National Insurance Contributions Bill

Viscount Younger of Leckie Excerpts

2nd reading
Wednesday 1st December 2021 Lords Chamber

Moved by

[Viscount Younger of Leckie]

That the Bill be now read a second time.

[Viscount Younger of Leckie (Con)]

My Lords, national insurance Bills, as I am sure many noble Lords are aware, occur regularly, often every two to three years, and NICs—as I will refer to them—have been debated countless times in this House since their introduction in 1911.

The Bill before noble Lords today is short but important, and it allows the Government to implement two new national insurance reliefs to support employers to hire new staff and deliver on manifesto commitments. It contains just 14 clauses and introduces four new measures: first, an employer NICs relief for new employees in free ports; secondly, an employer NICs relief for employers of veterans; thirdly, an exemption for test and trace support payments from self-employed NICs; and fourthly, changes to disclosure of tax avoidance schemes legislation with regards to NICs. I will explain each of these measures in more detail.

I will start with the employer NICs relief for new employees in free ports, which is contained in Clauses 1 to 5. This measure will support the delivery of the Government’s free ports programme, which will attract new businesses and regenerate communities by creating jobs, boosting investment and spreading prosperity.

Free ports present a great opportunity to drive regional growth, and the Government want as many areas across the UK as possible to benefit, including in Scotland, Wales and Northern Ireland. At the Budget, the Chancellor announced the locations of the first eight free ports in England. These sites, which range from Teesside to Tilbury, will become hubs for trade, innovation and commerce. They will attract new businesses and regenerate communities by creating jobs, boosting investment and spreading prosperity.

Noble Lords will be aware that a large part of the appeal of free ports for employers will be the wide variety of tax reliefs available. The incentives aimed at promoting regional growth include: an enhanced 10% rate of structures and buildings allowance; an increased 100% capital allowance for companies investing in plant and machinery; and full relief from stamp duty on land or property purchases.

In addition to these measures, we are also encouraging firms located in free ports to recruit employees based locally. The employer NICs relief for new workers in free ports, contained in this Bill, will help to achieve this goal, while supporting regional growth. Under this measure, employers with premises in a free port in Great Britain will be exempt from employer NICs on up to £25,000 of a new worker’s wages. This legislation applies to all new workers who spend 60% of their working time at a free port tax site in the first three years of employment. The relief will be available from 6 April next year, and it is the Government’s intention to make this relief available for up to nine years.

By April 2026—at the four-year mark of the scheme—the use and effectiveness of the relief will be reviewed and a decision will be required by the Government on whether to extend the relief beyond its earliest end date of 5 April 2026. Any decision to extend will be taken only on review of the relief’s impact. However, even if the Government decide not to extend the relief, employers will be able to claim it for the full three years on new hires taken on or before 5 April 2026.

Although these measures relate to Great Britain, I assure the House that it is the Government’s intention to legislate for this relief in Northern Ireland as soon as it is practicable. The Government remain in constructive discussion with the Northern Ireland Executive about the detail of the offer in Northern Ireland, and it is right that we ensure that the appropriate time is given for these discussions to continue to ensure that the offer is right for ports, businesses and communities in Northern Ireland, and meets our international legal obligations. Noble Lords will be aware that the Bill provides the Government with the power to set out the detail of the employer NICs relief in Northern Ireland in regulations that are subject to the affirmative procedure, once engagement with the Northern Ireland Executive is complete.

I now turn to the measure concerning the NICs relief for employers of veterans, which is contained in Clauses 6 and 7. As Noble Lords may recall, this policy was announced at Spring Budget 2020. It also fulfils a manifesto commitment to reduce employer NICs for a full year for every new employee who has left the Armed Forces, and to support veterans as they transition into civilian life. The UK’s veterans have given extraordinary service to our nation, but we know that some face great challenges in obtaining secure and fulfilling employment. It is only right that we do all we can to help them.

As noble Lords will be aware, this House has just passed the Armed Forces Bill, which, among other measures, fulfils the 2019 manifesto commitment to incorporate further the Armed Forces covenant into law. The new provisions in that Bill relating to the covenant are part of Government’s programme to ensure that members of the Armed Forces, veterans and their families are treated fairly.

Under this legislation, organisations will not pay employer NICs on earnings worth up to £50,270 in a veteran’s first full year of civilian employment. This amounts to a saving of up to £5,500 per hired veteran for the 2021-22 tax year. Indeed, the Federation of Small Businesses has urged

“every small employer to consider the value this relief can bring in helping them take on a new member of staff”.

This measure constitutes a real boost to veterans’ employment prospects. It should mean that many more businesses benefit from our veterans’ brilliant skills and experience.

I turn to the next measure included in this Bill: the exemption of test and trace support payments from self-employed NICs. At every stage of the coronavirus crisis, this Government have done what it takes to support the people of this country. However, if we are to contain the spread of the virus, it is crucial that those told to self-isolate by NHS Test and Trace do so.

Last September, the Government announced the launch of a £500 support payment in England for low-income individuals who had been told to self-isolate but could not work from home and would lose income as a result. As of 17 November 2021, local authorities have reported 362,573 successful claims since the start of the scheme, totalling £181.3 million in payments in England. Happily, the Scottish and Welsh Governments announced similar schemes shortly afterwards.

These payments, which were provided by local authorities, would ordinarily be subject to employee and employer, class 1 and 1A, and self-employed, class 2 and 4, NICs under long-standing legislation. Last year, we introduced secondary legislation to exempt payments under the support schemes from employee and employer, class 1 and 1A, NICs. The measure contained in this Bill will extend this exemption to the self-employed.

This legislation is intended to ensure these workers are treated consistently with their employed counterparts and do not have to pay NICs on support payments. It will therefore retrospectively exempt test and trace support payments from class 2 and 4 NICs for the 2020-21 tax year. It will also ensure that, in future, test and trace support payments will not be included in profits liable to class 2 and 4 NICs.

I turn to the final measure in this Bill: the changes to the disclosure of tax avoidance schemes regime for NICs, contained in Clause 11. Noble Lords may recall that the so-called DOTAS legislation was introduced in 2004. It seeks to provide HMRC with early information about new tax avoidance schemes, how they work and those who use them. The provisions in the Finance Act 2021 enhance the operation of the DOTAS regime, ensuring that HMRC can act decisively when promoters fail to provide information on suspected avoidance schemes.

In this regard, the NICs Bill includes changes to an existing regulation-making power in the Social Security Administration Act 1992. It will also ensure that HMRC can warn taxpayers about suspected avoidance schemes earlier than at present. In addition, this Bill places responsibility for the obligations within DOTAS and any failure to comply with them on both promoters of these schemes and their suppliers. The measure will not adversely impact legitimate businesses giving legal and commercial advice. Only those actively participating in the promotion, marketing or enabling of avoidance will be pursued.

By strengthening the existing anti-avoidance regimes and tightening rules we will ensure that those involved in promoting these unscrupulous schemes face the full consequences of their actions. I assure noble Lords that the Government will continue vigorously to tackle all avoidance schemes and their promoters.

I would like to say a few words about the report of your Lordships’ Delegated Powers and Regulatory Reform Committee, which has recently come out. I wish to reassure the committee and noble Lords here today that the Government are carefully considering the recommendations made by the committee. We will write to the committee with our response to the recommendations made, ensuring full transparency, in due course.

I conclude by briefly reminding the House of this Bill’s key purposes. It supports regional growth, and with it our levelling-up agenda; it boosts employment, while helping to protect those on low incomes from the financial impacts of Covid-19; and it strengthens our powers to tackle promoters of avoidance schemes. With that, I commend the Bill to the House.

--- Later in debate ---

[Viscount Younger of Leckie (Con)]

My Lords, this debate was initially down to have at least a dozen speakers. I am sorry to say that, as the day has worn on—for a very good reason, I am sure—the number of speakers has somewhat diminished. I am sure that they will reappear in Committee and we will have a greater number of Peers interested in this important Bill.

I will start by addressing some of the remarks of the noble Lord, Lord Davies. He gave me due warning of his remarks at the beginning of his speech but, as he will expect, I do take issue with quite a lot of the overly pessimistic comments he made. He said that this was not to do with national insurance and indicated that it was very much a PR exercise and simply a presentation. He is nodding at that. I am afraid that I do take issue with that, but of course it is up to me to prove today and particularly in Committee that this is not the case and that the matters we are bringing forward on this Bill are serious and have serious points and facts behind them.

I gently point out to the noble Lord that the Bill passed through the Commons with just one minor government amendment, which corrected a reference to another Act. On his point about the evidence of free-port clauses working, he will know that Labour tabled some amendments but ultimately withdrew them. That was on the basis that the Government argued they were unnecessary, as we have already indicated that we will review the effectiveness of the NICs relief before deciding whether to extend it.

On that, to answer the point made by the noble Lord and the noble Baroness, Lady Kramer, on whether the NICs relief will be an effective use of taxpayers’ money—which frankly is a fair question—the relief will significantly reduce the cost of taking on new employees and doing business in a free port. This, along with other reliefs being offered as part of the wider package that I mentioned in opening, will support businesses setting up and expanding in free-port tax sites.

The take-up and use of NICs relief in free ports will be monitored to ensure that it is having its intended effect. The Government have written a sunset clause into legislation that will allow us to review the relief’s effectiveness after four years and make a decision on its continuation accordingly. The noble Lord, Lord Sikka, asked about an impact assessment. I steer him towards the fact that a tax impact and information note—a TIIN—has been published alongside this Bill. If he has not seen it, I am more than happy to make him aware of it.

A number of questions, some quite technical, were raised in the debate and I will do my best to answer them. First, on free-port costing, which was very reasonably raised by the noble Lord, Lord Sikka, the OBR approved costings, including estimates, for all the tax and customs reliefs within the wider free-port offer. The programme is at an early stage of delivery, with the first sites beginning operations last month, but we have already seen significant investment. So there is more to come, but the noble Lord’s question is a fair one.

The noble Lord, Lord Davies, asked specifically about the link between NICs and benefits. The National Insurance Act and the National Assistance Act established the modern welfare state that continues today, as he may know. National insurance continues to fund contributory benefits, including the state pension. NICs receipts are paid directly into the National Insurance Fund and are kept completely separate from all other tax receipts.

The noble Lord, Lord Sikka, asked why NICs are not on unearned income. NICs is part of an earnings replacement scheme to provide help to workers when they are unable to work or retired. Unearned income is excluded as it does not rely on a person’s labour.

The noble Lord, Lord Davies, asked about the design of free ports and whether they will displace economic activity from other local areas. Our focus is on encouraging new investment from around the world and within the UK to create new businesses and new economic activity in free ports. This will create jobs in deprived communities across the country rather than harmful displacement. Employer NICs relief can be claimed only for new employees, encouraging employers and businesses to grow and create new jobs rather than relocate existing ones.

Finally, when designating free ports, the Government require bidders to explain how their choice of tax site location minimises displacement of economic activity from wider local areas, especially other economically disadvantaged areas. Displacement will be assessed in greater detail as part of the formal tax site approval process. Tax sites will be designated only once mitigation of displacement and other factors has been demonstrated by the successful bidder.

[Lord Sikka (Lab)]

The Minister just said that we do not charge national insurance because unearned income is not the result of labour. Many a person, instead of taking wages, draws dividends, which are inevitably the outcome of the investment of human capital—labour—yet there is no national insurance on dividends either, which is another example. Could it be that there are other ideological reasons why the Government do not levy this, rather than simply the investment of human capital? I agree that from 1911 onwards, when national insurance appeared on the scene, the focus initially was on employment, but we have moved a long way away from that. I wonder whether we can have this debate another day, if not today.

[Viscount Younger of Leckie (Con)]

I would be more than happy to do that. The noble Lord takes a slightly cynical view of this. We need to go back to the basics of what the Government are trying to do with this, which is to encourage more jobs and investment into these free-port areas. It is really as simple as that. I am more than happy to debate the rationale behind the detail in Committee, but I hope the noble Lord takes me at face value on that point.

The noble Lords, Lord Davies and Lord Bilimoria, asked whether the policy will be effective in encouraging the employment of veterans and whether it is appropriate to target this type of support to veterans. The House will know that some veterans will face particular difficulties in accessing the job market due to injury or trauma suffered in the course of duty; the noble Lord, Lord Bilimoria, alluded to that. These veterans will benefit most from the measure. Given that securing stable and meaningful employment is a key aspect of a veteran’s transition into civilian life, the Government wish to reward employers who facilitate this.

The noble Lord, Lord Tunnicliffe, asked about the status of free-port sites in England. I hope I can address this with some detail. At the Spring Budget, the Chancellor announced eight free ports from eight regions of England following a fair, open and transparent assessment process outlined in the bidding perspective. That included East Midlands Airport; Felixstowe and Harwich, the so-called Freeport East; the Humber; Liverpool City Region; Plymouth and south Devon; Solent; Teesside; and Thames. The first free-port tax sites in Humber, Tees and Thames went live on 19 November. This ensured that those free ports were able to begin initial operations last month, meeting our commitment to get free ports operational in England this year. The Government will continue to work with the remaining free ports and expect the next set of free ports to begin operations in early 2022.

The noble Lord, Lord Sikka, asked how free ports differ from previous free ports. Prior to 2012, the UK had five free ports offering only customs and tariffs benefits, similar to the duty referral on customs warehousing schemes subsequently introduced by the EU. This did not offer any direct tax incentives, so stakeholders indicated that this policy offer was not a substantial enough incentive to invest in these free ports, given its widespread availability outside these free ports. The new free-ports offer provides a more attractive overall package of incentives for businesses. Businesses will be able to take advantage of five tax reliefs and a range of customs incentives, as well as to benefit from a package of other measures that support the development of free ports and make them attractive places to do business, including infrastructure funding and planning measures.

The noble Lord, Lord Sikka, asked why public bodies are excluded from the free-ports relief. I probably alluded to this earlier. The aim of the policy is to boost growth in undeveloped areas, not to subsidise public bodies.

The noble Lord, Lord Tunnicliffe, asked how the ongoing balance of opportunity and risk can be reviewed and reported, and whether Parliament would be given the information on the frequency of this. He essentially asked: if not, why not? This relief will significantly reduce the cost of taking on new employees and doing business in the free port, along with other tax reliefs, which I mentioned earlier, being offered. The take-up and use of NICs relief in free ports will be monitored to ensure that it is having its intended effect. I mentioned earlier that we have the sunset clause, which I have covered. More information on assessments will be available in the free ports monitoring and evaluation—M&E—strategy, which, to reassure the noble Lord, will be published in spring 2022. The Department for Levelling Up, Housing and Communities, as the department responsible for the delivery of free ports, is leading the monitoring and evaluation but working closely and collaboratively across government to ensure robust and rigorous evaluation.

The noble Lord, Lord Tunnicliffe, also asked about any delay in implementing the free ports recruitment. Our focus is on encouraging new investment from around the world and within the UK to create new businesses and new employment. The Government have been clear that this relief is available only on new hires from April 2022 and have set this out in the Freeports Bidding Prospectus published in the autumn of 2020. Having a clear start date is, I think, the answer to his question, as it is a simple approach that will support the free-port businesses. There are complexities with HMRC, I understand, so this cannot be set up earlier than the date the noble Lord mentioned.

I go back to veterans relief—I am chopping and changing slightly here. The noble Lords, Lord Tunnicliffe and Lord Bilimoria, and the noble Baroness, Lady Kramer, asked about veterans relief and why it was for only one year compared with that for free ports, which is, as we know, for three years. I think I can answer this by saying that the policy intent for the two reliefs is different, so the structures of those reliefs are also different. The aim of the free-port relief is to support new businesses in the free-port tax site with the cost of employment to boost growth in and around the free port. Therefore, the free-port relief provides more sustained support for the lower upper threshold. The aim of the veterans relief is to support veterans’ transition into civilian life through employment. The veterans relief therefore provides a greater immediate incentive for employers to hire a veteran

The noble Lord, Lord Bilimoria, asked why the free-port relief was only £25,000 but the veterans relief is up to £50,270. The veterans relief has been kept in line with similar reliefs that aim to boost employment of a particular group of people—for example, those aged under 21 or apprentices aged under 25. The free-port relief has been designed to support new businesses during their infancy. A policy decision was made to make the relief available for a prolonged period and therefore, in fairness to other taxpayers, the threshold of this relief is lower.

I move on to the DOTAS regime, raised by the noble Lords, Lord Davies and Lord Sikka, in terms of additional powers. DOTAS has been in play for several years, which has led to many promoters leaving the avoidance market. However, a small number of determined promoters continue to sell tax avoidance schemes and use delay and obstruction to frustrate HMRC action against them. The new powers modernise DOTAS and allow HMRC to tackle these promoters at an earlier stage. They also allow HMRC to better inform taxpayers of potential schemes through earlier publishing of scheme and promoter details. This will better inform taxpayers of the potential risks that they face and help them to steer clear of these schemes.

The noble Lord, Lord Tunnicliffe, linked with the noble Lord, Lord Sikka, asked about the gains expected from the change in each tax year. The aim of DOTAS is to ensure that HMRC gets the information about the schemes, so that it can take appropriate action. Those who devise and sell avoidance are always looking for new ways to sidestep the rules, so legislation needs to be refreshed to stay ahead of them.

The noble Baroness, Lady Kramer, asked about the NICs relief attracting low-value-added, labour-intensive jobs. I can give a fairly full answer to that, which is that the free ports policy, taken overall, aims—as I said earlier—at regenerating deprived areas through investment and job creation; that means quality jobs in high-value-added industries.

Free ports will offer a number of benefits for firms, including specific issues such as: simpler import procedures and suspended duties in customs sites to help businesses trade; planning changes to green-light much-needed development; spending to invest in infrastructure; and a free port regulatory engagement network to help regulators and firms work together to test new technologies safely and effectively. As well as enjoying enhanced structures and buildings allowance, and generous stamp duty and business rates relief, employers in capital-intensive sectors will benefit in particular from enhanced capital allowances that relieve 100% of qualifying expenditure in the first year on plant and machinery for use within free port tax sites.

[Baroness Kramer (LD)]

The Minister may not have the answer to this but I want to repeat the question. As I say, port operators reported to the European Affairs Committee of this House that they had been told by government that they would bear the full costs of putting in place the facilities for the new checks that are required to export to the EU. Within the free ports, people will presumably intend some of that product to be for export to the EU, so they will therefore need to have facilities for these new checks. If the Government do not intend to pick up that tab, will the operators in the free ports do so or will the cost be passed to operators of other ports as a kind of additional cost that will fall on them in order to subsidise the free ports? I am just not clear about that.

[Viscount Younger of Leckie (Con)]

I was not aware of the first part of the noble Baroness’s question but I will certainly look into that and write to her on the specific issue.

On the report of the Delegated Powers and Regulatory Reform Committee, which was mentioned by a couple of Peers, I repeat what I said earlier on this, which is very important. The Government are carefully considering the recommendations made by the committee and we are taking what it said with the degree of seriousness that it deserves. As I said earlier, we will write to the committee and keep the House informed on progress there.

[Lord Tunnicliffe (Lab)]

Will that response come in time for us to take account of it as the Bill goes through?

[Viscount Younger of Leckie (Con)]

I asked about that, so I will say yes; we want to get a response as soon as we can. I do not yet have the dates for Committee but I should press to say that we want to get this as soon as possible, and certainly well before Committee.

I will conclude by talking about a point that was raised by the noble Lord, Lord Bilimoria, about investment in the UK, which is a bigger issue that he raised. There are very many reasons to be positive about the UK economy. We have been talking about free ports and NICs relief, but both the OECD and the IMF are forecasting that the UK will have the highest annual growth in the G7 this year. Decisions this Government have taken have provided around £400 billion of direct support to the economy during this year and last year, and the Bill helps towards that.

I thank all noble Lords for their comments. As the noble Baroness, Lady Kramer, said, this was a short debate but it has been quite intense and extremely helpful. I greatly look forward—

[Lord Davies of Brixton (Lab)]

Before the Minister concludes, does he have a reply on the salary sacrifice point? I will be happy to take a letter.

[Viscount Younger of Leckie (Con)]

Absolutely; I will look at Hansard to check on all the questions raised. I suspect that there were one or two that I have not responded to, and I will certainly write as soon as I can to respond to them. With that, I commend the Bill to the House.

Bill read a second time and committed to a Grand Committee.