National Insurance Contributions Bill

Viscount Younger of Leckie Excerpts

Committee stage
Monday 10th January 2022 Grand Committee

[Lord Tunnicliffe (Lab)]

I start by reiterating the Labour Party’s position on the Bill, as originally stated at Second Reading. We have never understood the Government’s fanaticism over free ports and are sceptical that they will deliver the scale of economic benefit promised in recent years. Nevertheless, we do not intend to oppose the various measures, some on free ports and some on other issues, contained in the legislation. The Government will get their Bill through and it will be up to Ministers to prove that their way is the right way. If that proves not to be the case, they must own their failures of judgment.

As a general point, there are several important questions that the Government were unable to answer in the other place or at Second Reading. Today is an opportunity to explore some of those concerns in more detail. It is also a chance for me to record my thanks, along with those of the noble Baroness, Lady Kramer, to the Minister and his officials for their engagement between Second Reading and today. Not all our questions were answered, but I hope they will be addressed as the Minister responds to the nine amendments before us.

Amendment 1, tabled by the noble Baroness, Lady Kramer, has enabled a short debate on beneficial ownership. As she noted in her introduction, we have been waiting for quite some time for the Government to deliver on their numerous promises in this area. I am sure the Minister himself has delivered assurances on at least a few occasions. The case for stronger action has been made time and again. Light is cast on shady practices, yet despite stern warnings from the Chancellor, meaningful action never seems to materialise. I hope colleagues will forgive the slightly dry analogy, but as we are in January it is almost as if the Treasury and BEIS are treating this like a new year’s resolution. It sounds positive, and we are promised that the Government will follow through, but within weeks or months the ambition quietly falls away. Questions about beneficial ownership are not best dealt with in this Bill, but I appreciate the noble Baroness’s efforts to raise them. I doubt the Minister will be able to offer all the assurances that we seek, but I hope he can go some way to proving me wrong.

[Viscount Younger of Leckie (Con)]

My Lords, I start by thanking the noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, for raising these important points. I also found it useful to have a discussion prior to Committee on the points that both noble Lords raised, which are being taken forward today. Ensuring that the free-port tax reliefs are effectively targeted is a government priority, and this will be the general theme of my remarks.

Before I go into the detail of the specific amendment, I will provide a brief overview of what the Government are looking to achieve through free ports, and I hope this will be helpful to the noble Lord, Lord Tunnicliffe, in particular. It is, first, to establish national hubs for global trade and investment, intensifying the economic impact of our ports and generating increased economic activity across the UK. Secondly, it is to deliver jobs, sustainable economic growth and regeneration in the areas that need it most. Thirdly, it is to create centres of innovation that bring together innovators to develop and trial new ideas and technologies.

To these ends, each free port will contain specific tax sites where businesses can claim reliefs on new investment and jobs, including the national insurance contributions relief discussed here today and as part of this Bill. Each free port will also contain specific customs sites where importers, exporters and manufacturers can benefit from duty reliefs and simplified customs procedures. Also, each free port will receive a capital grant for infrastructure improvements, alongside planning flexibilities and trade, investment and innovation support.

Amendment 1 seeks to support the government’s commitment that only legitimate businesses operate in free ports. I can assure the House that the Government have taken steps to ensure that only those whom this policy is intended to benefit will benefit. Specific to this policy, the Government have included conditions requiring free-port employers to have a physical business premises in the free-port tax site, so that only employers that are investing in free ports can benefit from this relief. Next, employees are required to spend 60% of their working time in the free-port tax site. Both these conditions ensure that the relief is effectively targeted.

In relation to free ports more broadly and the specifics of the amendment, the Government have three stages before businesses can claim reliefs in tax sites. The noble Baroness, Lady Kramer, mentioned the bidding process. I am pleased that we have got to this point in the debate. The bidding process, run by the Department for Levelling Up, Housing and Communities, considered a wide range of criteria, including what steps the bidders would take to ensure that their free port would be secure against illicit activity. As I think the noble Baroness picked up, eight out of the 14 bids were taken forward, which means that six were not.

Secondly, each free port has to agree its proposed tax sites with HMT and HMRC, with consideration given to HMRC’s ability to enforce the conditions of the tax reliefs within each site. So far, three of the free ports have had a total of eight tax sites designated. Thirdly, each business within a tax site will need to submit a return to HMRC to claim this relief and demonstrate that it has met the relevant conditions. Compliance checks will be carried out to ensure that only those who are eligible for the relief benefit from it.

To support all this, as part of successful bids the Government have required free-port governance bodies to undertake rigorous efforts to verify the beneficial owner of businesses operating within the free-port tax site. This is a proportionate approach that means that the local area can take effective measures to ensure the security and propriety of operations within the free port. In practice, many free-port governance bodies are taking further steps to ensure that firms moving into tax sites will support delivery of the free ports’ overall objectives. Similarly, for the customs sites, there are three stages: first, the overall free-port bid process that I referred to earlier; secondly, HMRC approval of each customs site; and, thirdly, HMRC approval of each business operating within each customs site.

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[Lord Tunnicliffe (Lab)]

My Lords, I was pleased to add my name to Amendment 2 and several other amendments to be discussed later today, which aim to implement the recommendations of the Delegated Powers and Regulatory Reform Committee. It goes without saying that the Government and the DPRRC will not always see eye to eye on these matters. However, we have long trusted the committee to take a balanced approach to the scope of ministerial powers, so that the Government can meet their objectives while respecting the vital role of Parliament. I will pick up the noble Baroness’s challenge about the hazy days of summer when we are in power. I am old enough to remember when we were in power, and we almost always implemented the recommendations of the DPRRC or whatever was its equivalent at that time, so I am sure we will receive her approval in how we behave.

The power in Clause 3(3) does not appear to strike the appropriate balance. As the committee notes in its 11th report of the Session, the current draft is significantly broader than required to fulfil the indicative purposes listed in the Treasury’s memorandum. The noble Baroness, Lady Kramer, has adopted the terminology suggested by the DPRRC and we support that. Maybe there is some middle way, which will give the Treasury some but not all of the flexibility that it seeks.

I am grateful to the Minister for sending me a copy of his response to the committee, enabling us to have a more informed debate today than would have otherwise been the case. Sadly, like the noble Baroness, Lady Kramer, I was disappointed by his response, particularly in relation to the power in Clause 3(3). I continue to side with the committee in relation to the non-binding status of the Treasury’s memorandum. While the historic example of the 2014 Act was somewhat interesting, I am not sure that makes the argument persuasive. I hope that he can provide some further detail today, but what we will really need in the run-up to Report is a change in attitude from the Treasury.

It would be better if the department were to think again of its own accord but, if that is not possible, I would not be surprised to see a similar amendment tabled at a later stage of the Bill.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Baroness, Lady Kramer, for raising this point, which reflects a recommendation by the Delegated Powers and Regulatory Reform Committee.

As background, Clause 3 ensures that the Government retain the flexibility to react to the economic realities of free ports and to protect the taxpayer, and it therefore contains a number of regulation-making powers, in subsections (3) and (4). Free ports are novel in the UK. The Government have undertaken an ambitious plan to invest in underdeveloped areas and level up the UK. So that the Government can continue to meet their international obligations and retain the power to exclude employers that seek to abuse this policy, they have taken a power to add, remove, or alter the conditions set out in Clause 2, which is contained in subsections (3) and (4) of Clause 3. A similar approach was taken with other free-port measures legislated for in the Finance Act 2021. My point is that there is a precedent here.

I turn to the substance of Amendment 2, tabled by the noble Baroness, Lady Kramer, and supported by the noble Lord, Lord Tunnicliffe. It seeks to limit the regulations that could be made under Clause 3(3) to those that would ensure compliance with the UK’s international obligations with respect to subsidy control. This is in response to the report of the DPRRC, which recommended that this power, which may amend Part 1 of the Bill and which is subject to the draft affirmative procedure, should be restricted to specified purposes only.

I would like to explain to noble Lords why the Government consider this amendment unnecessary, and will go into the reasons, as the Committee would expect me to. Examples of when this power could be used are provided in the department’s delegated powers memorandum of ensuring compliance with the UK’s international subsidy control obligations. The Government believe that this amendment would be overly restrictive and could result in primary legislation being needed in the near future. The subsidy control landscape in this case is complicated, uncertain and difficult to predict, and the power needs to be capable of dealing with a wide range of possibilities. The Government believe that it would be difficult to narrow it while at the same time allowing it to be flexible enough to deal with a wide range of possibilities within the subsidy control landscape.

I shall go further. It may help the Committee if I also explain what in the Government’s view is a clear precedent for this power, in Section 5(1)(b) of the National Insurance Contributions Act 2014. This measure provides a power exercisable by the Treasury to make regulations to add, reduce or modify the cases in which a person cannot qualify for an employment allowance or in which liabilities to pay secondary class 1 NICs are excluded liabilities. It enables the Treasury to make changes to Sections 2 and 3 and Schedule 1 of that Act. The Delegated Powers and Regulatory Reform Committee’s 18th report of Session 2013-14 considered the delegated powers in the NICs Act 2014 but, interestingly, did not comment on the power in Section 5(1)(b) of the Act.

The power in Section 5(1)(b) has so far been used three times, including to exclude companies with employer NICs over £100,000 to focus the relief on small businesses. This policy change was not foreseen when the power was introduced and, if there had been a similar restriction in the legislation on the use of the power, such a change would have subsequently required primary legislation. This could have risked a delay to implementing the policy as, unlike Finance Bills, NICs Bills are not guaranteed to be annual.

In view of the above, and that similar powers are also included in the Finance Act 2021, the Government believe that the draft affirmative procedure remains appropriate without further restrictions on the power. With this rather lengthy explanation, I hope that the noble Baroness will withdraw her amendment.

[Baroness Kramer (LD)]

My Lords, once again, I shall at this stage withdraw, although I am sure that the Minister heard the comments of the noble Lord, Lord Tunnicliffe, on this issue a few moments ago. It is salutary constantly to hear the word “precedent”. I am sure that when the terms were drafted for the national insurance Bill dealing with employment allowance, there were constant reassurances that the power would be used very narrowly and only to deal with very particular circumstances. That is the problem—it then becomes a precedent for the door to be opened more widely and yet more widely. The clause here is a particularly wide one. We have underlying concerns that, once again, we are getting a design of legislation that is not appropriate—but, at this stage, I beg leave to withdraw.

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[Lord Tunnicliffe (Lab)]

My Lords, this is a very straightforward amendment, and one which mirrors the Labour Party’s text tabled at this stage in the House of Commons. I shall not detain the Committee with a lengthy contribution, as the case for a review of the NICs relief enabled by Clause 1 has already been well made. We may quibble over the timescale and precise details of any review, but it appears sensible that the Treasury outline whether the realities of this policy live up to the expectations. As stated earlier this afternoon, Ministers must own their decisions. An amendment along these lines would significantly increase the accountability attached to this tax break.

Although I am sure he will argue that such a review does not need statutory underpinning, I hope the Minister will respond positively to the proposal. A concrete commitment to a review along these lines would be of great comfort. Others, including the National Audit Office, will no doubt analyse the performance of free ports in the months and years to come but, in the interim, it would be a shame if the Treasury were not open about the successes or otherwise of its measures.

[Viscount Younger of Leckie (Con)]

My Lords, I in turn thank the noble Baroness again and the noble Lord, Lord Tunnicliffe, for raising these concerns. In particular, I will address the point she made about displacement slightly later in my remarks.

Amendment 3 would require the Government to conduct a review, six months from the date this Act receives Royal Assent, into the effectiveness of the policy. The Government acknowledge the importance of monitoring reliefs of this nature and evaluating ambitious programmes such as these free ports. It is for that reason that the Government have already committed to reviewing the use and effectiveness of this relief before deciding whether to extend it further. This review will look at the data available through HMRC’s systems.

More broadly, the Department for Levelling Up, Housing & Communities—the department responsible for delivery of free ports, as I mentioned during an earlier debate—is leading the monitoring. It will work closely and collaboratively across government to ensure a robust and rigorous evaluation. Given that the free ports policy is focused on generating long-term benefits to local areas, six months is unlikely to be an appropriate timescale for any review, as free ports will not have fully reached their operating potential within that six months. For example, ports will still be looking to attract additional investment and continuing to develop their sites. In addition, this policy relates to new employees. As I imagine the noble Baroness will understand, the hiring process can take a number of months, which would take us well beyond the six months she suggests.

The department for levelling up has committed to publishing its monitoring and evaluation strategy in spring 2022. This strategy will be in line with key principles and best practices from the Magenta Book, which provides guidance on evaluation within government, and will ensure a robust and rigorous evaluation of the free ports programme.

Furthermore, the Government have taken on board suggestions and feedback from stakeholders and the public as part of the consultation process to ensure that the UK has an ambitious and attractive offer for businesses. Our new free ports offer is far more ambitious than our previous one, including simplified customs processes, targeted tax measures to incentivise private business investment, carefully considered planning reforms and targeted funding for infrastructure. This new, ambitious free ports policy offer is already proving attractive to domestic and international investors looking to start or grow their UK operations.

Throughout the development and delivery of the free ports policy, the Government have taken steps to ensure that the tax, spending and policy levers deployed in free ports are used effectively. That takes us back to the first debate we had this afternoon. For example, to minimise displacement of economic activity, we required bidders to explain how their choice of tax locations would attract new economic activity to the area which would not have been possible without free ports. Subsequently, tax sites were not designated until the Government were confident that this had been successfully demonstrated. This approach has been recognised by the OBR in its Economic and Fiscal Outlook, which says that

“the Treasury has taken steps to try to reduce displacement through the bidding process, requiring bidders to demonstrate how they would generate additionality and minimise displacement from other locations.”

We are already seeing positive evidence of new investment at free ports. For example, DP World announced an investment of £300 million to support the Thames free port.

It is prudent to work within these existing frameworks so that we can get a holistic view of the success of free ports. We believe that conducting the review less than six months from when the relief comes into effect will produce an incomplete dataset and will not give a fair reflection of the policy. With this explanation and these reassurances, I hope that the noble Baroness will withdraw her amendment.

[Baroness Kramer (LD)]

Once again, I will of course withdraw the amendment. I note with some irony that the Minister suggests that a review in six months is way too soon, yet here we are with a piece of legislation and we do not even know what the monitoring criteria will be. We are already putting horses and carts in the wrong order.

I am very concerned that there really should be a rigorous review of this process because we will see some significant losses in forgone national insurance contributions, which will have some serious consequences, particularly at a time of such fiscal constraint. We ought to have a running and prompt evidence base to be able to judge whether those forgone taxes are justified by the change in behaviour that is taking place. I hope we will see something vigorous in terms of a review. I am not very convinced. I am slightly distressed that the review is apparently being thought of after the legislation and not before it, but at this point I beg leave to withdraw the amendment.

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[Baroness Kramer (LD)]

My Lords, my comments will be brief, but I hope the Minister will not read that as meaning that I lack an interest in this. I am passionately supportive of this amendment and thank the noble Lord, Lord Tunnicliffe, for bringing it forward.

We all know that military veterans have a wide range of skills to offer civilian employers, especially SMEs, but we also know that quite a few—although far from all—veterans need support to make the adjustment to the civilian workforce, whether that be in updating skills or dealing with the adjustment back to civilian life or with service-related trauma. I have always looked at the zero rating that the Government propose not as a saving for the company as an incentive to employ the veteran but as a means to enable that company to provide the necessary support—the upskilling and the more social forms of support—to enable the veteran much more quickly to belong and be part of the company that he or she has joined, and to be successful in that role. For that reason, three years seems eminently sensible. The idea that it is a virtually instant process for someone to make that transition from military to civilian life is, I think, artificial.

If I understood it correctly from some of our off-piste discussions, the cost of providing support is in the range of £20 million a year. That is trivial in terms of any departmental budget. To, in effect, triple that, which is what this proposal is doing by calling for three years, does not seem an unreasonable ask—nor does the amount of money involved. It will disappear somewhere to the right of the decimal point in the Treasury accounts. I hope the Minister will take this opportunity to rethink. It would look well for the Government to take a more generous approach, and it would also underpin the success of what is, I think, a good strategy.

[Viscount Younger of Leckie (Con)]

My Lords, Amendment 4, tabled by the noble Lord, Lord Tunnicliffe, and supported by the noble Baroness, Lady Kramer, seeks to extend the veterans relief from one to three years, as has been pointed out.

Stable and fulfilling employment is a vital part of a successful transition from the Armed Forces to civilian life. The Government provide an effective career transition package to service personnel leaving the Armed Forces, which, the latest figures indicate, supports 84% into employment. The training, experience and resources available to service personnel ensure that veterans have a valuable skill set to offer employers, as the noble Lord, Lord Tunnicliffe, described so eloquently. However, 7% of veterans using this service remain unemployed up to a year after leaving the Armed Forces.

The noble Lord and the noble Baroness both put it well. To an extent, their thoughts chime with mine. This relief has been introduced to support veterans as they transition into civilian life and to encourage employers to utilise the vast skill sets of veterans. Between 10,000 and 15,000 people leave the Regular Armed Forces each year; their employers will be able to benefit, in the 2021-22 tax year, from up to £5,500 worth of relief.

This measure fulfils the Government’s 2019 manifesto commitment and builds on the UK-wide Strategy for our Veterans, launched in November 2018, which includes specific commitments to support veterans to “enter appropriate employment”. The Government have also established an Office for Veterans’ Affairs and have launched initiatives including the Civil Service’s guaranteed interview scheme for veterans. In March 2021, the Government also announced the Op COURAGE service, creating a single point for veterans to access mental health services, and NHS England published Healthcare for the Armed Forces Community: A Forward View, which included commitments to help the transition to civilian life and to improve veterans’ and their families’ mental health.

Although the free port relief is available for three years, as is well known, employers of veterans have a higher threshold before they pay any NICs. These reliefs have been designed in this way because they serve fundamentally different purposes. The free port relief is part of the Government’s levelling-up agenda and is aimed at incentivising long-term investment and employment growth. By contrast, the veterans relief is aimed at reducing the barriers to employment that some veterans face when they leave the forces to transition into civilian life. Therefore, it provides a relief for a shorter duration but at a higher threshold, providing employers up to £5,500 in savings per veteran they employ, as was mentioned earlier.

The Government consulted extensively on the relief, including a policy consultation which ran from July to October 2020 and a technical consultation which ran from January to March 2021. A significant number of respondents agreed that this relief was a positive step towards supporting the recruitment of veterans and could break down the barriers and negative perceptions surrounding veterans. The cost savings were also welcomed by stakeholders, with the Federation of Small Businesses and X-Forces Enterprise jointly welcoming the announcement.

If such an amendment were passed by this House, it would reduce receipts into the National Insurance Fund and therefore create a cost to the Exchequer. Financial matters are normally the responsibility of the other place, as both the noble Lord and the noble Baroness will know. With those reassurances and broader explanation of why we see one year as appropriate as opposed to three years, I hope that he will withdraw his amendment.

[Lord Tunnicliffe (Lab)]

My Lords, I acknowledge that the Government have made some good progress in improving the services to veterans, but the noble Baroness, Lady Kramer, touched on an important point about the social form of support. We are not talking about a single firm; we are talking about a three-year period to adjust. It is all very well to say that many veterans leave the forces with attractive skills, but a rather important number of veterans leave with the skill of how to kill people, and there is not a great deal of call for that in civilian life. A very structured society under military laws has, in a lot of cases—not the majority, by any means—been good for people who come in with a difficult lifestyle and a certain waywardness; it works for them. But if they come into the civilian world and that falls away, without a specific set of skills they find it difficult.

We are talking about not just settling down but building up a CV in these three years. As I said, I conversed with some individuals, and a point made to me by one person—it was some time ago—was that his CV for employers was rather weak. He needed to prove not only that he was a good chap in the military but that he had been a good citizen in perhaps not particularly exciting jobs, which then allowed his career to progress. I would hate the Government to get into a position where they had to argue for this programme being, in a sense, underfunded—that they thought it generally speaking a good idea, but would look too mean and, in saving a little, would allow victory to escape. As ever, I beg leave to withdraw the amendment.

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[Lord Tunnicliffe (Lab)]

My Lords, I will not make much of a speech because it would dilute the excellence of the points made in the debate so far. It seems that we are on an edge here; if we do not do something about this, we will throw away these terms. They will become meaningless unless we preserve them.

There is a big debate about what I loosely call hypothecation, and so on; sometimes we wander into it and sometimes we do not. However, if you are going to wander into this area, you should keep it clean. The use of this fund in this way pollutes the concept and is a retrograde step. I hope that the Government will think twice about it. We do not object to what is being done in the Bill but, somehow or other, a device needs to be found to keep these terms clean. I support the amendment.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Lord, Lord Davies of Brixton, for raising these interesting points. I hope that I can provide for him, as I wish to do, a full and rounded answer.

This amendment seeks to ensure that the National Insurance Fund, or NIF, remains in good health by allowing a transfer of funds from the consolidated fund to account for the reduction in revenue as a result of the zero-rate relief in secondary Class 1 contributions as introduced by the Bill for employers of free ports employees and the employers of forces veterans. I would like to explain to noble Lords why the Government consider that such an amendment is unnecessary. However, to start with, it may be helpful to provide some background on how the National Insurance Fund operates. Obviously, this is for the benefit of the Committee; I am aware that the noble Lord, Lord Davies, will be well versed in this particular matter. I will not go into the history too much, but it may be helpful for the Committee.

The majority of NICs receipts are deposited into the NIF, which in turn funds most contributory benefits, including the state pension. The NIF is funded on a collective basis, meaning that today’s NICs receipts pay for the benefits being paid today. In 2021-22, the Government Actuary’s Department estimated that total NICs receipts in the NIF would equate to approximately £122 billion, exceeding the £112 billion in benefit payments and associated costs. The cost of the veterans and free ports reliefs are therefore small in comparison to the NIF’s surplus and will not impact on the NIF’s ability to pay out contributory benefits.

Furthermore, the Government already have an established process in place to ensure that the NIF always maintains a sufficient working balance to continue to pay out contributory benefits. It has been the practice since 1983 to maintain a balance of at least one-sixth of projected annual benefit expenditure—in broad terms, two-months’ worth of benefit expenditure—to be able to deal with unexpected contingencies. As the NIF has no borrowing powers, Section 2 of the Social Security Act 1993 permits the Treasury to pay a grant from the consolidated fund into the NIF up to a specified percentage, at almost 17%, of estimated benefit expenditure.

Before the start of each financial year, the Government use the information provided by the Government Actuary’s Department in its uprating report to determine a ceiling for the grant that may be paid in the following year which is then subject to approval by Parliament. For example, in the 2021-22 financial year, the Government legislated for a Treasury grant provision of 17%, although, given the current surplus of the NIF, this provision is not needed to be drawn upon. This secondary affirmative legislation was debated by noble Lords on 8 February 2021. Therefore, we feel that such a provision that the noble Lord has proposed is unnecessary as the Government already have the ability to top up the National Insurance Fund should they need to.

A wider point has been made, particularly by the noble Baroness and the noble Lord, Lord Davies, on the legitimacy of this. However, there are already reliefs in the NICs system with regard to the employment allowance, the under-21 relief and the under-25 apprentice relief. I therefore reassure the Committee that this policy and the thinking behind it is not new, and that obviously it is used for different purposes.

Finally, if such an amendment was passed by this House, it would likely engage the financial privilege of the other House.

With those assurances, I hope that the noble Lord will withdraw the amendment in his name.

[Lord Davies of Brixton (Lab)]

I will withdraw the amendment. I will read carefully what the Minister said, but I maintain my position that there is a point of principle here. I agree that there are precedents for using national insurance relief, but I was not here then so I was unable to raise it. I am raising it now because, as I said in my introductory remarks, I believe in a national insurance system and the National Insurance Fund. If it is to be treated as just a source of general taxation, which effectively this does, it dilutes the principle. I shall read what the Minister said, and I thank him for his reply.

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[Lord Tunnicliffe (Lab)]

My Lords, once again, I welcome the various amendments tabled by the noble Baroness, Lady Kramer. I am pleased to support them and remain disappointed that the Government are refusing to accept any of the DPRRC’s modest suggestions. As with the previous amendment on this topic, we will hear the Government’s defence arguments for these additional delegated powers. The Minister suggests that, in relation to Clauses 3(1) and 6(6), considering the extension of NICs relief beyond the original end dates is somehow not a worthwhile use of parliamentary time. I am not sure why the Minister feels able to speak on behalf of Parliament in this matter. I can assure him that I would find a debate on the opportunity cost of extending NICs reliefs for free ports far more worthy of debate than some of the very narrow debates we hold on Treasury instruments subject to the affirmative procedure. He may counter that I and the noble Baroness, Lady Kramer, would be welcome to table regret Motions, but this ignores the principle that Parliament should be afforded a proper scrutiny role when it comes to the use of public finances. I will not go through each of the other justifications in the Minister’s letter to the chair of the committee, but suffice it to say that I am yet to be dissuaded from backing the committee’s recommendations.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Baroness, Lady Kramer, who is back on her feet again, and the noble Lord, Lord Tunnicliffe, for their contributions. These amendments are in response to the Delegated Powers and Regulatory Reform Committee’s report. I am grateful for its report and sympathetic to its arguments for the importance of parliamentary scrutiny and consistent publication of primary and secondary legislation. However, the Government believe that the current procedures remain appropriate and that these amendments are therefore unnecessary. I have listened carefully to the remarks from the noble Baroness and the noble Lord and, as they would expect, would like to give some explanation for our reasons, at some length.

Amendment 6, tabled by the noble Baroness and the noble Lord, would make the power in Clause 10(2)(d) subject to the negative procedure, rather than no procedure. I will explain to noble Lords some of the context to this power. Lump sum payments of £500 are available to be claimed under separate schemes in England, Wales and Scotland for people who have been asked to self-isolate by the relevant authority, but who cannot work from home and will suffer financial consequences as a result. Of course, this is subject to the eligibility criteria of the relevant scheme. Payments are intended to provide additional financial support during periods of self-isolation.

Regulations have already been introduced under existing powers in Section 3 of the Social Security Contributions and Benefits Act 1992 to exempt these payments from NICs for employees and their employers. Therefore, all that Clauses 10(1) and 10(2)(a) to (c) do is specify that the schemes specified are also exempt from self-employed NICs, ensuring consistency. The Government believe that the power designating self-isolation support schemes to be exempt from self-employed NICs is narrowly drawn in that such schemes have to provide support for those who cannot work due to self-isolation. In addition, the Government’s intention is that they will use this power only where further regulations are made to exempt payments from possible similar future schemes from NICs for employees and their employers.

I want to pick up on that point, because the noble Baroness, Lady Kramer, asked how different such a designated scheme would be from those on the face of the Bill. I pick up on the word “similar”, which has been used to provide some flexibility as to the details of any future scheme. This is because the changing circumstances of the pandemic may mean that the detail of a scheme, for example its eligibility criteria, needs to be adapted to account for the latest situation faced by individuals required to self-isolate. Indeed, the three schemes specified on the face of the Bill have changed in their particular detail since introduction and are not identical to one another.

The Government are also of the view that, as the power to designate is necessary to be able to respond to the changing circumstances of the coronavirus pandemic as quickly as possible, the current parliamentary procedure is right given the current circumstances and means that the legislation can be introduced more quickly than the other side of the coin, which is a statutory instrument subject to the negative procedure.

Amendments 8 and 9, tabled by the noble Baroness, Lady Kramer, and supported by the noble Lord, Lord Tunnicliffe, would make the powers in Clauses 3(1) and 6(6) to extend the end dates of the free ports and veterans relief, and the power in Clause 3(2) to treat a condition of the free port relief as being met, all subject to the affirmative procedure. They are currently subject to the negative procedure. These amendments are also in response to the DPRRC’s report.

The powers in Clauses 3(1) and 6(6) provide flexibility for the Government to extend the reliefs past their current end date. In particular, the power relating to the free ports relief will allow the Government to extend the relief after a review into its effectiveness in meeting its policy intention in 2026, although any extension would be no further than 5 April 2031. Before they are extended, the Government will carry out an evaluation of the reliefs to ensure that they are effective. This takes us back to a previous debate. Once they have been evaluated, and should the Government’s view be that the reliefs should be extended, we believe that the negative procedure offers the opportunity for sufficient parliamentary scrutiny without using more of Parliament’s time than is necessary.

The Government believe that the powers in Clauses 3(1) and 6(6) should continue to be subject to the negative procedure. Both powers are wholly relieving and, as I set out, where this is the case, regulations are usually subject to the negative procedure. To be absolutely clear, the powers cannot be used to decrease the amount of relief that an employer can claim.

As to how the power in Clause 3(2) may be used, the department’s delegated powers memorandum gave an example of cases where people with certain protected characteristics are unable to meet the rule that, to be eligible for the relief, employees must spend at least 60% of their working time in the free port site. For example, a health condition or pregnancy may mean that an individual needs to work just from home for periods of time. The effect of these regulations would be to treat the 60% as being met so that the relief applies to employees who may not otherwise qualify.

In this case, the negative procedure also allows the Government to react much more quickly than if the affirmative procedure applied if external factors become apparent that would prevent employers qualifying for this relief. With that slightly extended response, I hope these reassurances will cause the noble Baroness to withdraw her amendment.

[Baroness Kramer (LD)]

My Lords, again, I will withdraw the amendment. If the Minister seriously thinks that a review of the whole free ports issue will be so completely uncontroversial that the consequences of that review can be implemented through a negative resolution, then he really misunderstands the sense of discomfort that exists around the whole free ports scheme and really has not been listening to Parliament’s level of concern. As I said, I will obviously withdraw the amendment, but I hope the Government will start to take note much more seriously of the work done by an extraordinary committee, with a great deal of knowledge and a real understanding of Parliament, its wishes and its intentions—as we know, we live in a parliamentary democracy—and pay much more attention to the level of scrutiny that the DPRRC recommends.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, I welcome the tabling of this amendment and hope the brevity of my contribution is not taken as evidence to the contrary. Amendment 7 asks the Government to publish guidance relating to the operation of Clause 11. It is my understanding that such guidance will indeed be published later this year; I would be grateful if the Minister will confirm that and perhaps give us some idea of when this year. I hope that, with the guidance, there will be a more general update on the Treasury’s and HMRC’s work in this area.

[Viscount Younger of Leckie (Con)]

My Lords, I thank the noble Baroness, Lady Kramer, once again, for her contribution. I hope to persuade her, with the information that I am about to provide, that her amendment is unnecessary. On this occasion, my remarks will be relatively short.

I am pleased that the noble Baroness has raised this point, because communication is extremely important. HMRC will be publishing detailed guidance which will cover the changes to the DOTAS regime, explaining when HMRC can issue a notice requiring promoters or suppliers in the avoidance chain to provide information on suspected avoidance schemes. It will also explain what will happen if they do not provide information, or where they do and HMRC considers the scheme is notifiable, the issue of the scheme reference number—the so-called SRN—their right of appeal against the issue of the SRN, and their right to make representations before HMRC publishes details. Finally, the guidance will explain the obligations of the promoter or supplier if the SRN is not withdrawn.

I can say to the noble Lord, Lord Tunnicliffe, that the new guidance is anticipated for the end of February this year, but it will not adversely impact small businesses that do not participate in avoidance schemes.

I turn to a question from the noble Lord, Lord Sikka —and I appreciate his late intervention and contribution in Committee. First, he asked why NICs are not due on unearned income. He may know this, but national insurance contributions are part of the UK’s social security system, which is based around the long-standing contributory principle and centred around paid employment and self-employment, with employers, employees and the self-employed paying towards the protection of those who have been in the labour market. Payment of NICs builds an individual’s entitlement to claim contributory benefits, which then replace earnings in certain circumstances—for example, if someone is unable to work or, indeed, has retired. Unearned income is generally excluded from liability to NICs, as it is not derived from paid employment.

The noble Lord also asked about tackling the promoters of tax avoidance and what success had been had in that regard. I took note of his points about DOTAS and appreciate his raising this issue. HMRC has undertaken more than 500 compliance interventions on promoters and their supply chains—that takes account of the year 2020-21. However, there is no single approach that will force all promoters to leave the market, and it requires a multipronged approach. This includes HMRC prioritising the most active promoters and their supply chains, and vigorously challenging schemes and promoters under the disclosure of tax avoidance schemes, or DOTAS, as we are discussing today, the promoters of tax avoidance schemes, or POTAS, and the enablers regime. The Government have taken strong action to tackle tax avoidance and those who promote it, introducing a number of anti-avoidance regimes that have helped reduce the avoidance tax gap from £4.7 billion in 2005-06 to £1.5 billion in 2019-20.

I hope that, with those answers, the noble Baroness will withdraw her amendment.

[Baroness Kramer (LD)]

My Lords, I make the slightly ironic comment that, in the speech the Minister just made, he essentially made the case for the amendment of the noble Lord, Lord Davies, dealing with the integrity of the National Insurance Fund. “Interesting”, as they say.

Yes, of course I will withdraw the amendment. I just desperately hope that, internally, we can try to get HMRC to take a much more interactive view of how to talk to small businesses, in particular. We fully recognise that people are captured by the many different fraud schemes that are around every day. In a sense, these various promoters of tax avoidance schemes use the same psychology, methodology and ability to communicate to identify potential victims. Somehow, HMRC has to be able to get down to that level and communicate with businesses so that they understand the real risks they are taking. I recognise that my amendment would not actually achieve that, but I hope that it created an opportunity for a small discussion. I beg leave to withdraw the amendment.