant financial implications. However, it is worth considering the remit of the CBO, and its capacity.

The CBO undertakes analytical work in-house and has around 235 members of staff, with an annual budget of around $50 million. In comparison, the Office for Budget Responsibility has just 27 members of staff and costs us around £2.5 million. The OBR is clearly dwarfed in comparison. Although that is not in itself a reason not to proceed, we would have to consider the financial consequences of doing so.

The CBO is required by law to produce cost estimates for nearly every Bill approved by a full budget committee of either the House or the Senate, and produced 740 such formal costings last year, so a significant amount of work would be required. It is worth pointing out that the CBO does not—this is perhaps a more relevant comparison for some of the issues we have discussed this morning—evaluate the costings of candidates for Congress, or indeed of presidential candidates. Clearly, to increase the remit of the OBR would require it to have a significantly larger operation.

Undertaking Opposition costings as part of the parliamentary process would have important implications for the OBR and departmental resources in all Departments, including the Treasury, but the greatest impact would be felt were it to be involved in manifesto costings. The time that the OBR and Departments needed to produce costings would pose very particular difficulties during general elections, some of which are unplanned. It is difficult to see how parties could be afforded the customary flexibility in developing their manifestos until a relatively late stage in the election process, to reflect the public debate in the run-up to the election. Instead, they might have to submit detailed proposals two or three months ahead of a general election. Of course, we could consider that, but we would have to consider carefully the implications for the general election process and the way we have traditionally approached that.

The policies in scope for OBR costings also differ in type from the policies that have dominated the political debate. The detailed costing process at fiscal events covers only tax and welfare policies, which are clearly very important and a significant element of general elections, but are not all the issues reflected in a general election or all the policies in manifestos.

The other point to note is that the OBR does not produce the work in-house. It relies on detailed data produced for it by Departments, including the Treasury, which are then submitted to the OBR for scrutiny and analysis. As the hon. Member for Aberdeen North (Kirsty Blackman) said, the quality of the information is extremely important. Civil servants in Departments would be required to work through political parties’ manifestos and then provide high-quality approved data to the OBR, with which it could do its usual costings.

[Kirsty Blackman]

I do not think that the problems the Minister raises are insurmountable; they could be overcome. A concern that I perhaps should have mentioned in my speech is how the OBR decides which policies it will look at, and which it will not. It could be accused of bias if it looked only at Labour party policies, for example, and not very many Conservative party polices. If the OBR were to be expanded, I would like to see a public consultation on what its expanded remit should be and which policies it should therefore look at.

[Robert Jenrick]

Were the OBR to see its remit extended, that would be a matter for Parliament. It would be debated extensively within Parliament.

To finish my point on civil servants, there is an important matter of principle here. Civil servants would have to undertake detailed costings and provide data on Opposition policies—we should all acknowledge that that would represent a significant constitutional development for the UK. We would have to be willing to do that in the knowledge of its consequences.

To answer other points raised in the debate, the OBR does, to some extent, look at the effectiveness of policies. For example, it re-costs policies at each fiscal event, and it looks again at tax policies that arose in previous fiscal events at each subsequent Budget. It does not evaluate the individual effectiveness of the policy, but evaluates only its fiscal consequences, although the National Audit Office and the Public Accounts Committee, as well as Select Committees, have the ability to do that—and do so, very well.

The hon. Member for Oxford East (Anneliese Dodds) raised a point about the OBR’s remit with regard to the environment. The Government are interested in how we can ensure that the Treasury takes account of climate change and other important factors. One example of our action is commissioning Professor Dieter Helm to carry out an important review for us and to take forward the idea, still in its infancy, of how we as a country could create natural capital accounts. We are very keen to work that through in the coming years.

This has been a helpful debate. It is important for Parliament to review the OBR at this moment. We have conducted two internal reviews in the Treasury, both of which concluded that the remit is sufficient. We do not intend to change it at present, but it has been helpful to hear views from a number of Members and we will of course give careful consideration to those views in the future.