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

Michael Tomlinson Excerpts

Tuesday 14th May 2019 Public Bill Committees

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

Q Minister, can I pick up on the point about the threshold and international comparisons? You gave two examples, but you said in broad terms that we compare favourably. Can you expand on that a little bit and give the Committee more evidence?

Robert Jenrick: Of course. It was raised on Second Reading that, as a country, our threshold has been frozen since the late 1980s. That raised the perfectly legitimate question: is this a sensible place at which to retain the threshold? We think it is. We did international analysis when making changes from the income tax perspective that were legislated for in the Finance Acts 2016 and 2017. As I said earlier, the threshold compares favourably with OECD countries and EU countries. A number of countries, most prominently Germany and the United States, have no threshold at all. We therefore think that the threshold is fair. It is also worth noting that there is a range of exceptions that cover important situations such as disability, to which it does not apply.

The threshold has been debated. In fact, it is not set out in this Bill at all but is set out, from an income tax perspective, in the Finance Act. It was debated at that point and, clearly, the House came to the conclusion that it was a sensible level that compared reasonably with international comparators. The Bill does not speak to that; it purely applies employer’s national insurance class 1A to the amount that is taxable from an income tax perspective, using the threshold that is set elsewhere in the Finance Act. If one wanted to return to that, one would return to it through a future Finance Bill but, as I say, it was debated at the time and the view of the House was that it compared favourably by international standards and was a sensible place to remain for the time being.

[Michael Tomlinson]

Q Can I pick up on a point made by the shadow Minister, the hon. Member for Bootle, on provenance? Were there any recommendations by any key bodies or other organisations? How has it come about?

Robert Jenrick: As Mr Dowd said, the origin of the reform comes from our asking the Office for Tax Simplification to review benefits including termination payments and to see if there are sensible ways in which we could simplify the system and create greater clarity and fairness. Making a change of this kind was one of its recommendations, which we have now taken forward from an income tax perspective and in the Bill. Simon, do you want to add anything about the process?

Simon Smith: Not on the process, but may I add something on the international comparisons point? The analysis published by the OTS shows that approximately half of countries have no exemption at all for termination payments. We are also aware that there are other countries with no exemption for social security: Switzerland and Denmark, for example, have no threshold at all. That is quite a large number of countries that we would compare favourably with.

The only thing that I would add on the process is that it started with the OTS, but we have since consulted quite widely on the policy. We have spoken to more than 100 groups and individual representatives and have consulted on the draft legislation for the termination payments measure, so it has been widely considered by quite a range of groups.

[Michael Tomlinson]

Q That is very helpful. We have touched on the burden on businesses, but can you amplify further the warnings that have been given to businesses to prepare for this? How long have they had? Are you confident that businesses will be ready from day one?

Robert Jenrick: I hope so. Both measures in the Bill have been in the public domain for a very long time. They were first announced in 2015; we published these parts of the Bill in December 2015 and they have been consulted on and restated in successive Budgets. From an income tax perspective, we legislated in the 2016 and 2017 Finance Bills, which have now come into law—one of them has been in place for two years. We spoke to a range of stakeholders through the consultation and the passage of the Finance Bills. From a business perspective, in the accounting community and, with respect to the second measure for sporting bodies, these measures are anticipated and well expected and have already been put into place from the income tax perspective.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

Q It is a pleasure to serve on this Committee with you in the Chair, Ms McDonagh. May I ask for clarification on one point? The Minister suggested that the impact on wages and salaries was projected to be 0.01%, but Mr Smith pointed out that the OBR estimate is 0.1%.

Robert Jenrick: I apologise—it was my mistake. Simon was correct: it is 0.1%.