MPs back NICs reliefs for freeports and veterans
The National Insurance Contributions Bill has passed through the House of Commons unopposed, following a report stage and third reading debate which lasted just an hour, on the evening of Monday 6 September.
The Bill introduces a new National Insurance contributions (NICs) relief for employers in Freeport areas (clauses 1-5), and a new relief for employers of armed forces veterans (clauses 6-7). It also extends relief for self-isolation support scheme payments to the self-employed (clause 10) and widens powers to make regulations in relation to disclosure of contributions avoidance arrangements (clause 11).
The Bill does not relate to the Government’s announcement of an increase in National Insurance rates, which was made the following day and will be legislated for separately. Opening the debate, the Deputy Speaker told MPs that report stage was “not an opportunity to debate the Bill as a whole or the national insurance fund in general, and still less to discuss how to fund the NHS or adult social care.”
Report stage debate
Four new clauses and three amendments were selected for debate at report stage, and were discussed together:
- New clauses 1 and 2 (tabled by the SNP) together sought to provide National Insurance contributions relief for businesses engaged in green manufacturing (including wind turbines and electric vehicles).
- New clause 3 (tabled by the SNP) aimed to provide exemptions from primary Class 1 National Insurance contributions for Scottish Government Covid payments to NHS Scotland and social care workers.
- New clause 4 (tabled by the Lib Dems) sought to quadruple the employment allowance from £4,000 to £16,000 for two years. At the end of the period, the Chancellor of the Exchequer would be required to assess its effects and would be able to seek parliamentary approval for the policy to continue for up to a further two years.
- Amendments 1 and 2 (SNP) aimed to provide conditions to businesses in freeports. These included a strategy on how the freeport will contribute to the target for net UK greenhouse gases emissions, a strategy ensuring no goods passing through the freeport are products of slave labour, and an environmental impact assessment of the freeport. It also included signing up to the living wage, which was defined in amendment 2.
- Amendment 3 (tabled by the Government), which corrects a drafting error related to the veterans NI exemption.
Opening the debate, SNP spokesperson Richard Thomson said that the thinking behind his party’s amendments was that the Government “should not forgo tax revenues or give advantages to some businesses that are not available to others in terms of national insurance exemptions without securing meaningful commitments in return and in advance.”
He explained that greenports are the Scottish Government’s model for freeports - to help tackle the climate crisis and to ensure the protection of workers’ rights. “SNP amendments 1 and 2 would help to ensure that freeports and greenports do not end up contributing to a race to the bottom on workers’ rights and broader standards.”
On new clauses 1 and 2 Thomson was challenged by Conservative MP Kevin Hollinrake that the wording of the new clauses meant that NI relief would be available to companies that need not be especially ‘green’: “New clause 1 refers to “green manufacturing companies”, whereas new clause 2 talks about manufacturing products that “include” wind turbines and electric vehicles. So could those companies not undertake all kinds of very polluting activities within their business but still qualify for the exemption for all their employees if they make some wind turbines and electric vehicles? That is how this seems to be drafted.”
Thomson disagreed, but added that if the Government did not believe the new clause can meet the objectives in the way he set out, it was open to them to try to achieve those objectives in some other way.
Proposing new clause 3, Thomson praised the Scottish Government for recognising the contribution of ‘health and social care heroes’ and expressed disappointment that the UK Government had not supported them by allowing one-off payments to be made free of tax and national insurance, instead treating them as a top-up to wages rather than as a bonus. “Rather than having the Scottish Government gross up those payments, as the Minister has previously argued should happen, surely it would be better if the UK Government were simply to exempt the payments from NI.” He said that he was certain that if the power to do so was devolved to the Scottish Government, they would do that.
Lib Dem spokesperson Sarah Olney made the case for a temporary quadrupling of the employment allowance, as set out in her new clause 4. “The Government’s Bill rightly identifies that changes to national insurance contributions for both employees and employers have a role to play in stimulating economic activity. That is why they wish to have special NI provisions for freeports and, elsewhere in the Bill, for veterans, to help them back into work and stimulate economic activity in freeports.”
Olney argued that we should, at this time, “pursue economic growth and job creation above all other concerns, because we face an uncertain few months in our economy. We could face a wave of closures and redundancies as the various support schemes that the Government introduced to get us through the pandemic come to an end... [I]f we can reduce the pressure on businesses by relieving them of some of their national insurance payments, that will help them to ride out the coming period when they will need to repay some of the costs. VAT on hospitality is going back to 12.5% from the end of this month... I propose new clause 4 because instead of a selected NICs cut for companies in freeports, I would prefer that we target the cut at SMEs, at this urgent time when we want to stimulate economic growth and support employment.”
Labour’s shadow minister, James Murray, spoke only briefly at report stage. He said Labour would not oppose the Bill.
The Financial Secretary to the Treasury, Jesse Norman, responded to the debate for the Government.
He stressed the Government’s commitment to supporting green manufacturing, but argued that new clause 1 “would introduce a major change to the tax system of a magnitude that would require the careful consideration of costs and benefits and, in fact, goes far beyond what should be included via amendment in a Bill such as this one. The design of a sector-focused tax relief is not straightforward and would add complexity to the tax system. By contrast, there has been no consultation on, costing of or impact assessment made in relation to the measure proposed in new clause 1. For those reasons, I urge the House to reject it.”
The minister explained that the Government did not believe that new clause 3 was appropriate or necessary. “Under long-standing rules, any payments made in connection with an employment incur income tax and national insurance contributions. Such payments also count as income for the purposes of calculating entitlement to certain benefits.”
Norman highlighted that the UK Government have provided more than £5.9 billion of additional funding for the Scottish Government this year through the Barnett formula. “If the Scottish Government had intended health and social care workers to benefit by at least £500, they were entirely free to gross up the payments perhaps to £735, as has been done in Wales, in order to take into account the tax and NICs liabilities.”
On new clause 4 – the Lib Dem proposal to increase the employment allowance from £4,000 to £16,000 for two years – the minister noted that there was no mention on how this increase would be paid for. “The current cost of the employment allowance is estimated to stand at around £2.3 billion a year. There is significant support for businesses within the NICs system already. Increasing the employment allowance in this way would be an extremely costly use of taxpayers’ money and, again, a measure wholly out of keeping with the Report stage of this Bill, let alone that it is not consulted on, costed, or accompanied by any impact assessment. For all those reasons, the new clause should be resisted.”
SNP amendments 1 and 2, which place additional eligibility criteria on freeports in relation to employment rights, equalities and the environment, would add complexity and potential delay, said Norman. “By singling out freeports for these measures, they would also be burdening an important source of business growth.” He noted that the bidding prospectus for freeports in England embedded net zero ambitions as part of the assessment of bids. Employers in freeports will need to meet the same high regulatory standards on slave labour as other businesses in the UK. “For all these reasons, I urge the House to resist this amendment,” he concluded.
Finally, the minister turned to government amendment 3. “The policy intent here is that the veterans’ measure should apply to the whole United Kingdom. This amendment corrects a small drafting error by replacing reference to the Social Security Contributions and Benefits Act 1992 with a reference to that Act and the Social Security Contributions and Benefits (Northern Ireland) Act 1992, reflecting the original policy intent. I trust that Members will agree that this is a minor and technical amendment and should be included as part of the Bill.”
The only proposal to be pressed to a vote was new clause 4, the Lib Dem-backed increase to the employment allowance. It was defeated by 15 votes to 309. The government amendment was passed without opposition. The other proposals all fall.
Third Reading debate
Financial Secretary Jesse Norman spoke first, thanking all MPs who had contributed to debate on the Bill and reminding the House of the Bill’s provisions and overarching goals.
Norman explained that it is the Government’s intention to designate freeports in all four devolved nations. “Therefore, while the legislation currently provides for a relief in England, Wales and Scotland, it is the Government’s intention to legislate for this relief in Northern Ireland as soon as it is practicable. In fact, the Bill gives the Government the power to set out the detail of the employer NICs relief in Northern Ireland in secondary legislation once engagement with the Northern Ireland Executive is complete.”
He described the Bill as containing “a range of relatively small yet significant measures”. “It supports the levelling-up agenda and regional growth, it boosts the prospects of our armed services veterans, and it strengthens the Government’s powers to tackle promoters of avoidance schemes.”
Shadow Financial Secretary James Murray used Third Reading to reiterate some of the ‘sticking points’ in the Bill where Labour do not feel that there is enough clarity. He repeated a question he had asked at earlier stages of the Bill, asking the minister why the employers’ relief for veterans is for 12 months when the relief for employers in freeports is three years. “What my colleagues and I find hard to understand is why the Government… do not seem to want to design a system for veterans that both supports transition into civilian life and, at the same time, like the scheme in freeports, seeks to create long-term employment with employment rights.”
Clause 10 of the Bill provides a NICs class 2 and class 4 exemption for payments made under a self-isolation support scheme. The minister had said he would write to Murray about when the Treasury announced that this exemption would implemented, but he had not yet received a letter.
Clause 11 widens existing regulation-making powers so that regulations can be made for national insurance to mirror the amendments to the disclosure of tax avoidance schemes procedures — DOTAS — that are included in the Finance Act 2021. “As I made clear in earlier debates, we welcome any measures that help HMRC to tackle tax avoidance,” said Murray. “In earlier debates I also took the opportunity to draw Ministers’ attention to a point made by the Chartered Institute of Taxation: that it believes there is a hard core of between 20 and 30 promoters of tax avoidance schemes, identified by HMRC, who clearly do not play by the rules.” Murray expressed disappointment that the minister had not signed up to a target for the coming years, adding, “I would welcome him writing to me in the coming days to explain what the number of hardcore promoters was six years ago, so that I can understand whether those who have left the market have been replaced by new promoters.”
Richard Thomson, for the SNP, regretted that the Bill did not do more. “We should recognise that national insurance is a tax that affects the young and the lowest paid disproportionately. Exemptions that are targeted effectively, as I have tried to draw out through the passage of the Bill, can achieve much, but blanket increases simply increase and exacerbate existing inequalities in our society,” he said.
Jim Shannon, for the DUP, said his party were ‘very happy’ to support the Government tonight. He noted that the Northern Ireland Executive had made the decision to make payments of up to £735 an individual in their ‘covid thanks’ package. “That meant that those who qualify for the full award, which many do, pay tax at 20% and national insurance at 12% and still receive approximately £500 in their pay packet at the end of the month.”
On freeports he recognised that the final decision lies with the Northern Ireland Assembly. “I very much look forward to us in Northern Ireland playing our part and taking advantage of what the Government have brought forward here tonight.”
The Bill passed its third reading without a vote and passes to the House of Lords.
The full transcript of the debate can be read here.
Documents relating to the Bill can be read here.