National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Lord Tunnicliffe Excerpts

2nd reading (Hansard): House of Lords
Wednesday 26th June 2019 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, before I begin, I should like to thank the Minister and his team for the briefings they have held on this Bill. Early engagement is always useful, particularly when dealing with technical taxation measures. In particular, his team’s and his own thoroughness is such that I do not expect to have to bring forward any probing amendments; the concept of the Bill has been battered into my brain sufficiently.

Second Reading is normally a time for us to come together and debate the lofty ambitions of the Government of the day. Clearly, the role of your Lordships’ House is somewhat constrained when it comes to matters of finance. However, noble Lords ordinarily enjoy the opportunity to make speeches on wide-ranging aspects of the UK economy. But as has become conventional in these somewhat unconventional times, Ministers have found themselves scrambling for any legislation that can bulk out the timetable and survive a fractured House of Commons. So, having dealt with the fate of 19 individual animals—as important as they are—just last week, your Lordships’ House now finds itself discussing the mirroring of current income tax arrangements for termination awards and proceeds from sporting testimonials for national insurance purposes.

I understand from those who follow such things that I achieved notoriety in the stand-up routine of the Times journalist Matt Chorley when I used his catchphrase, “This is not normal”, in a debate in February. However, we find ourselves in the longest parliamentary Session by sitting days since the English Civil War while the Government scrape the barrel for things to do. This truly is not normal. We on these Benches would prefer to be dealing with more pressing tax matters. That includes taking action to crack down on the tax avoidance and evasion that prevents much-needed extra spending on public services.

Nevertheless, while the Bill before us lacks ambition, we must diligently carry out our work and consider the implications of these changes to the tax code. The genesis of the Bill was a wide-ranging review by the Office of Tax Simplification in 2013. The first set of recommendations, to make relevant payments subject to income tax, were legislated for several years ago. Now, as the Minister explained, we are legislating to levy class 1A employers’ NICs charges on the same payments. While the OTS has a noble aim, the matters under consideration today provide a reminder of why tax is often anything but simple.

On termination payments, we have concerns that the introduction of additional employer NICs may act as a disincentive to responsible employers who want to top up statutory redundancy payments in recognition of an employee’s contribution to the firm. I am grateful to Treasury officials who have listened to this concern in meetings and I accept their argument that the number of cases is likely to be small. However, I hope that the Minister can provide reassurance that the Government will reflect on this point when reviewing the impact of the legislation in due course.

While the definition of a termination payment is beyond the scope of the Bill, as helpfully laid out in a letter from the Minister on 24 June, I hope consideration will be given to how future tax changes can encourage employers to properly look after those employees whom they have to let go.

I would be grateful if the Minister could clarify how different forms of termination payment, whether below or above the £30,000 threshold, are treated for the purposes of determining eligibility for, and the calculation of, social security benefits such as universal credit.

In a meeting with the Minister and his officials, we also discussed the potential for errors to be made when the new regime takes effect in 2020. I was reassured that responsibility for any miscalculations will lie ultimately with the employer and that individuals will not be pursued by HMRC to recoup any sum from which the correct deduction has not been made. I would be grateful if the Minister could put this on the record and confirm that this differs from the situation with regard to income tax, whereby shortfalls in tax due can be recouped in the usual way.

Turning to sporting testimonials, I understand that the Minister will provide further clarity on the types of event to which the Bill extends; that is, providing a plain English explanation of “non-contractual, non-customary”. The policy note on GOV.UK notes that the impact of this change is “negligible”. It notes that around 220 testimonial committees are established each year, but that only a small number will be impacted by the measure. It further acknowledges that there will be a cost and additional administrative burden for testimonial committees as a result of the policy change. Given that the Exchequer will gain little, I return to my previous observation that tax simplification, while desirable, should not be prioritised over other, more fundamental issues in the tax system or wider UK economy.

A concern raised by my colleagues in the Commons related to the Bill’s impact on charitable donations arising from testimonials. A number of sports men and women who are financially secure choose to use their testimonial to support charities, including their own foundations. However, introducing a new NICs charge will reduce the funds passed on to those organisations. Can the Minister clarify what guidance will be made available to committees to ensure that charitable donations resulting from testimonials are treated in a tax-efficient manner? As in the case of redundancy payments, it would be a shame if an unintended consequence of this measure was to introduce additional barriers to what we all recognise as generous and responsible behaviour.

Finally, as the Bill progressed through the Commons, my colleagues probed what steps the Treasury will take to review its impact. We may choose to pursue this as the Bill progresses here, particularly in relation to my concerns about charities. We look forward to continuing our engagement with the Minister and his officials, and hope that the Government will take appropriate steps to address the concerns raised. I also note that the more interesting elements of the Bill, frankly, sit in the income tax legislation to which it cross-refers. Therefore, it would be inappropriate for this House to address the fundamental concept of the Bill, which is to use the essence of the tax legislation as the basis on which it functions. We are not likely to pursue any amendments to that end.