PARLIAMENTARY DEBATES - publications.parliament.uk · Bill Dodwell, Tax Director, Office of Tax Simplification Colin Ben-Nathan, Chair, Employment Taxes Sub-committee, Chartered Institute

PARLIAMENTARY DEBATESHOUSE OF COMMONS

OFFICIAL REPORT

GENERAL COMMITTEES

Public Bill Committee

NATIONAL INSURANCE CONTRIBUTIONS(TERMINATION AWARDS AND SPORTING

TESTIMONIALS) BILL

First Sitting

Tuesday 14 May 2019

(Morning)

CONTENTS

Programme motion agreed to.

Written evidence (Reporting to the House) motion agreed to.

Motion to sit in private agreed to.

Examination of witnesses.

Adjourned till this day at Two o’clock.

PBC (Bill 381) 2017 - 2019

No proofs can be supplied. Corrections that Members suggest for thefinal version of the report should be clearly marked in a copy ofthe report—not telephoned—and must be received in the Editor’sRoom, House of Commons,

not later than

Saturday 18 May 2019

© Parliamentary Copyright House of Commons 2019

This publication may be reproduced under the terms of the Open Parliament licence,

which is published at www.parliament.uk/site-information/copyright/.

The Committee consisted of the following Members:

Chairs: SIR HENRY BELLINGHAM, † SIR ROGER GALE, † SIOBHAIN MCDONAGH

† Blackman, Kirsty (Aberdeen North) (SNP)

† Cartlidge, James (South Suffolk) (Con)

† Dodds, Anneliese (Oxford East) (Lab/Co-op)

† Dowd, Peter (Bootle) (Lab)

† Grant, Bill (Ayr, Carrick and Cumnock) (Con)

† Hughes, Eddie (Walsall North) (Con)

† Jenrick, Robert (Exchequer Secretary to the

Treasury)

† Knight, Julian (Solihull) (Con)

† Milling, Amanda (Cannock Chase) (Con)

† Morris, Grahame (Easington) (Lab)

† Russell-Moyle, Lloyd (Brighton, Kemptown) (Lab/Co-op)

† Scully, Paul (Sutton and Cheam) (Con)† Smith, Jeff (Manchester, Withington) (Lab)† Smith, Laura (Crewe and Nantwich) (Lab)† Tomlinson, Michael (Mid Dorset and North Poole)

(Con)† Walker, Thelma (Colne Valley) (Lab)† Wood, Mike (Dudley South) (Con)

Mike Everett, Committee Clerk

† attended the Committee

Witnesses

Robert Jenrick MP, Exchequer Secretary, HM Treasury

Simon Smith, Senior Policy Adviser, HM Treasury

Raj Nayyar OBE, Bill Manager and National Insurance Contributions Policy Adviser, Her Majesty’s Revenueand Customs

Bill Dodwell, Tax Director, Office of Tax Simplification

Colin Ben-Nathan, Chair, Employment Taxes Sub-committee, Chartered Institute of Taxation

1 214 MAY 2019Public Bill Committee N.I. Contributions (TerminationAwards and Sporting Testimonials) Bill


Tuesday 14 May 2019

(Morning)

[SIR ROGER GALE in the Chair]

National Insurance Contributions(Termination Awards and Sporting

Testimonials) Bill

9.25 am

The Chair: Good morning, ladies and gentlemen.You will have noticed that I am not your Chairman, butI am for the moment; I hope the Chairman will arrivein due course. In the meantime, I have a couple ofannouncements before we start: please turn off yourmobile phones and anything else electronic that makesa noise, and please remember that tea and coffee are notallowed in the room during sittings.

We will consider first the programme motion on theamendment paper, then the motion to enable the reportingof written evidence for publication, and then the motionto allow us to deliberate in private about our questionsbefore the oral evidence session. In view of the timeavailable, I hope we can take those matters formally,without debate. I call the Minister to move the programmemotion in his name, which I gather was discussed yesterdayby the Programming Sub-Committee.

Ordered,That—

(1) the Committee shall (in addition to its first meeting at9.25 am on Tuesday 14 May) meet—

(a) at 2.00 pm on Tuesday 14 May;

(b) at 11.30 am and 2.00 pm on Thursday 16 May;

(2) the Committee shall hear oral evidence in accordancewith the following Table:

TABLE

Date Time Witness

Tuesday 14 May Until no later than10.25 am

HM Treasury

Tuesday 14 May Until no later than11.25 am

Office of TaxSimplification;Chartered Instituteof Taxation

(3) the proceedings shall (so far as not previouslyconcluded) be brought to a conclusion at 5.00 pm onThursday 16 May.—(Robert Jenrick.)

The Chair: That means that all the deadlines foramendments to be considered during line-by-line scrutinyhave now passed.

Resolved,That, subject to the discretion of the Chair, any written evidence

received by the Committee shall be reported to the House forpublication.—(Robert Jenrick.)

Resolved,That, at this and any subsequent meeting at which oral evidence

is to be heard, the Committee shall sit in private until the witnessesare admitted.—(Robert Jenrick.)

9.27 am

The Committee deliberated in private.

Examination of Witnesses

Robert Jenrick MP, Simon Smith and Raj Nayyar OBEgave evidence.

9.28 am

The Chair: Good morning to those who have justjoined us. We now resume our public sitting and hearevidence from the Treasury. Before I call the first Member,I remind all Members and witnesses that questions andanswers should be limited to matters within the scope ofthe Bill. Please also recognise that we must stick to thetimings in the programme order that the Committee hasagreed.

The scope of the Bill is quite narrow. Essentially, theBill introduces a new class 1A national insurancecontribution on termination awards in excess of £30,000,and a new class 1A national insurance contribution onsporting testimonial payments over £100,000. CouldMembers and witnesses try to keep their commentsfocused on the scope of the Bill, which is not aboutgeneral reform of national insurance?

Do any members of the Committee wish to declareany interests before we proceed?

Mike Wood (Dudley South) (Con): I declare an interestas vice-chair of the all-party parliamentary group onfootball.

The Chair: Thank you. The understudy will now handover to the Chairman.

[SIOBHAIN MCDONAGH in the Chair]

The Chair: I apologise to all members of the Committeefor being late. Things have conspired against me!

I call the first panel. I remind the Committee that wehave until 10.25 am for this session. Will the witnessesplease introduce themselves?

Robert Jenrick: Good morning. It is a pleasure toserve under your chairmanship. I am Robert Jenrick,Exchequer Secretary to the Treasury.

Simon Smith: I am Simon Smith, head of nationalinsurance contributions policy at the Treasury.

Raj Nayyar: I am Raj Nayyar, Bill manager for HerMajesty’s Revenue and Customs, and national insurancecontributions policy adviser.

The Chair: Thank you. I call Peter Dowd.

Q1 Peter Dowd (Bootle) (Lab): Thank you. It is apleasure to see you in the Chair, Ms McDonagh.

Minister, on publishing its report of 14 November 2016,the then chair of the Office of Tax Simplification,Angela Knight, said:

“Our independent review has demonstrated...that some willgain and others will lose from any change.”

Could you tell us who gains and who loses as a result ofthese proposals?

Robert Jenrick: Are you speaking in relation totermination payments?

Peter Dowd: Yes, termination payments.

3 4HOUSE OF COMMONSPublic Bill Committee N.I. Contributions (TerminationAwards and Sporting Testimonials) Bill

Robert Jenrick: First, the most important point tomake is that we have chosen only to apply nationalinsurance contributions class 1A to employers’ nationalinsurance contributions, not to employees, although Iappreciate the argument that could be put forward thatthat will impact on the total settlement made to employeeswhen an employer looks at the package they are toreceive on termination. The evidence we have seensuggests that it will have a very limited impact on wages,which was a point that you raised on Second Reading,Mr Dowd—around 0.01% impact.

In terms of who will bear the cost, the vast majorityof termination payments will be exempt. Around 80% ofindividuals receiving a termination payment will not beaffected by the measure. There is already a generousthreshold of £30,000, which compares very favourablyinternationally. There is no income tax payable beforethat point, and even with this measure, there will be noemployers’ national insurance payable—it will only beon payments above that. Because of that, we anticipatethat the proposals will affect higher income groups.

The best estimate that Her Majesty’s Revenue andCustoms and the Treasury have made is that it willimpact the top two or three income deciles. It will have avery limited impact on low or middle-income earners.

Q2 Peter Dowd: Can you confirm that no distributionalanalysis has been undertaken of the impact of the newclass 1A charge for employers on termination awards?Is that correct?

Simon Smith: We wrote to the Committee aboutdistributional analysis prior to the session. We said inthat note that what we have done, and are able to dowith the data we have, is to show that this woulddisproportionately affect higher and additional ratetaxpayers. But due to data limitations, we cannot do theformal distributional analysis of the type that we wouldusually do with a full Budget policy costing. However,we are confident that it would affect the top two to threeincome deciles, as the Minister says.

Q3 Peter Dowd: I acknowledge your point, but theanswer to the question is no; you have not done adistributional analysis, and you say you cannot do onebecause it is not pertinent or possible to do one.

Simon Smith: Yes, it is not possible.

Q4 Peter Dowd: Okay. May I go on to the issue ofcollection? The legislation does not set out the way inwhich the class 1A charge will be collected, stating thatthat will be covered by secondary legislation. Minister,do you accept the criticism from tax accountants thatthat is a break from practice and that it will be confusingfor employers, as well as, for example, adding toadministrative burdens?

Robert Jenrick: No, we do not agree with that. I willlet my colleague Raj, who perhaps has the greatestexpertise from an HMRC perspective, speak to this in amoment, but the purpose of the policy is tax simplificationand greater alignment with income tax. Our primarymotivation is to simplify the tax code and to givegreater certainty to taxpayers. We chose class 1A as themost logical class of national insurance on which toapply the charge, because it is the class that applies tobenefits received by employees, and is paid by employers.

I know that, on Second Reading, you raised thequestion of whether we could have chosen an alternativeclass, or created a new class altogether. We chose not tocreate a new class altogether because that would havegone against the grain of what we were trying to do. Farfrom simplifying national insurance in a modest way,that would have made it more complicated. Class 1national insurance contributions are somewhat different,because that is both employers and employees.

As I said in answer to your first question, we specificallychose to apply only employers’ national insurance inthis situation, not employees’ as well, which, of course,we could have done. That would have simply been anadditional charge that individuals had to pay. We chosenot to do that. We gave it considerable thought andcame to the conclusion that class 1A was the mostlogical one to apply this through. I think that has beenwidely recognised. I do not know whether Raj hasanything to add.

Raj Nayyar: The only thing I would add is that whenthere is a cash payment—a termination award—forincome tax, it is currently collected through pay-as-you-earn.It is reported in real time and paid either monthly orquarterly, depending on the size of the employer. For aclass 1A contribution, where it is a cash award, it will bereported and paid in the same way as pay-as-you-earnincome tax.

Robert Jenrick: The point there, just to emphasise it,is that the motivation is greater alignment with incometax. By bringing the two into the same manner ofpayment, we are simplifying, rather than adding furthercomplexity. Had we created a misalignment, where one—income tax—was paid through PAYE and the other waspaid separately, perhaps at the end of the tax year, wewould not have served the purpose of the Bill.

Q5 Peter Dowd: I understand that class 1A chargeswill arise and be paid in real time, rather than after thetax year-end, as is the case with other class 1 charges.Given that we are talking about simplification, do younot accept that payment in real time would requireadditional boxes on the PAYE real-time informationsubmission, and a new process by Her Majesty’s Revenueand Customs for monthly or weekly PAYE reductionsfor employers? Would that not place an administrativeburden on employers that is not factored into the policynote produced by Treasury officials? It does not appearto be as simple as you are suggesting, in the round.

Raj Nayyar: May I answer that for the Minister? Themain point is that employers are already doing that forincome tax. They already have to report and pay innear-real time, so it will not add much to what theyalready have to do for income tax.

Just to clarify one point, there will be instances whenthey will pay the class 1A termination award after theyear-end, and that is when the termination award comprisesa benefit in kind. For example, if an employee is allowedto keep a car for a specific period, that is a benefit inkind, and that will continue to be reported after the endof the year.

Q6 Kirsty Blackman (Aberdeen North) (SNP): Tofollow up on that, can you confirm that this is the onlyclass 1A liability that will arise on cash earnings?

Robert Jenrick: Yes.

Raj Nayyar: Yes.


Q7 Kirsty Blackman: So there are currently no othersfor cash apart from those in the Bill for sporting testimonialsand termination awards?


Raj Nayyar: Yes.

Simon Smith: Yes.

Q8 Kirsty Blackman: On the real-time collectionmechanism, can you confirm that this is the only class 1Aliability that will arise in real time?


Raj Nayyar: Yes.

Simon Smith: Yes.

Q9 Kirsty Blackman: It seems to me that you arecreating a different class within a class with these1A contributions. They are still going be termed1A contributions, but they will be treated totally differentlyand arise on different classes of stuff from current1A contributions.

Robert Jenrick: It is distinct from the others, but, as Isaid earlier, if the choice was about which of the classesis the most logical to apply this to, this would remainthe most logical. If your argument is that because this issomewhat different, you could have created an additionalclass of NICs, you could have done that, but we tookthe view that that would have added more complexitythan simply having a somewhat different situation withinclass 1A.

Raj Nayyar: Can I add to what the Minister said? Weare working to minimise any additional administrativeburden there may be, but, as I said, because this isalready being done by employers for income tax, anyadditional burden would be minimal. HMRC will makesure that guidance for employers is ready in good time,and it will also be talking to and consulting softwareproviders about how to bring this about.

Q10 Kirsty Blackman: Currently, there may be employersout there who do not do anything on class 1A, becausethey do not provide any benefits in kind to employees.They will not change anything they do, but may now beliable for class 1A contributions done in this different,unusual class 1A way, just because you are bringingcash termination payments into class 1A contributions.Is that right?

Robert Jenrick: That is technically possible, yes.

Q11 Kirsty Blackman: Okay. So it could be an additionaladministrative burden on those who do not currentlypay any benefits in kind.

Raj Nayyar: We think that there would be a one-offunderstanding and learning.

Q12 Kirsty Blackman: On the impact on the amountthat employees receive, your work tells us that mostlypeople in the top two or three income deciles will beaffected—or disproportionately impacted, as you suggest.Have you quantified the total amount that employeeswill lose as a result?

Robert Jenrick: I will ask Simon to answer in amoment, but it is not as simple as that, because that isbeing paid for by employers. As I said earlier, we have

chosen not to apply both employer and employee nationalinsurance contributions, so the employee will not payanything directly. Your question cuts to, “If you were anemployer looking at how much money you were willingto pay somebody as part of a termination, would youtake into account the fact that the employer now has topay 13.8% class 1A national insurance contributions?”

That is quite possible—we do not dispute that—but itis difficult to accurately quantify the proportion ofemployers that would pass that on to the employee. Weknow that it is a revenue-raising measure, and we expect—and the Office for Budget Responsibility has verified—thatit will bring in around £200 million a year on anongoing basis. Those facts speak for themselves. We willbe raising additional national insurance revenue fromemployers, but it will be for employers to decide howmuch of that is passed to employees through the usualnegotiations.

Simon Smith: The only thing that I would add is thatthe OBR has chosen to model this as a 0.1% reductionin wages. There has been no further adjustment on topof that for redundancy payments or anything else. Thatis largely because it is uncertain, as the Minister said,how it would be distributed. It will depend a lot on theindividual employer-employee relations whether it istaken as lower profit, wages or anything else.

Q13 Kirsty Blackman: Does the Treasury have detailsabout the number of business start-ups by people whohave received termination payments?

Simon Smith: We do not have specific data on that.

Q14 Kirsty Blackman: If the Committee meets onThursday, it would be useful if you could look and see ifyou have data on the number of business start-ups as aresult of termination payments, because I am concernedabout the impact there may be on business start-ups asa result of the reduction in termination payments receivedby employees. Do you see what I mean?

Robert Jenrick: I certainly do not hold those figures. Ihave seen independent anecdotal surveys, but I do notknow on what basis they have been drawn up. Clearly,as you allude to, a large number of small businesses arebegun by people who have lost their job and have takenthat as an opportunity to set up their own business.

To return to the facts of the Bill, we still have a verygenerous threshold of £30,000. However wealthy one is,losing a job is a very difficult time in life. It is not anexperience that people want to go through, whateverincome level they have, but that does compare favourablyby international standards. A number of countries,such as the United States and Germany, have no thresholdat all, so people would start to pay income tax andemployment taxes from £1. Even with this change, oursystem will compare favourably with other countriesthat we would look to as competitors or countries thatwe think have sensible welfare safety nets.

Kirsty Blackman: My other questions are on sportingtestimonials. Chair, do you want me to hold them or askthem now?

The Chair: Do you mind if I bring in a few morepeople? Thank you.


Q15 Michael Tomlinson (Mid Dorset and North Poole)(Con): Minister, can I pick up on the point about thethreshold and international comparisons? You gave twoexamples, but you said in broad terms that we comparefavourably. Can you expand on that a little bit and givethe Committee more evidence?

Robert Jenrick: Of course. It was raised on SecondReading that, as a country, our threshold has beenfrozen since the late 1980s. That raised the perfectlylegitimate question: is this a sensible place at which toretain the threshold? We think it is. We did internationalanalysis when making changes from the income taxperspective that were legislated for in the Finance Acts 2016and 2017. As I said earlier, the threshold comparesfavourably with OECD countries and EU countries. Anumber of countries, most prominently Germany andthe United States, have no threshold at all. We thereforethink that the threshold is fair. It is also worth notingthat there is a range of exceptions that cover importantsituations such as disability, to which it does not apply.

The threshold has been debated. In fact, it is not setout in this Bill at all but is set out, from an income taxperspective, in the Finance Act. It was debated at thatpoint and, clearly, the House came to the conclusionthat it was a sensible level that compared reasonablywith international comparators. The Bill does not speakto that; it purely applies employer’s national insuranceclass 1A to the amount that is taxable from an incometax perspective, using the threshold that is set elsewherein the Finance Act. If one wanted to return to that, onewould return to it through a future Finance Bill but, as Isay, it was debated at the time and the view of theHouse was that it compared favourably by internationalstandards and was a sensible place to remain for thetime being.

Q16 Michael Tomlinson: Can I pick up on a pointmade by the shadow Minister, the hon. Member forBootle, on provenance? Were there any recommendationsby any key bodies or other organisations? How has itcome about?

Robert Jenrick: As Mr Dowd said, the origin of thereform comes from our asking the Office for TaxSimplification to review benefits including terminationpayments and to see if there are sensible ways in whichwe could simplify the system and create greater clarityand fairness. Making a change of this kind was one ofits recommendations, which we have now taken forwardfrom 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 addsomething on the international comparisons point? Theanalysis published by the OTS shows that approximatelyhalf of countries have no exemption at all for terminationpayments. We are also aware that there are other countrieswith no exemption for social security: Switzerland andDenmark, for example, have no threshold at all. That isquite a large number of countries that we would comparefavourably with.

The only thing that I would add on the process is thatit started with the OTS, but we have since consultedquite widely on the policy. We have spoken to more than100 groups and individual representatives and haveconsulted on the draft legislation for the terminationpayments measure, so it has been widely considered byquite a range of groups.

Q17 Michael Tomlinson: That is very helpful. Wehave touched on the burden on businesses, but can youamplify further the warnings that have been given tobusinesses to prepare for this? How long have they had?Are you confident that businesses will be ready fromday one?

Robert Jenrick: I hope so. Both measures in the Billhave been in the public domain for a very long time.They were first announced in 2015; we published theseparts of the Bill in December 2015 and they have beenconsulted on and restated in successive Budgets. Froman income tax perspective, we legislated in the 2016 and2017 Finance Bills, which have now come into law—oneof them has been in place for two years. We spoke to arange of stakeholders through the consultation and thepassage of the Finance Bills. From a business perspective,in the accounting community and, with respect to thesecond measure, in supporting bodies, these measuresare anticipated and well expected and have already beenput into place from the income tax perspective.

Q18 Anneliese Dodds (Oxford East) (Lab/Co-op): Itis a pleasure to serve on this Committee with you in theChair, Ms McDonagh. May I ask for clarification onone point? The Minister suggested that the impact onwages and salaries was projected to be 0.01%, butMr Smith pointed out that the OBR estimate is 0.1%.

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

Q19 Anneliese Dodds: Thank you. It may appearpernickety, but given how much wage stagnation wehave had, 0.1% is quite significant in terms of theoverall wage increases—or lack of increases—that wehave had in recent years.

May I push the Minister further on our discussionabout the relationship between these measures and whatoccurs in other countries? The UK’s system for supportingthose in unemployment is far less generous than in mostother countries—surely we should take that into account.Will he confirm that he does not intend to use the doorthat the legislation leaves open to further varying downthe threshold of £30,000? The Opposition argued forthat door to be closed, but it has not been. Will theMinister confirm that the Government have no plans tofurther vary down the £30,000 threshold?

Robert Jenrick: We do not have any plans to changethe threshold. You are not correct in saying that that is amatter for this Bill; if one wanted to take it forward, itwould be a matter for a future Finance Bill. If onewanted to change the threshold, it would need to bedone via an affirmative statutory instrument, and therewould be every opportunity for the House to scrutiniseit, debate it and vote on it at that point. However, wehave no plans to change the threshold.

Q20 Anneliese Dodds: I am grateful to the Ministerfor those comments, but he has just confirmed thesituation, which is that legislation that this House haspassed leaves open that possibility. Varying down thelevel could be done through a statutory instrument,rather than requiring an Act.

Robert Jenrick: As I say, it would be an affirmativestatutory instrument, so if the official Opposition tookissue with it, they would have the opportunity to do so.


Q21 Anneliese Dodds: Thank you; the point is clear. Iappreciate that clarification.

I have questions about testimonials, as does the SNPspokesperson, the hon. Member for Aberdeen North,but I am sure we will come back to them later. My finalquestion for now is about the real-time approach topayment of NICs. What kind of communication exercisewill be undertaken with those who may be affected?I appreciate Mr Nayyar’s comments about ongoingdiscussions with software providers and others, butconcerns have been expressed that this remains somethingthat could be viewed as an administrative burden. Theview is that, currently, the system is not set up to acceptthose payments. Can we have an indication of thecommunications that will be provided to ensure businessesare aware of this and not concerning themselvesunnecessarily?

Raj Nayyar: I will take this. HMRC has regularstakeholder events with tax professionals and softwareproviders in which we will be communicating how thiswill happen. We will be issuing guidance in due courseto explain what we would like employers to do and whatthey need to be aware of. We will be supplying specificationsfor third-party software providers about what changesthey need to make to their software, so all of that will beongoing.

Robert Jenrick: To add to that, the purpose of bringingthe Bill forward at this moment is that, if we can securepassage through Parliament and gain Royal Assent,there will be good time for that communication and foremployers and software providers and so on to makethe necessary changes before the start of the next taxyear.

Q22 Grahame Morris (Easington) (Lab): It is a privilegeto serve on the Committee under your chairmanship,Ms McDonagh. I seek some clarification from theMinister in respect of some of his earlier responses.When explaining why the Bill has been brought forward,you mentioned clarity, fairness, consistency andinternational comparators, but it is also an issue ofclosing a tax loophole, is it not? Can you clarify theparticular point that was made on Second Reading thatterminations were

“subject to different income tax and national insurance treatment”

and that had allowed a

“small number of well-advised employers to disguise final paymentsas compensatory termination awards that benefit from a nationalinsurance charge exemption.”—[Official Report, 30 April 2019;Vol. 659, c. 153-4.]

Do some well-informed employers see this as a meansof avoiding paying tax and a way of giving a bonus toan employee on a short-term contract, thus also avoidingPAYE income tax?

Robert Jenrick: Essentially, yes. We have numerousexamples of this. Raj, will you give some of them?

Raj Nayyar: Common examples we have seen arewhen an employee may have been due payment in lieuof notice, but they reach an agreement with their employerwhereby the contract is terminated and, instead, theyget a compensation award for damages for breach ofthat contract. That is taxable over £30,000 but it wouldhave been entirely NICs-free. The Bill disincentivisesthat kind of manipulation by the very well advised.

Robert Jenrick: Choosing only to apply employer’snational insurance disincentivises the employer fromtaking that action, without doing what one might havedone by going further and creating a further cost to theemployee.

Q23 Grahame Morris: Will the Minister—or perhapshis officials—indicate how many employers HMRC hasinvestigated over the past few years who are using thisloophole to avoid paying national insurance contributions,or is it simply an estimate?

Raj Nayyar: I am afraid we do not have the numbersto break that down.

Q24 Grahame Morris: Can you not make an estimateof how much the Treasury has lost? You said in yourearlier answer that it would generate £200 million inrevenue. I also saw an earlier note that said it wouldraise £485 million for the Treasury by 2020-21. Is it fairto say that £200 million is being lost per year?

Robert Jenrick: No, that is not correct.

Simon Smith: To explain the difference between thosetwo figures, the £485 million figure includes the impactof the income tax changes that have already been passedthat were part of a package of measures. There are twodifferent sets of changes. The first set—the income taxchanges—simplified the rules to make it harder tomanipulate payments. The NICs bit, which we are nowtaking forward, aligns the NICs treatment to removethe incentive to do what we were trying to stop throughincome tax in the first place. The £200 million figurerefers to the yield just from the NICs element of this—thebit that we are discussing today.

Q25 Grahame Morris: I am with you. Do we have anestimate of how much the Treasury has lost as a resultof using this method to avoid paying NICs?

Simon Smith: We do not have a breakdown of that.

Q26 Laura Smith (Crewe and Nantwich) (Lab): It is apleasure to serve under your chairmanship, Ms McDonagh.A quick question for the Minister: how much consultationhas there been with the trade unions over this?

Robert Jenrick: We consulted twice and the tradeunions took part in the consultations.

Simon Smith: The Trades Union Congress definitelyresponded. I have a full list of responses, and wouldhave to look at who else responded. The Trades UnionCongress definitely sent a response.

Robert Jenrick: We will confirm which other tradeunions responded to the consultation. From memory,the Trades Union Congress certainly did.

Q27 Laura Smith: So we can get some of that informationfrom you. Brilliant, thank you.

Simon Smith: Yes. I think it is publicly available.There is a full list of the respondents to the consultationon termination payments at the back of the consultationdocument.

Q28 Thelma Walker (Colne Valley) (Lab): It is apleasure to serve with you in the Chair, Ms McDonagh.There is concern among trade unions that this means


downward pressure on the amount received by peoplelosing their jobs, who are, by definition, in a time ofneed. What are your comments on that?

Robert Jenrick: I tried to answer that earlier. We allunderstand that, regardless of income, losing your jobis a very difficult period in your life. People of allincome levels can live to their income and havecommitments and so on. I do not for one momentunderestimate the difficulty that that situation presentsto individuals and their families. However, this measureis targeted at higher earners. We have the £30,000 threshold,which takes out the majority of termination payments.Around 20% of those individuals receiving a terminationpayment will be affected by this, so 80% will not beaffected.

Those who are affected will be individuals in thehigher income brackets, as we said earlier—those in thetop two or three income deciles. They will be higher rateor additional rate taxpayers. I do not diminish the factthat for higher rate taxpayers, losing your job is a verydifficult period in your life which puts all manner ofpressures on you and your family. It is worth noting, atleast, that this is a measure that is unlikely to impactthose on lower incomes.

Q29 Thelma Walker: And there are conversations tobe had with the trade unions about this.

Robert Jenrick: As I said, we have consulted on thisand I believe that they took part. They have had anopportunity to have their views known and listened toby the Treasury, as have business groups.

Q30 Kirsty Blackman: Moving on to sportingtestimonials, I am not somebody who goes to a hugenumber of live sports matches of any kind. How muchdo people generally pay for a ticket to a sportingtestimonial?

Robert Jenrick: There is no easy answer. There isimmense variation in events; they vary from a sportingtestimonial at Wembley stadium for a premiership footballerto ones at my local football club in Newark for a playerwho has retired after a 10-year career. You see a completerange of prices for sporting events. We have evidence onthe amount raised by the average sporting testimonialthat is affected by the Bill from a piece of work thatHMRC and the Treasury did in 2013. I believe it was£72,000. Obviously, many much smaller testimonials gobelow that, such as the one I have just described in thesmall club in my constituency. Finding the evidence onmore substantial testimonials is not easy, because thereis no central point of collection for it, but after doing atrawl for evidence in the public domain, we came to theconclusion that the amount is about £72,000 a year. Asyou will probably have seen, there is a threshold in theBill of £100,000, so the vast majority of sportingtestimonials will not be caught by this measure.

Q31 Kirsty Blackman: Are the ticket prices for theones that are over £100,000, because they are likely tobe caught, normally fixed, or are they done on a donationbasis?

Simon Smith: Again, there would be a lot of variation.The other point I would make is that not all sportingtestimonials will be affected by this Bill. We are talkingabout only non-contractual, non-customary sportingtestimonials. Contractual and customary sporting

testimonials are already fully taxable and NIC-able.Indeed, the income tax treatment of the non-contractual,non-customary sporting testimonials has already beenlegislated for, and it is in operation.

Q32 Kirsty Blackman: I have a question about theconsistency of the language in parts 1 and 2. Part 1defines the amount received in relation to the income ofthe earner under section 403 of the Income Tax (Earningsand Pensions) Act 2003, whereas the sporting testimonialsection, instead of defining it on the basis of an ITEPAcategory—I think section 226E is the key one for sportingtestimonials—talks about about general income. It doesnot define it in terms of the ITEPA eligibility threshold.Why is there a difference in language between the twoparts of the Bill? When part 2 talks about generalearnings, does it actually mean ITEPA section 226E?

Raj Nayyar: I think it does, but it might be helpful ifwe wrote and explained the difference.

Q33 Kirsty Blackman: Is it intentional that there is adifference?

Raj Nayyar: Yes, it was, but I think it would be best ifwe wrote to you.

Q34 Kirsty Blackman: This is the last question fromme. I have tabled an amendment about the Exchequerproviding a report on the impact three years after theBill comes into force so that we are aware of whether ithas raised the £200 million a year that the Treasurysuggested it would. I do not have a huge amount ofsuccess in getting amendments accepted, so I wonderwhether the Minister and his team would provide thatreport, even if they do not accept my amendment?

Robert Jenrick: Sorry to disappoint you.

Kirsty Blackman: It was worth a try.

Robert Jenrick: I did actually accept one of youramendments to the Finance Bill, so it sometimes works.

Kirsty Blackman: You did; it is true. It does nothappen often, though.

Robert Jenrick: The established process is that wereview pieces of new legislation within three to fiveyears. As this is a Treasury Bill, we will write to theTreasury Committee within three to five years, settingout our intention to review the Bill and the outcome ofour work.

Raj Nayyar: If we have not already done so. SometimesHMRC will already have commissioned research onhow a policy has worked out, and we can then justexplain that that has happened and the impact of it.

Robert Jenrick: The £200 million is for terminationpayments. As for sporting testimonials, we believe thatthis measure will raise a very small amount of money.Our motivation is to ensure clarity by placing the taxsituation on the statute book, and to ensure fairnessbetween sportspeople who have testimonials, rather thanto raise significant sums of money. The OBR has certifiedthat the effect is negligible, which means less than£3 million, but it could be significantly less than £3 million.

Q35 Mike Wood: A lot of sporting testimonials at alllevels are used to raise money for charities and goodcauses, with either all or some of the proceeds going to


[Mike Wood]

local or national charities. How do you expect thesemeasures to impact on charitable giving through sportingtestimonials?

Robert Jenrick: That is a good question. We do notthink it will have a material impact. If you are asportsperson who wants to give all or part of yourtestimonial receipts to charity, there are two optionsavailable to you. First, you could use our very generoussystem of payroll giving, which is without limit. Youremployer, which in this case may well be the sportingtestimonial committee, could register for that and takeadvantage of it. If you had not done that, and thereceipts came to you as an individual, you could chooseto make a donation and use gift aid at a later date, andtake advantage of what by international standards is avery generous relief. We do not think there will be animpact on the receipts that charities receive from someof these testimonials.

Mike Wood: I apologise, Ms McDonagh, but in myearlier declaration, I should have drawn the Committee’sattention to the part of my entry in the Register ofMembers’ Financial Interests about hospitality fromthe Football Association.

The Chair: I guess there might be a lot of people inthat position.

Q36 Anneliese Dodds:I should like to refer back toour discussion on termination payments. I am perplexed,because I thought the panel contended that it wasunclear how many people would be affected by thosemeasures, yet the Exchequer’s figures—the Ministerreferred to them—project a potential increase in revenueof £210 million. That must be modelled on the basis ofthe new income tax incidence, and must assume that atleast some of the people affected will be drawn into thenew employer NICs. Surely we have some indication ofhow many people will be caught by this measure. Perhapsmembers of the Committee could receive a letter confirmingthat, but I wish to push the panel a little more. If there isan estimation of the revenue impact, we must roughlyknow how many people will be affected.

Robert Jenrick: I think there are two questions there,and you are asking a different question from the oneasked earlier. You are asking how many individuals oremployers are likely to have to pay employers’ nationalinsurance contributions on their termination payments,but the earlier question was about the impact on theamount of money that goes to individuals, and whetherwe have modelled that. My answer to that secondquestion was that that was very uncertain, because itwill depend on the behaviour of the employer, and towhat extent they pass that cost on to the employee. Wethink that around 72,000 termination payments arelikely to incur employers’national insurance contributions;we have modelled that. The more difficult question, towhich there is no accurate answer, is about how employerswill behave in every case, and whether they will chooseto pass all or some of the 13.8% on to the employee inthe package they provide.

Q37 Anneliese Dodds: Thank you. I appreciate thatclarification. On testimonials, does the panel know ofany other uses of the concept of “customary” in tax law,and how that is operationalised?

Raj Nayyar: I think we will have to look at that andget back to you.

Q38 Anneliese Dodds: That perhaps underlines mymost significant concern about this measure, which isthat the term “customary” appears to be an emptycategory. Perhaps panel members believe that cases willfall into that category, but it seems that unless thetestimonial is contractual, it is likely that it will not be“customary”. A testimonial is a bit like a leaving present:every player would hope to have one, but they cannotnecessarily expect it. I am concerned about this woollylanguage creeping into tax law, but perhaps the panelwill relieve me of that concern.

Raj Nayyar: HMRC has received guidance on that,and it will ensure that it is clear and properly signposted,so that employers and testimonial committees can workout what it means in their circumstances.

Robert Jenrick: Perhaps we can send you a copy ofour guidance. This is very long-standing, and a body ofcase law in this area helps to identify what we mean by“customary”. There are cases of testimonials that wouldbe considered non-contractual but customary; an examplewould be if it was the custom that once a player hadplayed for a club for 10 years, they automatically receiveda testimonial, although that was never written into theircontract. A cadre of testimonials would fall into thatcategory, and have done so historically.

Q39 Anneliese Dodds: It would be very helpful if theCommittee could have that. It would have been usefulto have it before the sitting, because the descriptiongiven previously by a Minister—not this Minister, Ihasten to add—suggested that “customary” might applyif there was a testimonial every year for a departingplayer or a particular group of players. Anybody whounderstands a little about football—I should declarethat I am the partner of a referee, so, sadly, I know itinside out—knows that it is fairly unlikely that oneplayer would retire every year; that would be slightlystrange, so it would be useful to have that guidance.

Robert Jenrick: It is in the public domain, so it wasavailable to all Committee members, but I am happy tosupply that.

Q40 Bill Grant (Ayr, Carrick and Cumnock) (Con):It is a pleasure to serve under your chairmanship,Ms McDonagh. Testimonials are common among sportsgroups, and they are not necessarily confined to football—they occur in cricket, rugby and so on. One wouldassume that there was consultation or engagement withclubs or representative bodies. What feedback did youget from them about the changes you propose?

Robert Jenrick: our interest in reforming nationalinsurance contributions for sporting testimonials is long-standing, as is our interest in reforming terminationpayments, so this measure has been considered for sometime. We consulted on it. Inevitably, in the course ofthat, we got representations from a number of sportingbodies, and Treasury officials and Ministers met someof them. For example, my predecessor, David Gauke,who was then Financial Secretary to the Treasury and isnow Lord Chancellor, met the England and WalesCricket Board, which took a particular interest in thismeasure. As a result, we took the decision to increase


the threshold from £50,000 to £100,000. That is a significantchange. Evidence we produced in 2013 suggested thatthe average applicable testimonial raised around £72,000a year, so the change will take the vast majority oftestimonials out of this measure, which applies only totestimonials that bring in significant receipts.

As far as I am aware, we have not received anyrepresentations from sporting bodies since we made thechanges to income tax two years ago, and we havereceived no further representations from sporting bodiessince I introduced the Bill a few weeks ago, so I think ithas been received reasonably well.

Q41 Peter Dowd: May I follow up on a point thatMr Wood made? I felt a certain amount of ambivalenceabout the statement that the impact on the charitysector would be minimal. Any pound whatever lost tothe charity sector is a loss to the charity sector and tothe community, so I am slightly worried that the attitudeseems to be, “It’s not much.” It will be something. Intoday’s society, given austerity, any loss to the charitysector is crucial, so it would help if we firmed up atsome point what we believe the loss will be.

Robert Jenrick: Perhaps I can firm that up now. If thesportsperson used payroll giving, the loss would bezero. The individual and the sporting testimonial committeeneed to register for payroll giving, which is availablewithout limit. In that case, there will be no loss to thecharity whatever.

Q42 Peter Dowd: That is right, but that takes me tomy second point, which is that you have almostbureaucratised the process. We are moving from a muchsimpler process to one in which I suspect the onus willbe on the organisation or the individual to make aseparate declaration. You can clarify that for me if youwant, either today or subsequently.

May I ask a couple more questions? The first is onthe loss in the last few years as a result of some sportingtestimonials income incorrectly being excluded fromnational insurance contributions. Secondly, can youconfirm how much HMRC receives in income tax andnational insurance contributions because of contractualand non-contractual sporting testimonials?

Simon Smith: On the second point, I do not think wehave a box on methods of collection specifically to notethat money is coming in from a contractual or customarysporting testimonial. We would not have a precise figurefor that, I don’t think. Raj?

Raj Nayyar: No, we do not.

Simon Smith: We would not have that figure.

Robert Jenrick: That is because it would just count aspart of your employment. It would just be anotherpayment in respect of your employment.

Simon Smith: Exactly. We would collect it as wewould earnings. That is essentially the role that it isperforming in that instance.

Q43 Peter Dowd: Given that answer, can you provideany examples of the confusion that employees have hadwith the previous tax and national insurance treatmentof termination awards?

Raj Nayyar: Long-standing tax and national insurancetreatment has relied on an old 1927 case. In that case, itwas decided that where a sportsperson received a benefit,or income from a benefit, that was not earnings.

However, since that time, there have been importantchanges to the tax and national insurance scheme. Forexample, there was the introduction of the benefitscode, which taxes benefits in kind. That was replicatedfor national insurance contributions. More recently,there have been changes to the Income Tax (Earningsand Pensions) Act 2003 for disguised remuneration—changes that, in certain circumstances, place a tax andnational insurance liability on payments by a thirdparty. Those developments threw the treatment of sportingtestimonials into a bit of a quandary, because they hadovertaken the 1927 case, but HMRC guidance had notbeen fully updated, and was still based on the 1927 case.The Finance Act 2016 was introduced to try to makethat clearer for income tax, and this Bill just follows upfor national insurance contributions.

Q44 Peter Dowd: I am glad you mention the pointabout the Finance Act 2016. Do you think it hassucceeded in doing what you intended it to do? Or areyou not quite sure yet? Is it too early to say?

Raj Nayyar: From what we can tell, it has; we have noindication to the contrary. I am sure we would havebeen notified or been contacted if it had not resolvedsome of the uncertainty.

Simon Smith: It has definitely put the legal positionbeyond doubt, whereas before there was this contradictionbetween the case law and other bodies of legislation.Now it is very clear for tax what the position is, so inthat sense, it has met its objective.

Raj Nayyar: The legislation has not gone as far as, forexample, the disguised remuneration legislation, whichplaces a tax and class 1 employee and employer liabilityon certain third parties. This is only employer NICsafter a £100,000 threshold.

Robert Jenrick: It is a generous level at £100,000. It isonly the employer side. Speaking as somebody whoenjoys watching sport, you want to support sportspeople,but have to be aware of other individuals whose careerscan be quite short. There are other examples that havecome to us, such as people in the performing arts, balletand many other areas. That would possibly includeMPs, whose career prospects are not always very goodwhen they leave the job. I think £100,000 is, by comparison,a generous situation.

The Chair: If there are no further questions fromMembers, I thank the witnesses for their evidence.

Examination of Witnesses

Bill Dodwell and Colin Ben-Nathan gave evidence.

10.25 am

The Chair: We will now hear oral evidence from theOffice of Tax Simplification and the Chartered Instituteof Taxation. We have until 11.25 am for this session.Will the witnesses please introduce themselves?

Bill Dodwell: Hello. I am Bill Dodwell, tax director ofthe Office of Tax Simplification. I was appointed tothat role in January this year.

Colin Ben-Nathan: I am Colin Ben-Nathan. I amchairman of the employment taxes sub-committee ofthe Chartered Institute of Taxation.


Q45 Peter Dowd: I will ask the same question that Iasked the Minister and his colleagues. Angela Knight,the then chair of OTS, said in November 2016:

“Our independent review has demonstrated...that some willgain and others will lose from any change.”

Can you tell us who are the losers and the winners fromthis particular change?

Bill Dodwell: We do not have data on the winners andlosers of putting national insurance on terminationpayments. That report covered the whole issue of aligningnational insurance contributions with income tax inrelation to employment income. That meant makingsure that the base was the same—that the amounts youcharge tax or national insurance on are identical. Thereare significant differences at present. Secondly, it meantputting national insurance contributions on to an annualcumulative basis, like income tax. That is different fromthe current system of national insurance, which is chargedon a pay period by pay period point, with one exceptionfor company directors, who otherwise had an avoidanceopportunity that is closed by putting it on an aggregatebasis.

The evidence that the OTS gathered for those reportsin March 2016 and November 2016 was that therewould be something like 7.5 million winners—peoplepaying less as a result. On average, they would get about£170 a year more, but obviously that is an average.There would then be about 5.5 million losers—peoplepaying more—and their average payment would beabout £260 a year. You will be aware that the Chancellorat the time announced that that would not be movingahead.

Q46 Peter Dowd: Given that you made these suggestionsand the Government have taken them up, can you giveus some examples of the confusion employers had withthe previous tax and national insurance treatment oftermination awards?

Bill Dodwell: The March 2016 report, which specificallyrefers to it, says:

“Often employers apply NICs to termination payments whenthey are not required to, and end up making NICs overpayments.”

I do not have access to exactly how much. The OTSdoes not have the same level of analysis that HMRCdoes, but it did pick up evidence of that.

Q47 Peter Dowd: How substantial was that evidence?

Bill Dodwell: I cannot give you an underlying view.Much of it is provided by people who give evidence tothe OTS on a voluntary basis. We seek evidence from asmany people as we can, but it is not the same as doing acomplete population analysis, which HMRC can do.We cannot do that.

Q48 Peter Dowd: Would you characterise the introductionof a new class 1A NIC charge as an anti-avoidancemeasure, or as a measure designed to simplify the taxcode and raise revenue?

Bill Dodwell: It is very hard to give you a clearanswer. I think it is both. I was listening to the evidencefrom the previous session, and there were clearly somepeople who were steering payments in a particular wayto avoid paying national insurance. The general OTSview is that you make it easier for everybody to understand

the system if both employers and employees understandit better, and if the tax and national insurance base isthe same. That is not just on income, such as terminationpayments; it is also on expenses.

Q49 Peter Dowd: I may come back to that at somepoint, if I may. Can I turn to the Chartered Institute forTaxation? Do you have an opinion or any observationon the time it has taken the Government to bringforward these proposals for a new class 1A NIC charge?The original announcement was made in 2016.

Colin Ben-Nathan: Yes. As has been said, there is theargument for levelling the playing field on income taxand national insurance contributions. I am sure we willcome on to discuss how that is being done. The genesisof the changes that we are now talking about—thenational insurance changes—was in an OTS report afew years ago, which was all about simplification of thesystem. There is an important point on simplification.There is also a point on the amount of revenue that israised from any particular measure and how that measureis introduced. We know that—in relation to this particularmeasure, because we have been given the figures—thereis, in aggregate, an amount of £200-odd million, whichis being raised by the imposition of class 1A nationalinsurance. We will talk about how that is being done.

This measure was part of a much wider set of proposalsthat ultimately has not been taken forward. The incometax changes that were made covered not just this proposalin relation to the question of what the level of the£30,000 limit might be, but foreign service relief andpay in lieu of notice. That was another area that waslegislated but not taken forward in relation to some ofthe earlier proposals that were looked at. In fact, we arelooking at a particular proposal here, which is the endpoint for levelling the playing field and the £30,000limit.

Q50 Peter Dowd: Does that fit in with the broaderproposal? It was referred to in the 2016 press release asbeing just one step forward in this area. Do you feel thatwe have ground to a halt at this stage?

Colin Ben-Nathan: As we said at the time, we thoughtthe proposals that were put forward by the Office ofTax Simplification had a lot of merit in trying tosimplify a very difficult area, which has occupied thecourts, employers, employees and HMRC for manyyears. Proposals were put forward and consulted on atthe time, and we responded to that consultation. Viewsvaried, but ultimately the Government decided thatthey did not wish to take forward a broad simplificationplatform and focused on the points that I mentionedpreviously. Obviously, that was a Government decision.Simplification can still be effected if there is the will andconsensus on how to do it.

Q51 Peter Dowd: Yes, and that is the sense that I get. Iam not asking you to confirm my sense, but I sense thatit has got thus far and no further at this stage.

Part of the Government’s rationale for the introductionof a new class 1A NIC charge on the termination ofpayments was that it is designed to address employees’current confusion about national insurance and taxtreatment of those awards. In your assessment, doesthis legislation adequately address that confusion, or is


there a danger of perhaps complicating it in the light ofthe fact that it has not gone further, à la the previousanswer to my question?

Colin Ben-Nathan: I think we would accept that thisis a difficult area, but we have prepared evidence for theCommittee that you will have seen. We have noted thatthe introduction of class 1A in relation to cash payments,which will typically occur in relation to terminations—notalways, because there will be benefits in kind, but it istypically cash—is an unusual move. We understand theGovernment’s rationale for wishing to impose a chargein the first instance in relation to employers only. That iswhat class 1A national insurance does. Class 1 nationalinsurance, apart from one exception, which we note,generally imposes national insurance both on employeesand employers. There is an exception, and it relates tothose above retirement age, where secondary, or employernational insurance contributions are paid, but primary,or employee contributions are not paid. That was somethingthat we pointed out in our note. You then get theposition where you have to ask how easily employersare going to relate to class 1A being imposed in relationto a cash payment—and the way in which it is beingimposed. Typically, class 1A will apply to benefits inkind, which are made during the year, though the actualcontribution itself is paid after the end of the year,following a submission on form P11D(b), and so on.There will have to be a communication exercise inrelation to employers now having to apply class 1Aduring the year—that is the point that we make aboutthis particular measure being unusual.

Q52 Peter Dowd: I am glad that you have talkedabout how unusual it is, because that is one of thequestions I asked, which you have answered—so that istwo for the price of one. An additional justificationgiven by the Government for wider reform of the taxand national insurance treatment of termination awardshas been that a small group of well-advised employershas abused the current loophole, allowing them to avoidpaying additional tax and NICs. Without breaches ofconfidentiality, of course, have you ever come acrossinstances of that type of avoidance in your professionallife?

Colin Ben-Nathan: I would say that, like many areasof the tax code these days, it is very complicated. Youhave got a varying series of provisions in relation tocontractual earnings, termination payments, retirementbenefits, restrictive covenants; there is a whole tapestryof legislation here about which it is very easy to getconfused. There is one thing in terms of manipulationof the system, but there is another simply in terms ofunderstanding what the rules are. Typically, we findemployers wanting to take advice, to make sure thatthey get things right. The position at the moment is thatwe have a code. Section 403 was mentioned: it talksabout termination payments that are non-contractual.That is the provision we have, and on redundancypayments as well, where there is a £30,000 exemption.That is specifically there: it has not been changed for abit, as was said—it was the late 1980s—but it is there fora purpose. Employers will typically want to know whetherthey are within that exemption or outside it. It is quiteimportant, too, because as well as the £30,000 exemptionthat was mentioned, there is disability, injury and so on.That particular part of the code is really important.Whether I would go so far as to say that employers were

manipulating things, I don’t know, but it is importantthat employers understand where they are. Overall, ourview—again, it goes right back to 2015, when the Officeof Tax Simplification report stated that there was anopportunity to really simplify things. That is the waythat I would answer the question. I am not sure aboutmanipulation, but I would say that there is a lot ofconfusion.

Q53 Peter Dowd: I have one more question for theOffice of Tax Simplification. Out of the 1,200 tax reliefsthat we have—this is not directly linked, but would youconsider this to be a low-hanging fruit?

Bill Dodwell: Yes. This is a pretty simple, fairly restrictedissue. The evidence given by the Minister shows thesmall number of people that this affects.

Q54 Paul Scully (Sutton and Cheam) (Con): On thetwo thresholds of £30,000 for termination paymentsand £100,000 for testimonials, are they at the right level,or do you have any comments about where those sit?

Bill Dodwell: I do not think that we at the OTS have aspecific view on those levels, no.

Colin Ben-Nathan: It has been commented upon thatthe £30,000 limit was last increased in the late 1980s andhas not been increased since. We get back to the point ofwhether a measure is revenue-raising or revenue-neutral.One of the points that we raised previously on feedbackis that, and Bill will talk for the OTS, if there was goingto be an overall simplification—which is what we werelooking at—the sense was that it may be revenue-neutral.At the moment the position is that revenue is beingraised, but the actual threshold of £30,000 remainsstatic. It will now apply for the purposes of both incometax and class 1A national insurance. Where relief shouldsit is, of course, a matter of debate given the pressureson the public Exchequer, but the comment is that it isoverall revenue-raising.

Q55 Kirsty Blackman: I was going to ask Mr Ben-Nathanabout the collection mechanism, but you have answeredthat. Do you share my slight concern that employerswho currently do not use any benefits in kind, so do nothave any liability for class 1A, will potentially be broughtinto liability by this change?

Colin Ben-Nathan: It is true that if they do not dealwith benefits in kind, if there is a termination point andit falls within the special rules and is above £30,000,class 1A national insurance from next year will bepayable. That is the way the Bill is presented.

Q56 Kirsty Blackman: My second question is aroundthe different language used in the two parts of the Bill. Iraised this issue earlier in questions to the Minister. Willyou explain more about your concerns or queries aroundthis?

Colin Ben-Nathan: In relation to the terminationpayment part of the Bill, we have a cross-reference backto the taxing section that refers to the £30,000 limit andso forth. That seems pretty clear to us in terms of whatshould and should not be subject to class 1A nationalinsurance. When we look at sporting testimonials, it isnot so clear because we are effectively saying that theamount of general earnings should be subject to class1A national insurance. The question therefore is: is it all


the general earnings that are brought in by section 226E,which is effectively everything that is coming in, oris it those earnings, less the £100,000 reflected insection 306B, which is the exempting section? It issimply a question for the draftsmen to clarify that wehave actually got that right. I cannot believe it has notbeen thought about, but it did occur to us in looking atthe Bill.

Q57 Kirsty Blackman: I have a couple of questionsfor Mr Dodwell. On the implementation of these changes,I am not sure how much evidence or guidance the Officeof Tax Simplification provides to Government. In referringto equality of treatment between NIC liability and taxliability, did you suggest that the way to sort this out inthis case would be for the Government to use class 1Acontributions?

Bill Dodwell: No. All our reports are on public recordand published on our website. That report did notspecifically suggest class 1A.

Q58 Kirsty Blackman: Do you think that using class 1Acontributions liability to make this change will be simplerfor employers, or might it make it more complex forthem?

Bill Dodwell: I think arguably it makes it more complex.But it has been done specifically to preserve an employeerelief. That is the logic. If we had no reliefs at all, itwould be a simpler system, but reliefs are there for apurpose. We do not just want to argue purely for thesimplest system always.

Q59 Kirsty Blackman: I have one last question forboth of you. I have been raising issues about road mapsand where the Government intend to get with anythingthat they are doing, and how they intend to get there. Iam concerned that in many cases, there does not seemto be a grand plan. In relation to tax simplification,generally and also specifically around income tax andnational insurance changes, are both of you comfortablethat you know where the Government are looking to getto and how they are looking to get there? Or are you notcomfortable about that?

Bill Dodwell: I do not think there is evidence that thecurrent Government have a plan to align the income taxand national insurance base completely. There is noevidence to support that. There are revenue-raising andrevenue-losing parts of all that, so I am sure that theGovernment will be thinking about that.

We have also talked about trying to make the collectionand enforcement mechanisms simpler to understand, atleast on the national insurance side. We understand thatHMRC is doing some work on that. Again, it is not asimple system, because national insurance is not thesame as income tax. The two came from a differentplace; maybe we should argue that they should be one,but they are clearly not identical at all. We have topreserve those differences unless we go for a full-blownmerger.

Q60 Kirsty Blackman: Mr Ben-Nathan, have youanything to add?

Colin Ben-Nathan: Whether it is this Government orany Government, there is a need to look not just atnational insurance and income tax, but—speaking as

chairman of the employment taxes sub-committee—atthe whole question of employment, self-employmentand the gig economy. Matthew Taylor’s work and theGovernment’s response are ongoing and very important.We need a road map—I think that would help us. Therehave been attempts to move towards some sort ofcoalescence, for example around national insurance,employees and employers. It is a difficult area and thereare strong views one way and the other, but furthermoves in that direction would be really helpful, becausethe gig economy is here and we have to deal with it.

We have to look at these questions; I think that theGovernment are looking at that. The sooner we can dothat, the better, but obviously other matters are occupyingus at the moment.

Bill Dodwell: The OTS is about to publish a report—onThursday, I hope, subject to everything going well—thatI think will allude to some of that difference. Thebiggest financial part of the equation is, of course,employers’ national insurance, which is levied onemployment but clearly does not apply where there isself-employment or qualifying freelance work. That issuch a major and material issue that going from zero toa lot of money would not—for any Chancellor, I amsure—be a simple solution.

Q61 Bill Grant: In relation to termination awards, theChartered Institute of Taxation has made some negativecomments about collection methodology and timing ofcollection. It suggests that there is an administrativeburden and that it is quite complex—colleagues havetouched on some of that. Is the institute justified in itsconcerns? Can they be overcome by information orguidance from you to employers?

Colin Ben-Nathan: We, as the Chartered Institute ofTaxation, make points and the Government then decidewhat the policy will be. We have the Bill in front of us; Iam sure that guidance will be issued, and I hope it ishelpful. It is useful to have examples in guidance—wemight come on to that in relation to other matters aswell. Yes, ultimately employers will follow the rules asset down. We simply make the point that it is unusualfor a class 1A charge to be imposed under real-timeinformation, because normally that is not the case; thecharge is paid after the end of the year.

Q62 Bill Grant: One supplementary question: willthat guidance be timeously delivered to the employersor those responsible, rather than as an afterthought?

Colin Ben-Nathan: It is very much for HMRC toanswer on the timing. All I would say is that if guidanceis prepared in draft, the Chartered Institute of Taxationwill be very happy to comment on it.

Q63 Anneliese Dodds: I am grateful to our experts fortheir very helpful testimony. I am sorry to return totestimonials and the concept of “customary”, but ourprevious witnesses suggested that there was a body ofcase law around it and that the concept was well understood.However, I understand that there is some concern aboutlack of clarity in the scope of how “customary” isdefined—whether it relates to a particular team and itsprevious practice, or to sport as a whole. I note thatthere have been some high-profile football players recentlywho have not received testimonials when one might have


been expected. I wonder whether, on your understanding,the concept is sufficiently fleshed out, or whether additionalguidance might be useful.

Colin Ben-Nathan: Again, I am happy to commentfrom the CIOT point of view. That is really difficultarea, because one is effectively trying to look at whethersomething is either contractual or quasi-contractual byway of customary expectation, and is taxable because itis earned from employment, or if it is not such, and is todo with personal esteem and so on. All those issueswere raised in Reed v. Seymour in 1927, which wasmentioned.

That is a difficult area and in our evidence, we madethe point that if we do not legislate along those lines, itwould be really helpful—I am not suggesting that itwould be easy, but that is why we need to do it—to haveat least some examples of what HMRC believes is and isnot customary. For example, if something regularlyhappens to somebody and they know and expect it tohappen after they have served 10 years, maybe that iscustomary, but what if it is not 10 years? What if it iseight years, seven years or five years? We make thatpoint because we think it is very difficult when it comesdown to it.

Q64 Anneliese Dodds: Thank you—that is very helpful.I was intrigued by comments in some of the testimonyprovided to us about there being an analogy with thetreatment of tips in restaurants. They might be viewed,to some extent, as a discretionary payment made bythose who have enjoyed a service, and fans do the samething when they buy a ticket.

The big difference is that there are many costs associatedwith a testimonial, and if those costs end up beingmuch bigger than expected, they can almost swallow upall the revenue that comes from the testimonial. I wonder,on the first part of the equation—before one gets to theissue of tipping into £100 k—whether you feel that theallocation of costs is sufficiently watertight. The differentplayers set the fee for which they will play for theirteams. Is there sufficient clarity in that area?

Colin Ben-Nathan: Obviously, testimonials work indifferent ways. Essentially, one is looking at the relationshipbetween the testimonial committee and the individualwho would receive the money in the first instance, andat the nature of the amount of money at the gross pointand whether or not it is earnings. Yes, you are right;there will be costs attached to that. The Bill reallyspeaks to the gross amount that actually comes throughto the individual.

The point about tips is interesting. It has been notedthat an individual who receives an amount in relation tothe position on income tax can use payroll giving, orpossibly gift aid, to ensure that the amount effectivelygoes to a charity with no tax leakage. The interestingthing about national insurance is that is not the case.There is a point there, particularly about the amountsthat go to charity.

Bill Dodwell: We covered the difference between giftaid and give-as-you-earn in our March 2016 report. Wedid not recommend that it was a high-profile case to tryto resolve. There is essentially no national insurancesaving for gift aid. Gift aid is something like £4 billionor £5 billion a year, whereas payroll giving is somethinglike £130 million, so they differ by a significant order ofmagnitude. Obviously, gift aid does not just come out ofearnings, but can come out of broader income.

Q65 Peter Dowd: On the argument about what iscustomary, let us say that a footballer starts with club Awhen they are 16, 17 or 18, moves on to another clubwhen they are 21 or 22, where they stay until they are26 or 27, before moving on to another club. Now, whenthey are about 32 or 33, they might have a testimonial—people used to be much older when they had them.Testimonials might not be customary in a particularclub, but are they not customary for players in thesporting world, whoever they are? It seems to me to befairly straightforward and simple. Clearly, the expectationthat is on the clubs is the expectation from the sport andthe history going back—way beyond the 1927 judgment,in fact, to the end of the previous century. That waswhen testimonials were introduced, because the moneyplayers used to get was pretty abysmal.

Colin Ben-Nathan: Yes. I think we also need to rememberthat the National Insurance Bill we are looking at doesnot use the word “customary” or talk about “normalpractice”. It is simply talking about whether somethingis general earnings in the context of the income taxlegislation. What we are really trying to work out iswhether something that is received is received in thecourse of an employment, in relation to an employment,by virtue of an employment or all the glosses on thewords and the judgments we have had over the years, orwhether it is outside that and effectively relates topersonal esteem, qualities and so forth. That is a reallydifficult line here.

In some ways, the income tax legislation is trying todraw a line and say, “In principle, we’re going to taxeverything, whatever it is, if it’s not already taxed.” Thefirst thing that will happen is that they will tax it; thesecond thing is that there will be an exemption of£100,000, but the exemption will apply only to that whichis not ordinarily taxed. We have a question where somesort of guidance, comment or examples would be helpful,for all the reasons that you and others have expressed.

Q66 Peter Dowd: In relation to the point you madeabout national insurance contributions, one of the questionsasked earlier, which you may have heard, was about theloss—or whatever phrase we want to use—to the charitysector. Do you accept, do you think or do you believethat there will be a loss to the charity sector as a resultof this legislation?

Colin Ben-Nathan: I have not done the numbers. Ithink we were trying to get to some of the numbersbefore in relation to payments that would be above£100,000 in circumstances where a donation was envisagedto be given to charity. Clearly, in that context, there willbe a class 1A national insurance charge and thereforethere will be an amount going to the Exchequer ratherthan necessarily in full through to the charity. Theamounts mentioned are negligible, but in principle—intheory—one would say there is a measure of loss.

Bill Dodwell: We would hope that there would begood HMRC guidance, which would make the pointthat the testimonial committee should register for payrollgiving and hand the money over that way. Then, as theMinister said, there would be no loss whatsoever. However,that is administration, so the importance of good,straightforward HMRC guidance is to the fore here.

Q67 Peter Dowd: Do you think it adds a layer, giventhat a testimonial committee would have to register? Doyou acknowledge that there is an extra layer—I do not


[Peter Dowd]

like to use the word bureaucracy, but another layer—ontop of what those testimonial committees already haveto do?

Colin Ben-Nathan: Yes, of course, if any additionalregistration is required.

The Chair: Unless I have missed anybody, and I hopeI have not, that brings us to the end our oral evidencesession for this Bill. I thank the witnesses for givingtheir evidence to the Committee.

The Committee will meet again at 2 pm to begin ourline-by-line consideration of the Bill. I point out tomembers of the Committee that that will not be here inthe Boothroyd Room, but in Committee Room 12.

Ordered, That further consideration be now adjourned.—(Amanda Milling.)

11 am

Adjourned till this day at Two o’clock.


PARLIAMENTARY DEBATESHOUSE OF COMMONS

OFFICIAL REPORT

GENERAL COMMITTEES


NATIONAL INSURANCE CONTRIBUTIONS(TERMINATION AWARDS AND SPORTING

TESTIMONIALS) BILL

Second Sitting

Tuesday 14 May 2019

(Afternoon)

CONTENTS

CLAUSES 1 TO 5 agreed to.

New clause considered.

Bill to be reported, without amendment.

Written evidence reported to the House.

PBC (Bill 381) 2017 - 2019

No proofs can be supplied. Corrections that Members suggest for thefinal version of the report should be clearly marked in a copy ofthe report—not telephoned—and must be received in the Editor’sRoom, House of Commons,

not later than

Saturday 18 May 2019

© Parliamentary Copyright House of Commons 2019

This publication may be reproduced under the terms of the Open Parliament licence,

which is published at www.parliament.uk/site-information/copyright/.

The Committee consisted of the following Members:

Chairs: † SIR HENRY BELLINGHAM, SIR ROGER GALE, SIOBHAIN MCDONAGH

† Blackman, Kirsty (Aberdeen North) (SNP)

† Cartlidge, James (South Suffolk) (Con)

† Dodds, Anneliese (Oxford East) (Lab/Co-op)

† Dowd, Peter (Bootle) (Lab)

† Grant, Bill (Ayr, Carrick and Cumnock) (Con)

† Hughes, Eddie (Walsall North) (Con)

† Jenrick, Robert (Exchequer Secretary to the

Treasury)

† Knight, Julian (Solihull) (Con)

† Milling, Amanda (Cannock Chase) (Con)

† Morris, Grahame (Easington) (Lab)

† Russell-Moyle, Lloyd (Brighton, Kemptown) (Lab/Co-op)

† Scully, Paul (Sutton and Cheam) (Con)† Smith, Jeff (Manchester, Withington) (Lab)† Smith, Laura (Crewe and Nantwich) (Lab)† Tomlinson, Michael (Mid Dorset and North Poole)

(Con)† Walker, Thelma (Colne Valley) (Lab)† Wood, Mike (Dudley South) (Con)

Adam Mellows-Facer, Committee Clerk

† attended the Committee



Tuesday 14 May 2019

(Afternoon)

[SIR HENRY BELLINGHAM in the Chair]

National Insurance Contributions(Termination Awards and Sporting

Testimonials) Bill

2 pm

The Chair: Good afternoon. Welcome, everyone; pleaseswitch your electronic devices to silent. It is quite warmin here, so if anyone would like to remove their jacket,they are welcome to do so.

We are now going to begin the line-by-line considerationof the Bill. The selection list for the day’s sitting, whichshows how the selected amendments have been groupedtogether for debate, is available on the Committee Table.Amendments grouped together are generally on thesame, or a similar, issue. Decisions on amendments donot take place in the order they are debated, but in theorder in which they appear on the amendment paper.The selection and grouping list shows the order ofdebates. Decisions on each amendment are taken whenwe come to the part of the Bill that the amendmentaffects; new clauses are decided at the end.

In this instance, some clauses will be debated early onin proceedings, with the existing clauses with which theyare concerned and connected, but the decisions on themwill not be taken until later. It might be helpful to theChair, and indeed to the Front Benchers, if anyoneproposing to push an amendment to a Division gave anindication of that at an early stage.

Clause 1

TERMINATION AWARDS: GREAT BRITAIN

Question proposed, That the clause stand part of theBill.

The Chair: With this it will be convenient to discussthe following:

Clause 2 stand part.

New clause 1—Report on the impact of Class 1ANational Insurance Contributions on termination awards—

‘(1) The Secretary of State must, within 12 months of section 1of this Act (termination awards: Great Britain) coming intoforce, lay before Parliament a report on the expected impact ofthe new Class 1A liability on termination awards in excess of£30,000.

(2) That report must contain an assessment of the expectedimpact on—

(a) the total net value of termination payments received byindividuals;

(b) the average net value of such payments; and

(c) the number of business start-ups using terminationpayments as funding in their first year in each regionof the United Kingdom.”

New clause 4—Review of the impact of Class 1ANational Insurance Contributions on termination awards—

‘(1) The Secretary of State must, within 12 months of section 1of this Act (termination awards: Great Britain) coming intoforce, undertake a review of the impact of the new Class 1Aliability on termination awards in excess of £30,000.

(2) The review under section 1 must contain—

(a) an assessment of the impact the new Class 1A liabilityhas on the level of termination payments workersreceive;

(b) an assessment of the impact the new Class 1A liabilityhas on employers;

(c) a distributional analysis of the new Class 1A liability;and

(d) anything else the Secretary of State considersappropriate.

(3) The review under section 1 must be laid before bothHouses of Parliament.”

The Exchequer Secretary to the Treasury (RobertJenrick): It is a pleasure to return this afternoon, followingmy grilling by members of the Committee this morning,to explain the clauses in the Bill, starting—as you said,Sir Henry—with clauses 1 and 2. Before I respond tothe hon. Members who have tabled new clauses 1 and 4,it may help the Committee if I begin by explaining someof the background to clauses 1 and 2. My apologies forrepeating some of what I said this morning in answer toquestions from members of the Committee.

The Office of Tax Simplification, or OTS, statedduring its 2013-14 review of the tax and national insurancecontributions treatment of these payments that

“the well-advised can often end up better off than the unadvised,as they are more able to structure their employment contract (or,indeed, their termination payment) to achieve the better taxtreatment.”

One reason why businesses had an incentive to do sowas the absence of any employer’s national insuranceon termination awards of any size. My officials and Ioutlined some examples of that this morning duringquestions, which I think was supported by the interestingevidence from Bill Dodwell of the OTS.

Following that report from the OTS, the Governmentannounced in the 2015 summer Budget that they wouldconsult on simplifying the tax and NICs treatment oftermination awards. We consulted openly and widely onthat policy, receiving responses from 100 stakeholdergroups and nine individuals, covering tax experts, lawfirms, trade unions, business groups and individualbusinesses. We also held several meetings with stakeholdersto discuss their views on our draft proposals. Followingthat, in the 2016 Budget, we confirmed that we wouldbe taking forward reforms to the tax and NICs treatmentof termination awards, and shortly afterwards publisheddraft legislation for consultation.

The income tax measures announced in the 2016 Budgetwere legislated for in the Finance (No. 2) Act 2017 andtook effect from April 2018. The Government thenreconfirmed in the 2018 Budget that the associatedreforms to NICs legislation would be in place for April2020. The reforms made by clauses 1 and 2 have thereforebeen properly consulted on, tested with stakeholders ofall kinds and debated by Parliament—both during theprocess of this Bill and, more particularly, through thepassage of the Finance (No. 2) Act. They have also beenwidely expected by stakeholders for many years.

I now turn to the changes made by clauses 1 and 2. Itis important to note that the reforms we are discussingtoday are the second part of a package of changes,some of which have, as I said, already been approvedthrough the Finance (No. 2) Act and took effect inApril 2018. The tax rules for termination awards that


existed before the reforms introduced by the FinanceAct (No.2) 2017 were unclear and unnecessarilycomplicated. Some awards were taxed as earnings, otherswere taxed only above £30,000, while others were completelyfree of tax and national insurance contributions. Thatcomplexity left the system open to a degree of manipulationthat we heard evidence about this morning. The FinanceAct (No.2) 2017 tightened the rules on what element ofan award is taxed as earnings. From 6 April 2018, theNICs liability was more closely aligned with the taxtreatment, so that those amounts taxed as earningsbecame liable for employer and employee class 1 NICs.

Termination awards that are not earnings are currentlycharged to income tax on amounts that exceed £30,000,and they are currently entirely exempt from employeeand employer national insurance contributions. Allowingthe difference between the income tax treatment of thatincome and the employer national insurance treatmentto persist would be confusing, and continue to providean incentive for employers to manipulate final paymentsto achieve a tax advantage.

The clause will close that loophole, simplify the taxsystem, and raise about £200 million in revenue tocontinue to support the funding of public services in asignificant way. Clause 1, which applies to Great Britain,achieves that purpose by ensuring that where an incomeliability arises on termination awards above £30,000,there will be a corresponding liability to employer class1A national insurance contributions.

James Cartlidge (South Suffolk) (Con): On SecondReading, not much attention was given to employeebenefits. How do they fit into that threshold?

Robert Jenrick: If my hon. Friend is referring to thebenefits system, that is completely unrelated. Contractualbenefits are liable to a tax liability in addition to that—perhaps I can provide more information on that in amoment. They will be part of taxable income taken inthe round, which once generated is then subject toincome tax and the employer’s national insurancecontribution in the final termination payment.

The effect of the change will mean that a 13.8% class1A secondary employers NICs charge will be applied toincome derived from a termination award that is alreadysubject to income tax. In addition, clause 1 also includesother modifications to existing legislation that relates toemployer class 1A NICs, to ensure that the new liabilityfor termination awards works as intended. Clause 2 makescorresponding changes for Northern Ireland, ensuringthat the provisions apply across the United Kingdom.

Before I address new clauses 1 and 4, let me say a fewwords about what clauses 1 and 2 do not do. First, theydo not introduce a NICs liability on the employee—Ihope we made that clear during questions this morning.There remains an unlimited employee national insurancecharge exemption on termination awards. Althoughthere is a principled case for greater simplification andalignment by applying employee NICs to that income,the Government have listened carefully to representationsmade during the consultation, and we believe that ourapproach strikes the right balance between deliveringgreater simplification for employers, and fairness toindividuals who are undoubtedly in a difficult period oftheir lives: losing their jobs and having to make thenecessary adjustments.

Secondly, the clauses do not reduce or seek newpowers to change the existing £30,000 threshold, belowwhich termination awards are entirely tax-free and NICs-free. As we discussed this morning, that threshold remainsgenerous compared with those of many other countries,including the United States and Germany, that taxincome linked to a termination from the very firstpound. It will ensure that about 80% of awards areunaffected by clauses 1 and 2, and that awards made asstatutory redundancy pay are untouched. We have noplans to lower the threshold in future. Any futureGovernment who wished to do so would needparliamentary approval.

Eddie Hughes (Walsall North) (Con): The Ministerhas not so far mentioned the money that the measurewill raise. My understanding is that that has alreadybeen taken into account and that if we were not toproceed, the Government would need to find that moneyfrom another source. Is that correct?

Robert Jenrick: My hon. Friend is absolutely right. Ihave said on several occasions that the measure willraise about £200 million a year. Because it was a Budgetmeasure, it has been included in the Government’sforecasts and certified by the Office for BudgetResponsibility. If any hon. Member wished to takeissue with the policy, they would need to find an alternativeway to raise £200 million a year, if they wanted tocontinue to support public services in the way that wehave set out in our spending plans.

Finally, the clauses do not introduce any legislationthat goes beyond mirroring the effect of the income taxrules with respect to the scope of the change. Instead,by virtue of the clause, the rules that determine liabilityto income tax will apply directly in calculating theamount of employer class 1A NICs payable on terminationawards above £30,000. Therefore, clauses 1 and 2 simplifythe tax system and reduce the incentive for manipulatingpayments to achieve tax advantage.

Eddie Hughes: I am sorry to dwell on the point, but itwas raised previously. My recollection is that it wouldrequire an affirmative statutory instrument to changethe £30,000 figure in future. Is that correct? The Oppositionhave clearly raised that concern.

Robert Jenrick: That is absolutely right. As I have justsaid, we have no intention of changing the threshold. Ifa future Government wished to do so, that would needto be done through an affirmative statutory instrumentand the House would have the opportunity to debate itand take issue with it in the usual way, if it wantedto. We have no plans to do so; my hon. Friend is right toseek that clarification.

Mike Wood (Dudley South) (Con): Understandably,several concerns have been expressed about the impactthat any changes might have, particularly on people onlower incomes who might have served in a job for manyyears before being made redundant. Can the Ministerexplain how the £30,000 threshold compares with themaximum available from statutory redundancy pay,and who might be captured by the measure?

Robert Jenrick: My hon. Friend makes an importantpoint. Statutory redundancy pay is £15,000, so for thesepurposes, £30,000 appears generous. I have already


[Robert Jenrick]

made the international comparisons. It is also importantto point out that there are a number of exemptionsaltogether, for discrimination, physical harm, disabilityand so on, set out in other areas of legislation to ensurethat those who are particularly vulnerable and deservingare protected when it comes to the payment they receivefor their injuries.

I will briefly discuss the amendments that would bemade to the Bill if new clauses 1 and 4 were accepted.Newclause1,tabledbythehon.MemberforAberdeenNorth,seeks to require the Government to produce a report onthe impact of class 1A NICs on termination awards.Furthermore, it specifies that the report must contain

“an assessment of the expected impact”

of the changes in certain respects, which I will not listhere but which are available in the Bill documents. Newclause 4, tabled by the right hon. Member for Hayesand Harlington (John McDonnell) and the hon. Membersfor Bootle, for Oxford East, for Stalybridge and Hyde(Jonathan Reynolds) and for Manchester, Withingtonfrom the official Opposition, also asks the Governmentto report on several similar issues to those covered innew clause 1.

The new clauses are unnecessary because they seek toforce the Government to report on a narrowly prescribedset of issues, most of which have been considered duringthe detailed consultation that has already been completedand that I have outlined, ahead of new informationbecoming available. The Government are already committedto reviewing the measures and being transparent aboutthe impact that they are expected to have.

It is worth giving Committee members a little moredetail on these issues. First, the Government do notdeem it appropriate to conduct reports that have beenvery narrowly constructed. A report focused exclusivelyon one aspect of the Government’s reforms to terminationpayments—the distribution analysis, for example—wouldmiss other important aspects such as the impact on thelevels of tax avoidance or the funding of public services.

James Cartlidge: My hon. Friend is making an excellentpoint. Does he agree that we should look at the impact onjob creation and the ability of employers to create jobs,particularly on the day we learned that unemployment isat the lowest level of my entire lifetime? I was bornin 1974.

2.15 pm

Robert Jenrick: Absolutely. The figures reported bythe Office for National Statistics this morning are furtherevidence of the jobs miracle we have seen since we cameto power in 2010. It is important to place these changesand the impact they will have on working people in thecontext of the fact that, as my hon. Friend said, most ofus in this room have never known such a buoyantlabour market in our lifetimes—and long may it continue.

On the particular point of the reports, the Governmentfeel it is more appropriate to look at those issues in theround and to take a balanced decision based on all therelevant factors. Secondly, the Government have alreadyconsulted on this measure in detail. We have publishedboth the draft policy proposals and the legislation forscrutiny. We explicitly considered the impact on employersand individuals as part of the policy and our development.

We decided on an approach that protected thoselosing their jobs by, for example, retaining the important£30,000 exemption that we have extensively discussedand not seeking to change the position with respect toemployee national insurance contributions, but at thesame time simplified and aligned the system, reducingthe incentives for manipulating payments. We believewe have considered this issue carefully and reached abalanced way forward.

I will add at this point that the policy costing for thismeasure, as we have already heard in interventions frommy hon. Friends, has been signed off and certified bythe independent OBR, and the methodology for thatassessment is described in the Budget policy costingsdocument. That shows the Government’s commitmentto transparency and sound public finances.

Finally, the Government have already committed tokeeping this measure under review, as new informationmay become available. The publicly available tax informationand impact note, or TIIN, commits the Government tokeeping the scheme under review through communicationwith taxpayer groups affected by the measure and throughinformation collected from tax receipts.

As with all legislation, the Treasury is also required tocarry out post-legislative scrutiny of Acts within three tofive years of their implementation. As I outlined, I thinkin response to the question from the hon. Member forOxford East this morning, the Treasury may well do thatbefore that deadline; it would certainly be required to doso and to report to the Treasury Committee if it had not.

As part of the review process to meet those obligations,HMRC and HM Treasury will speak to stakeholders togauge their views on how the policy is operating. Thereare well established lines of communication betweenHMRC and representative groups, as one would expect,that will provide the basis for a continuous review of theeffect of this policy. I am sure that hon. Members willfeed back to Ministers any concerns and thoughts regardinghow the reforms are working in practice, and of courseHM Treasury is always open to suggestions. I hope hon.Members will agree that those points make publishing areview on these matters unnecessary. However, it mayalso help if I respond specifically to the points raised aboutthe impact of the new class 1A employers’ NICs liability.

I would like to make a number of important points inclosing. First, no employee will receive a new tax chargeas a result of the Bill. The Government have explicitlychosen not to charge employee NICs on the measureand to retain the £30,000 threshold.

Secondly, only about 20% of termination awards willbe affected. As we heard this morning, the OBR expectsthat employers may react by lowering wages or acceptinglower profits and has adjusted its forecast for salaries by0.1% as a result. However, that is a negligible reductionand must be viewed in the context of record employment,record low levels of unemployment and record employmentin all categories—disabled persons, women in theemployment market, young people in the employmentmarket and so on—a higher living wage, support tobusinesses through tax cuts such as corporation tax,and other important policy initiatives brought forwardby this Government. Also, as the ONS pointed out thismorning, wages are rising substantially above inflation.

Thirdly, as I noted in my letter to the Committee, andas I set out again in my answers to questions thismorning, where employers face a new charge on termination


awards, we expect this to be disproportionately on paymentsto higher-rate and additional-rate taxpayers, typicallythose who are in the top two or three income deciles.

Clause 1 will simplify the tax system, reduce theincentive to manipulate payment, and raise importantrevenue for our public services. As such, and with thereassurances that I hope that I have been able to give theCommittee, I commend clauses 1 and 2.

Peter Dowd (Bootle) (Lab): It is a delight to see you inthe Chair, Sir Henry. I thank the people who gave evidencetoday to the Committee; it was very helpful. I hadsomething like 50 questions to ask. I was unable to askthem all, but I will relieve Members by saying that I willnot ask them all now—possibly 45, but not the 50 that Ihad planned to ask.

Contrary to what the Minister says, we do not, throughnew clause 1, want to “force” the Government to do this,that or the other; we do, however, want them to come toParliament and accept parliamentary scrutiny. Therehave been no amendments to any of the Finance BillCommittees that I have sat on; I think it is four in total.In the mother of Parliaments, we were unable to scrutinisethose Bills properly and appropriately—my colleagueswill remember several of them—because the Governmenthave tried, and continue to try, to close down anyscrutiny. It is very important to get that on the record.

As for the implication that if we do not agree to theproposals, it will somehow have an impact on jobcreation—that old chestnut—as I said recently on theradio and in other media, the same was said aboutgiving the minimum wage to miners in 1913, and toagricultural workers in 1924. It was said when peoplestarted to get holiday pay in 1938. People said thatequal pay for women and members of ethnic minoritieswould cause the economy to crash, and the same thingsare being said about the minimum wage. It is the oldclaptrap—I should not say that, in case it isunparliamentary, but that is what it amounts to—aboutthis impacting on jobs.

Yes, we have the highest number of jobs since 1975,or since records began, as the Government keep tellingus, but the context is that this is the most precariouslyplaced workforce in decades. Zero-hours contracts abound,and regional imbalances—[Interruption.] GovernmentMembers mutter, but facts are a stubborn thing; factsremain facts. [Interruption.] They are facts; the Ministermutters that they are not. The reality is that a hugenumber of people are on zero-hours contracts, andhuge numbers of people are working two or three hoursa week. That is classed as employment. I am sorry, but itis not “employment” to that person, who is not gettingany money, or to their family, who perhaps have to sendtheir children to school without breakfast or lunch. Letus get that into context.

The hon. Member for Dudley South effectively saidthat we will now tax redundancy payments above acertain level. Only the Tories could make a virtue oftaxing the redundancy payments of people who havelost their job. The Minister mentioned that the £30,000figure had been the same since 1998, and said that it wasthe most generous such amount in—I don’t know—theknown world. We do not want to make simple comparisonswith other countries, because other countries have farmore generous reliefs in other areas, so making a directcomparison with other redundancy figures, out of thetotality of employment reliefs, is not appropriate.

The hon. Member for Walsall North mentioned theaffirmative procedure. If the Government want to reducethe £30,000 limit—as they no doubt will want to, giventhat that is far too generous for people who have beenmade redundant and have lost their job—we will be ableto vote on that. Perhaps that would, at least, give us aproper opportunity to debate the issue on the Floor ofthe House, which we have not been able to do. I mentionedour inability to amend the law in the last four, orpossibly even five, Finance Bills. That is unprecedentedin parliamentary history.

Mike Wood: rose—

Peter Dowd: I am happy to give way to the hon.Gentleman, if he wishes to peddle some more Tory twaddle.

Mike Wood: I thank the shadow Minister for givingway. His point is entirely bogus, because as the Ministermade clear, and as he knows, the Bill concerns purelyemployers’, and not employees’, contributions, so itdoes not tax anybody’s redundancy payment.

Peter Dowd: I will tell the hon. Gentleman what wasadmitted today: that still reduces people’s wages; that iswhat this comes down to. It could also give companiesan incentive not to pay redundancy. I know that hewants to sweep those points aside as though they wereirrelevant, but they are not irrelevant to a person whohas worked for a company for 25 years and gets aredundancy payment that is taxed more greatly thanthey expected. That is the context in which I am raisingthese issues.

Mike Wood: I thank the hon. Gentleman for givingway. Does he accept that the maximum statutoryredundancy pay, even for an employee who has workedfor 25 years, is barely half of the threshold amount inthe Bill, so they would not be affected, even indirectly?

Peter Dowd: There we go again. It is the race to thebottom, isn’t it? We are always talking about a statutoryminimum. That is what the Tories talk about all thetime: the minimum. We do not want people living onthe minimum; we want people to have a healthy, full-qualitylife. This is about the cumulative effect of the Government’sfiscal policies, not one isolated issue; it is about thetotality. A person might have a job, but it might be apoor, insecure job. It is not just about having a job; it isabout the quality and context of that job.

Grahame Morris (Easington) (Lab): That is a validpoint, and the expert witnesses supported that thismorning. If an employer is designing and costing aredundancy package—I do not know why we use theterm “termination”in the Bill; why not say “redundancy”?—surely the additional tax and national insurance mustbe a factor, and that may well have an impact on thefinal figure that the employee receives. GovernmentMembers say that we have record levels of employment,but there is a report today that 4 million people inemployment are living in poverty. That is a feature thatwe have not seen before, along with declining andstagnating wage growth levels.

Peter Dowd: My hon. Friend makes an importantpoint. The reality is that the only termination under theTories is termination of the social and economic cohesionof this country. That is the termination that I am deeplyworried about.


[Peter Dowd]

Another important point was raised. We always get thesame old chestnut from the Conservatives. They saythat their proposal will raise £200 million or £300 million—though they often do not raise what they say theywill, because they are so incompetent at doing it—andthat if we do not agree with it, we will have to find themoney elsewhere. However, we have set out where wewould find that money. It would not be from peoplegetting redundancy payments; it would be people at theother end of the spectrum, who have significant amountsof money, or employers, who would have to cough up.We will get it from the people who are in the bestposition, psychologically and financially, to pay it.

Eddie Hughes: I think the hon. Gentleman was castingaspersions on this Government’s ability to collect taxes.My vague recollection is that our record is better thanthe Labour party’s. If that is so, what does he have tosay about that?

2.30 pm

Peter Dowd: I am pleased that the hon. Gentlemanhas raised that. Perhaps when we have a little chat in theTea Room I will give him a copy of the letter from theshadow Leader of the House, my hon. Friend theMember for Walsall South (Valerie Vaz), to the Chancellor,setting out not our plans, but what Labour has done inthe past on tax enforcement. [Interruption.] The Ministersays from a sedentary position that they did not work.He should try telling that to taxpayers, who, as a resultof Labour’s proposals over the best part of 15 years,raised billions upon billions of pounds, which went intopublic services. I will send a copy of the letter to thehon. Member for Walsall North, in case I do not bumpinto him in the Tea Room. I do not think the Chancellorreplied; I cannot possibly think why.

Moving on to the substantive issue—[Interruption.] Ido not mind a little bit of chuntering from GovernmentMembers, but if they made it at least marginally coherent,so that I could hear it, that would be really helpful. TheOpposition’s new clause 4 would require the Governmenttoreviewtheimpactof class1Anationalinsurancecontributionson termination awards. The review would include:

“(a) an assessment of the impact the new Class 1A liability hason the level of termination payments workers receive;

(b) an assessment of the impact the new Class 1A liability hason employers;

(c) a distributional analysis of the new Class 1A liability; and

(d) anything else the Secretary of State considers appropriate.”

We are being very generous, and are giving the Secretaryof State lots of room for manoeuvre in reporting to uson these matters.

As we stated on Second Reading, the condensed Billbefore us is a shadow of its former self, standing at justfive clauses. In fact, if it was a person, it would resemblea skeleton. The Government’s timetable for the Bill hasbeen determined by the internal politics of the Conservativeparty—that is the reality; it is as simple as that—ratherthan an honest assessment of the time needed to scrutinisethe measures properly.

The origins of the new class 1A contributions chargelevied on termination awards can be traced, as Membersknow, to 2013, when the Office of Tax Simplificationpublished its interim report, “Review of employee benefitsand expenses”. Following the publication of the final

report, the Government consulted on the proposedNIC changes and announced their intention to introducethe measure in the 2016 Budget. Two and a half yearslater, we are finally scrutinising the Government’s NICreforms to termination awards.

The tax and national insurance treatment of terminationpayments remains a sensitive topic to workers andemployers alike. As I said on Second Reading, employeesfacing redundancy often consider this final payment anevaluation of the work they have done for their employer.Termination or redundancy payments therefore haveboth an emotional and financial significance; the financialsignificance is sometimes slightly out of proportion, butthere is nevertheless a relationship.

James Cartlidge: The hon. Gentleman is right about thepsychological impact of redundancy payments. Does hetherefore agree that we should celebrate from the rooftopsthat unemployment is at its lowest level since 1974?

Peter Dowd: I celebrate anybody getting a proper,secure, well-paid job. I am afraid that the hon. Gentlemanshould not expect me to celebrate somebody getting ajob on two or three hours a week, and he should notexpect me to celebrate the fact that £30 billion-worth oftax credits are going to subsidise people in poorly paidjobs, when only 20 years ago that was £1 billion. Don’task me to celebrate that. Let us have the full picture.Yes, I always celebrate when somebody gets a decentwell-paid, well-trained job with good terms of employment,but no, I do not welcome poorly paid, less well-trainedjobs. I am sorry, but I cannot. But for the record, yes Iwelcome job creation—well-attuned job creation.

To get back to termination payments and their emotionalsignificance, the amount awarded is often determinedby painstaking and careful negotiations between managersand trade union representatives. A good employer mightoffer a generous termination payment to an employeeas a sign that it is not a judgment on the intrinsic worthof the staff who are leaving, even though they have hadto make them redundant. The job losses might bebecause of the Government’s economic policies.

The Government’s rationale for the introduction of anew class 1A employer NIC charge, which will be leviedat13.8%onterminationawardsabovethe£30,000threshold,is to do with ease and simplification. In its “Review ofemployee benefits and expenses: final report” in 2014,the Office of Tax Simplification stated that“many employers are unclear about which parts of a terminationpackage qualify for the exemption”

from tax and national insurance. I stand to be corrected,but I am not sure whether we got a significant amountof clarity on that today.

Additionally, Ministers have cited the opportunityfor well-advised employers to avoid paying the rightamount of tax and national insurance on terminationpayments as justification for wider reform. However,neither the Office of Tax Simplification nor TreasuryMinisters have been able to provide figures on thenumber of employers who have taken advantage of theexisting loophole, nor of the amount lost to the Exchequeras a result of that. That was probably confirmed today—wedo not know.

Despite the many claims of Ministers about the desireto simplify the tax and national insurance treatment oftermination awards, the Chartered Institute of Taxationand other tax experts have raised concerns around the


lack of information in the Bill about how this new class1A charge will be collected. We did not get a great dealof clarity on that today. Currently, Ministers plan toleave it up to secondary legislation, as alluded to earlier.That is not only a break from normal practice, butlooks set only to confuse employers even more, ratherthan simplifying the national insurance treatment oftermination awards. The people who came to speak tous today were probably a bit too polite to say that.

The provision will also add additional administrativeburdens to HMRC at a time when it is hamstrungby what can only be described as the disastrousreorganisation of their estate by the Government—myhon. Friend the Member for Oxford East has beeninvolved significantly with that—the introduction ofMaking Tax Digital, which has added to the problem,and of course the preparations for a no-deal Brexit,which have compounded it even further. Taken in theround, that is a challenge.

So what is the rationale for the introduction of thisnew NIC charge on termination awards, if not to makethings less confusing for employers or to tackle taxavoidance, which is supposedly rife? I suggest that theGovernment’s rationale is wholly to do with the revenuethey expect to raise, and is little more than an attemptto increase national insurance receipts for the Exchequer,while shying away from any major tax or national insurancepolicy change. I think that there was an acknowledgementof that today. This is just one element of what shouldhave been a wider examination, as set out in the pressrelease to which I referred, on 16 November 2016. Thisis certainly the opinion that the Office of Tax Simplificationadvocated in its 2014 report, in which it stated that anew NICs charge could raise revenue for the Exchequerand offset the costs of any tax treatment change affectingtermination payments.

The report went on to concede that the policy waslikely to lead to increased employer NIC costs and toindividual employees receiving reduced terminationpayments, as employers would be unlikely to increasetheir redundancy budgets. Similarly, the Government’sown impact assessment notes that this measure willpresent an “additional cost to employers” that will be

“reflected in lower wages and profit margins with a reduction intotal wages and salaries of 0.1%”

within the first year of its adoption. My hon. Friend theMember for Oxford East clarified that with the Ministerin today’s evidence session.

To put it simply, this new NICs charge will lead toadded costs to employers, some of whom will be smalland medium-sized business owners, and less generoustermination payments to employees as a result. At thesame time, the Treasury has downgraded its forecast ofthe likely amounts this new charge will raise for theExchequer from £485 million to £200 million a year. Iam sure the Minister would like to provide clarity onthat.

This issue goes to the heart of new clause 4, whichseeks a review of the measure’s impact on the level oftermination payments that employees receive and thecost to employers, and a distributional analysis of thisnew class 1A charge, which Treasury officials said hadnot been done. On the ground, it might have been toocomplicated and the cohort may not have been largeenough under the circumstances. Given the likely cost

to employers of falling workers’ wages and terminationpayments, as well as the Government’s shrinking forecastof the amount of revenue the charge would raise, surelyit makes sense to pause and gather further informationbefore proceeding. After all, the Office of Tax Simplificationnoted in its original report that if Ministers were to followits recommendations for a new NICs charge on terminationawards, more data on the potential winners and loserswould be needed. We were not able to establish who theywere today. I specifically asked that question and couldnot get an answer. It was like an aggregate amorphousstatement.

Sadly, Ministers have not provided that information,despite having years to do so. Treasury Ministers haverefused to undertake a distributional analysis, citing thecost or that the cohort is not large enough as excuses,and they are still unable to provide credible figures onthe number of workers who receive statutory redundancypayments versus those who receive non-statutory payments.Uncertainty also remains about whether the Governmentwill seek to lower the £30,000 threshold at a later datethrough primary legislation or secondary regulations.The Minister said they have no plans to do this, but wealready raised this issue during consideration of a previousFinance Bill—in fact, I think I raised it. The questionwas, “If you have no intention of doing it, why introducelegislation to do it and why introduce it through theprocess of secondary legislation?” If it were me doingthat, I would not be banking a piece of legislationunless I intended to use it. That is the case here; theGovernment will use this. Otherwise, why take upparliamentary time to do so? If they are taking us on arun-around to fill time, that too is inappropriate.

New clause 4 seeks a review of the proposed class 1Acharge, focusing on its impact on workers’ wages, ontermination payments, added costs for employers and adistributional analysis of the measure. Without such areview, which will provide a wealth of information andfurther evidence of the likely effect on wages, terminationpayments and employers, the Opposition will not supportthis part of the Bill.

I will comment later on new clause 3, but at thisparticular point, that is all I want to say. I may askquestions of the Minister in due course.

Kirsty Blackman (Aberdeen North) (SNP): I apologise—Iexpected to be called before the Opposition spokespersonon this section. I will do my best not to repeat thingsthat he has said, but if I do, I shall try to do it in adifferent way at least.

It is good to be part of a Bill Committee that hastaken evidence. We do not take evidence on FinanceBills and we are less knowledgeable and less good atscrutinising the information provided to us as a result. Ihope the Minister agrees that the evidence sessions wereincredibly useful this morning, even though he was inthe hot seat and had questions asked of him. It meantthat we will ask fewer stupid questions during this partof the scrutiny process, as well as being in a betterposition to drill down on some of the issues raised bydifferent individuals.

2.45 pm

I will talk about a few things, including new clause 1,which is in my name, and the Opposition’s new clause 4,as well as discussing clauses 1 and 2 of the Bill moregenerally, all of which we are considering in this part of


our scrutiny. The first part of new clause 1 is verysimilar to new clause 4. It asks for the report to includethe amount of money that individuals receive in terminationpayments. The Minister suggests that clauses 1 and 2are a narrow part of the Bill, but for most of ourconstituents, they are the most important part, as theyconcern the amount of money people will receive, shouldthey be in that unfortunate situation. That is what theywill care about; they will not care so much about howmuch money the Treasury gets from this change to thepolicy. What affects their daily lives will be the thingthat is incredibly important to them. I am pleased thatboth we and the Opposition have proposed the samething in our new clauses.

The second part of new clause 1 asks for the report toinclude the average net value of termination payments.It is important to look not only at what the OBR saysabout the overall change in wages as a result of the changes,but the average net value and the changes to that.

The last thing I have asked for in new clause 1 is forthe report to look at the number of business start-upsusing termination payments as funding in their firstyear in each region of the United Kingdom and theimpact the clauses will have on that. An awful lot ofpeople use termination payments to begin a new business.The Minister is talking about increases in the number ofpeople employed, but we would not see those increasesif we did not have new businesses starting and peoplehaving the funding to start them. As we know, it isdifficult to get bank loans, for example, for many ofthese things, and a number of businesses are started onthe basis of the redundancy payments that people receive.That is important.

The Opposition have tabled new clause 4, which Ientirely support. The first part is exactly the same aswhat we have put forward, it is just in different language.The second part looks for an assessment of the impactthat the new class 1A liability will have on employers.That came out clearly in the evidence session this morning.The OTS and the CIOT said that the Bill is not asimplification for employers. Some employers currentlyhave no liability for class 1A national insurancecontributions because they deal only in cash and do notdeal in benefits in kind. They will be brought into theclass 1A situation and will have to pay that liability. Fora number of those employers, that may be for the firsttime.

The other issue for employers is that the Governmenthave chosen to put termination awards as a class 1Aliability and to do collection in real time, rather than atthe end of the tax year. That is not the way that anyother class 1A contributions are paid. It is, however, theway that other pay-as-you-earn contributions, for example,are paid. My understanding from the evidence giventhis morning is that the Government could have chosento have termination awards as class 1 contributions, notclass 1A contributions, with employee contributionsexempted in the same way that those for pensioners areexempted. That would have been a much clearer situationfor employers than deciding to do it as a class 1Aliability. An awful lot of employers will have a liabilityas a result of these changes, whereas far fewer wouldhave liability if it was a class 1 liability.

Peter Dowd: I did not want to stop the hon. Lady inher flow, but on her earlier point, I was at a meetingyesterday with many people from the defence industry

and in particular the aircraft industry. One Memberwho does not sit on the Opposition Benches indicatedthat when a large aerospace manufacturer closed downin his constituency, thousands of small businesses—orat least one or two thousand small businesses—arose asa result of those people getting redundancy payments.That goes to the heart of the hon. Lady’s point aboutthe potential impact of the reduction in the amount ofmoney people will get from redundancy payments.

Kirsty Blackman: I absolutely agree. I was thinkingspecifically of the toastie shop in Aberdeen that doesunbelievable toasted cheese sandwiches. Members shouldlook at its Facebook page; it is called Melt and it isabsolutely amazing. It sells toasted cheese sandwicheswith all your calories for a week in one sandwich. Thatbusiness was started by a woman who had been maderedundant. A lot of people in Aberdeen and Aberdeenshirehave been made redundant because of the recent crashin oil and gas prices, and they have been starting newbusinesses as a result.

I am particularly concerned that any change mightstifle the growth of new businesses. I asked the Treasurythis morning whether it has figures on the number ofnew businesses started with termination payments. Itdoes not. It is very difficult for the Treasury to say thatthis will not have an effect—to be fair, it has not saidthat, but it cannot because it does not have the quantifiablenumbers and cannot project them; it appears not to bekeeping track of the information.

Lastly, on Opposition new clause 4, the shadow Ministerhas also asked for a distributional analysis of the newclass 1A liability. Again, it is incredibly important for usto have that information.

The Minister suggested that the Treasury is trying tobe as transparent as possible. To be fair, this is one ofthe more transparent Bills, with more consultation thansome of the other Bills that we have seen. The issue isthat the information that we are provided with, and thatis in the public domain, is not good enough for us to beable to make reasonable judgments about the effect ofthe policy. It is all well and good for the Minister to saythat it will generate £200 million and that we wouldhave a £200 million hole in the Budget. The OBR hasverified that figure, but the reality is that we do not haveenough of the drill-down information on the peoplewho will be affected.

All of us on this side of the Committee are concernedabout the reduced amount that employees will receive.It would have been sensible for the Treasury to havecome armed with some kind of projection around that.That would have stopped us from asking all thesequestions. We might have criticised the figure and saidthat the measure should not be taken forward, but wewould not be having this debate if the Treasury hadcome forward with detailed figures.

The Minister has spoken in favour of clauses 1 and 2,but for a huge number of employers they do not representa simplification when it comes to dealing with the taxsystem. This is a revenue-raising measure and it is aboutclosing a loophole. I am not criticising the Treasury foreither of those things, but it has badged the change as asimplification when the two principal things that it triesto do are not that, but revenue raising and closing aloophole; we would have had a very different discussionif the Treasury had made that clear rather than said thatit was all about simplification.


I completely agree that the measure came from anOffice of Tax Simplification report, but that did not saythat class 1A contributions had to be used to achievethis end. That may not be the best possible way toprogress. I have already spoken about class 1A. It couldhave been done in a class 1 way, which would have beenclearer for employers to understand.

On collection methods, I have real concerns aboutthis being a real-time collection measure. Less than ayear out from implementation, employers may not beaware of the correct computer system or understandcorrectly how it will work. Obviously, if an employer ismaking future projections, it is going to be looking atwhat upgrades it will need for its IT system and beplanning that as far in advance as possible. On top of allthe uncertainty of Brexit, the Government are addingmore complexity and future uncertainty: they are notable to say, “This is exactly how the real-time collectionmeasure will work.” They are not able to provide thatinformation to businesses far enough out.

Finally, on the “negligible” reduction, as the Ministerdescribed it, of 0.1% on wages, I should say that we areseeing incredibly high levels of in-work poverty. Not asurgery or a day goes by without working people gettingin touch with me to say they cannot live on the amountof money they receive. I get such correspondence on aregular basis, as I imagine do all MPs across the House.

The Minister spoke about the national living wage,which is not a living wage and is not for those under 25.As the shadow Minister said, the Government do notwant to allow under-25s a wage they could vaguely liveon, just in case there are fewer of them employed. Ido not think there is any evidence to show that is likelyto be the case. It does not cost any less to live at 24 thanat 26.

A 0.1% reduction in wages for people who are literallyliving on the breadline and having to choose betweenfeeding their children and heating their homes cannot beswallowed up by some families. The Government saythey are quite happy with a 0.1% reduction in wages aslong as they get £200 million in the Treasury’s coffers. Ido not think that is a sensible way to play these thingsoff. I do not think the measure is worth the £200 millionif it means more families in poverty and destitution as aresult.

The 0.1% might sound very small but, for someone livingon not very much money it can be the difference betweenbeing able to feed the kids and not being able to. Thereare a number of issues with this measure, both technicallyand with the stance that the Government have chosento take on it.

Robert Jenrick: I do not intend to repeat all thecomments that I made earlier, which I think answered alot of questions that were put to me. I will try tosummarise some of the arguments made by the hon.Member for Aberdeen North. She made a point thatcame up in questioning around the choice of class 1A,which a number of members of the Committee haveraised. We are clear that this is the right choice. We gavethe matter careful consideration. There are a couple ofcentral arguments. The choice of class 1A and, therefore,payment in real time was central to alignment withincome tax. If we want to have greater alignment andsimplicity, that is the way to deliver it.

Secondly, as we heard in evidence this morning, class1A is a category of national insurance contributions thatfocuses on the employer. Because we have chosen not tointroduce this from an employee NICs perspective, thatwas the most logical category.

As the hon. Lady and others have mentioned, if therewere an intention in future to add employees’ nationalinsurance contributions, one would perhaps have chosenclass 1 national insurance as the most logical. By choosingclass 1A, we made a clear statement that we had nointention of doing that. This is purely focused on thepayment from the employer in respect of national insurancecontributions.

Finally, as we may come on to later in the passage ofthe Bill with respect to sporting testimonials, for thoseindividuals giving money to charity it is important forthe contribution to be paid through class 1A, becausethat is the class of national insurance contributions thatpayroll giving uses. Had we chosen class 1 nationalinsurance contributions, that route would have beenclosed; if we had wanted to protect charitable giving, wewould have had to make alternative arrangements. Therewere a number of reasons, logical when they are thoughtthrough, why we reached this conclusion.

Kirsty Blackman: That is a useful clarification aroundclass 1A and payroll giving that I had not quite understoodthis morning. If the Minister is saying that class 1A iseligible for real-time payments rather than collection atthe end of the tax year, does he intend to move to asystem where all class 1A is eligible for payment in realtime and not at the end of the tax year?

Robert Jenrick: We do not have any plans to do that,but this measure is designed with termination paymentsin mind. The Bill does not make any changes elsewhere—other than, obviously, to sporting testimonials. We aretrying to provide the greatest degree of alignment withthe income tax changes that we have made, and thechoice of class 1A enables us to deliver that. If we hadchosen a different class, there would have been a greaterdegree of misalignment. I hope that the hon. Lady willconsider those thoughts.

We have already debated at length the issue of whetherthis was a rushed Bill. I think that argument is difficultto support, on the basis that the policy decision hasbeen around since 2015, consulted on, restated in multipleBudgets, and debated as part of two Finance Bills. Theargument that this is a rushed policy decision cannot besustained. We are bringing this Bill forward at this pointso that, assuming it passes through both Houses assoon as possible, there is good time for practitioners inthe accounting profession and employers to make thenecessary changes to software packages and so on.

We will take seriously the communication that we willdo through HMRC. As the Minister, I will follow thatup to ensure that employers are properly communicatedwith and have sufficient guidance to make the changes.

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The hon. Lady asked again about the statistics on thenumber of individuals in receipt of a termination paymentwho go on to set up a small business. We do not collectthat data; we do not know what path someone choosesto take after they have been made redundant or hadtheir employment terminated and received a terminationpayment. It is not an easy statistic to collect, because it


is not easy to follow an individual’s path further on todetermine what they chose to do next in their career. Wesimply do not have that information.

As I said in answer to the hon. Lady’s question thismorning, I have looked at some studies. Some looknationally at the number of individuals who chose to setup a small business following the spike in unemploymentafter the financial crash. Others are particular studies ofcertain areas—for example, I have recently seen oneabout individuals in Teesside who chose to set up smallbusinesses as a result of losing their jobs when the SSIsteelworks was closed. However, those studies are notproduced by the Government, although some are producedby organisations that the Government support andendorse, such as the Startup Institute. That is not theperfect answer to the hon. Lady’s question, but shecould look at some of those studies if she wanted.

There has been a debate about distributional impact.I have already made this point on a number of occasions,but it is worth restating that this is not likely to have asignificant impact on those who are on low or middleincomes. Some 80% of people in receipt of a terminationpayment are not going to be affected by these measures;only 20% will be. That 20% will primarily be higher ratetaxpayers or payers of the rate beyond that, in the toptwo or three deciles of income. Those affected really arethose in receipt of larger termination payments.

There was a question about the degree of informationput into the public domain; actually, we have put quite alot out. I said this morning that we have modelled this,and I believe that about 72,000 termination paymentswill be impacted per year. Our modelling also suggeststhat the average payment that will be affected by thismeasure is £61,000—a significant size of terminationpayment. We are not talking about individuals on lowsalaries.

I now turn to some of the questions raised by thehon. Member for Bootle, most of which I think I haveanswered in the past. I reject the suggestion that this Billhas been rushed, or that there has not been a highdegree of scrutiny; I think that there has been, and thatwe have put out as much information as was required.

The discrepancy between the £400 million a yearfigure and the £200 million one that we have been citingtoday was already referred to this morning, but the hon.Gentleman has asked about it again. As I think was saidby my officials this morning, that discrepancy arisesfrom the fact that the £400 million figure includes theincome tax changes that have been legislated for separately.The £200 million figure is exclusively for the NICs changes.

The wider point raised by the hon. Gentleman andthe hon. Member for Aberdeen North, about why we asa Government chose to take forward a reduced set ofnational insurance reforms than was originally envisaged,is worth discussing briefly. We as a Government, like othersbefore us, have been interested for some time in how wecould reform national insurance; it is an area of the taxarena ripe for reform and further simplification. However,as we heard in evidence this morning, those simplificationsare inherently complex and involve both winners andlosers.

The original proposal to abolish class 2 nationalinsurance created a small tax advantage for a largenumber of individuals: about 3 million self-employedpeople would receive a reduction of just over £100 a

year in taxes paid. However, it would have created asubstantially higher rate to be paid by several hundredthousand self-employed people who earned less than£8,000 a year.

On balance, thinking carefully about the consequences,we took the view, which I hope would be supported byMembers from both sides, that a very modest tax breakfor 3 million people was outweighed by the cost of asignificantly increased rate of national insurance forlow earners. That was announced in September last year,and there was relatively little comment thereafter; I thinkmost people agreed that it was a sensible and fair decision.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Clause 3

SPORTING TESTIMONIALS: GREAT BRITAIN

Question proposed, That the clause stand part of theBill.

The Chair: With this it will be convenient to discussthe following:

Clause 4 stand part.

Amendment 2, in clause 5, page 5, line 39, at endinsert—

“(3A) No regulations may be made under subsection (3) tobring section 3 or 4 into force until the Secretary of State hasmade a Statement to the House of Commons on the expectedeffects of the provisions of this Act on donations to charities bythe recipients of sporting testimonial payments.”.

New clause 2—Report on the impact of Class 1ANational Insurance Contributions on sporting testimonials—

“(1) The Secretary of State must, within 12 months ofsection 3 of this Act (sporting testimonials: Great Britain)coming into force, lay before Parliament a report on the expectedimpact of the provisions of this Act on sporting testimonials.

(2) That report must contain an assessment of the expectedimpact on—

(a) the total amounts received by individuals fromsporting testimonials; and

(b) donations made to charity from sporting testimonialproceeds.”

New clause 5—Review of the impact on differentsportspeople—

“(1) The Secretary of State must undertake a review of theimpact of this Act on sporting testimonial payments made to—

(a) footballers;

(b) cricketers;

(c) rugby league players;

(d) rugby union players; and

(e) other sportspeople.

(2) The review under section 1 must be laid before bothHouses of Parliament within 12 months of section 3 of this Act(sporting testimonials: Great Britain) coming into force.”.

Robert Jenrick: Before I address amendment 2 andnew clauses 2 and 5, it may help the Committee if Ibriefly explain the background to clauses 3 and 4. As wehave heard at length over the course of the day, asporting testimonial is a one-off event, or a series ofrelated events, held on behalf of sportspersons who


have played for a certain club, usually for a long time.The testimonial can be used to raise money for thesportsperson before their retirement, in the event oftheir injury or, sometimes, to raise money for charity.

The historical tax treatment of sporting testimonialsrelied on the outcome of a tax case from before thesecond world war, which my officials referred to thismorning. That case established the broad principle thatthe proceeds of a testimonial organised to demonstrateaffection and regard for the personal qualities of asportsperson are not earnings. Since then, other legislationhas moved on, and income not directly from an employeris now typically subject to tax and national insurancecontributions.

Prior to 2017, HMRC effectively operated an extra-statutory concession, which is clearly not sustainableover the long term, since HMRC must ensure that itoperates within the law. As such, the Governmentannounced at the summer Budget in 2015 that theywould consult on proposals for clarifying the tax andnational insurance contributions treatment of paymentsmade from sporting testimonials. A consultation waspublished shortly thereafter, and the Government receivedresponses from a range of groups, including taxprofessionals, accountancy firms and sporting interestgroups, including the Football Association, the ProfessionalFootballers’ Association, the England and Wales CricketBoard and the Rugby Players Association. In addition,two consultation meetings were held to discuss thedetailed proposals, and the Government published draftlegislation for consultation, adapting our approach, as Iwill describe, in response to further feedback.

The changes we are considering are part of thatpackage of legislation, which puts the tax treatment ofproceeds from sporting testimonials on the statute bookand beyond doubt. This will provide clarity and certaintyfor sports clubs, sportspersons and those individualswho form the sporting testimonial committee that organisesthe event—if they are different—and ensure that thereis limited impact on a practice that I think all of ussupport and want to continue.

The relevant income tax changes that form the firsthalf of this package came into force from April 2017,following legislation in the Finance Act 2016. Thisconfirmed that, while income from non-contractual,non-customary sporting testimonials would become taxable,there would be a generous £100,000 exemption to ensurethat the change had a limited impact in most cases.

The rules governing sporting testimonials are changingto give clarity to the NICs treatment and align it withthe changes to income tax that Parliament has alreadyapproved. At present, where a sporting testimonial isnon-contractual or non-customary, it can be organisedby a third party, rather than the employer, to raisemoney. As I mentioned earlier, although existing legislationimplies that NICs liability already applies, the amountsraised through the third party may not have been subjectto NICs because of this long-standing practice andambiguity. Therefore, this concessionary treatment willend with the passage of this Bill on 6 April 2020, whenclause 3 takes effect. Where the employer arranges thetestimonial, it is part of the contract or there was anexpectation that the sportsperson would be entitled toone, the testimonial is already subject to income tax andNICs in full.

From April 2020, non-contractual and non-customarytestimonials arranged by third parties will be subject toNICs above the £100,000 threshold. The third-partytestimonial committee will be liable to pay an employerclass 1A NICs charge on the amount raised above£100,000, and not on any amount paid below that.

These types of testimonials will not be subject toemployee NICs, to ensure that the sportsperson is notadversely affected. I would like to reassure hon. Membersthat we expect the vast majority of these payments to beunaffected by the Bill, as they will not exceed thethreshold of £100,000.

Kirsty Blackman: I have a question that the Ministermay not be able to answer now; if he cannot, hopefullyhe will answer it when he sums up. I am wonderingabout the definition of sporting testimonials. We aretalking about sportspersons, but a lot of people said“sports players” earlier. Does this apply only to thosepeople who have played sport, or does it apply if there isa sporting testimonial arranged, for example, for amanager? It would be incredibly helpful if the Ministercould clarify that, either now or when he sums up.

Robert Jenrick: I will ask my officials for a betteranswer, but my understanding is that this measure appliesonly to sportspersons. Although there might be argumentsfor it, it does not apply to managers and auxiliary staff,just as it would not apply to other people who, as I saidin answer to a question this morning, are also engagedin careers that can be cut short, such as a ballet dancer,a performing artist or a Minister, and who might deserveit, but who are not sportspeople.

Although this measure will bring in negligible revenue,its value comes in the alignment and simplification ofthe tax and NICs treatment of sporting testimonials. Icannot emphasise enough that our motivation here isnot to raise revenue but to provide greater alignmentand simplification. As has been said repeatedly, thismeasure will bring in only a negligible sum, as certifiedby the OBR.

The primary purpose of clause 3 is that, with effectfrom April 2020, the rules determining the NICs treatmentof these payments will be aligned with the income taxtreatment that has already been legislated for in theFinance Act 2016. This means that a 13.8% class 1Asecondary (Employer) NICs charge will be applied toincome derived from a sporting testimonial that is alreadysubject to income tax. Clause 4 makes the correspondingchanges for Northern Ireland, ensuring that these changesapply throughout the United Kingdom.

In relation to the brief discussion that we had thismorning about the definition of a customary testimonial,I would point out that this measure has now been inplace, from an income tax perspective, for some time,and we have not had any feedback from sportspersons,sports clubs, sporting testimonial committees or indeedfrom sports bodies to suggest that there is a problemwith that definition.

I can reassure the Committee that clauses 3 and 4 donothing to affect the ability of sportspersons to makedonations to their charitable foundations as part of atestimonial when it is organised by an independentcommittee and the donation is made through payrollgiving. Given the line of questioning from the Committeethis morning, and further to the point that I madeearlier to the hon. Member for Aberdeen North, it is


[Robert Jenrick]

worth noting that our decision to choose class 1A helpswith payroll giving, as this is the class to which itapplies, and it would not have been possible if we hadchosen another class of national insurance.

I turn now to amendment 2 and to new clauses 2and 5, which tackle broadly similar issues. These provisionsrequest that the Government report on the impact ofthe measures in the Bill on the amount of income receivedfrom sporting testimonials by sportspeople themselvesand by any charities that receive donations linked to asporting testimonial. I will explain briefly to the hon.Members who tabled the provisions why the Governmentconsider that, on this occasion, they are not necessary.

First, we expect that there will be a very limitedimpact on sporting testimonials and charitable givinglinked to this practice. We expect the majority of non-contractual and non-customary sporting testimonialsto fall below the generous £100,000 threshold, with theaverage income received from a sporting testimonialbeing around £72,000, based on the work that we did in2013, although we admit that it is not easy to form aclear judgment, because we had to survey the details ofthose sporting testimonials that were in the public domain.We then doubled the tax-free and NICs-free thresholdfor testimonials following the consultation to ensurethat there would be a very limited impact indeed. Thatappeared to supported and welcomed by sporting bodies.As I said earlier, donations made from sporting testimonialsvia payroll giving will not be subject to income tax andNICs at all—in which case, there would be no impactwhatever. It is worth noting that the tax changes affectingthis income have been in effect since 2017. As I saidearlier, we have not had any representations since that pointto suggest there has been a significant adverse impact.

3.15 pm

Secondly, we have subjected this measure to detailedconsultation, including on both the initial proposals andthe draft legislation. The Government expressly consideredthe impact on charities and individuals as part of that.

Lastly, I can reassure the Committee that the Governmentwill continue to keep these issues under review once thismeasure is in force. The published TIIN—tax informationand impact note—commits the Government to reviewingthe policy through communication with taxpayers’ groupsaffected by the measure, and the Government are committedto carrying out post-legislative scrutiny three to fiveyears after an Act has been passed, as I have said on anumber of occasions today.

Clause 3 makes a sensible, proportionate change tothe NICs treatment of sporting testimonials, puttingtheir treatment beyond doubt. Given the reassurancesthat I have provided to hon. Members, both now and inanswer to questions this morning, I hope that they willnot press their proposals. I beg to move that Clauses 3and 4 stand part of the Bill.

Anneliese Dodds (Oxford East) (Lab/Co-op): It is apleasure to serve in the Committee with you in theChair, Sir Henry. I am grateful to the Minister for thoseexplanatory comments. However, I would like to speakin favour of the official Opposition’s amendment 2 andnew clause 5, as well as the SNP’s new clause 2, whichoverlaps with our amendment 2. I do not want to repeatwhat we have already covered in our discussions today

or, indeed, in the House. None the less, even after allthat, we surely require more information about theimpact of these measures to make a proper judgementabout them.

As the Minister acknowledged, our amendment 2 andthe SNP’s new clause 2 ask for additional informationabout how the Bill would affect charities, and individualsportspeople and charities, respectively. There are quitea few elements that still remain unclear, even after thediscussions we have had. I am sorry to drag us back yetagain to the topic of what is customary and what is not,but,surely,whenweare lookingatthedesignof taxmeasures,we need to ensure that there is crystal clarity about whatevery concept could mean, particularly when there mightbe manipulation of some of those different concepts.

When we debated the meaning of “custom” in theHouse, the then Minister, after questioning by the hon.Member for Aberdeen North, said that funds from atestimonial above £100,000 would be subject to NICswhere such a payment was “customary”. He described“customary” as referring, for example, to cases where,in a particular sports club,“there is a testimonial every year for a particular player or groupof players, and that had been going on for some time”.

He said that

“that would be a customary testimonial situation”—[OfficialReport, 30 April 2019; Vol. 659, c. 173.]

I explained in the previous session why I think that thatkind of circumstance is extremely unlikely to occur. Weneed to have a reality check about how things areoperating in different sports, so that we can assess them.

I looked at some of the information that has beenprovided by the Professional Footballers’ Association.It noted that, in 2015, about 0.5% of professionalfootballers had a testimonial to celebrate them, whereason an average career length of about eight years—thatis the average career length, which, as was mentionedbefore, is much shorter than it was historically, certainlyin the professional game—12% of footballers shouldfinish their career each season. Very roughly, that meansthat about one in 25 of the professional football playerswe would anticipate being eligible for a testimonialactually receives one. That is clearly a very small proportionof those who could qualify for one, which suggests thatthis is a very unusual process, so the use of the term“customary” does not have much weight.

I then looked at the evidence from the England andWales Cricket Board, which states explicitly that theremust be no pattern to the granting of testimonials andno specific connection with the player’s number ofyears’ service at the club, and that there is no specificperiod of time that should be seen as an automatictrigger for a testimonial. It appears, in the case of thatorganisation, that it is not possible for there to be acustomary testimonial. It just cannot exist.

James Cartlidge: As I understand it, the difference isbetween something that is contractual and the fact thatit is customary, in the general sense, to have what arecalled “benefit games” or “testimonials”. That does notmean that there has to be a specific number; in fact, ifthere were, that would presumably be contractual. Thefact is that those payments are customary when someonehas made a contribution or has been with a team for along time, however that is defined or specified. It is atradition of sport; surely that is all we are saying.


Anneliese Dodds: I am grateful to the hon. Gentlemanfor his passion about this issue, and—I am sure—aboutthe sport of cricket, but he has underlined the point thatI was trying to make. He has talked about a particularperiod of time, “however that is defined”. My point isthat the quote I read out indicates that, according to theEngland and Wales Cricket Board, there can be nodefinition of the period of time that can be used forthese testimonials, because if there is an automatictrigger for such an event, that should not be grounds fora testimonial. One assumes that it should instead be dueto the fans themselves, the people who are calling forsuch a testimonial, but there is not an automatic triggerfor it. That leads again to the question of what the term“customary” actually means. When we make legislation,it is important that we are clear about what thoseconcepts mean, and whether they have any content. If itis just an empty placeholder, I think we would all agreethat the term should not be used.

The Minister maintains that HMRC provides guidanceabout this. In my lunch break, I tried to look this up—Iknow how to live, Sir Henry—and I found the informationabout income tax. This language is already applied toincome tax liability, exactly as the Minister mentioned,and reference is made to “normal practice” and caselaw. However, that information does not specify whatthe case law is, or indeed what the normal practice is. Ifthere is a pattern to testimonials, one concern is that itwould potentially be possible to argue that a patternsomehow is not there, and that a particular testimonialis non-customary, in order to get around having to paythe employer’s NICs. Equally, there could be pressureon employers to reduce the number of testimonials thatare called for—to dissuade calls for testimonials inorder to make them less likely to occur.

Kirsty Blackman: Picking up on that point, we arerelying on HMRC guidance, which can be changed inthe future. The word “customary” is written here, butthat is reliant on guidance alone. If there had been moreexplanation in the Bill of what “customary” means, orif it had just said “contractual and not customary”, weprobably would not be in this situation. We would notbe relying on guidance that may or may not be accessible,and may or may not change in the future.

Anneliese Dodds: I absolutely agree with that point.Looking at that guidance, it is interesting that there is alot of detail about certain issues, such as what happensif there is a second testimonial for whatever reason. Letus say that £70,000 was received from the first one, andthen the second one goes over the £100,000 threshold;there is detail about what the tax treatment should be.There is detail about what the tax treatment would be ifthe testimonial was for a player who had, very sadly, diedon the pitch, and the money was going to their family.Just about every eventuality is covered, apart from thisissue of “customary nature”. In the interests of clear taxpolicy, it would help if we had more detail about that.

Secondly, explicitly concerning the tax treatment ofcharitable giving, we had a discussion about this beforeand the Minister referred to it again in his comments. Itwas argued that testimonial committees could use payrollgiving from the testimonial to route funds to charities,given that they would be class 1A employer NICs.Indeed, he mentioned that players could use the gift aid

procedures if payments were made directly to them. Myhon. Friend the Member for Bootle rightly pointedout—and it was confirmed during the session—thatthis would add an additional layer of complexity andadministration to the process. To inform those readingHansard, the Minister is shaking his head. Perhaps hecan explain why that would not be the case. We aretalking about potentially large sums here that couldprovide the largest of any cash boosts received by aplayer’s foundation. We need more detail.

Finally, new clause 5 asks for an assessment of theBill’s impact on testimonial payments made to professionalsfrom different sports, including footballers, cricketers,rugby league players, rugby union players and othersportspeople. It is important that all varieties of sportreceive adequate support and it would be helpful tohave a better understanding of the likely incidence ofthe charge in that regard—for example, whether there isa similar rate of use in other sports to that provided bythe PFA for professional football, and whether a similarproportion of those testimonials are contractual ornon-contractual. As I said before, the implication of theinformation provided by the England and Wales CricketBoard is that there would be no customary non-contractualtestimonials. Is that the case in other sports? We do notknow. It would be useful to understand that. We alsoneed that information because favourable tax treatmentis still being provided for that first £100,000 of non-contractual, non-customary testimonial payments.

It may well be the case that in different sports, theemployment opportunities on retirement as a professionalplayer are very different. Within football, some go on tobe agents, coaches, commentators and so on; manyothers do not. Such roles may not be as available inother sports. It would help if we understood more ofthe background to this.

Kirsty Blackman: I will not add a huge amount towhat the Opposition spokesperson has said on this. Iam particularly concerned about the effect on donationsto charities that would result from the sporting testimonialchanges contained in the Bill. New clause 2 requests areport on the assessment of the expected impact of

“the total amounts received by individuals from sporting testimonials”

which is the other concern here, and also

“the donations made to charity from sporting testimonial proceeds.”

If the Government are contending that there will beno change in the amount of money given to charityfrom sporting testimonial proceeds, it would be useful ifthey said that. If they believe it is unquantifiable, itwould be useful if they said that too, so that we are clearwhat the Government expect—or what they think theyexpect—from the changes they are putting forward inthe Bill. Once again, the Government have said they areexpecting a negligible Exchequer impact from this. Itwould be useful to know the trade-off: how much theybelieve charitable organisations will be losing in orderto generate a negligible Exchequer impact.

I agree with both of the Labour party positions: onamendment 2, which is similar to mine on donations tocharities, but also on the one on the review of differentsportspeople. It is important that we work out what isalmost a distributional analysis. We all know that footballersin the male professional game get paid an awful lotmore money than any other individuals. If we see that


[Kirsty Blackman]

people who are getting paid far less are subject to thehighest percentage of impact, there is a problem in whatthe Government are suggesting.

Lastly, on clauses 3 and 4, I raised the issue thismorning and I got an answer—but not a very descriptiveone—on the reason that the Government have used theterm “general earnings”, which is different from thewording used in part 1 of the Bill. I was told that thereis a good reason for it, but I am still not clear what thatgood reason is, although I understand that the Ministerbelieves there is one. It would be useful to know whythat change has been made, and whether it makes iteasier or harder for the Government to change thethreshold level. If changing the £30,000 threshold levelin part 1 is by affirmative secondary legislation, how doesthe difference in language affect whether or not affirmativesecondary legislation is required to change the £100,000threshold as well? Is there a different process because ofthe choice of language?

3.30 pm

I agree entirely with Labour Front Benchers on issuesaround “customary”. I asked about that on SecondReading, because I could not quite get my head roundit. I do not think the definition of that is clear enough.It may have been easier for the Government not to docustomary testimonials, but only to do contractual onesin this circumstance. We could end up with people beingcaught by this who should not be caught, just becauseevery single person who has played striker and spentover 10 years in that role at that club has alwaysreceived a testimonial, although there might have beenonly two of them.

Mike Wood: On the example that I think the hon. Ladywas starting to give, until fairly recently Reading footballclub had a tradition that anybody who had played forthe club for 10 years received a testimonial. It was not acontractual term, but it is difficult to see how that isanythingotherthanexpectedearningsaspartof employment.Is it not right that it should be taxed accordingly?

Kirsty Blackman: The problem is working out thegrey areas in this. It may be the case with everybody atReading, but if there were only one or two people in thatrole before who filled the same criteria and this is thethird person who happens to fill the same criteria andthey get a testimonial, is it the case that that could beconsidered customary, despite the fact that they had noexpectation of the testimonial? I understand that this isonly for a certain group of people who have a supportedtestimonial through third-party organisations, ratherthan through the club itself. I get that we are not discussingthe widest possible definition here, but I am concernedthat that particular part of the language is incrediblywoolly and could have been made better so that all of usand sportspersons, clubs and third-party organisationscould understand the meaning of “customary”.

Robert Jenrick: Let me respond to as many of thosepoints as possible. We have had a discussion of theimpact of these measures on charities. Without repeatingmyself too much, we expect this to have a minimalimpact. Where the sporting testimonial committee andthe sportsperson make use of payroll giving, therewould be no impact whatsoever. Were an individual to

receive the money themselves and then pay tax and takeadvantage of gift aid, there would be a different taxtreatment. Obviously, that would be the choice of theindividual. The sportsperson and the sporting testimonialcommittee could and should choose to use payrollgiving, which is a very generous and unlimited relief.

The hon. Member for Oxford East queried whetherthe measure would create a new bureaucratic impact ontestimonial committees. It should not create any moreimpact than is already in place because we have alreadylegislated for this from an income tax perspective; thatis on the statute book. If a sportsperson wanted to usepayroll giving today to avoid the income tax liabilityand ensure that the greatest possible amount of moneywent to the charity, the sporting testimonial committeetoday would already have to register for payroll giving,which they would then be able to use a second time forincome tax and for the employer’s national insuranceliability. This measure does not add bureaucracy. Onecould argue about the measure that has already beenlegislated for, but that is already on the statute book andthe level of bureaucracy involved is pretty low.

We have had another debate around the definition ofcustomary or non-customary sporting testimonial. Thehon. Lady has already used her lunch break to root outthe guidance, in her usual assiduous manner. If Memberslook at it, they will see that it is thorough. It is severalpages long and goes into a degree of detail. I am happyto circulate it to other members of the Committee. Itsets out that while the concept of “customary” is notdefined in legislation, it has its ordinary, everyday meaning.The guidance says that in general, “customary” means apractice that is recognisable as the norm and where afailure to observe it would be exceptional. I think that ispretty clear. That suggests that if it is normal practice, asportsperson would have a legitimate expectation ofthat as part of their employment at the club, and if thesportsperson did not receive the testimonial that theywere expecting, that would be an exceptional occurrence.

Anneliese Dodds: I am grateful for that explanation,but I am sure the Minister will recall that in the expertevidence session, note was taken of the fact that thescope of that norm is not clearly indicated. One couldlook at the norm for a whole sport, the norm for aparticular club, the norm for one year, and so on. Doeshe accept the need for greater clarity in the guidelinesabout what the norm is defined with reference to?

Robert Jenrick: I am happy to review the guidanceand see whether we can give more examples. There are anumber of examples within the guidance on a range ofdifferent issues, but if it would be helpful to give one ortwo examples on this specific issue, I am happy to do so.Without sounding as though I am not giving seriousconsideration to the issue, it is worth restating that thishas not arisen as an active issue. Sporting bodies,sportspeople and sporting testimonial committees havenot raised it. The practice is of long standing; it datesback to 1927. We legislated for it from an income taxperspective two years ago, and we have not had anyadverse feedback since then.

Anneliese Dodds: Playing devil’s advocate, the wholepoint surely is that under the rules, if a testimonial iscustomary, the tax is payable. Therefore, if there is any


ambiguity, one would not necessarily want to go stirringhornets’ nests to try to resolve that. Surely the Ministerunderstands what I am trying to get at: the bias wouldsurely be towards not seeking advice, rather than goingout of one’s way to have the joy of paying tax.

RobertJenrick:Iunderstandthat,althoughthosesportingtestimonial committees would want a degree of certaintythat they were following the law, particularly if large sumsof money were involved. They might seek the guidanceof sporting bodies, or HMRC, perhaps on an anonymousbasis, and that does not appear to have occurred.

Earlier in the day, the hon. Lady asked whether thecustomarytest is specificorexclusivetosportingtestimonialsor whether it has a wider basis in law. There are otherexamples of the use of the customary test in tax law andcase law, one being employer accommodation, wheretwo factors are taken into account: first, how long thepractice had existed, and secondly, whether it had achievedgeneral acceptance with the relevant employers. There istherefore a history, as we have already described. I amhappy to take away from today’s debate that we willreview the guidance and ensure that there is a sufficientnumber of examples to provide clarity, should anyonerequire it, although it is not our experience that individualshave requested further clarification in the past.

The hon. Lady also questioned the wider point aboutthe impact on different sports, which is one of theobjectives of new clause 5. HMRC has announced thattestimonials for sports other than football are all likelyto be unaffected, as they are likely to be below thethreshold. The measure is most likely to impact footballingtestimonials. As I said earlier, the average testimonial,to the best of our knowledge, is around £72,000 a yearand is therefore unaffected by the measure.

Without repeating myself, we have consulted many ofthe sporting bodies, and in fact, I met some of them. It isworthrestatingthat inthis instance,sportingbodiesexpresseda legitimate concern that the proposed threshold of£50,000 was too low. The Treasury responded by notjust increasing it, but doubling it to £100,000. We haveto be careful not to create unfairness for other membersof society and taxpayers in the way that their paymentsare treated at the end of their career, or when oneoccupation ends and they unfortunately have to moveon to another.

The hon. Member for Aberdeen North asked thismorning, and again this afternoon, why there is adifference in language between part 1 and part 2 of theBill. My experts at HMRC have looked into that, andthe difference in language between the legislation fortermination awards and sporting testimonials is accountedfor as follows. First, in respect of termination awards, itis a charge on the employer. Secondly, terminationawards are treated as earnings of the employment.Thirdly, the liability in respect of sporting testimonialsis a charge on a third-party controller of a testimonial.Fourthly, there is no link between sportspeople and thetestimonial committee. Fifthly, general earnings includeearnings from the employment and any amount treatedas earnings in, for example, the testimonial payment. Ihope that provides some explanation. If the hon. Ladywould like further information, I am happy to write toher and the Committee.

The hon. Lady also questioned the amount of revenuethat is likely to be raised from the measure. We have saidthat it is negligible, which means, in the terminology of

the Treasury and the OBR, less than £3 million per annum;but in all likelihood, it will raise significantly less thanthat. When we modelled it prior to doubling the thresholdfrom £50,000 to £100,000 it was also negligible—lessthan £3 million a year—so it is likely to be closer to zerothan to £3 million, now that the threshold has doubled.Once again, our motivation in introducing the measureis to clean up, and provide certainty and clarity toindividuals and those organising such matches, ratherthan to raise revenue.

Anneliese Dodds: I am grateful to the Minister for that.Is he implying, therefore, that there would be a significantbehaviourchangeasaresultof themeasure?Surely,otherwisethere would not be zero income resultant from it.

Robert Jenrick: No—with respect, I did not say thatthere would be zero income. I said that within the spectrumof zero to £3 million, the likely amount of revenue raisedwould be closer to zero than to £3 million. The sumsinvolved are very low—negligible, in our terminology—soI do not have more precise figures, but it helps to givesome guidance that it is unlikely to be closer to £3 million.Clearly, the vast majority of testimonials will be excluded,and will be below the £3 million level. I hope that I havebeen able to allay some of the concerns, and that theamendments will not be pressed.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.


Clause 5

EXTENT, COMMENCEMENT AND SHORT TITLE

Kirsty Blackman: I beg to move amendment 1, inclause 5, page 5, line 39, at end insert—

‘(3A) No regulations may be made under subsection (3) untilthe Secretary of State has made a Statement to the House ofCommons on how the Government intends to raise publicawareness of the provisions of this Act, including awarenessamong people who may attend sporting testimonials that theirdonations may generate a National Insurance liability.”

The Chair: With this it will be convenient to discussclause stand part.

Kirsty Blackman: A lot of the discussion on sportingtestimonials, particularly on Second Reading, concernedpotential behavioural change of the people who goalong to sporting testimonials, and who pay money sothat the person they are attempting to honour canreceive the funding. Obviously, fans are aware that someof the money they give will be used to pay for theground used for the testimonial match, and for food,drink and other costs. However, I am concerned thatthe Government’s introducing this measure withoutspending enough time ensuring that there is publicawareness of the change will mean that fans are notnecessarily aware that some of the money will be top-sliced,or will generate a class 1A national insurance liabilitythat HMRC will require to be paid.

I certainly do not think that fans going through theturnstiles at such events imagine that some of theirpotential donations will go to HMRC. It is incrediblyimportant, if the Government are keen to ensuretransparency, that fans are aware of this when they gothrough the turnstiles. That is probably more important


[Kirsty Blackman]

when payment is made on a donation basis rather thana fixed ticket price basis. People are then giving moneythat they choose to give. It is important that fans areaware of what proportion of that money beyond £100,000is likely to go to HMRC, and what will be received bythe sporting individual.

3.45 pm

On public awareness of the provisions of the measure,the intention of HMRC and the Government aroundtermination payments is to try to stop companies dodgingtax or to close a tax loophole. I understand that thereare some cases to back that up whereby companies areperhaps giving pay in lieu of notice as a terminationpayment, instead of paying in lieu of notice and justending the contract at that point. If HMRC intendsthat loophole to be closed, it is important that employersand employees are aware that the loophole has beenclosed, so that they can comply with the law.

The other point I raised earlier about public awareness,is the importance for employers who will have the class1A national insurance liability to have as much noticeas possible about what new computer systems or changesthey will need to make in order to comply with thereal-time nature of the collection of the tax and to changetheir redundancy policy. If they currently have a redundancypolicy that involves, in an unspoken way, not paying inlieu of notice and terminating the contract instead witha compensatory payment, those companies will need toensure that they change their policy in order to complywith the law in the way the Government intend.

Now that I have thought of a clause on public awareness,I might table it in every Bill Committee I sit on. I givethe Minister fair notice. It is important that the Governmentlet us know, in terms of transparency, how they intendto communicate with those three classes of people: theemployers, the employees and the sporting fans whoattend testimonial matches.

Robert Jenrick: I will briefly describe the purpose ofclause 5 before turning to the hon. Lady’s amendment.First, the clause confirms that the Bill applies across thewhole of the UK. That is because national insurance isan excepted matter under the Northern Ireland Act 1998.Secondly, it provides that the clause takes effect on theday that the Bill is passed.

The clause also provides that the provisions in the Billcome into force on a day that regulations specify. It isintended that they will take effect on 6 April 2020. Thatwas previously announced at Budget 2018 and willensure that the measures come into force at the start ofthe 2020-21 tax year.

Finally, the clause provides that the Bill, once passed,will be known as the National Insurance Contributions(Termination Awards and Sporting Testimonials) Act 2019.Those are all technical matters and there is no substantiveissue to discuss specifically in relation to the clause.

Let me deal with the amendment of the hon. Memberfor Aberdeen North, which centres on how we mightcommunicate the measure to raise public awareness.Without repeating myself, this is one of those Bills thathas been around for some time, has been consultedupon and been part of Budget measures. I will not repeatthe list I already read out. It is well known and isexpected by members of the public who take an interest

in these matters—perhaps a limited number—and bytax professionals and employers. I do not think that onthis occasion a specific public communication awarenesscampaign is necessary.

On sporting testimonials, and whether there wouldbe value in educating members of the public that in somecircumstances a proportion of the money they spend ontheir ticket prices or donations will go to the Exchequer,it is worth remembering that any contractual testimonialis already subject to income tax, and also to employers’and employees’ national insurance contributions, as aresult of prior legislation in the Finance Act. The incometaxes payable above £100,000 for those testimonials fitinto that category. Unless it was specifically advertisedby the organisation holding the testimonial, there is noway today that an individual would know which ofthese categories their particular testimonial would fallinto. I am not sure that there would be any value inspecifically advertising to members of the public that wehave made this change. If anything, the changes we aremaking in the Bill increase alignment and simplicity,and increase the number of occasions when some tax willbe paid to the Exchequer when a member of the publicgoes to a testimonial that raises a significant sum of money.

Without exactly knowing the feelings of all sportsfans, in many cases I think they would expect that aparticularly well-paid sportsperson holding the testimoniallikely to raise in excess of £100,000 at the end of asuccessful career would be paying their fair share of tax,and that their sporting testimonial committee would bepaying employers’ national insurance. I do not thinkthat fans’ automatic assumption would be that well-paidsportspeople would pay no tax on the money theymake. I appreciate that there are many examples ofplayers being injured and so on, where people wouldfeel particular sympathy for them as individuals.

On the wider point of HMRC’s communication, weregularly communicate with stakeholder groups, includingrepresentative bodies. We have employer bulletins thatgive news, including our latest developments, throughquarterly updates. That would be particularly relevantto termination payments, where employers could accessthe latest information as a result of the passage of thisBill in due course. We are currently in consultation withsoftware providers to advise them of these changes,should they become law. We hope that they will be ableto make those changes as soon as possible.

As I said previously, the purpose of bringing this Billforward now, rather than delaying it any further, was toensure that there was good time available for employersto make the necessary changes. We hope that we will beable to have it on the statute book in sufficient time forall the relevant stakeholders to make the necessarychanges, subject to the smooth passage of this Bill.

Kirsty Blackman: I thank the Minister for his response,particularly around general public awareness. It is importantthat sports fans in particular are aware that their donationis likely to generate a tax liability. The fact that that wasnot done before is a bit of a failure. It should be the casethat sports fans should have a higher level of awareness.I do not intend to press the amendment at this stage,and I beg to ask leave to withdraw it.

Amendment, by leave, withdrawn.



New Clause 3

REPORT ON EXCHEQUER IMPACT

‘(1) The Secretary of State must, within three years of this Actreceiving Royal Assent, lay before Parliament a report on itsExchequer impact.

(2) That report must contain an assessment of the additionalpayments made to the Exchequer by third sector organisations ineach industrial category.”—(Kirsty Blackman.)

Brought up, and read the First time.

Kirsty Blackman: I beg to move, That the clause beread a second time.

I put my hand up and say that I made an error in thedrafting of the second part of this clause that probablyconfused everybody. Subsection (2) should not be there;only subsection (1) should be there. It is my error and Iapologise. I will not therefore press the new clause to avote, but I intend to speak on it.

The Minister will know from my questions this morningand our subsequent discussions of my concerns aboutthe Treasury reporting back, and basically letting usknow if a tax change has had the intended effect. I haveraised this on a number of occasions, in several differentforums, and now I have thought of tabling it as anamendment to the Bill, I may do it more often, particularlyto Finance Bills—perhaps on each aspect.

I spoke to the previous Financial Secretary, and perhapseven the one before that, about this issue. When it comesto tax reliefs and such like, the Treasury says, “This isgoing to generate x amount of revenue for the Treasury.”We have no recourse to see whether that amount hasbeen generated for the Exchequer. The Government saythey constantly keep things under review. At one point, Iasked the Library to provide me with a list of thereviews that it could find for the tax relief measures thathad been put in place through Finance Acts to seewhether they had generated the level of revenue that wasexpected. A number of them had not been reviewed.

We are not asking for much here. We are asking theGovernment to tell us whether the law that they haveproposed and taken through Parliament—that they havestood up and told us will generate £200 million ofrevenue—has actually generated that revenue. We canmake better law if we better understand the effects ofthe previous legislation that we have passed.

The new clause would require the Secretary of State,within three years of Royal Assent, to lay before Parliamenta report on the Exchequer impact of the Bill. I appreciatethe answers that were given by the Minister and HMRC thismorning—within three to five years, a review is undertakenand the intention would be the same on this Bill, and thatreview would be sent to the Treasury Committee, whichwould examine it. I have a number of issues with that.

Perhaps no one from the original Bill Committee maybe on the Treasury Committee, so we may not see theeffect of what we have passed. It would be incrediblyuseful if the Minister would commit to ensuring thatany reviews that happen—preferably all of them—aresent to members of the original Bill Committee, as wellas the Treasury Committee. That would be very useful. Iknow we have a change of personnel sometimes, butthat would be a good start.

I have previously criticised the lack of a link betweenthe Treasury Committee and those who sit on FinanceBill Committees. The Treasury Committee does a lot ofvery good scrutiny, but those of us on Finance Bill

Committees may not see or be part of that scrutiny, andtherefore, unless we go and dig out the evidence, whichwe find out from a colleague was given six months ago,we do not necessarily know that it exists. I have criticisedthe lack of a link previously. It is important that anyreporting that is done is not just to the Treasury Committee.I do not suggest for a moment that the Committee isnot incredibly competent and very good at its job; I amjust suggesting a lack of link-up and communication.

Itwouldbemuchappreciatedif theMinistercouldcommitto taking this on board and to ensuring that there is widertransparency and communication about any review. If itwere published in, say, a ministerial statement, and flaggedto those of us on the original Bill Committee, that wouldgiveustheopportunitytofollowupwithwrittenparliamentaryquestions, for example, even though we are not on theTreasury Committee and cannot ask questions in oralevidence sessions. We could do that much more easily iftheMinistercommittedtoprovidinguswiththatinformation.

Peter Dowd: We support the new clause, although wewill not press it to a vote.

Given that there are not many people in the room andthis probably will not be listened to very much, I can saythat, as an Everton supporter, I none the less congratulateLiverpool on their 4-0 win. Not many people will hearthat. I will deny I said it and will have it struck fromHansard. I also congratulate Man City on their win. Iwish them the best of luck. At least there is a tenuouslink with sporting testimonials.

Robert Jenrick: As a Wolves supporter, I am slightlybitter at the moment.

To answer the point made by the hon. Member forAberdeen North, without repeating comments alreadymade today, I appreciate her legitimate arguments. Wefeel that the measures in the Bill have been sufficientlyconsulted on. The long-standing tradition that a newpiece of legislation will be reviewed within three to fiveyears will apply. The review’s outcome will be in thepublic domain. It will be sent to the Treasury Committee.Ordinarily, it would be published on its website, and thehon. Lady or any other interested Members would beable to view it there. It will not be a private documentonly for the consumption of members of the Committee.I hope that will reassure her that we intend carry out areview in due course and that will be available for thosewho take an interest in it.

Kirsty Blackman: I thank the Minister for thatresponse—that I should set in my diary between 2023and 2025 to regularly check the Treasury Committee’swebsite to see whether the review has been published. Iam being sarcastic but, to be honest, it would be betterif the Treasury could just commit to sending it to thoseMembers on the original Bill Committee in allcircumstances, rather than us having to imagine whenthe Treasury happens to do the review and have to goon and happen to find it on the right possible day. Thatwould make for better lawmaking in this place. I willnot push this because of the drafting error—it wouldnot make sense to press something that has a mistake init—but I will probably return to it on Report.

Clause, by leave, withdrawn.

Bill to be reported, without amendment.

4.1 pm

Committee rose.


Written evidence to be reportedto the House

NIC 01 Chartered Institute of Taxation


Documents

PARLIAMENTARY DEBATES - publications.parliament.uk · Bill Dodwell, Tax Director, Office of Tax Simplification Colin Ben-Nathan, Chair, Employment Taxes Sub-committee, Chartered Institute