National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill
Monday 10th June 2019
(4 years, 10 months ago)
Commons ChamberNational Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019 View all National Insurance Contributions (Termination Awards and Sporting Testimonials) Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 10 June 2019 - (10 Jun 2019)
19:19 - The House divided: - Ayes: 214 / Noes: 273 - Question accordingly negatived.
19:37 - The House divided: - Ayes: 270 / Noes: 207 - Question accordingly agreed to.
Peter Dowd (Bootle) (Lab)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 2—Report on the impact of Class 1A National Insurance Contributions on termination awards—
“(1) The Secretary of State must, within 12 months of section 1 of this Act (termination awards: Great Britain) coming into force, lay before Parliament a report on the expected impact of the new Class 1A liability on termination awards in excess of £30,000.
(2) That report must contain an assessment of the expected impact on—
(a) the total net value of termination payments received by individuals;
(b) the average net value of such payments; and
(c) the number of business start-ups using termination payments as funding in their first year in each region of the United Kingdom.”
New clause 3—Report on the impact of Class 1A National Insurance Contributions on sporting testimonials—
“(1) The Secretary of State must, within 12 months of section 3 of this Act (sporting testimonials: Great Britain) coming into force, lay before Parliament a report on the expected impact of the provisions of this Act on sporting testimonials.
(2) That report must contain an assessment of the expected impact on—
(a) the total amounts received by individuals from sporting testimonials; and
(b) donations made to charity from sporting testimonial proceeds.”
New clause 4—Report on Exchequer impact—
“The Secretary of State must, within three years of this Act receiving Royal Assent, lay before Parliament a report on its Exchequer impact.”
New clause 5—Effects of termination awards provisions—
“(1) The Treasury must publish reviews of whether the payment of Class 1A contributions on termination awards under sections 1 and 2 has had—
(a) any effect on the number of termination awards made above £30,000;
(b) any effect on the size of termination awards made above £30,000; or
(c) a disproportionate effect on—
(i) women,
(ii) pregnant women,
(iii) persons aged 50 or over, or
(iv) any other group of people with protected characteristics (within the meaning of the Equality Act 2010).
(2) The first review under subsection (1) shall be published no later than 24 months after this section comes into force.
(3) Subsequent reviews under subsection (1) shall be published no later than 24 months after publication of the previous review.”
This new clause would provide for a general review of the termination awards provisions of this Act within every period of 24 months.
Amendment 1, in clause 5, page 5, line 39, at end insert—
“(3A) No regulations may be made under subsection (3) to bring section 3 or 4 into force until the Secretary of State has made a Statement to the House of Commons on the expected effects of the provisions of this Act on donations to charities by the recipients of sporting testimonial payments.”
Peter Dowd
Although he is not here, may I welcome the new Financial Secretary to the Treasury to his post, and congratulate his predecessor, the new Leader of the House, on his elevation to the Cabinet? I understand that the elevation was short-lived, as he realised that he still had to sit across a table—a Cabinet table rather than a Treasury one—from the Chief Secretary. I expect that if some of his colleagues get their way on proroguing Parliament, he may well even be put on a zero-hours contract, because there would be little else to do.
I have previously stated, both on Second Reading and in Committee, when we had wide ranging discussions on the Bill, as we always do with financial Bills—we talk about a whole range of issues and get into all sorts of discussions about various things, even quoting Cicero and going into all sorts of Greek mythology; it is helpful to broaden our horizons when dealing with these Bills—that the Bill is a pale imitation of the great national insurance reforms that the Government promised to enact just a few years ago, in those halcyon days of the 2010 to 2015 Tory Government, who were going to conquer the world and who proposed massive changes to national insurance contributions. Of course, in effect, nothing came of that. The former Chancellor went west and the proposals lay around gathering a little bit of dust, then more dust and then even more dust on the shelves at the Treasury.
As we all know, national insurance is paid by employees, employers and the self-employed, and it is used to fund a variety of contributory benefits such as the state pension, contributory employment and support allowance, maternity allowance and other benefits. In 2018-19, national insurance contributions raised around £137 billion, which is more than was raised by VAT but less than was raised by income tax, at £132 billion and £192 billion respectively. National insurance contributions are clearly a substantial revenue raiser for the Exchequer.
Along with the Prime Minister, the Government’s credibility and all sense of reason in the Tory party, gone are the proposed abolition of class 2 national insurance contributions and the planned expansion of class 4 national insurance contributions, along with the Government’s parliamentary majority to boot. Those proposals have been replaced with these meagre clauses, which masquerade as a real Bill. They will introduce a limited class 1A employer charge on termination payments over £30,000 and on payments over £100,000 related to non-contractual sporting testimonials.
While we are on the subject of sport—loosely—I reaffirm my congratulations to Liverpool football club on their win, albeit as an Everton supporter. As I said in Committee, I can say that in the clear knowledge that it probably will not get much further than the people present, so I will not be criticised by my Everton-supporting friends and family. Saying it here tonight makes it more or less a secret, in essence.
Consideration of the Bill’s remaining stages has been brought forward to pack out an empty parliamentary timetable. The timing could not be more fortuitous, as we enter the first official week of the long-running Tory leadership campaign. It is a burden for everybody else to have to put up with it, and I am sure it is a burden for those on the Government Front Bench and Back Benches, too. I suspect that they will not say that, but I will say it for them.
There is a backdrop to this debate. We have already seen a sneak preview of the chaos and dysfunction that any of the hard Tory Brexiteers who are running for Prime Minister will soon unleash on the country. The right hon. Member for Tatton (Ms McVey) has suggested purging the Cabinet of remain-supporting MPs. The frontrunner, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson), is flirting with the idea of the UK going AWOL with around £48 billion in October. That figure is almost as big as his ego. The Foreign Secretary, the right hon. Member for South West Surrey (Mr Hunt), has more positions on Brexit than the “Kama Sutra”.
Meanwhile, the right hon. Member for Esher and Walton (Dominic Raab) is threatening to put two fingers up to parliamentary sovereignty and prorogue the House, denying the elected representatives in this Chamber a say over the biggest issue facing this country since the second world war, and perhaps beyond that—I do thank you for your indulgence, Mr Deputy Speaker. So much for bringing back control. To what—an empty, locked Chamber? It is important, because had Parliament been prorogued, would we have been able to debate this Bill on national insurance contributions? No, we would not. Where would all the money go? We would not have it. We are here making the case for why Parliament should not be prorogued, but more importantly we are making the case because we have to get the cash in. All this is taking place while our European partners look on in polite bemusement, along with the rest of the country, as we are subjected to a month-long Conservative party psychodrama. That context is important to the matter at hand.
The Opposition continue to have concerns about how the new class 1A national insurance charge will impact on the level of termination awards that workers receive, particularly in respect of women, employees over 50 and pregnant women. Opposition new clauses 1 and 5 would require Ministers to adequately address our concerns. The tax and national insurance treatment of termination payments remains a sensitive topic to workers and employers alike. Employees facing redundancy often consider this final payment as an evaluation of the work that they have done for their employer, so it is psychologically important for them. As I have previously said, termination payments therefore have an emotional and a financial significance, and the amount awarded is often determined by painstaking and careful negotiations between managers and trade union representatives.
The Government’s rationale for the change apparently remains one of simplification: they cite many employers’ previous confusion as to what parts of a termination payment might qualify for exemption from tax and national insurance. However, Ministers have also cited the opportunity for well-advised employers to avoid paying the right amount of tax and national insurance on termination payments as justification for wider reform. It is important to repeat that that seems to have been given as justification for wider reform. We do not necessarily accept that justification. Neither the Office of Tax Simplification nor Treasury Ministers have been able to provide figures on the number of employers who have taken advantage of the existing loophole or on the amount that has been lost to the Exchequer as a result. That is important, because if a case is going to be made for something, the least we could be given is a little evidence—a few facts and statistics—to back up the assertion.
Mr Jim Cunningham (Coventry South) (Lab)
The best way to describe it is as a stealth tax on people who are going to be unemployed for quite a long period. Women are going to be under the cosh. We have to remind ourselves that women seem to be paying the price. We have only to consider the long, drawn-out saga of the Women Against State Pension Inequality, who cannot even get justice out of this Government.
Peter Dowd
My hon. Friend makes a valid point. Assessments of the impact of austerity have found that 86% of the burden has fallen on women. The figures indicate that women are the most badly affected by austerity, and all this Bill does is overlay that and up the ante even further. I thank my hon. Friend for making that point, because in effect it is a stealth tax. That is what it amounts to: a stealth tax with no evidence base whatever to support it, other than the Government just wanting somehow to get more and more cash in because of their failed economic policies.
Grahame Morris (Easington) (Lab)
I am grateful to my hon. Friend for giving way. The arguments that he is making are sound. There is a concern that this may well open the gates to further measures in the future. I fully understand that this is a charge that is being applied to employers, but it would be instructive if we used plain English and simple terminology. Why do we not use the term “redundancy” instead of “termination awards”, so that people will realise what is happening?
Peter Dowd
That is a very good point, because that is exactly what the Government do time after time. When they introduce these notions and concepts, they always try to put up a bit of a smokescreen. My hon. Friend is absolutely spot on. Let us call this essentially what it is, which is redundancy. Potentially, it is taking money from people at perhaps one of the most vulnerable times in their working life. Let me repeat: what we want is evidence. This an evidence-free zone—it is as simple as that. The other important point to make is that this is, in effect, a stealth tax. Worryingly, though, there is no coherence to this whatsoever. There is no coherence to this at all. Somebody comes up with an idea and the Government push it through because they want to push it through. There is no evidence for it whatsoever.
James Cartlidge (South Suffolk) (Con)
I have enjoyed discussing this Bill with the hon. Gentleman in Committee and on Second Reading. The definition of a stealth tax is surely a tax that is stealthy. In other words, it is not immediately visible, and has to be found in the small print of, for example, the Red Book. This is on the front of a Bill; this is the name of the Bill. I do not think that this can conceivably be described as a stealth tax. The Government have been very open about it, and it is on the front of the Bill.
Peter Dowd
I am very pleased that a Conservative Member of Parliament admits that he is putting taxes up. He has admitted that the Government are openly putting up taxes. Okay, even if I accept that it is not a stealth tax—
Peter Dowd
Just a moment. Even if I accept—[Interruption.] I am happy to give way. Even if I accept, which I do not, that it is not a stealth tax, it is, none the less, about a Tory Government putting taxes up. It is as simple as that. I will give way to the hon. Gentleman.
James Cartlidge
The point is not whether it is going up, but whether it is being done in a stealthy fashion. I accept that this is raising revenue. The Minister will not cut it, because that will take revenue from elsewhere. The question is whether it is stealthy. It is on the front of the Bill; it is the name of the Bill. It is not remotely stealthy. Stealth taxes are so named when we pull the wool over people’s eyes, but this is very open and transparent, and, yes, it will increase revenue for the Treasury.
Peter Dowd
The hon. Gentleman can point that out to me as much as he wants. I admitted, or acknowledged—call it what you will—that even if it is not a stealth tax, it is a Tory Government putting up taxes. [Interruption.] We agree on that. [Interruption.] I am happy to have that conversation with him outside the Chamber, if need be, so that I do not get into trouble with either you, Mr Deputy Speaker, or those Members on the packed Benches. The bottom line is that what we have here is quite clearly and unambiguously an admission from the Tories that they are putting taxes up. That is what it comes down to. [Interruption.] My hon. Friend the Member for Coventry South (Mr Cunningham) says from a sedentary position that they do so in a sneaky way.
Ministers have claimed many times that they have a desire to simplify tax. They talk all the time about simplification of tax. They have an Office for Tax Simplification. They institutionalised it. Has there been much simplification? Not as far as I am concerned. There certainly has not been any simplification of national insurance contributions. Therefore, despite the many claims from Ministers that they have a desire to simplify the tax and national insurance treatment of termination awards, the Chartered Institute of Taxation and other tax experts have raised concerns about the lack of information in the Bill as to how this new class 1A charge will be collected. In their rush to try to get more money into the Exchequer, they have not even decided or worked out how they are going to collect it.
Mr Jim Cunningham
I thank my hon. Friend for giving way. I made a remark about sneaky tax from a sedentary position. I have a good example of why we should not trust what those on the Government Front Bench say: in their manifesto, they pledged to retain the free television licence for old-age pensioners. What did they do? They passed it on to the BBC. We have all seen the announcement today. How can we trust anything they say?
Peter Dowd
That is another stealth tax—the television licence. The fundamental point is important. It goes to the heart of this debate. This is a rise in taxes. We are not quite sure how it is going to be collected, but it is going to be collected from some of the most vulnerable people. Currently, Ministers plan to leave it up to secondary legislation to determine how it is going to be collected. That is another important point. This has happened so many times with this Government—no amendments to the law in relation to the Finance Bill. Again, this goes to the heart of the matter. The Government bring forward legislation, proposals and policies to this Chamber. They try to push something through, but they do not tell us how and when they are going to do it. But they are going to do it. We have no opportunity to challenge them because they close down the debate. They have done so on the last four Finance Bills, I think—I stand to be corrected on that one.
Currently, Ministers plan to leave that up to secondary legislation, which is clearly a break from normal practice. Furthermore, rather than simplifying the national insurance treatment of termination awards, they look set to confuse employers even more. Therefore, a fundamental attempt apparently to simplify these proposals has actually not simplified them. If the raison d’être for this is simplification —that is what we have been told—the Government are that incompetent that they cannot even get that right, because it is not simplifying matters at all.
The measure will also add additional administrative burdens on HMRC at a time when it continues to be hamstrung by the Government’s disastrous reorganisation of its estate, the introduction of Making Tax Digital and the preparations for a no-deal Brexit. These specific proposals are being introduced when HMRC is in flux, but do the Government care? They do not care at all. So what is the so-called rationale for the introduction of this new national insurance contribution charge on termination awards, if not to make things more confusing for employers? Another factor has been thrown in: this is a tax avoidance measure, apparently. [Interruption.] The Minister says that he is not sure about that. Read some of the documentation.
Peter Dowd
I beg your pardon. So it is a tax avoidance measure, apparently, without any evidence, as far as we can gather, that there is any substantive tax avoidance going on with regard to this. I am all for tackling tax avoidance, as the Minister well knows. We support the tackling of tax avoidance, but we always want to do it when there is some evidence for it. We have lots of evidence of tax avoidance in other areas that the Government are not tackling, and in an area for which they do not have a particular amount of evidence, they are tackling it. It is a bit topsy-turvy—a bit round about. We find ourselves in a rather bizarre scenario.
I suggest that the Government’s rationale is wholly to do with the revenue that they expect to raise and that this is little more than an attempt to increase national insurance receipts for the Exchequer while shying away from any major tax or national policy change. The previous Chancellor got his fingers well and truly burned because he did not do it right. That is the issue here. We are having all this tinkering around, which is making matters more and more confused. That is certainly the opinion of the Office of Tax Simplification, as advocated in its 2014 report, which stated that a new national insurance contribution charge could raise revenue for the Exchequer and offset the costs of any tax treatment change affecting termination payments. The report went on to concede that the policy was likely to lead to increased NIC costs to the employer—not just more NICs, but increased costs to the employer—and to individual employees receiving reduced termination payments, as employers would be unlikely to increase their redundancy budgets.
The Government’s own impact assessment notes that this measure will present an “additional cost to employers”. Here we are yet again, with the party of business putting more and more costs on to employers through this national insurance contributions proposal, at a time when they are all under terrible stress for a whole range of reasons—not least because of the uncertainty of Brexit. The impact assessment also says that this will be
“reflected in lower wages and profit margins”.
Not only are the Government attacking businesses and bringing their profits down; they are also accepting that they are attacking workers’ wages. It is a double whammy, as the employer and the employee both get stung. What a state of affairs! Sadly, it is some of the most vulnerable people in the workforce who will pay the ultimate price. Whether it is a pregnant female employee voluntarily leaving the workforce or an older worker opting for early retirement, the new national insurance contributions charge will have a significant impact on the level of termination awards received.
To address the issue, the Opposition have tabled new clause 5, which would require the Government to undertake a review every two years looking at the impact of this measure on women, pregnant women, workers over the age of 50 and any other group of people with protected characteristics. New clause 5 would ensure that the impact of the new national insurance charge was carefully monitored; that is very important. It would also require Ministers to take personal responsibility for its outcome, with regular statements to the House. I know Ministers do not like doing that—Mr Speaker in effect acts as the person who gets them to come here to speak to us—but it is important that Ministers come to this Chamber to explain what they are doing. They are responsible to Parliament for their actions. The Executive are responsible to us and that is what we are demanding through new clause 5.
Similarly, new clause 1 would require Treasury Ministers to undertake a distributional analysis of class 1A national insurance contributions, looking specifically at the impact on the level of termination awards received by employees and, importantly, at the impact on employers. I am particularly thinking about small and medium-sized business owners, who are likely to see added costs as a result of the measure. We want to ensure that such employers are not going to be penalised because of the lack of evidence base for the Government’s proposals—other than, quite simply, that the measure will raise money. The Government should stop telling the House that this is about simplification, because it is not. We have to be honest about that. It is just about raising revenue. There is nothing wrong with doing that—it is crucial—but it is important that the Government are honest about what they are doing. They often get their figures wrong when they indicate how much they intend to raise. In fact, some of the figures identified in their proposals are almost a work of fiction.
The second and final measure covered by this very short Bill relates to a new class 1A charge for non-contractual sporting testimonials of more than £100,000. [Interruption.] I can hear the Government Front Benchers saying that I am making a long speech. Well, I know that Conservative Ministers do not like to be held to account at all; it is in their DNA. One of their colleagues, who is a contender for the leadership, even wants to prorogue Parliament—to close it down—so it is important that I make these points clear.
As my hon. Friend the Member for Oxford East (Anneliese Dodds) said in Committee, there remains a huge lack of clarity over how the charge will be applied, particularly when it comes to a payment that would be “customary”. She made a very important point and hit the nail on the head, and I am not quite sure that we are any further on at all from those discussions in Committee. There remain seriously unanswered questions as to how a national insurance contribution charge on sporting testimonial payments, which are in effect charitable donations from fans, would affect sporting charities and foundations set up by individual sportspeople. The Chartered Institute of Taxation has also pointed out the clear inconsistency that would arise between the national insurance treatment of sporting testimonial payments and the treatment of voluntary tips in the service industry. To answer these concerns, the Opposition have tabled amendment 1, which would require the Government to review the impact of this class 1A national insurance contributions charge on donations to charities.
Dr David Drew (Stroud) (Lab/Co-op)
I have listened very carefully to my hon. Friend and I totally agree with him. May I concentrate on the issue of testimonials? One of the great myths about professional sportspeople is that they are all terribly well paid, but county cricketers, people playing in the lower regions of football and rugby players playing outside the premier league are not well paid. Traditionally, long-term servants have had the opportunity of a testimonial and those testimonials are often organised by groups of volunteers. Are we seriously suggesting that people who organise a darts match, a pool tournament or a dinner are going to be brought into the regime, whereby they have to think about national insurance contributions, taxation and the rest? That is surely crazy.
Peter Dowd
My hon. Friend makes an important point. The Government would have us believe that there is an amount of money that people can raise or earn before the testimonial tax—that is what it is—comes in. I am sure that the Minister will be able to explain that to us, but we have had very little help by way of explanation from the Government on this whole area, and the measure is being introduced without significant or appropriate discussion.
Members will no doubt be pleased that I will only speak for another hour—I jest. This is yet another piecemeal reform designed to penalise employers and workers alike, while raising comparatively small sums for the Exchequer compared with the total amount of national insurance contributions that it receives each year, which I identified earlier as more than £130 billion. Of course, the Government remain wedded to cutting taxes for large corporations and the wealthy alike, leaving our public services and ordinary workers footing the bill. In fact—this is important—the right hon. Member for Uxbridge and South Ruislip has committed to £10 billion of tax cuts should he become Prime Minister, with the Institute for Fiscal Studies saying that the biggest beneficiaries would be wealthy pensioners and people living solely off investments, as neither pay national insurance contributions. Actually, all the Members of Parliament here would also be better off under the proposal by the former Foreign Secretary.
The Opposition will not countenance supporting a Bill that will indirectly lead to workers’ termination pay being reduced, especially when Tory hopefuls are throwing even more money at those who do not need it. Nor will we support a Bill that fails to offer any protection for women, older workers or pregnant women who could be financially worse off as a result of this change. If the front-runner for the Tory party leadership can give £10 billion to supporting wealthy investors, we can afford to support pregnant women who have been made redundant. For those reasons, we will oppose this Bill on Report and on Third Reading. I encourage colleagues from across the House to do exactly the same. Thank you very much for your indulgence, Mr Deputy Speaker.
Kirsty Blackman (Aberdeen North) (SNP)
It is a pleasure to take part in a Report stage where the Government do not have amendments to their own Bill. That is quite unusual these days. Most of the Bills that we have seen recently have had Government amendments to them because there have been errors in the drafting, so I congratulate to the Minister for managing to bring in one that has not. Obviously, it would be great if he could see his way to accepting all the amendments tabled by the Opposition and by me, but he can save that up for his speech and let us know then whether he is willing to do so.
I will talk us through the amendments that we have tabled but also make it clear that we are willing to support the amendments tabled by the Opposition. Our new clause 2 is about the impact of the changes to class 1A national insurance contributions on termination awards. It asks for a number of different things, including
“an assessment of the expected impact on…the total net value of termination payments received by individuals…the average net value of such payments; and…the number of business start-ups that are funded by termination payments…in each region of the United Kingdom.”
We ask for this for a number of reasons, but mostly because I was a bit annoyed by what is in the Government’s explanatory notes, which basically said, “We expect there to be no impact on employees”, but actually meant, “We expect there to be no additional tax liability impact on employees.” But the reality is that there will be an impact on employees as employers will choose to give their employees less in termination awards because they will be liable for this class 1A contribution.
I specifically mentioned the number of business start-ups because I am acutely aware of the number of people, particularly where I am in Aberdeen, who struggled during the oil price fall that occurred in 2015-ish and were made redundant as a result of it. A number of them went on to start new businesses because of the termination payment that they received. I am concerned that reducing the amount of termination awards that people receive will mean that there will be fewer of those new business start-ups, and we may not see some of those businesses that go on to be phenomenally successful just for want of a few extra pounds in the termination award that is made.
Another thing that concerns me is that the Government’s projections show that wages for everybody will fall as a result of this additional charge on employers. The Government have admitted that; it is included within the calculation. Even people who are not receiving termination awards or are not, at any stage, likely to receive them—even those who are receiving only the Government’s national living wage, which is a pretendy living wage that people cannot live on, and those who are under 25 and therefore not eligible for it—will experience a reduction in wages as a result of the Government’s changes to employer class 1A liability in relation to termination awards. It is not fair that we are asking people who already do not have enough to live on to pay this additional contribution. That might seem to be an odd position to take in this Chamber when we have Conservative leadership candidates talking about lowering tax for the very richest, but I do not believe that wages should be lowered for those at the bottom of the pile, to increase what is in the Government’s coffers. If we are to do that, surely we should choose, as the Scottish Government have done, to levy that money through a more progressive taxation system.
The other issue with the termination awards aspect relates to the collection method that is described. Currently—this is from the Government’s website—employers pay class 1A and 1B national insurance on expenses and benefits they give to their employees. They have to fill in the forms only once a year and are given a deadline for doing so. The Government have not yet said how they intend these payments to be paid in real time, or how they intend that employers should ensure that they are recording them and paying them in real time. If the Government expect them to do this, they need to clarify that more quickly. I am particularly concerned about the employers who currently do not pay class 1A contributions in any way, shape or form because they do not allow employee benefits such as company cars or health insurance as part of their deal, yet are now being brought into class 1A contributions because, for some unknown reason, the Government have chosen to use class 1A contributions as the method of collection—the method of liability—rather than choosing a different method. Class 1A contributions are not levied on any cash just now; they are levied only on benefits in kind.
Therefore, a number of employers will need to have new computer systems to pay this money. Those who do already pay for benefits in kind will need to have a different computer system that allows them to pay in real time rather than at the end of the year. That will involve a lot of additional work for HMRC and for tax professionals who will have to advise employers on this method. That is an extra cost to employers—not just the actual additional money that they will have to pay but the additional administration cost that they will have to go through. It is incredibly important that if the Government intend to press ahead with this, they do everything they can to ensure that every employer who does not currently have any liability for class 1A contributions, in particular, is well aware of these changes and the new liability that will arise if they make any termination payments in excess of £30,000.
Let me move on to sporting testimonials. My concern is much the same as that raised by Opposition Front Benchers in relation to the donations to charities that are made as a result of sporting testimonials. There will be a new liability for people receiving money as part of sporting testimonials as long as they are not paid through an employee charitable donation-type method. It is a bit much to expect committees that are set up to have to register themselves in this way to pay the sporting testimonial beneficiary through payroll giving. That is a bit of an over-cumbersome situation. A lot of the people who receive money through sporting testimonials give a significant chunk of it to charities. I am therefore concerned about the reduction in charitable giving that there will be as a result of these changes.
The Government have pretty much said that this has a negligible Exchequer impact, but, once again, an additional administrative burden is being built up. This may stop some of these committees going forward with testimonials if they realise that they have to register for payroll giving and have to pay class 1A national insurance contributions as a result.
Dr Drew
The hon. Lady will have heard my earlier intervention. It is not uncommon for people to give very generously when they have a favourite sportsperson. It could happen that someone expects to get £30,000 over the course of a year, yet people are so generous that they give £60,000. Should that be backdated? In other words, if the additional £30,000 could be given to charity, does that impact on the whole amount or the part amount? This what happens in real life; it is not as straightforward as perhaps the Government think.
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.
Peter Dowd
I indicated at the time that we would reserve our judgment and see whether the Government came up with sensible proposals. The fact of the matter is that, regrettably, they have yet again not come up with those suggestions, proposals, recommendations and explanations. That is why. Here we are giving the Government the benefit of the doubt, and we are being criticised for it.
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.
Peter Dowd
We will push new clause 5, but I beg to ask leave to withdraw new clause 1.
Clause, by leave, withdrawn.
New Clause 5
Effects of termination awards provisions
“(1) The Treasury must publish reviews of whether the payment of Class 1A contributions on termination awards under sections 1 and 2 has had—
(a) any effect on the number of termination awards made above £30,000;
(b) any effect on the size of termination awards made above £30,000; or
(c) a disproportionate effect on—
(i) women,
(ii) pregnant women,
(iii) persons aged 50 or over, or
(iv) any other group of people with protected characteristics (within the meaning of the Equality Act 2010).
(2) The first review under subsection (1) shall be published no later than 24 months after this section comes into force.
(3) Subsequent reviews under subsection (1) shall be published no later than 24 months after publication of the previous review.”—(Peter Dowd.)
This new clause would provide for a general review of the termination awards provisions of this Act within every period of 24 months.
Bought up, and read the First time.
Question put, That the clause be read a Second time.
Robert Jenrick
I beg to move, That the Bill be now read the Third time.
I am grateful to all the right hon. and hon. Members who participated throughout the passage of the Bill, particularly in Committee. I thank the Committee’s Chairs, my hon. Friend the Member for North West Norfolk (Sir Henry Bellingham) and the hon. Member for Mitcham and Morden (Siobhain McDonagh).
This is a small and narrowly drawn but none the less important Bill that continues the Government’s aim of aligning tax and national insurance contributions where it is right to do so. The Bill aligns the employer national insurance contribution treatment of termination awards and sporting testimonials with the current tax treatment. It also raises about £200 million a year for the public finances.
As I mentioned in previous debates, the Bill has been expected for some time. The measures were first announced at Budget 2015, consulted on thereafter and so have been widely expected and subjected to a great deal of scrutiny. The effect of the changes in the Bill will mean that a 13.8% class 1A employer national insurance charge will be applied to income derived from termination awards and sporting testimonials that are already subject to income tax.
I would like to reiterate my thanks to hon. Members who participated in the debates. I thank my superb officials at HM Treasury and Her Majesty’s Revenue and Customs, whose patience and professionalism never ceases to impress me. I commend the Bill to the House.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to speak on behalf of the official Opposition on Third Reading. It is also a pleasure to speak opposite the Exchequer Secretary, who has been left holding the baby no less than three times this evening—understandable, perhaps, given the immense turbulence currently occurring on the Government Benches. I echo his thanks to the officials who have been involved with the Bill and to all those who made so many contributions, particularly in Committee.
As we have said repeatedly, this is a meagre Bill. We have many concerns about it that have not been addressed during its passage and were certainly not addressed this evening. First, on sporting testimonials, we still lack clarity on the scope of the Bill due to its terminological ambiguity. We still do not have any proper projection from the Government with regard to its impact on charitable giving.
On termination payments, we remain deeply concerned that the Bill still leaves the door open to reducing the value of national insurance-free termination payments. As a result of the Bill—the Minister even acknowledged this in his speech just now—we could see a reduction in the amount of NI-free payments going to those who are losing their jobs through secondary legislation. That is completely inappropriate and something we will not accept. The Government themselves have admitted that the measures will exert downward pressure on wages. There will also be a negative impact on termination payments, because they will be passed on from employers to employees.
There are huge problems with our tax system. They are not dealt with by this thin and meagre Bill. As a result, we will be voting against it on Third Reading.
Kirsty Blackman
The Bill does not do what the Government set out to do, which is to simplify the tax system. The tax system is not simpler as a result of the changes that are being made. It will be more complicated and companies will have a larger administrative burden. It also reduces wages. I raised concerns about the fact that those who are already at the bottom of the pile will be receiving less in wages as a result of the changes the Government are making. I am happy to vote with the Opposition.
Having said that, I felt that the Committee was good-tempered and we discussed the issues at some length. It was really nice to have an evidence session in Committee. Hopefully, we will move on to the Finance Bill Committee taking evidence so that we can have more informed debates.
Finally, I would like to thank a couple of our staff members who have been involved in the progress of the Bill—Emily Cunningham and Chris Mullins-Silverstein—for their work in supporting us. My speeches would have been much less informed if it had not been for their help and support.
Question put, That the Bill be now read the Third time.