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House of Commons Hansard
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Public Bill Committees
14 May 2019

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

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 Revenue and Customs

Bill Dodwell, Tax Director, Office of Tax Simplification

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

Public Bill Committee

Tuesday 14 May 2019

(Morning)

[Sir Roger Gale in the Chair]

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

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Good morning, ladies and gentlemen. You will have noticed that I am not your Chairman, but I am for the moment; I hope the Chairman will arrive in due course. In the meantime, I have a couple of announcements before we start: please turn off your mobile phones and anything else electronic that makes a noise, and please remember that tea and coffee are not allowed in the room during sittings.

We will consider first the programme motion on the amendment paper, then the motion to enable the reporting of written evidence for publication, and then the motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I hope we can take those matters formally, without debate. I call the Minister to move the programme motion in his name, which I gather was discussed yesterday by the Programming Sub-Committee.

Ordered,

That—

(1) the Committee shall (in addition to its first meeting at 9.25 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 accordance with the following Table:

TABLE

Date

Time

Witness

Tuesday 14 May

Until no later than 10.25 am

HM Treasury

Tuesday 14 May

Until no later than 11.25 am

Office of Tax Simplification; Chartered Institute of Taxation

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

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That means that all the deadlines for amendments to be considered during line-by-line scrutiny have now passed.

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(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 witnesses are admitted.—(Robert Jenrick.)

The Committee deliberated in private.

Examination of Witnesses

Robert Jenrick MP, Simon Smith and Raj Nayyar OBE gave evidence.

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Good morning to those who have just joined us. We now resume our public sitting and hear evidence from the Treasury. Before I call the first Member, I remind all Members and witnesses that questions and answers should be limited to matters within the scope of the Bill. Please also recognise that we must stick to the timings in the programme order that the Committee has agreed.

The scope of the Bill is quite narrow. Essentially, the Bill introduces a new class 1A national insurance contribution on termination awards in excess of £30,000, and a new class 1A national insurance contribution on sporting testimonial payments over £100,000. Could Members and witnesses try to keep their comments focused on the scope of the Bill, which is not about general reform of national insurance?

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

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I declare an interest as vice-chair of the all-party parliamentary group on football.

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Thank you. The understudy will now hand over to the Chairman.

[Siobhain McDonagh in the Chair]

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I apologise to all members of the Committee for being late. Things have conspired against me!

I call the first panel. I remind the Committee that we have until 10.25 am for this session. Will the witnesses please introduce themselves?

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

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

Raj Nayyar: I am Raj Nayyar, Bill manager for Her Majesty’s Revenue and Customs, and national insurance contributions policy adviser.

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Thank you. I call Peter Dowd.

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Q Thank you. It is a pleasure 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 will gain and others will lose from any change.”

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

Robert Jenrick: Are you speaking in relation to termination payments?

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Yes, termination payments.

Robert Jenrick: First, the most important point to make is that we have chosen only to apply national insurance contributions class 1A to employers’ national insurance contributions, not to employees, although I appreciate the argument that could be put forward that that will impact on the total settlement made to employees when an employer looks at the package they are to receive on termination. The evidence we have seen suggests 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 majority of termination payments will be exempt. Around 80% of individuals receiving a termination payment will not be affected by the measure. There is already a generous threshold of £30,000, which compares very favourably internationally. There is no income tax payable before that point, and even with this measure, there will be no employers’ national insurance payable—it will only be on payments above that. Because of that, we anticipate that the proposals will affect higher income groups.

The best estimate that Her Majesty's Revenue and Customs and the Treasury have made is that it will impact the top two or three income deciles. It will have a very limited impact on low or middle-income earners.

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Q Can you confirm that no distributional analysis has been undertaken of the impact of the new class 1A charge for employers on termination awards? Is that correct?

Simon Smith: We wrote to the Committee about distributional analysis prior to the session. We said in that note that what we have done, and are able to do with the data we have, is to show that this would disproportionately affect higher and additional rate taxpayers. But due to data limitations, we cannot do the formal distributional analysis of the type that we would usually do with a full Budget policy costing. However, we are confident that it would affect the top two to three income deciles, as the Minister says.

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Q I acknowledge your point, but the answer to the question is no; you have not done a distributional analysis, and you say you cannot do one because it is not pertinent or possible to do one.

Simon Smith: Yes, it is not possible.

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Q Okay. May I go on to the issue of collection? The legislation does not set out the way in which the class 1A charge will be collected, stating that that will be covered by secondary legislation. Minister, do you accept the criticism from tax accountants that that is a break from practice and that it will be confusing for employers, as well as, for example, adding to administrative burdens?

Robert Jenrick: No, we do not agree with that. I will let my colleague Raj, who perhaps has the greatest expertise from an HMRC perspective, speak to this in a moment, but the purpose of the policy is tax simplification and greater alignment with income tax. Our primary motivation is to simplify the tax code and to give greater certainty to taxpayers. We chose class 1A as the most logical class of national insurance on which to apply the charge, because it is the class that applies to benefits received by employees, and is paid by employers.

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

As I said in answer to your first question, we specifically chose to apply only employers’ national insurance in this situation, not employees’ as well, which, of course, we could have done. That would have simply been an additional charge that individuals had to pay. We chose not to do that. We gave it considerable thought and came to the conclusion that class 1A was the most logical one to apply this through. I think that has been widely recognised. I do not know whether Raj has anything to add.

Raj Nayyar: The only thing I would add is that when there is a cash payment—a termination award—for income tax, it is currently collected through pay-as-you-earn. It is reported in real time and paid either monthly or quarterly, depending on the size of the employer. For a class 1A contribution, where it is a cash award, it will be reported and paid in the same way as pay-as-you-earn income tax.

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

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Q I understand that class 1A charges will arise and be paid in real time, rather than after the tax year-end, as is the case with other class 1 charges. Given that we are talking about simplification, do you not accept that payment in real time would require additional boxes on the PAYE real-time information submission, and a new process by Her Majesty’s Revenue and Customs for monthly or weekly PAYE reductions for employers? Would that not place an administrative burden on employers that is not factored into the policy note produced by Treasury officials? It does not appear to be as simple as you are suggesting, in the round.

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

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

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Q To follow up on that, can you confirm that this is the only class 1A liability that will arise on cash earnings?

Robert Jenrick: Yes.

Raj Nayyar: Yes.

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Q So there are currently no others for cash apart from those in the Bill for sporting testimonials and termination awards?

Robert Jenrick: Yes.

Raj Nayyar: Yes.

Simon Smith: Yes.

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Q On the real-time collection mechanism, can you confirm that this is the only class 1A liability that will arise in real time?

Robert Jenrick: Yes.

Raj Nayyar: Yes.

Simon Smith: Yes.

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Q It seems to me that you are creating a different class within a class with these 1A contributions. They are still going be termed 1A contributions, but they will be treated totally differently and arise on different classes of stuff from current 1A contributions.

Robert Jenrick: It is distinct from the others, but, as I said earlier, if the choice was about which of the classes is the most logical to apply this to, this would remain the most logical. If your argument is that because this is somewhat different, you could have created an additional class of NICs, you could have done that, but we took the view that that would have added more complexity than simply having a somewhat different situation within class 1A.

Raj Nayyar: Can I add to what the Minister said? We are working to minimise any additional administrative burden there may be, but, as I said, because this is already being done by employers for income tax, any additional burden would be minimal. HMRC will make sure that guidance for employers is ready in good time, and it will also be talking to and consulting software providers about how to bring this about.

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Q Currently, there may be employers out there who do not do anything on class 1A, because they do not provide any benefits in kind to employees. They will not change anything they do, but may now be liable for class 1A contributions done in this different, unusual class 1A way, just because you are bringing cash termination payments into class 1A contributions. Is that right?

Robert Jenrick: That is technically possible, yes.

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Q Okay. So it could be an additional administrative burden on those who do not currently pay any benefits in kind.

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

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Q On the impact on the amount that employees receive, your work tells us that mostly people in the top two or three income deciles will be affected—or disproportionately impacted, as you suggest. Have you quantified the total amount that employees will lose as a result?

Robert Jenrick: I will ask Simon to answer in a moment, but it is not as simple as that, because that is being paid for by employers. As I said earlier, we have chosen not to apply both employer and employee national insurance contributions, so the employee will not pay anything directly. Your question cuts to, “If you were an employer looking at how much money you were willing to pay somebody as part of a termination, would you take into account the fact that the employer now has to pay 13.8% class 1A national insurance contributions?”

That is quite possible—we do not dispute that—but it is difficult to accurately quantify the proportion of employers that would pass that on to the employee. We know that it is a revenue-raising measure, and we expect—and the Office for Budget Responsibility has verified—that it will bring in around £200 million a year on an ongoing basis. Those facts speak for themselves. We will be raising additional national insurance revenue from employers, but it will be for employers to decide how much of that is passed to employees through the usual negotiations.

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

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Q Does the Treasury have details about the number of business start-ups by people who have received termination payments?

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

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Q If the Committee meets on Thursday, it would be useful if you could look and see if you have data on the number of business start-ups as a result of termination payments, because I am concerned about the impact there may be on business start-ups as a result of the reduction in termination payments received by employees. Do you see what I mean?

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

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

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My other questions are on sporting testimonials. Chair, do you want me to hold them or ask them now?

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Do you mind if I bring in a few more people? Thank you.

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

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

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

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

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

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

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

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

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

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

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

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Q Thank you. It may appear pernickety, but given how much wage stagnation we have had, 0.1% is quite significant in terms of the overall wage increases—or lack of increases—that we have had in recent years.

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

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

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Q I am grateful to the Minister for those comments, but he has just confirmed the situation, which is that legislation that this House has passed leaves open that possibility. Varying down the level could be done through a statutory instrument, rather than requiring an Act.

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

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Q Thank you; the point is clear. I appreciate that clarification.

I have questions about testimonials, as does the SNP spokesperson, the hon. Member for Aberdeen North, but I am sure we will come back to them later. My final question for now is about the real-time approach to payment of NICs. What kind of communication exercise will be undertaken with those who may be affected? I appreciate Mr Nayyar’s comments about ongoing discussions with software providers and others, but concerns have been expressed that this remains something that could be viewed as an administrative burden. The view is that, currently, the system is not set up to accept those payments. Can we have an indication of the communications that will be provided to ensure businesses are aware of this and not concerning themselves unnecessarily?

Raj Nayyar: I will take this. HMRC has regular stakeholder events with tax professionals and software providers in which we will be communicating how this will happen. We will be issuing guidance in due course to explain what we would like employers to do and what they need to be aware of. We will be supplying specifications for third-party software providers about what changes they need to make to their software, so all of that will be ongoing.

Robert Jenrick: To add to that, the purpose of bringing the Bill forward at this moment is that, if we can secure passage through Parliament and gain Royal Assent, there will be good time for that communication and for employers and software providers and so on to make the necessary changes before the start of the next tax year.

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Q It is a privilege to serve on the Committee under your chairmanship, Ms McDonagh. I seek some clarification from the Minister in respect of some of his earlier responses. When explaining why the Bill has been brought forward, you mentioned clarity, fairness, consistency and international comparators, but it is also an issue of closing a tax loophole, is it not? Can you clarify the particular point that was made on Second Reading that terminations were

“subject to different income tax and national insurance treatment”

and that had allowed a

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

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

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

Raj Nayyar: Common examples we have seen are when an employee may have been due payment in lieu of notice, but they reach an agreement with their employer whereby the contract is terminated and, instead, they get a compensation award for damages for breach of that contract. That is taxable over £30,000 but it would have been entirely NICs-free. The Bill disincentivises that kind of manipulation by the very well advised.

Robert Jenrick: Choosing only to apply employer’s national insurance disincentivises the employer from taking that action, without doing what one might have done by going further and creating a further cost to the employee.

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Q Will the Minister—or perhaps his officials—indicate how many employers HMRC has investigated over the past few years who are using this loophole to avoid paying national insurance contributions, or is it simply an estimate?

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

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Q Can you not make an estimate of how much the Treasury has lost? You said in your earlier answer that it would generate £200 million in revenue. I also saw an earlier note that said it would raise £485 million for the Treasury by 2020-21. Is it fair to say that £200 million is being lost per year?

Robert Jenrick: No, that is not correct.

Simon Smith: To explain the difference between those two figures, the £485 million figure includes the impact of the income tax changes that have already been passed that were part of a package of measures. There are two different sets of changes. The first set—the income tax changes—simplified the rules to make it harder to manipulate payments. The NICs bit, which we are now taking forward, aligns the NICs treatment to remove the incentive to do what we were trying to stop through income tax in the first place. The £200 million figure refers to the yield just from the NICs element of this—the bit that we are discussing today.

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Q I am with you. Do we have an estimate of how much the Treasury has lost as a result of using this method to avoid paying NICs?

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

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Q It is a pleasure to serve under your chairmanship, Ms McDonagh. A quick question for the Minister: how much consultation has there been with the trade unions over this?

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

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

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

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Q So we can get some of that information from you. Brilliant, thank you.

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

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Q It is a pleasure 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 people losing their jobs, who are, by definition, in a time of need. What are your comments on that?

Robert Jenrick: I tried to answer that earlier. We all understand that, regardless of income, losing your job is a very difficult period in your life. People of all income levels can live to their income and have commitments and so on. I do not for one moment underestimate the difficulty that that situation presents to individuals and their families. However, this measure is 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 termination payment will be affected by this, so 80% will not be affected.

Those who are affected will be individuals in the higher income brackets, as we said earlier—those in the top two or three income deciles. They will be higher rate or additional rate taxpayers. I do not diminish the fact that for higher rate taxpayers, losing your job is a very difficult period in your life which puts all manner of pressures on you and your family. It is worth noting, at least, that this is a measure that is unlikely to impact those on lower incomes.

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Q And there are conversations to be had with the trade unions about this.

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

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Q Moving on to sporting testimonials, I am not somebody who goes to a huge number of live sports matches of any kind. How much do people generally pay for a ticket to a sporting testimonial?

Robert Jenrick: There is no easy answer. There is immense variation in events; they vary from a sporting testimonial at Wembley stadium for a premiership footballer to ones at my local football club in Newark for a player who has retired after a 10-year career. You see a complete range of prices for sporting events. We have evidence on the amount raised by the average sporting testimonial that is affected by the Bill from a piece of work that HMRC and the Treasury did in 2013. I believe it was £72,000. Obviously, many much smaller testimonials go below that, such as the one I have just described in the small club in my constituency. Finding the evidence on more substantial testimonials is not easy, because there is no central point of collection for it, but after doing a trawl for evidence in the public domain, we came to the conclusion that the amount is about £72,000 a year. As you will probably have seen, there is a threshold in the Bill of £100,000, so the vast majority of sporting testimonials will not be caught by this measure.

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Q Are the ticket prices for the ones that are over £100,000, because they are likely to be caught, normally fixed, or are they done on a donation basis?

Simon Smith: Again, there would be a lot of variation. The other point I would make is that not all sporting testimonials will be affected by this Bill. We are talking about only non-contractual, non-customary sporting testimonials. 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 been legislated for, and it is in operation.

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Q I have a question about the consistency of the language in parts 1 and 2. Part 1 defines the amount received in relation to the income of the earner under section 403 of the Income Tax (Earnings and Pensions) Act 2003, whereas the sporting testimonial section, instead of defining it on the basis of an ITEPA category—I think section 226E is the key one for sporting testimonials—talks about about general income. It does not define it in terms of the ITEPA eligibility threshold. Why is there a difference in language between the two parts of the Bill? When part 2 talks about general earnings, does it actually mean ITEPA section 226E?

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

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Q Is it intentional that there is a difference?

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

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Q This is the last question from me. I have tabled an amendment about the Exchequer providing a report on the impact three years after the Bill comes into force so that we are aware of whether it has raised the £200 million a year that the Treasury suggested it would. I do not have a huge amount of success in getting amendments accepted, so I wonder whether the Minister and his team would provide that report, even if they do not accept my amendment?

Robert Jenrick: Sorry to disappoint you.

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It was worth a try.

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

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You did; it is true. It does not happen often, though.

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

Raj Nayyar: If we have not already done so. Sometimes HMRC will already have commissioned research on how a policy has worked out, and we can then just explain that that has happened and the impact of it.

Robert Jenrick: The £200 million is for termination payments. As for sporting testimonials, we believe that this measure will raise a very small amount of money. Our motivation is to ensure clarity by placing the tax situation on the statute book, and to ensure fairness between sportspeople who have testimonials, rather than to raise significant sums of money. The OBR has certified that the effect is negligible, which means less than £3 million, but it could be significantly less than £3 million.

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Q A lot of sporting testimonials at all levels are used to raise money for charities and good causes, with either all or some of the proceeds going to local or national charities. How do you expect these measures to impact on charitable giving through sporting testimonials?

Robert Jenrick: That is a good question. We do not think it will have a material impact. If you are a sportsperson who wants to give all or part of your testimonial receipts to charity, there are two options available to you. First, you could use our very generous system of payroll giving, which is without limit. Your employer, which in this case may well be the sporting testimonial committee, could register for that and take advantage of it. If you had not done that, and the receipts came to you as an individual, you could choose to make a donation and use gift aid at a later date, and take advantage of what by international standards is a very generous relief. We do not think there will be an impact on the receipts that charities receive from some of these testimonials.

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I apologise, Ms McDonagh, but in my earlier declaration, I should have drawn the Committee’s attention to the part of my entry in the Register of Members’ Financial Interests about hospitality from the Football Association.

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I guess there might be a lot of people in that position.

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Q I should like to refer back to our discussion on termination payments. I am perplexed, because I thought the panel contended that it was unclear how many people would be affected by those measures, yet the Exchequer’s figures—the Minister referred to them—project a potential increase in revenue of £210 million. That must be modelled on the basis of the new income tax incidence, and must assume that at least some of the people affected will be drawn into the new employer NICs. Surely we have some indication of how many people will be caught by this measure. Perhaps members of the Committee could receive a letter confirming that, but I wish to push the panel a little more. If there is an estimation of the revenue impact, we must roughly know how many people will be affected.

Robert Jenrick: I think there are two questions there, and you are asking a different question from the one asked earlier. You are asking how many individuals or employers are likely to have to pay employers’ national insurance contributions on their termination payments, but the earlier question was about the impact on the amount of money that goes to individuals, and whether we have modelled that. My answer to that second question was that that was very uncertain, because it will depend on the behaviour of the employer, and to what extent they pass that cost on to the employee. We think that around 72,000 termination payments are likely to incur employers’ national insurance contributions; we have modelled that. The more difficult question, to which there is no accurate answer, is about how employers will behave in every case, and whether they will choose to pass all or some of the 13.8% on to the employee in the package they provide.

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Q Thank you. I appreciate that clarification. On testimonials, does the panel know of any 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 and get back to you.

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Q That perhaps underlines my most significant concern about this measure, which is that the term “customary” appears to be an empty category. Perhaps panel members believe that cases will fall into that category, but it seems that unless the testimonial 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 cannot necessarily expect it. I am concerned about this woolly language creeping into tax law, but perhaps the panel will 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 work out what it means in their circumstances.

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

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Q It would be very helpful if the Committee could have that. It would have been useful to have it before the sitting, because the description given previously by a Minister—not this Minister, I hasten to add—suggested that “customary” might apply if there was a testimonial every year for a departing player or a particular group of players. Anybody who understands a little about football—I should declare that I am the partner of a referee, so, sadly, I know it inside out—knows that it is fairly unlikely that one player would retire every year; that would be slightly strange, so it would be useful to have that guidance.

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

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Q It is a pleasure to serve under your chairmanship, Ms McDonagh. Testimonials are common among sports groups, and they are not necessarily confined to football—they occur in cricket, rugby and so on. One would assume that there was consultation or engagement with clubs or representative bodies. What feedback did you get from them about the changes you propose?

Robert Jenrick: our interest in reforming national insurance contributions for sporting testimonials is long-standing, as is our interest in reforming termination payments, so this measure has been considered for some time. We consulted on it. Inevitably, in the course of that, we got representations from a number of sporting bodies, and Treasury officials and Ministers met some of them. For example, my predecessor, David Gauke, who was then Financial Secretary to the Treasury and is now Lord Chancellor, met the England and Wales Cricket Board, which took a particular interest in this measure. As a result, we took the decision to increase the threshold from £50,000 to £100,000. That is a significant change. Evidence we produced in 2013 suggested that the average applicable testimonial raised around £72,000 a year, so the change will take the vast majority of testimonials out of this measure, which applies only to testimonials that bring in significant receipts.

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

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Q May I follow up on a point that Mr Wood made? I felt a certain amount of ambivalence about the statement that the impact on the charity sector would be minimal. Any pound whatever lost to the charity sector is a loss to the charity sector and to the community, so I am slightly worried that the attitude seems to be, “It’s not much.” It will be something. In today’s society, given austerity, any loss to the charity sector is crucial, so it would help if we firmed up at some point what we believe the loss will be.

Robert Jenrick: Perhaps I can firm that up now. If the sportsperson used payroll giving, the loss would be zero. The individual and the sporting testimonial committee need to register for payroll giving, which is available without limit. In that case, there will be no loss to the charity whatever.

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Q That is right, but that takes me to my second point, which is that you have almost bureaucratised the process. We are moving from a much simpler process to one in which I suspect the onus will be on the organisation or the individual to make a separate declaration. You can clarify that for me if you want, either today or subsequently.

May I ask a couple more questions? The first is on the loss in the last few years as a result of some sporting testimonials income incorrectly being excluded from national insurance contributions. Secondly, can you confirm how much HMRC receives in income tax and national insurance contributions because of contractual and non-contractual sporting testimonials?

Simon Smith: On the second point, I do not think we have a box on methods of collection specifically to note that money is coming in from a contractual or customary sporting testimonial. We would not have a precise figure for 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 as part of your employment. It would just be another payment in respect of your employment.

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

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Q Given that answer, can you provide any examples of the confusion that employees have had with the previous tax and national insurance treatment of termination awards?

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

However, since that time, there have been important changes to the tax and national insurance scheme. For example, there was the introduction of the benefits code, which taxes benefits in kind. That was replicated for national insurance contributions. More recently, there have been changes to the Income Tax (Earnings and Pensions) Act 2003 for disguised remuneration—changes that, in certain circumstances, place a tax and national insurance liability on payments by a third party. Those developments threw the treatment of sporting testimonials into a bit of a quandary, because they had overtaken the 1927 case, but HMRC guidance had not been fully updated, and was still based on the 1927 case. The Finance Act 2016 was introduced to try to make that clearer for income tax, and this Bill just follows up for national insurance contributions.

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Q I am glad you mention the point about the Finance Act 2016. Do you think it has succeeded in doing what you intended it to do? Or are you not quite sure yet? Is it too early to say?

Raj Nayyar: From what we can tell, it has; we have no indication to the contrary. I am sure we would have been notified or been contacted if it had not resolved some of the uncertainty.

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

Raj Nayyar: The legislation has not gone as far as, for example, the disguised remuneration legislation, which places a tax and class 1 employee and employer liability on certain third parties. This is only employer NICs after a £100,000 threshold.

Robert Jenrick: It is a generous level at £100,000. It is only the employer side. Speaking as somebody who enjoys watching sport, you want to support sportspeople, but have to be aware of other individuals whose careers can be quite short. There are other examples that have come to us, such as people in the performing arts, ballet and many other areas. That would possibly include MPs, whose career prospects are not always very good when they leave the job. I think £100,000 is, by comparison, a generous situation.

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If there are no further questions from Members, I thank the witnesses for their evidence.

Examination of Witnesses

Bill Dodwell and Colin Ben-Nathan gave evidence.

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We will now hear oral evidence from the Office of Tax Simplification and the Chartered Institute of 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 of the Office of Tax Simplification. I was appointed to that role in January this year.

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

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

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

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

Bill Dodwell: We do not have data on the winners and losers of putting national insurance on termination payments. That report covered the whole issue of aligning national insurance contributions with income tax in relation to employment income. That meant making sure that the base was the same—that the amounts you charge tax or national insurance on are identical. There are significant differences at present. Secondly, it meant putting national insurance contributions on to an annual cumulative basis, like income tax. That is different from the current system of national insurance, which is charged on a pay period by pay period point, with one exception for company directors, who otherwise had an avoidance opportunity that is closed by putting it on an aggregate basis.

The evidence that the OTS gathered for those reports in March 2016 and November 2016 was that there would be something like 7.5 million winners—people paying 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—people paying more—and their average payment would be about £260 a year. You will be aware that the Chancellor at the time announced that that would not be moving ahead.

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Q Given that you made these suggestions and the Government have taken them up, can you give us some examples of the confusion employers had with the previous tax and national insurance treatment of termination awards?

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

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

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

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Q How substantial was that evidence?

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

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Q Would you characterise the introduction of a new class 1A NIC charge as an anti-avoidance measure, or as a measure designed to simplify the tax code and raise revenue?

Bill Dodwell: It is very hard to give you a clear answer. I think it is both. I was listening to the evidence from the previous session, and there were clearly some people who were steering payments in a particular way to avoid paying national insurance. The general OTS view is that you make it easier for everybody to understand the system if both employers and employees understand it better, and if the tax and national insurance base is the same. That is not just on income, such as termination payments; it is also on expenses.

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Q I may come back to that at some point, if I may. Can I turn to the Chartered Institute for Taxation? Do you have an opinion or any observation on the time it has taken the Government to bring forward 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 the argument for levelling the playing field on income tax and national insurance contributions. I am sure we will come on to discuss how that is being done. The genesis of the changes that we are now talking about—the national insurance changes—was in an OTS report a few years ago, which was all about simplification of the system. There is an important point on simplification. There is also a point on the amount of revenue that is raised from any particular measure and how that measure is introduced. We know that—in relation to this particular measure, because we have been given the figures—there is, in aggregate, an amount of £200-odd million, which is being raised by the imposition of class 1A national insurance. We will talk about how that is being done.

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

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Q Does that fit in with the broader proposal? It was referred to in the 2016 press release as being just one step forward in this area. Do you feel that we have ground to a halt at this stage?

Colin Ben-Nathan: As we said at the time, we thought the proposals that were put forward by the Office of Tax Simplification had a lot of merit in trying to simplify a very difficult area, which has occupied the courts, employers, employees and HMRC for many years. Proposals were put forward and consulted on at the time, and we responded to that consultation. Views varied, but ultimately the Government decided that they did not wish to take forward a broad simplification platform and focused on the points that I mentioned previously. Obviously, that was a Government decision. Simplification can still be effected if there is the will and consensus on how to do it.

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Q Yes, and that is the sense that I get. I am not asking you to confirm my sense, but I sense that it has got thus far and no further at this stage.

Part of the Government’s rationale for the introduction of a new class 1A NIC charge on the termination of payments was that it is designed to address employees’ current confusion about national insurance and tax treatment of those awards. In your assessment, does this legislation adequately address that confusion, or is there a danger of perhaps complicating it in the light of the fact that it has not gone further, à la the previous answer to my question?

Colin Ben-Nathan: I think we would accept that this is a difficult area, but we have prepared evidence for the Committee that you will have seen. We have noted that the introduction of class 1A in relation to cash payments, which will typically occur in relation to terminations—not always, because there will be benefits in kind, but it is typically cash—is an unusual move. We understand the Government’s rationale for wishing to impose a charge in the first instance in relation to employers only. That is what class 1A national insurance does. Class 1 national insurance, apart from one exception, which we note, generally imposes national insurance both on employees and employers. There is an exception, and it relates to those above retirement age, where secondary, or employer national insurance contributions are paid, but primary, or employee contributions are not paid. That was something that we pointed out in our note. You then get the position where you have to ask how easily employers are going to relate to class 1A being imposed in relation to a cash payment—and the way in which it is being imposed. Typically, class 1A will apply to benefits in kind, which are made during the year, though the actual contribution 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 in relation to employers now having to apply class 1A during the year—that is the point that we make about this particular measure being unusual.

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Q I am glad that you have talked about how unusual it is, because that is one of the questions I asked, which you have answered—so that is two for the price of one. An additional justification given by the Government for wider reform of the tax and national insurance treatment of termination awards has been that a small group of well-advised employers has abused the current loophole, allowing them to avoid paying additional tax and NICs. Without breaches of confidentiality, of course, have you ever come across instances of that type of avoidance in your professional life?

Colin Ben-Nathan: I would say that, like many areas of the tax code these days, it is very complicated. You have got a varying series of provisions in relation to contractual earnings, termination payments, retirement benefits, restrictive covenants; there is a whole tapestry of legislation here about which it is very easy to get confused. There is one thing in terms of manipulation of the system, but there is another simply in terms of understanding what the rules are. Typically, we find employers wanting to take advice, to make sure that they get things right. The position at the moment is that we have a code. Section 403 was mentioned: it talks about termination payments that are non-contractual. That is the provision we have, and on redundancy payments as well, where there is a £30,000 exemption. That is specifically there: it has not been changed for a bit, as was said—it was the late 1980s—but it is there for a purpose. Employers will typically want to know whether they are within that exemption or outside it. It is quite important, too, because as well as the £30,000 exemption that 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 important that employers understand where they are. Overall, our view—again, it goes right back to 2015, when the Office of Tax Simplification report stated that there was an opportunity to really simplify things. That is the way that I would answer the question. I am not sure about manipulation, but I would say that there is a lot of confusion.

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Q I have one more question for the Office of Tax Simplification. Out of the 1,200 tax reliefs that we have—this is not directly linked, but would you consider this to be a low-hanging fruit?

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

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Q On the two thresholds of £30,000 for termination payments and £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 a specific view on those levels, no.

Colin Ben-Nathan: It has been commented upon that the £30,000 limit was last increased in the late 1980s and has not been increased since. We get back to the point of whether a measure is revenue-raising or revenue-neutral. One of the points that we raised previously on feedback is that, and Bill will talk for the OTS, if there was going to be an overall simplification—which is what we were looking at—the sense was that it may be revenue-neutral. At the moment the position is that revenue is being raised, but the actual threshold of £30,000 remains static. It will now apply for the purposes of both income tax and class 1A national insurance. Where relief should sit is, of course, a matter of debate given the pressures on the public Exchequer, but the comment is that it is overall revenue-raising.

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Q I was going to ask Mr Ben-Nathan about the collection mechanism, but you have answered that. Do you share my slight concern that employers who currently do not use any benefits in kind, so do not have any liability for class 1A, will potentially be brought into liability by this change?

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

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Q My second question is around the different language used in the two parts of the Bill. I raised this issue earlier in questions to the Minister. Will you explain more about your concerns or queries around this?

Colin Ben-Nathan: In relation to the termination payment part of the Bill, we have a cross-reference back to the taxing section that refers to the £30,000 limit and so forth. That seems pretty clear to us in terms of what should and should not be subject to class 1A national insurance. When we look at sporting testimonials, it is not so clear because we are effectively saying that the amount of general earnings should be subject to class 1A 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, or is it those earnings, less the £100,000 reflected in section 306B, which is the exempting section? It is simply a question for the draftsmen to clarify that we have actually got that right. I cannot believe it has not been thought about, but it did occur to us in looking at the Bill.

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Q I have a couple of questions for Mr Dodwell. On the implementation of these changes, I am not sure how much evidence or guidance the Office of Tax Simplification provides to Government. In referring to equality of treatment between NIC liability and tax liability, did you suggest that the way to sort this out in this case would be for the Government to use class 1A contributions?

Bill Dodwell: No. All our reports are on public record and published on our website. That report did not specifically suggest class 1A.

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Q Do you think that using class 1A contributions liability to make this change will be simpler for employers, or might it make it more complex for them?

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

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Q I have one last question for both of you. I have been raising issues about road maps and where the Government intend to get with anything that they are doing, and how they intend to get there. I am concerned that in many cases, there does not seem to be a grand plan. In relation to tax simplification, generally and also specifically around income tax and national insurance changes, are both of you comfortable that you know where the Government are looking to get to and how they are looking to get there? Or are you not comfortable about that?

Bill Dodwell: I do not think there is evidence that the current Government have a plan to align the income tax and national insurance base completely. There is no evidence to support that. There are revenue-raising and revenue-losing parts of all that, so I am sure that the Government will be thinking about that.

We have also talked about trying to make the collection and enforcement mechanisms simpler to understand, at least on the national insurance side. We understand that HMRC is doing some work on that. Again, it is not a simple system, because national insurance is not the same as income tax. The two came from a different place; maybe we should argue that they should be one, but they are clearly not identical at all. We have to preserve those differences unless we go for a full-blown merger.

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Q Mr Ben-Nathan, have you anything to add?

Colin Ben-Nathan: Whether it is this Government or any Government, there is a need to look not just at national insurance and income tax, but—speaking as chairman of the employment taxes sub-committee—at the whole question of employment, self-employment and the gig economy. Matthew Taylor’s work and the Government’s response are ongoing and very important. We need a road map—I think that would help us. There have been attempts to move towards some sort of coalescence, for example around national insurance, employees and employers. It is a difficult area and there are strong views one way and the other, but further moves in that direction would be really helpful, because the gig economy is here and we have to deal with it.

We have to look at these questions; I think that the Government are looking at that. The sooner we can do that, the better, but obviously other matters are occupying us at the moment.

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

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Q In relation to termination awards, the Chartered Institute of Taxation has made some negative comments about collection methodology and timing of collection. It suggests that there is an administrative burden and that it is quite complex—colleagues have touched on some of that. Is the institute justified in its concerns? Can they be overcome by information or guidance from you to employers?

Colin Ben-Nathan: We, as the Chartered Institute of Taxation, make points and the Government then decide what the policy will be. We have the Bill in front of us; I am sure that guidance will be issued, and I hope it is helpful. It is useful to have examples in guidance—we might come on to that in relation to other matters as well. Yes, ultimately employers will follow the rules as set down. We simply make the point that it is unusual for a class 1A charge to be imposed under real-time information, because normally that is not the case; the charge is paid after the end of the year.

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Q One supplementary question: will that guidance be timeously delivered to the employers or those responsible, rather than as an afterthought?

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

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Q I am grateful to our experts for their very helpful testimony. I am sorry to return to testimonials and the concept of “customary”, but our previous witnesses suggested that there was a body of case law around it and that the concept was well understood. However, I understand that there is some concern about lack of clarity in the scope of how “customary” is defined—whether it relates to a particular team and its previous practice, or to sport as a whole. I note that there have been some high-profile football players recently who have not received testimonials when one might have been expected. I wonder whether, on your understanding, the concept is sufficiently fleshed out, or whether additional guidance might be useful.

Colin Ben-Nathan: Again, I am happy to comment from the CIOT point of view. That is really difficult area, because one is effectively trying to look at whether something is either contractual or quasi-contractual by way of customary expectation, and is taxable because it is earned from employment, or if it is not such, and is to do with personal esteem and so on. All those issues were raised in Reed v. Seymour in 1927, which was mentioned.

That is a difficult area and in our evidence, we made the point that if we do not legislate along those lines, it would be really helpful—I am not suggesting that it would be easy, but that is why we need to do it—to have at least some examples of what HMRC believes is and is not customary. For example, if something regularly happens to somebody and they know and expect it to happen after they have served 10 years, maybe that is customary, but what if it is not 10 years? What if it is eight years, seven years or five years? We make that point because we think it is very difficult when it comes down to it.

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Q Thank you—that is very helpful. I was intrigued by comments in some of the testimony provided to us about there being an analogy with the treatment of tips in restaurants. They might be viewed, to some extent, as a discretionary payment made by those who have enjoyed a service, and fans do the same thing when they buy a ticket.

The big difference is that there are many costs associated with a testimonial, and if those costs end up being much bigger than expected, they can almost swallow up all the revenue that comes from the testimonial. I wonder, on the first part of the equation—before one gets to the issue of tipping into £100 k—whether you feel that the allocation of costs is sufficiently watertight. The different players set the fee for which they will play for their teams. Is there sufficient clarity in that area?

Colin Ben-Nathan: Obviously, testimonials work in different ways. Essentially, one is looking at the relationship between the testimonial committee and the individual who would receive the money in the first instance, and at the nature of the amount of money at the gross point and whether or not it is earnings. Yes, you are right; there will be costs attached to that. The Bill really speaks to the gross amount that actually comes through to the individual.

The point about tips is interesting. It has been noted that an individual who receives an amount in relation to the position on income tax can use payroll giving, or possibly gift aid, to ensure that the amount effectively goes to a charity with no tax leakage. The interesting thing about national insurance is that is not the case. There is a point there, particularly about the amounts that go to charity.

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

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Q On the argument about what is customary, let us say that a footballer starts with club A when they are 16, 17 or 18, moves on to another club when they are 21 or 22, where they stay until they are 26 or 27, before moving on to another club. Now, when they 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 particular club, but are they not customary for players in the sporting world, whoever they are? It seems to me to be fairly straightforward and simple. Clearly, the expectation that is on the clubs is the expectation from the sport and the history going back—way beyond the 1927 judgment, in fact, to the end of the previous century. That was when testimonials were introduced, because the money players used to get was pretty abysmal.

Colin Ben-Nathan: Yes. I think we also need to remember that the National Insurance Bill we are looking at does not use the word “customary” or talk about “normal practice”. It is simply talking about whether something is general earnings in the context of the income tax legislation. What we are really trying to work out is whether something that is received is received in the course of an employment, in relation to an employment, by virtue of an employment or all the glosses on the words and the judgments we have had over the years, or whether it is outside that and effectively relates to personal esteem, qualities and so forth. That is a really difficult line here.

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

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Q In relation to the point you made about national insurance contributions, one of the questions asked earlier, which you may have heard, was about the loss—or whatever phrase we want to use—to the charity sector. Do you accept, do you think or do you believe that there will be a loss to the charity sector as a result of this legislation?

Colin Ben-Nathan: I have not done the numbers. I think we were trying to get to some of the numbers before in relation to payments that would be above £100,000 in circumstances where a donation was envisaged to be given to charity. Clearly, in that context, there will be a class 1A national insurance charge and therefore there will be an amount going to the Exchequer rather than necessarily in full through to the charity. The amounts mentioned are negligible, but in principle—in theory—one would say there is a measure of loss.

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

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Q Do you think it adds a layer, given that a testimonial committee would have to register? Do you acknowledge that there is an extra layer—I do not like to use the word bureaucracy, but another layer—on top of what those testimonial committees already have to do?

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

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Unless I have missed anybody, and I hope I have not, that brings us to the end our oral evidence session for this Bill. I thank the witnesses for giving their evidence to the Committee.

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

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

Adjourned till this day at Two o’clock.

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

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

Public Bill Committee

Tuesday 14 May 2019

(Afternoon)

[Sir Henry Bellingham in the Chair]

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

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Good afternoon. Welcome, everyone; please switch your electronic devices to silent. It is quite warm in 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 consideration of the Bill. The selection list for the day’s sitting, which shows how the selected amendments have been grouped together for debate, is available on the Committee Table. Amendments grouped together are generally on the same, or a similar, issue. Decisions on amendments do not take place in the order they are debated, but in the order in which they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment are taken when we come to the part of the Bill that the amendment affects; new clauses are decided at the end.

In this instance, some clauses will be debated early on in proceedings, with the existing clauses with which they are concerned and connected, but the decisions on them will not be taken until later. It might be helpful to the Chair, and indeed to the Front Benchers, if anyone proposing to push an amendment to a Division gave an indication of that at an early stage.

Clause 1

Termination awards: Great Britain

Question proposed, That the clause stand part of the Bill.

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With this it will be convenient to discuss the following:

Clause 2 stand part.

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

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

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

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

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

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

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

‘(1) The Secretary of State must, within 12 months of section 1 of this Act (termination awards: Great Britain) coming into force, undertake a review of the impact of the new Class 1A liability 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 liability has on the level of termination payments workers receive;

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

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

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

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

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It is a pleasure to return this afternoon, following my 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 to the hon. Members who have tabled new clauses 1 and 4, it may help the Committee if I begin by explaining some of the background to clauses 1 and 2. My apologies for repeating some of what I said this morning in answer to questions from members of the Committee.

The Office of Tax Simplification, or OTS, stated during its 2013-14 review of the tax and national insurance contributions 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 tax treatment.”

One reason why businesses had an incentive to do so was the absence of any employer’s national insurance on termination awards of any size. My officials and I outlined some examples of that this morning during questions, which I think was supported by the interesting evidence from Bill Dodwell of the OTS.

Following that report from the OTS, the Government announced in the 2015 summer Budget that they would consult on simplifying the tax and NICs treatment of termination awards. We consulted openly and widely on that policy, receiving responses from 100 stakeholder groups and nine individuals, covering tax experts, law firms, trade unions, business groups and individual businesses. We also held several meetings with stakeholders to discuss their views on our draft proposals. Following that, in the 2016 Budget, we confirmed that we would be taking forward reforms to the tax and NICs treatment of termination awards, and shortly afterwards published draft legislation for consultation.

The income tax measures announced in the 2016 Budget were legislated for in the Finance (No. 2) Act 2017 and took effect from April 2018. The Government then reconfirmed in the 2018 Budget that the associated reforms to NICs legislation would be in place for April 2020. The reforms made by clauses 1 and 2 have therefore been properly consulted on, tested with stakeholders of all kinds and debated by Parliament—both during the process of this Bill and, more particularly, through the passage of the Finance (No. 2) Act. They have also been widely expected by stakeholders for many years.

I now turn to the changes made by clauses 1 and 2. It is important to note that the reforms we are discussing today are the second part of a package of changes, some of which have, as I said, already been approved through the Finance (No. 2) Act and took effect in April 2018. The tax rules for termination awards that existed before the reforms introduced by the Finance Act (No.2) 2017 were unclear and unnecessarily complicated. Some awards were taxed as earnings, others were taxed only above £30,000, while others were completely free of tax and national insurance contributions. That complexity left the system open to a degree of manipulation that we heard evidence about this morning. The Finance Act (No.2) 2017 tightened the rules on what element of an award is taxed as earnings. From 6 April 2018, the NICs liability was more closely aligned with the tax treatment, so that those amounts taxed as earnings became liable for employer and employee class 1 NICs.

Termination awards that are not earnings are currently charged to income tax on amounts that exceed £30,000, and they are currently entirely exempt from employee and employer national insurance contributions. Allowing the difference between the income tax treatment of that income and the employer national insurance treatment to persist would be confusing, and continue to provide an incentive for employers to manipulate final payments to achieve a tax advantage.

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

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On Second Reading, not much attention was given to employee benefits. How do they fit into that threshold?

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If my hon. Friend is referring to the benefits system, that is completely unrelated. Contractual benefits are liable to a tax liability in addition to that—perhaps I can provide more information on that in a moment. They will be part of taxable income taken in the round, which once generated is then subject to income tax and the employer’s national insurance contribution in the final termination payment.

The effect of the change will mean that a 13.8% class 1A secondary employers NICs charge will be applied to income derived from a termination award that is already subject to income tax. In addition, clause 1 also includes other modifications to existing legislation that relates to employer class 1A NICs, to ensure that the new liability for termination awards works as intended. Clause 2 makes corresponding changes for Northern Ireland, ensuring that the provisions apply across the United Kingdom.

Before I address new clauses 1 and 4, let me say a few words about what clauses 1 and 2 do not do. First, they do not introduce a NICs liability on the employee—I hope we made that clear during questions this morning. There remains an unlimited employee national insurance charge exemption on termination awards. Although there is a principled case for greater simplification and alignment by applying employee NICs to that income, the Government have listened carefully to representations made during the consultation, and we believe that our approach strikes the right balance between delivering greater simplification for employers, and fairness to individuals who are undoubtedly in a difficult period of their lives: losing their jobs and having to make the necessary adjustments.

Secondly, the clauses do not reduce or seek new powers to change the existing £30,000 threshold, below which termination awards are entirely tax-free and NICs-free. As we discussed this morning, that threshold remains generous compared with those of many other countries, including the United States and Germany, that tax income linked to a termination from the very first pound. It will ensure that about 80% of awards are unaffected by clauses 1 and 2, and that awards made as statutory redundancy pay are untouched. We have no plans to lower the threshold in future. Any future Government who wished to do so would need parliamentary approval.

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The Minister has not so far mentioned the money that the measure will raise. My understanding is that that has already been taken into account and that if we were not to proceed, the Government would need to find that money from another source. Is that correct?

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My hon. Friend is absolutely right. I have said on several occasions that the measure will raise about £200 million a year. Because it was a Budget measure, it has been included in the Government’s forecasts and certified by the Office for Budget Responsibility. If any hon. Member wished to take issue with the policy, they would need to find an alternative way to raise £200 million a year, if they wanted to continue to support public services in the way that we have set out in our spending plans.

Finally, the clauses do not introduce any legislation that goes beyond mirroring the effect of the income tax rules with respect to the scope of the change. Instead, by virtue of the clause, the rules that determine liability to income tax will apply directly in calculating the amount of employer class 1A NICs payable on termination awards above £30,000. Therefore, clauses 1 and 2 simplify the tax system and reduce the incentive for manipulating payments to achieve tax advantage.

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I am sorry to dwell on the point, but it was raised previously. My recollection is that it would require an affirmative statutory instrument to change the £30,000 figure in future. Is that correct? The Opposition have clearly raised that concern.

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That is absolutely right. As I have just said, we have no intention of changing the threshold. If a future Government wished to do so, that would need to be done through an affirmative statutory instrument and the House would have the opportunity to debate it and take issue with it in the usual way, if it wanted to. We have no plans to do so; my hon. Friend is right to seek that clarification.

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Understandably, several concerns have been expressed about the impact that any changes might have, particularly on people on lower incomes who might have served in a job for many years before being made redundant. Can the Minister explain how the £30,000 threshold compares with the maximum available from statutory redundancy pay, and who might be captured by the measure?

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My hon. Friend makes an important point. Statutory redundancy pay is £15,000, so for these purposes, £30,000 appears generous. I have already made the international comparisons. It is also important to point out that there are a number of exemptions altogether, for discrimination, physical harm, disability and so on, set out in other areas of legislation to ensure that those who are particularly vulnerable and deserving are protected when it comes to the payment they receive for their injuries.

I will briefly discuss the amendments that would be made to the Bill if new clauses 1 and 4 were accepted. New clause 1, tabled by the hon. Member for Aberdeen North, seeks to require the Government to produce a report on the 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 list here but which are available in the Bill documents. New clause 4, tabled by the right hon. Member for Hayes and Harlington (John McDonnell) and the hon. Members for Bootle, for Oxford East, for Stalybridge and Hyde (Jonathan Reynolds) and for Manchester, Withington from the official Opposition, also asks the Government to report on several similar issues to those covered in new clause 1.

The new clauses are unnecessary because they seek to force the Government to report on a narrowly prescribed set of issues, most of which have been considered during the detailed consultation that has already been completed and that I have outlined, ahead of new information becoming available. The Government are already committed to reviewing the measures and being transparent about the impact that they are expected to have.

It is worth giving Committee members a little more detail on these issues. First, the Government do not deem it appropriate to conduct reports that have been very narrowly constructed. A report focused exclusively on one aspect of the Government’s reforms to termination payments—the distribution analysis, for example—would miss other important aspects such as the impact on the levels of tax avoidance or the funding of public services.

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My hon. Friend is making an excellent point. Does he agree that we should look at the impact on job creation and the ability of employers to create jobs, particularly on the day we learned that unemployment is at the lowest level of my entire lifetime? I was born in 1974.

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Absolutely. The figures reported by the Office for National Statistics this morning are further evidence of the jobs miracle we have seen since we came to power in 2010. It is important to place these changes and the impact they will have on working people in the context of the fact that, as my hon. Friend said, most of us in this room have never known such a buoyant labour market in our lifetimes—and long may it continue.

On the particular point of the reports, the Government feel it is more appropriate to look at those issues in the round and to take a balanced decision based on all the relevant factors. Secondly, the Government have already consulted on this measure in detail. We have published both the draft policy proposals and the legislation for scrutiny. We explicitly considered the impact on employers and individuals as part of the policy and our development.

We decided on an approach that protected those losing their jobs by, for example, retaining the important £30,000 exemption that we have extensively discussed and not seeking to change the position with respect to employee national insurance contributions, but at the same time simplified and aligned the system, reducing the incentives for manipulating payments. We believe we have considered this issue carefully and reached a balanced way forward.

I will add at this point that the policy costing for this measure, as we have already heard in interventions from my hon. Friends, has been signed off and certified by the independent OBR, and the methodology for that assessment is described in the Budget policy costings document. That shows the Government’s commitment to transparency and sound public finances.

Finally, the Government have already committed to keeping this measure under review, as new information may become available. The publicly available tax information and impact note, or TIIN, commits the Government to keeping the scheme under review through communication with taxpayer groups affected by the measure and through information collected from tax receipts.

As with all legislation, the Treasury is also required to carry out post-legislative scrutiny of Acts within three to five years of their implementation. As I outlined, I think in response to the question from the hon. Member for Oxford East this morning, the Treasury may well do that before that deadline; it would certainly be required to do so 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 to gauge their views on how the policy is operating. There are well established lines of communication between HMRC and representative groups, as one would expect, that will provide the basis for a continuous review of the effect of this policy. I am sure that hon. Members will feed back to Ministers any concerns and thoughts regarding how the reforms are working in practice, and of course HM Treasury is always open to suggestions. I hope hon. Members will agree that those points make publishing a review on these matters unnecessary. However, it may also help if I respond specifically to the points raised about the impact of the new class 1A employers’ NICs liability.

I would like to make a number of important points in closing. First, no employee will receive a new tax charge as a result of the Bill. The Government have explicitly chosen not to charge employee NICs on the measure and to retain the £30,000 threshold.

Secondly, only about 20% of termination awards will be affected. As we heard this morning, the OBR expects that employers may react by lowering wages or accepting lower profits and has adjusted its forecast for salaries by 0.1% as a result. However, that is a negligible reduction and must be viewed in the context of record employment, record low levels of unemployment and record employment in all categories—disabled persons, women in the employment market, young people in the employment market and so on—a higher living wage, support to businesses through tax cuts such as corporation tax, and other important policy initiatives brought forward by this Government. Also, as the ONS pointed out this morning, wages are rising substantially above inflation.

Thirdly, as I noted in my letter to the Committee, and as I set out again in my answers to questions this morning, where employers face a new charge on termination awards, we expect this to be disproportionately on payments to higher-rate and additional-rate taxpayers, typically those who are in the top two or three income deciles.

Clause 1 will simplify the tax system, reduce the incentive to manipulate payment, and raise important revenue for our public services. As such, and with the reassurances that I hope that I have been able to give the Committee, I commend clauses 1 and 2.

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It is a delight to see you in the Chair, Sir Henry. I thank the people who gave evidence today to the Committee; it was very helpful. I had something like 50 questions to ask. I was unable to ask them all, but I will relieve Members by saying that I will not ask them all now—possibly 45, but not the 50 that I had planned to ask.

Contrary to what the Minister says, we do not, through new clause 1, want to “force” the Government to do this, that or the other; we do, however, want them to come to Parliament and accept parliamentary scrutiny. There have been no amendments to any of the Finance Bill Committees that I have sat on; I think it is four in total. In the mother of Parliaments, we were unable to scrutinise those Bills properly and appropriately—my colleagues will remember several of them—because the Government have tried, and continue to try, to close down any scrutiny. It is very important to get that on the record.

As for the implication that if we do not agree to the proposals, it will somehow have an impact on job creation—that old chestnut—as I said recently on the radio and in other media, the same was said about giving the minimum wage to miners in 1913, and to agricultural workers in 1924. It was said when people started to get holiday pay in 1938. People said that equal pay for women and members of ethnic minorities would cause the economy to crash, and the same things are being said about the minimum wage. It is the old claptrap—I should not say that, in case it is unparliamentary, but that is what it amounts to—about this impacting on jobs.

Yes, we have the highest number of jobs since 1975, or since records began, as the Government keep telling us, but the context is that this is the most precariously placed workforce in decades. Zero-hours contracts abound, and regional imbalances—[Interruption.] Government Members mutter, but facts are a stubborn thing; facts remain facts. [Interruption.] They are facts; the Minister mutters that they are not. The reality is that a huge number of people are on zero-hours contracts, and huge numbers of people are working two or three hours a week. That is classed as employment. I am sorry, but it is not “employment” to that person, who is not getting any money, or to their family, who perhaps have to send their children to school without breakfast or lunch. Let us get that into context.

The hon. Member for Dudley South effectively said that we will now tax redundancy payments above a certain level. Only the Tories could make a virtue of taxing the redundancy payments of people who have lost their job. The Minister mentioned that the £30,000 figure had been the same since 1998, and said that it was the most generous such amount in—I don’t know—the known world. We do not want to make simple comparisons with other countries, because other countries have far more generous reliefs in other areas, so making a direct comparison with other redundancy figures, out of the totality of employment reliefs, is not appropriate.

The hon. Member for Walsall North mentioned the affirmative procedure. If the Government want to reduce the £30,000 limit—as they no doubt will want to, given that that is far too generous for people who have been made redundant and have lost their job—we will be able to vote on that. Perhaps that would, at least, give us a proper opportunity to debate the issue on the Floor of the House, which we have not been able to do. I mentioned our inability to amend the law in the last four, or possibly even five, Finance Bills. That is unprecedented in parliamentary history.

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rose

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

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I thank the shadow Minister for giving way. His point is entirely bogus, because as the Minister made clear, and as he knows, the Bill concerns purely employers’, and not employees’, contributions, so it does not tax anybody’s redundancy payment.

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I will tell the hon. Gentleman what was admitted today: that still reduces people’s wages; that is what this comes down to. It could also give companies an incentive not to pay redundancy. I know that he wants to sweep those points aside as though they were irrelevant, but they are not irrelevant to a person who has worked for a company for 25 years and gets a redundancy payment that is taxed more greatly than they expected. That is the context in which I am raising these issues.

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I thank the hon. Gentleman for giving way. Does he accept that the maximum statutory redundancy pay, even for an employee who has worked for 25 years, is barely half of the threshold amount in the Bill, so they would not be affected, even indirectly?

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There we go again. It is the race to the bottom, isn’t it? We are always talking about a statutory minimum. That is what the Tories talk about all the time: the minimum. We do not want people living on the minimum; we want people to have a healthy, full-quality life. This is about the cumulative effect of the Government’s fiscal policies, not one isolated issue; it is about the totality. A person might have a job, but it might be a poor, insecure job. It is not just about having a job; it is about the quality and context of that job.

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That is a valid point, and the expert witnesses supported that this morning. If an employer is designing and costing a redundancy package—I do not know why we use the term “termination” in the Bill; why not say “redundancy”? —surely the additional tax and national insurance must be a factor, and that may well have an impact on the final figure that the employee receives. Government Members say that we have record levels of employment, but there is a report today that 4 million people in employment are living in poverty. That is a feature that we have not seen before, along with declining and stagnating wage growth levels.

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My hon. Friend makes an important point. The reality is that the only termination under the Tories is termination of the social and economic cohesion of this country. That is the termination that I am deeply worried about.

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

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I think the hon. Gentleman was casting aspersions on this Government’s ability to collect taxes. My vague recollection is that our record is better than the Labour party’s. If that is so, what does he have to say about that?

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

Moving on to the substantive issue—[Interruption.] I do not mind a little bit of chuntering from Government Members, but if they made it at least marginally coherent, so that I could hear it, that would be really helpful. The Opposition’s new clause 4 would require the Government to review the impact of class 1A national insurance contributions on termination awards. The review would include:

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

(b) an assessment of the impact the new Class 1A liability has on 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 Secretary of State lots of room for manoeuvre in reporting to us on these matters.

As we stated on Second Reading, the condensed Bill before us is a shadow of its former self, standing at just five clauses. In fact, if it was a person, it would resemble a skeleton. The Government’s timetable for the Bill has been determined by the internal politics of the Conservative party—that is the reality; it is as simple as that—rather than an honest assessment of the time needed to scrutinise the measures properly.

The origins of the new class 1A contributions charge levied on termination awards can be traced, as Members know, to 2013, when the Office of Tax Simplification published its interim report, “Review of employee benefits and expenses”. Following the publication of the final report, the Government consulted on the proposed NIC changes and announced their intention to introduce the measure in the 2016 Budget. Two and a half years later, we are finally scrutinising the Government’s NIC reforms to termination awards.

The tax and national insurance treatment of termination payments remains a sensitive topic to workers and employers alike. As I said on Second Reading, employees facing redundancy often consider this final payment an evaluation of the work they have done for their employer. Termination or redundancy payments therefore have both an emotional and financial significance; the financial significance is sometimes slightly out of proportion, but there is nevertheless a relationship.

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The hon. Gentleman is right about the psychological impact of redundancy payments. Does he therefore agree that we should celebrate from the rooftops that unemployment is at its lowest level since 1974?

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

To get back to termination payments and their emotional significance, the amount awarded is often determined by painstaking and careful negotiations between managers and trade union representatives. A good employer might offer a generous termination payment to an employee as a sign that it is not a judgment on the intrinsic worth of the staff who are leaving, even though they have had to make them redundant. The job losses might be because of the Government’s economic policies.

The Government’s rationale for the introduction of a new class 1A employer NIC charge, which will be levied at 13.8% on termination awards above the £30,000 threshold, is to do with ease and simplification. In its “Review of employee benefits and expenses: final report” in 2014, the Office of Tax Simplification stated that

“many employers are unclear about which parts of a termination package qualify for the exemption”

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

Additionally, Ministers have cited the opportunity for well-advised employers to avoid paying the right amount of tax and national insurance on termination payments as justification for wider reform. However, neither the Office of Tax Simplification nor Treasury Ministers have been able to provide figures on the number of employers who have taken advantage of the existing loophole, nor of the amount lost to the Exchequer as a result of that. That was probably confirmed today—we do not know.

Despite the many claims of Ministers about the desire to simplify the tax and national insurance treatment of termination awards, the Chartered Institute of Taxation and other tax experts have raised concerns around the lack of information in the Bill about how this new class 1A charge will be collected. We did not get a great deal of clarity on that today. Currently, Ministers plan to leave it up to secondary legislation, as alluded to earlier. That is not only a break from normal practice, but looks set only to confuse employers even more, rather than simplifying the national insurance treatment of termination awards. The people who came to speak to us today were probably a bit too polite to say that.

The provision will also add additional administrative burdens to HMRC at a time when it is hamstrung by what can only be described as the disastrous reorganisation of their estate by the Government—my hon. Friend the Member for Oxford East has been involved significantly with that—the introduction of Making 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 the round, that is a challenge.

So what is the rationale for the introduction of this new NIC charge on termination awards, if not to make things less confusing for employers or to tackle tax avoidance, which is supposedly rife? I suggest that the Government’s rationale is wholly to do with the revenue they expect to raise, and is little more than an attempt to increase national insurance receipts for the Exchequer, while shying away from any major tax or national insurance policy change. I think that there was an acknowledgement of that today. This is just one element of what should have been a wider examination, as set out in the press release to which I referred, on 16 November 2016. This is certainly the opinion that the Office of Tax Simplification advocated in its 2014 report, in which it stated that a new NICs charge could raise revenue for the Exchequer and offset the costs of any tax treatment change affecting termination payments.

The report went on to concede that the policy was likely to lead to increased employer NIC costs and to individual employees receiving reduced termination payments, as employers would be unlikely to increase their redundancy budgets. Similarly, the Government’s own impact assessment notes that this measure will present an “additional cost to employers” that will be

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

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

To put it simply, this new NICs charge will lead to added costs to employers, some of whom will be small and medium-sized business owners, and less generous termination payments to employees as a result. At the same time, the Treasury has downgraded its forecast of the likely amounts this new charge will raise for the Exchequer from £485 million to £200 million a year. I am sure the Minister would like to provide clarity on that.

This issue goes to the heart of new clause 4, which seeks a review of the measure’s impact on the level of termination payments that employees receive and the cost to employers, and a distributional analysis of this new class 1A charge, which Treasury officials said had not been done. On the ground, it might have been too complicated and the cohort may not have been large enough under the circumstances. Given the likely cost to employers of falling workers’ wages and termination payments, as well as the Government’s shrinking forecast of the amount of revenue the charge would raise, surely it makes sense to pause and gather further information before proceeding. After all, the Office of Tax Simplification noted in its original report that if Ministers were to follow its recommendations for a new NICs charge on termination awards, more data on the potential winners and losers would be needed. We were not able to establish who they were today. I specifically asked that question and could not get an answer. It was like an aggregate amorphous statement.

Sadly, Ministers have not provided that information, despite having years to do so. Treasury Ministers have refused to undertake a distributional analysis, citing the cost or that the cohort is not large enough as excuses, and they are still unable to provide credible figures on the number of workers who receive statutory redundancy payments versus those who receive non-statutory payments. Uncertainty also remains about whether the Government will seek to lower the £30,000 threshold at a later date through primary legislation or secondary regulations. The Minister said they have no plans to do this, but we already raised this issue during consideration of a previous Finance Bill—in fact, I think I raised it. The question was, “If you have no intention of doing it, why introduce legislation to do it and why introduce it through the process of secondary legislation?” If it were me doing that, I would not be banking a piece of legislation unless I intended to use it. That is the case here; the Government will use this. Otherwise, why take up parliamentary time to do so? If they are taking us on a run-around to fill time, that too is inappropriate.

New clause 4 seeks a review of the proposed class 1A charge, focusing on its impact on workers’ wages, on termination payments, added costs for employers and a distributional analysis of the measure. Without such a review, which will provide a wealth of information and further evidence of the likely effect on wages, termination payments and employers, the Opposition will not support this part of the Bill.

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

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I apologise—I expected to be called before the Opposition spokesperson on this section. I will do my best not to repeat things that he has said, but if I do, I shall try to do it in a different way at least.

It is good to be part of a Bill Committee that has taken evidence. We do not take evidence on Finance Bills and we are less knowledgeable and less good at scrutinising the information provided to us as a result. I hope the Minister agrees that the evidence sessions were incredibly useful this morning, even though he was in the hot seat and had questions asked of him. It meant that we will ask fewer stupid questions during this part of the scrutiny process, as well as being in a better position to drill down on some of the issues raised by different individuals.

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 more generally, all of which we are considering in this part of our scrutiny. The first part of new clause 1 is very similar to new clause 4. It asks for the report to include the amount of money that individuals receive in termination payments. The Minister suggests that clauses 1 and 2 are a narrow part of the Bill, but for most of our constituents, they are the most important part, as they concern the amount of money people will receive, should they be in that unfortunate situation. That is what they will care about; they will not care so much about how much money the Treasury gets from this change to the policy. What affects their daily lives will be the thing that is incredibly important to them. I am pleased that both we and the Opposition have proposed the same thing in our new clauses.

The second part of new clause 1 asks for the report to include the average net value of termination payments. It is important to look not only at what the OBR says about 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 for the report to look at the number of business start-ups using termination payments as funding in their first year in each region of the United Kingdom and the impact the clauses will have on that. An awful lot of people use termination payments to begin a new business. The Minister is talking about increases in the number of people employed, but we would not see those increases if we did not have new businesses starting and people having the funding to start them. As we know, it is difficult to get bank loans, for example, for many of these things, and a number of businesses are started on the basis of the redundancy payments that people receive. That is important.

The Opposition have tabled new clause 4, which I entirely support. The first part is exactly the same as what we have put forward, it is just in different language. The second part looks for an assessment of the impact that 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 a simplification for employers. Some employers currently have no liability for class 1A national insurance contributions because they deal only in cash and do not deal in benefits in kind. They will be brought into the class 1A situation and will have to pay that liability. For a number of those employers, that may be for the first time.

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

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I did not want to stop the hon. Lady in her flow, but on her earlier point, I was at a meeting yesterday with many people from the defence industry and in particular the aircraft industry. One Member who does not sit on the Opposition Benches indicated that when a large aerospace manufacturer closed down in his constituency, thousands of small businesses—or at least one or two thousand small businesses—arose as a result of those people getting redundancy payments. That goes to the heart of the hon. Lady’s point about the potential impact of the reduction in the amount of money people will get from redundancy payments.

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I absolutely agree. I was thinking specifically of the toastie shop in Aberdeen that does unbelievable toasted cheese sandwiches. Members should look at its Facebook page; it is called Melt and it is absolutely amazing. It sells toasted cheese sandwiches with all your calories for a week in one sandwich. That business was started by a woman who had been made redundant. A lot of people in Aberdeen and Aberdeenshire have been made redundant because of the recent crash in oil and gas prices, and they have been starting new businesses as a result.

I am particularly concerned that any change might stifle the growth of new businesses. I asked the Treasury this morning whether it has figures on the number of new businesses started with termination payments. It does not. It is very difficult for the Treasury to say that this will not have an effect—to be fair, it has not said that, but it cannot because it does not have the quantifiable numbers and cannot project them; it appears not to be keeping track of the information.

Lastly, on Opposition new clause 4, the shadow Minister has also asked for a distributional analysis of the new class 1A liability. Again, it is incredibly important for us to have that information.

The Minister suggested that the Treasury is trying to be as transparent as possible. To be fair, this is one of the more transparent Bills, with more consultation than some of the other Bills that we have seen. The issue is that the information that we are provided with, and that is in the public domain, is not good enough for us to be able to make reasonable judgments about the effect of the policy. It is all well and good for the Minister to say that it will generate £200 million and that we would have a £200 million hole in the Budget. The OBR has verified that figure, but the reality is that we do not have enough of the drill-down information on the people who will be affected.

All of us on this side of the Committee are concerned about the reduced amount that employees will receive. It would have been sensible for the Treasury to have come armed with some kind of projection around that. That would have stopped us from asking all these questions. We might have criticised the figure and said that the measure should not be taken forward, but we would not be having this debate if the Treasury had come 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 represent a simplification when it comes to dealing with the tax system. This is a revenue-raising measure and it is about closing a loophole. I am not criticising the Treasury for either of those things, but it has badged the change as a simplification when the two principal things that it tries to do are not that, but revenue raising and closing a loophole; we would have had a very different discussion if the Treasury had made that clear rather than said that it was all about simplification.

I completely agree that the measure came from an Office of Tax Simplification report, but that did not say that class 1A contributions had to be used to achieve this end. That may not be the best possible way to progress. I have already spoken about class 1A. It could have been done in a class 1 way, which would have been clearer for employers to understand.

On collection methods, I have real concerns about this being a real-time collection measure. Less than a year out from implementation, employers may not be aware of the correct computer system or understand correctly how it will work. Obviously, if an employer is making future projections, it is going to be looking at what upgrades it will need for its IT system and be planning that as far in advance as possible. On top of all the uncertainty of Brexit, the Government are adding more complexity and future uncertainty: they are not able to say, “This is exactly how the real-time collection measure will work.” They are not able to provide that information to businesses far enough out.

Finally, on the “negligible” reduction, as the Minister described it, of 0.1% on wages, I should say that we are seeing incredibly high levels of in-work poverty. Not a surgery or a day goes by without working people getting in touch with me to say they cannot live on the amount of money they receive. I get such correspondence on a regular 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 not want to allow under-25s a wage they could vaguely live on, just in case there are fewer of them employed. I do not think there is any evidence to show that is likely to be the case. It does not cost any less to live at 24 than at 26.

A 0.1% reduction in wages for people who are literally living on the breadline and having to choose between feeding their children and heating their homes cannot be swallowed up by some families. The Government say they are quite happy with a 0.1% reduction in wages as long as they get £200 million in the Treasury’s coffers. I do not think that is a sensible way to play these things off. I do not think the measure is worth the £200 million if it means more families in poverty and destitution as a result.

The 0.1% might sound very small but, for someone living on not very much money it can be the difference between being able to feed the kids and not being able to. There are a number of issues with this measure, both technically and with the stance that the Government have chosen to take on it.

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I do not intend to repeat all the comments that I made earlier, which I think answered a lot of questions that were put to me. I will try to summarise some of the arguments made by the hon. Member for Aberdeen North. She made a point that came up in questioning around the choice of class 1A, which a number of members of the Committee have raised. We are clear that this is the right choice. We gave the matter careful consideration. There are a couple of central arguments. The choice of class 1A and, therefore, payment in real time was central to alignment with income tax. If we want to have greater alignment and simplicity, that is the way to deliver it.

Secondly, as we heard in evidence this morning, class 1A is a category of national insurance contributions that focuses on the employer. Because we have chosen not to introduce this from an employee NICs perspective, that was the most logical category.

As the hon. Lady and others have mentioned, if there were an intention in future to add employees’ national insurance contributions, one would perhaps have chosen class 1 national insurance as the most logical. By choosing class 1A, we made a clear statement that we had no intention of doing that. This is purely focused on the payment from the employer in respect of national insurance contributions.

Finally, as we may come on to later in the passage of the Bill with respect to sporting testimonials, for those individuals giving money to charity it is important for the contribution to be paid through class 1A, because that is the class of national insurance contributions that payroll giving uses. Had we chosen class 1 national insurance contributions, that route would have been closed; if we had wanted to protect charitable giving, we would have had to make alternative arrangements. There were a number of reasons, logical when they are thought through, why we reached this conclusion.

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That is a useful clarification around class 1A and payroll giving that I had not quite understood this morning. If the Minister is saying that class 1A is eligible for real-time payments rather than collection at the end of the tax year, does he intend to move to a system where all class 1A is eligible for payment in real time and not at the end of the tax year?

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We do not have any plans to do that, but this measure is designed with termination payments in mind. The Bill does not make any changes elsewhere—other than, obviously, to sporting testimonials. We are trying to provide the greatest degree of alignment with the income tax changes that we have made, and the choice of class 1A enables us to deliver that. If we had chosen a different class, there would have been a greater degree of misalignment. I hope that the hon. Lady will consider those thoughts.

We have already debated at length the issue of whether this was a rushed Bill. I think that argument is difficult to support, on the basis that the policy decision has been around since 2015, consulted on, restated in multiple Budgets, and debated as part of two Finance Bills. The argument that this is a rushed policy decision cannot be sustained. We are bringing this Bill forward at this point so that, assuming it passes through both Houses as soon as possible, there is good time for practitioners in the accounting profession and employers to make the necessary changes to software packages and so on.

We will take seriously the communication that we will do through HMRC. As the Minister, I will follow that up to ensure that employers are properly communicated with and have sufficient guidance to make the changes.

The hon. Lady asked again about the statistics on the number of individuals in receipt of a termination payment who go on to set up a small business. We do not collect that data; we do not know what path someone chooses to take after they have been made redundant or had their employment terminated and received a termination payment. It is not an easy statistic to collect, because it is not easy to follow an individual’s path further on to determine what they chose to do next in their career. We simply do not have that information.

As I said in answer to the hon. Lady’s question this morning, I have looked at some studies. Some look nationally at the number of individuals who chose to set up a small business following the spike in unemployment after the financial crash. Others are particular studies of certain areas—for example, I have recently seen one about individuals in Teesside who chose to set up small businesses as a result of losing their jobs when the SSI steelworks was closed. However, those studies are not produced by the Government, although some are produced by organisations that the Government support and endorse, such as the Startup Institute. That is not the perfect answer to the hon. Lady’s question, but she could 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 a significant impact on those who are on low or middle incomes. Some 80% of people in receipt of a termination payment are not going to be affected by these measures; only 20% will be. That 20% will primarily be higher rate taxpayers or payers of the rate beyond that, in the top two or three deciles of income. Those affected really are those in receipt of larger termination payments.

There was a question about the degree of information put into the public domain; actually, we have put quite a lot out. I said this morning that we have modelled this, and I believe that about 72,000 termination payments will be impacted per year. Our modelling also suggests that the average payment that will be affected by this measure is £61,000—a significant size of termination payment. We are not talking about individuals on low salaries.

I now turn to some of the questions raised by the hon. Member for Bootle, most of which I think I have answered in the past. I reject the suggestion that this Bill has been rushed, or that there has not been a high degree of scrutiny; I think that there has been, and that we have put out as much information as was required.

The discrepancy between the £400 million a year figure and the £200 million one that we have been citing today was already referred to this morning, but the hon. Gentleman has asked about it again. As I think was said by my officials this morning, that discrepancy arises from the fact that the £400 million figure includes the income 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 and the hon. Member for Aberdeen North, about why we as a Government chose to take forward a reduced set of national insurance reforms than was originally envisaged, is worth discussing briefly. We as a Government, like others before us, have been interested for some time in how we could reform national insurance; it is an area of the tax arena ripe for reform and further simplification. However, as we heard in evidence this morning, those simplifications are inherently complex and involve both winners and losers.

The original proposal to abolish class 2 national insurance created a small tax advantage for a large number of individuals: about 3 million self-employed people would receive a reduction of just over £100 a year in taxes paid. However, it would have created a substantially higher rate to be paid by several hundred thousand 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 by Members from both sides, that a very modest tax break for 3 million people was outweighed by the cost of a significantly increased rate of national insurance for low earners. That was announced in September last year, and there was relatively little comment thereafter; I think most 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 the Bill.

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With this it will be convenient to discuss the following:

Clause 4 stand part.

Amendment 2, in clause 5, page 5, line 39, at end insert—

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

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

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

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

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

(b) donations made to charity from sporting testimonial proceeds.”

New clause 5—Review of the impact on different sportspeople

“(1) The Secretary of State must undertake a review of the impact 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 both Houses of Parliament within 12 months of section 3 of this Act (sporting testimonials: Great Britain) coming into force.”.

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Before I address amendment 2 and new clauses 2 and 5, it may help the Committee if I briefly explain the background to clauses 3 and 4. As we have heard at length over the course of the day, a sporting testimonial is a one-off event, or a series of related 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 the sportsperson before their retirement, in the event of their injury or, sometimes, to raise money for charity.

The historical tax treatment of sporting testimonials relied on the outcome of a tax case from before the second world war, which my officials referred to this morning. That case established the broad principle that the proceeds of a testimonial organised to demonstrate affection and regard for the personal qualities of a sportsperson are not earnings. Since then, other legislation has moved on, and income not directly from an employer is now typically subject to tax and national insurance contributions.

Prior to 2017, HMRC effectively operated an extra-statutory concession, which is clearly not sustainable over the long term, since HMRC must ensure that it operates within the law. As such, the Government announced at the summer Budget in 2015 that they would consult on proposals for clarifying the tax and national insurance contributions treatment of payments made from sporting testimonials. A consultation was published shortly thereafter, and the Government received responses from a range of groups, including tax professionals, accountancy firms and sporting interest groups, including the Football Association, the Professional Footballers’ Association, the England and Wales Cricket Board and the Rugby Players Association. In addition, two consultation meetings were held to discuss the detailed proposals, and the Government published draft legislation for consultation, adapting our approach, as I will describe, in response to further feedback.

The changes we are considering are part of that package of legislation, which puts the tax treatment of proceeds from sporting testimonials on the statute book and beyond doubt. This will provide clarity and certainty for sports clubs, sportspersons and those individuals who form the sporting testimonial committee that organises the event—if they are different—and ensure that there is limited impact on a practice that I think all of us support and want to continue.

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

The rules governing sporting testimonials are changing to give clarity to the NICs treatment and align it with the changes to income tax that Parliament has already approved. At present, where a sporting testimonial is non-contractual or non-customary, it can be organised by a third party, rather than the employer, to raise money. As I mentioned earlier, although existing legislation implies that NICs liability already applies, the amounts raised through the third party may not have been subject to NICs because of this long-standing practice and ambiguity. Therefore, this concessionary treatment will end with the passage of this Bill on 6 April 2020, when clause 3 takes effect. Where the employer arranges the testimonial, it is part of the contract or there was an expectation that the sportsperson would be entitled to one, the testimonial is already subject to income tax and NICs in full.

From April 2020, non-contractual and non-customary testimonials arranged by third parties will be subject to NICs above the £100,000 threshold. The third-party testimonial committee will be liable to pay an employer class 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 to employee NICs, to ensure that the sportsperson is not adversely affected. I would like to reassure hon. Members that we expect the vast majority of these payments to be unaffected by the Bill, as they will not exceed the threshold of £100,000.

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I have a question that the Minister may not be able to answer now; if he cannot, hopefully he will answer it when he sums up. I am wondering about the definition of sporting testimonials. We are talking about sportspersons, but a lot of people said “sports players” earlier. Does this apply only to those people who have played sport, or does it apply if there is a sporting testimonial arranged, for example, for a manager? It would be incredibly helpful if the Minister could clarify that, either now or when he sums up.

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I will ask my officials for a better answer, but my understanding is that this measure applies only to sportspersons. Although there might be arguments for it, it does not apply to managers and auxiliary staff, just as it would not apply to other people who, as I said in answer to a question this morning, are also engaged in careers that can be cut short, such as a ballet dancer, a performing artist or a Minister, and who might deserve it, but who are not sportspeople.

Although this measure will bring in negligible revenue, its value comes in the alignment and simplification of the tax and NICs treatment of sporting testimonials. I cannot emphasise enough that our motivation here is not to raise revenue but to provide greater alignment and simplification. As has been said repeatedly, this measure will bring in only a negligible sum, as certified by the OBR.

The primary purpose of clause 3 is that, with effect from April 2020, the rules determining the NICs treatment of these payments will be aligned with the income tax treatment that has already been legislated for in the Finance Act 2016. This means that a 13.8% class 1A secondary (Employer) NICs charge will be applied to income derived from a sporting testimonial that is already subject to income tax. Clause 4 makes the corresponding changes for Northern Ireland, ensuring that these changes apply throughout the United Kingdom.

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

I can reassure the Committee that clauses 3 and 4 do nothing to affect the ability of sportspersons to make donations to their charitable foundations as part of a testimonial when it is organised by an independent committee and the donation is made through payroll giving. Given the line of questioning from the Committee this morning, and further to the point that I made earlier to the hon. Member for Aberdeen North, it is worth noting that our decision to choose class 1A helps with payroll giving, as this is the class to which it applies, and it would not have been possible if we had chosen another class of national insurance.

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

First, we expect that there will be a very limited impact on sporting testimonials and charitable giving linked to this practice. We expect the majority of non-contractual and non-customary sporting testimonials to fall below the generous £100,000 threshold, with the average income received from a sporting testimonial being around £72,000, based on the work that we did in 2013, although we admit that it is not easy to form a clear judgment, because we had to survey the details of those sporting testimonials that were in the public domain. We then doubled the tax-free and NICs-free threshold for testimonials following the consultation to ensure that there would be a very limited impact indeed. That appeared to supported and welcomed by sporting bodies. As I said earlier, donations made from sporting testimonials via payroll giving will not be subject to income tax and NICs at all—in which case, there would be no impact whatever. It is worth noting that the tax changes affecting this income have been in effect since 2017. As I said earlier, we have not had any representations since that point to suggest there has been a significant adverse impact.

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

Lastly, I can reassure the Committee that the Government will continue to keep these issues under review once this measure is in force. The published TIIN—tax information and impact note—commits the Government to reviewing the policy through communication with taxpayers’ groups affected by the measure, and the Government are committed to carrying out post-legislative scrutiny three to five years after an Act has been passed, as I have said on a number of occasions today.

Clause 3 makes a sensible, proportionate change to the NICs treatment of sporting testimonials, putting their treatment beyond doubt. Given the reassurances that I have provided to hon. Members, both now and in answer to questions this morning, I hope that they will not press their proposals. I beg to move that Clauses 3 and 4 stand part of the Bill.

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It is a pleasure to serve in the Committee with you in the Chair, Sir Henry. I am grateful to the Minister for those explanatory comments. However, I would like to speak in favour of the official Opposition’s amendment 2 and new clause 5, as well as the SNP’s new clause 2, which overlaps with our amendment 2. I do not want to repeat what we have already covered in our discussions today or, indeed, in the House. None the less, even after all that, we surely require more information about the impact of these measures to make a proper judgement about them.

As the Minister acknowledged, our amendment 2 and the SNP’s new clause 2 ask for additional information about how the Bill would affect charities, and individual sportspeople and charities, respectively. There are quite a few elements that still remain unclear, even after the discussions we have had. I am sorry to drag us back yet again to the topic of what is customary and what is not, but, surely, when we are looking at the design of tax measures, we need to ensure that there is crystal clarity about what every concept could mean, particularly when there might be manipulation of some of those different concepts.

When we debated the meaning of “custom” in the House, the then Minister, after questioning by the hon. Member for Aberdeen North, said that funds from a testimonial above £100,000 would be subject to NICs where 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 group of players, and that had been going on for some time”.

He said that

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

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

I looked at some of the information that has been provided by the Professional Footballers’ Association. It noted that, in 2015, about 0.5% of professional footballers had a testimonial to celebrate them, whereas on an average career length of about eight years—that is the average career length, which, as was mentioned before, is much shorter than it was historically, certainly in the professional game—12% of footballers should finish their career each season. Very roughly, that means that about one in 25 of the professional football players we would anticipate being eligible for a testimonial actually receives one. That is clearly a very small proportion of those who could qualify for one, which suggests that this 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 and Wales Cricket Board, which states explicitly that there must be no pattern to the granting of testimonials and no specific connection with the player’s number of years’ service at the club, and that there is no specific period of time that should be seen as an automatic trigger for a testimonial. It appears, in the case of that organisation, that it is not possible for there to be a customary testimonial. It just cannot exist.

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As I understand it, the difference is between something that is contractual and the fact that it is customary, in the general sense, to have what are called “benefit games” or “testimonials”. That does not mean that there has to be a specific number; in fact, if there were, that would presumably be contractual. The fact is that those payments are customary when someone has made a contribution or has been with a team for a long time, however that is defined or specified. It is a tradition of sport; surely that is all we are saying.

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I am grateful to the hon. Gentleman for his passion about this issue, and—I am sure—about the sport of cricket, but he has underlined the point that I was trying to make. He has talked about a particular period of time, “however that is defined”. My point is that the quote I read out indicates that, according to the England and Wales Cricket Board, there can be no definition of the period of time that can be used for these testimonials, because if there is an automatic trigger for such an event, that should not be grounds for a testimonial. One assumes that it should instead be due to the fans themselves, the people who are calling for such a testimonial, but there is not an automatic trigger for 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 those concepts mean, and whether they have any content. If it is just an empty placeholder, I think we would all agree that the term should not be used.

The Minister maintains that HMRC provides guidance about this. In my lunch break, I tried to look this up—I know how to live, Sir Henry—and I found the information about income tax. This language is already applied to income tax liability, exactly as the Minister mentioned, and reference is made to “normal practice” and case law. However, that information does not specify what the case law is, or indeed what the normal practice is. If there is a pattern to testimonials, one concern is that it would potentially be possible to argue that a pattern somehow is not there, and that a particular testimonial is non-customary, in order to get around having to pay the employer’s NICs. Equally, there could be pressure on employers to reduce the number of testimonials that are called for—to dissuade calls for testimonials in order to make them less likely to occur.

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Picking up on that point, we are relying on HMRC guidance, which can be changed in the future. The word “customary” is written here, but that is reliant on guidance alone. If there had been more explanation in the Bill of what “customary” means, or if it had just said “contractual and not customary”, we probably would not be in this situation. We would not be relying on guidance that may or may not be accessible, and may or may not change in the future.

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I absolutely agree with that point. Looking at that guidance, it is interesting that there is a lot of detail about certain issues, such as what happens if there is a second testimonial for whatever reason. Let us say that £70,000 was received from the first one, and then 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 if the testimonial was for a player who had, very sadly, died on the pitch, and the money was going to their family. Just about every eventuality is covered, apart from this issue of “customary nature”. In the interests of clear tax policy, it would help if we had more detail about that.

Secondly, explicitly concerning the tax treatment of charitable giving, we had a discussion about this before and the Minister referred to it again in his comments. It was argued that testimonial committees could use payroll giving 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. My hon. Friend the Member for Bootle rightly pointed out—and it was confirmed during the session—that this would add an additional layer of complexity and administration to the process. To inform those reading Hansard, the Minister is shaking his head. Perhaps he can explain why that would not be the case. We are talking about potentially large sums here that could provide the largest of any cash boosts received by a player’s foundation. We need more detail.

Finally, new clause 5 asks for an assessment of the Bill’s impact on testimonial payments made to professionals from different sports, including footballers, cricketers, rugby league players, rugby union players and other sportspeople. It is important that all varieties of sport receive adequate support and it would be helpful to have a better understanding of the likely incidence of the charge in that regard—for example, whether there is a similar rate of use in other sports to that provided by the PFA for professional football, and whether a similar proportion of those testimonials are contractual or non-contractual. As I said before, the implication of the information provided by the England and Wales Cricket Board is that there would be no customary non-contractual testimonials. Is that the case in other sports? We do not know. It would be useful to understand that. We also need that information because favourable tax treatment is 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, the employment opportunities on retirement as a professional player are very different. Within football, some go on to be agents, coaches, commentators and so on; many others do not. Such roles may not be as available in other sports. It would help if we understood more of the background to this.

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I will not add a huge amount to what the Opposition spokesperson has said on this. I am particularly concerned about the effect on donations to charities that would result from the sporting testimonial changes contained in the Bill. New clause 2 requests a report 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 be no change in the amount of money given to charity from sporting testimonial proceeds, it would be useful if they said that. If they believe it is unquantifiable, it would be useful if they said that too, so that we are clear what the Government expect—or what they think they expect—from the changes they are putting forward in the Bill. Once again, the Government have said they are expecting a negligible Exchequer impact from this. It would be useful to know the trade-off: how much they believe charitable organisations will be losing in order to generate a negligible Exchequer impact.

I agree with both of the Labour party positions: on amendment 2, which is similar to mine on donations to charities, but also on the one on the review of different sportspeople. It is important that we work out what is almost a distributional analysis. We all know that footballers in the male professional game get paid an awful lot more money than any other individuals. If we see that people who are getting paid far less are subject to the highest percentage of impact, there is a problem in what the Government are suggesting.

Lastly, on clauses 3 and 4, I raised the issue this morning and I got an answer—but not a very descriptive one—on the reason that the Government have used the term “general earnings”, which is different from the wording used in part 1 of the Bill. I was told that there is a good reason for it, but I am still not clear what that good reason is, although I understand that the Minister believes there is one. It would be useful to know why that change has been made, and whether it makes it easier or harder for the Government to change the threshold level. If changing the £30,000 threshold level in part 1 is by affirmative secondary legislation, how does the difference in language affect whether or not affirmative secondary legislation is required to change the £100,000 threshold as well? Is there a different process because of the choice of language?

I agree entirely with Labour Front Benchers on issues around “customary”. I asked about that on Second Reading, because I could not quite get my head round it. I do not think the definition of that is clear enough. It may have been easier for the Government not to do customary testimonials, but only to do contractual ones in this circumstance. We could end up with people being caught by this who should not be caught, just because every single person who has played striker and spent over 10 years in that role at that club has always received a testimonial, although there might have been only two of them.

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On the example that I think the hon. Lady was starting to give, until fairly recently Reading football club had a tradition that anybody who had played for the club for 10 years received a testimonial. It was not a contractual term, but it is difficult to see how that is anything other than expected earnings as part of employment. Is it not right that it should be taxed accordingly?

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The problem is working out the grey areas in this. It may be the case with everybody at Reading, but if there were only one or two people in that role before who filled the same criteria and this is the third person who happens to fill the same criteria and they get a testimonial, is it the case that that could be considered customary, despite the fact that they had no expectation of the testimonial? I understand that this is only for a certain group of people who have a supported testimonial through third-party organisations, rather than through the club itself. I get that we are not discussing the widest possible definition here, but I am concerned that that particular part of the language is incredibly woolly and could have been made better so that all of us and sportspersons, clubs and third-party organisations could understand the meaning of “customary”.

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Let me respond to as many of those points as possible. We have had a discussion of the impact of these measures on charities. Without repeating myself too much, we expect this to have a minimal impact. Where the sporting testimonial committee and the sportsperson make use of payroll giving, there would be no impact whatsoever. Were an individual to receive the money themselves and then pay tax and take advantage of gift aid, there would be a different tax treatment. Obviously, that would be the choice of the individual. The sportsperson and the sporting testimonial committee could and should choose to use payroll giving, which is a very generous and unlimited relief.

The hon. Member for Oxford East queried whether the measure would create a new bureaucratic impact on testimonial committees. It should not create any more impact than is already in place because we have already legislated for this from an income tax perspective; that is on the statute book. If a sportsperson wanted to use payroll giving today to avoid the income tax liability and ensure that the greatest possible amount of money went to the charity, the sporting testimonial committee today would already have to register for payroll giving, which they would then be able to use a second time for income tax and for the employer’s national insurance liability. This measure does not add bureaucracy. One could argue about the measure that has already been legislated for, but that is already on the statute book and the level of bureaucracy involved is pretty low.

We have had another debate around the definition of customary or non-customary sporting testimonial. The hon. Lady has already used her lunch break to root out the guidance, in her usual assiduous manner. If Members look at it, they will see that it is thorough. It is several pages long and goes into a degree of detail. I am happy to circulate it to other members of the Committee. It sets out that while the concept of “customary” is not defined in legislation, it has its ordinary, everyday meaning. The guidance says that in general, “customary” means a practice that is recognisable as the norm and where a failure to observe it would be exceptional. I think that is pretty clear. That suggests that if it is normal practice, a sportsperson would have a legitimate expectation of that as part of their employment at the club, and if the sportsperson did not receive the testimonial that they were expecting, that would be an exceptional occurrence.

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I am grateful for that explanation, but I am sure the Minister will recall that in the expert evidence session, note was taken of the fact that the scope of that norm is not clearly indicated. One could look at the norm for a whole sport, the norm for a particular club, the norm for one year, and so on. Does he accept the need for greater clarity in the guidelines about what the norm is defined with reference to?

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I am happy to review the guidance and see whether we can give more examples. There are a number of examples within the guidance on a range of different issues, but if it would be helpful to give one or two examples on this specific issue, I am happy to do so. Without sounding as though I am not giving serious consideration to the issue, it is worth restating that this has not arisen as an active issue. Sporting bodies, sportspeople and sporting testimonial committees have not raised it. The practice is of long standing; it dates back to 1927. We legislated for it from an income tax perspective two years ago, and we have not had any adverse feedback since then.

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Playing devil’s advocate, the whole point surely is that under the rules, if a testimonial is customary, the tax is payable. Therefore, if there is any ambiguity, one would not necessarily want to go stirring hornets’ nests to try to resolve that. Surely the Minister understands what I am trying to get at: the bias would surely be towards not seeking advice, rather than going out of one’s way to have the joy of paying tax.

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I understand that, although those sporting testimonial committees would want a degree of certainty that they were following the law, particularly if large sums of money were involved. They might seek the guidance of sporting bodies, or HMRC, perhaps on an anonymous basis, and that does not appear to have occurred.

Earlier in the day, the hon. Lady asked whether the customary test is specific or exclusive to sporting testimonials or whether it has a wider basis in law. There are other examples of the use of the customary test in tax law and case law, one being employer accommodation, where two factors are taken into account: first, how long the practice had existed, and secondly, whether it had achieved general acceptance with the relevant employers. There is therefore a history, as we have already described. I am happy to take away from today’s debate that we will review the guidance and ensure that there is a sufficient number of examples to provide clarity, should anyone require it, although it is not our experience that individuals have requested further clarification in the past.

The hon. Lady also questioned the wider point about the impact on different sports, which is one of the objectives of new clause 5. HMRC has announced that testimonials for sports other than football are all likely to be unaffected, as they are likely to be below the threshold. The measure is most likely to impact footballing testimonials. As I said earlier, the average testimonial, to the best of our knowledge, is around £72,000 a year and is therefore unaffected by the measure.

Without repeating myself, we have consulted many of the sporting bodies, and in fact, I met some of them. It is worth restating that in this instance, sporting bodies expressed a legitimate concern that the proposed threshold of £50,000 was too low. The Treasury responded by not just increasing it, but doubling it to £100,000. We have to be careful not to create unfairness for other members of society and taxpayers in the way that their payments are treated at the end of their career, or when one occupation ends and they unfortunately have to move on to another.

The hon. Member for Aberdeen North asked this morning, and again this afternoon, why there is a difference in language between part 1 and part 2 of the Bill. My experts at HMRC have looked into that, and the difference in language between the legislation for termination awards and sporting testimonials is accounted for as follows. First, in respect of termination awards, it is a charge on the employer. Secondly, termination awards are treated as earnings of the employment. Thirdly, the liability in respect of sporting testimonials is a charge on a third-party controller of a testimonial. Fourthly, there is no link between sportspeople and the testimonial committee. Fifthly, general earnings include earnings from the employment and any amount treated as earnings in, for example, the testimonial payment. I hope that provides some explanation. If the hon. Lady would like further information, I am happy to write to her and the Committee.

The hon. Lady also questioned the amount of revenue that is likely to be raised from the measure. We have said that 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 than that. When we modelled it prior to doubling the threshold from £50,000 to £100,000 it was also negligible—less than £3 million a year—so it is likely to be closer to zero than to £3 million, now that the threshold has doubled. Once again, our motivation in introducing the measure is to clean up, and provide certainty and clarity to individuals and those organising such matches, rather than to raise revenue.

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I am grateful to the Minister for that. Is he implying, therefore, that there would be a significant behaviour change as a result of the measure? Surely, otherwise there would not be zero income resultant from it.

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No—with respect, I did not say that there would be zero income. I said that within the spectrum of zero to £3 million, the likely amount of revenue raised would be closer to zero than to £3 million. The sums involved are very low—negligible, in our terminology—so I do not have more precise figures, but it helps to give some 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 have been able to allay some of the concerns, and that the amendments will not be pressed.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Clause 5

Extent, commencement and short title

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I beg to move amendment 1, in clause 5, page 5, line 39, at end insert—

‘(3A) No regulations may be made under subsection (3) until the Secretary of State has made a Statement to the House of Commons on how the Government intends to raise public awareness of the provisions of this Act, including awareness among people who may attend sporting testimonials that their donations may generate a National Insurance liability.”

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With this it will be convenient to discuss clause stand part.

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A lot of the discussion on sporting testimonials, particularly on Second Reading, concerned potential behavioural change of the people who go along to sporting testimonials, and who pay money so that the person they are attempting to honour can receive the funding. Obviously, fans are aware that some of the money they give will be used to pay for the ground used for the testimonial match, and for food, drink and other costs. However, I am concerned that the Government’s introducing this measure without spending enough time ensuring that there is public awareness of the change will mean that fans are not necessarily aware that some of the money will be top-sliced, or will generate a class 1A national insurance liability that HMRC will require to be paid.

I certainly do not think that fans going through the turnstiles at such events imagine that some of their potential donations will go to HMRC. It is incredibly important, if the Government are keen to ensure transparency, that fans are aware of this when they go through the turnstiles. That is probably more important when payment is made on a donation basis rather than a fixed ticket price basis. People are then giving money that they choose to give. It is important that fans are aware of what proportion of that money beyond £100,000 is likely to go to HMRC, and what will be received by the sporting individual.

On public awareness of the provisions of the measure, the intention of HMRC and the Government around termination payments is to try to stop companies dodging tax or to close a tax loophole. I understand that there are some cases to back that up whereby companies are perhaps giving pay in lieu of notice as a termination payment, instead of paying in lieu of notice and just ending the contract at that point. If HMRC intends that loophole to be closed, it is important that employers and employees are aware that the loophole has been closed, 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 class 1A national insurance liability to have as much notice as possible about what new computer systems or changes they will need to make in order to comply with the real-time nature of the collection of the tax and to change their redundancy policy. If they currently have a redundancy policy that involves, in an unspoken way, not paying in lieu of notice and terminating the contract instead with a compensatory payment, those companies will need to ensure that they change their policy in order to comply with 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 give the Minister fair notice. It is important that the Government let us know, in terms of transparency, how they intend to communicate with those three classes of people: the employers, the employees and the sporting fans who attend testimonial matches.

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

The clause also provides that the provisions in the Bill come into force on a day that regulations specify. It is intended that they will take effect on 6 April 2020. That was previously announced at Budget 2018 and will ensure that the measures come into force at the start of the 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 substantive issue to discuss specifically in relation to the clause.

Let me deal with the amendment of the hon. Member for Aberdeen North, which centres on how we might communicate the measure to raise public awareness. Without repeating myself, this is one of those Bills that has been around for some time, has been consulted upon and been part of Budget measures. I will not repeat the list I already read out. It is well known and is expected by members of the public who take an interest in these matters—perhaps a limited number—and by tax professionals and employers. I do not think that on this occasion a specific public communication awareness campaign is necessary.

On sporting testimonials, and whether there would be value in educating members of the public that in some circumstances a proportion of the money they spend on their ticket prices or donations will go to the Exchequer, it is worth remembering that any contractual testimonial is already subject to income tax, and also to employers’ and employees’ national insurance contributions, as a result of prior legislation in the Finance Act. The income taxes payable above £100,000 for those testimonials fit into that category. Unless it was specifically advertised by the organisation holding the testimonial, there is no way today that an individual would know which of these categories their particular testimonial would fall into. I am not sure that there would be any value in specifically advertising to members of the public that we have made this change. If anything, the changes we are making in the Bill increase alignment and simplicity, and increase the number of occasions when some tax will be paid to the Exchequer when a member of the public goes to a testimonial that raises a significant sum of money.

Without exactly knowing the feelings of all sports fans, in many cases I think they would expect that a particularly well-paid sportsperson holding the testimonial likely to raise in excess of £100,000 at the end of a successful career would be paying their fair share of tax, and that their sporting testimonial committee would be paying employers’ national insurance. I do not think that fans’ automatic assumption would be that well-paid sportspeople would pay no tax on the money they make. I appreciate that there are many examples of players being injured and so on, where people would feel particular sympathy for them as individuals.

On the wider point of HMRC’s communication, we regularly communicate with stakeholder groups, including representative bodies. We have employer bulletins that give news, including our latest developments, through quarterly updates. That would be particularly relevant to termination payments, where employers could access the latest information as a result of the passage of this Bill in due course. We are currently in consultation with software providers to advise them of these changes, should they become law. We hope that they will be able to make those changes as soon as possible.

As I said previously, the purpose of bringing this Bill forward now, rather than delaying it any further, was to ensure that there was good time available for employers to make the necessary changes. We hope that we will be able to have it on the statute book in sufficient time for all the relevant stakeholders to make the necessary changes, subject to the smooth passage of this Bill.

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I thank the Minister for his response, particularly around general public awareness. It is important that sports fans in particular are aware that their donation is likely to generate a tax liability. The fact that that was not done before is a bit of a failure. It should be the case that 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.

Clause 5 ordered to stand part of the Bill.

New Clause 3

Report on Exchequer impact

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

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

Brought up, and read the First time.

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I beg to move, That the clause be read a second time.

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

The Minister will know from my questions this morning and our subsequent discussions of my concerns about the Treasury reporting back, and basically letting us know if a tax change has had the intended effect. I have raised this on a number of occasions, in several different forums, and now I have thought of tabling it as an amendment to the Bill, I may do it more often, particularly to Finance Bills—perhaps on each aspect.

I spoke to the previous Financial Secretary, and perhaps even the one before that, about this issue. When it comes to tax reliefs and such like, the Treasury says, “This is going to generate x amount of revenue for the Treasury.” We have no recourse to see whether that amount has been generated for the Exchequer. The Government say they constantly keep things under review. At one point, I asked the Library to provide me with a list of the reviews that it could find for the tax relief measures that had been put in place through Finance Acts to see whether they had generated the level of revenue that was expected. A number of them had not been reviewed.

We are not asking for much here. We are asking the Government to tell us whether the law that they have proposed and taken through Parliament—that they have stood up and told us will generate £200 million of revenue—has actually generated that revenue. We can make better law if we better understand the effects of the previous legislation that we have passed.

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

Perhaps no one from the original Bill Committee may be on the Treasury Committee, so we may not see the effect of what we have passed. It would be incredibly useful if the Minister would commit to ensuring that any reviews that happen—preferably all of them—are sent to members of the original Bill Committee, as well as the Treasury Committee. That would be very useful. I know we have a change of personnel sometimes, but that would be a good start.

I have previously criticised the lack of a link between the Treasury Committee and those who sit on Finance Bill Committees. The Treasury Committee does a lot of very good scrutiny, but those of us on Finance Bill Committees may not see or be part of that scrutiny, and therefore, unless we go and dig out the evidence, which we find out from a colleague was given six months ago, we do not necessarily know that it exists. I have criticised the lack of a link previously. It is important that any reporting that is done is not just to the Treasury Committee. I do not suggest for a moment that the Committee is not incredibly competent and very good at its job; I am just suggesting a lack of link-up and communication.

It would be much appreciated if the Minister could commit to taking this on board and to ensuring that there is wider transparency and communication about any review. If it were published in, say, a ministerial statement, and flagged to those of us on the original Bill Committee, that would give us the opportunity to follow up with written parliamentary questions, for example, even though we are not on the Treasury Committee and cannot ask questions in oral evidence sessions. We could do that much more easily if the Minister committed to providing us with that information.

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We support the new clause, although we will not press it to a vote.

Given that there are not many people in the room and this probably will not be listened to very much, I can say that, as an Everton supporter, I none the less congratulate Liverpool on their 4-0 win. Not many people will hear that. I will deny I said it and will have it struck from Hansard. I also congratulate Man City on their win. I wish them the best of luck. At least there is a tenuous link with sporting testimonials.

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As a Wolves supporter, I am slightly bitter at the moment.

To answer the point made by the hon. Member for Aberdeen North, without repeating comments already made today, I appreciate her legitimate arguments. We feel that the measures in the Bill have been sufficiently consulted on. The long-standing tradition that a new piece of legislation will be reviewed within three to five years will apply. The review’s outcome will be in the public domain. It will be sent to the Treasury Committee. Ordinarily, it would be published on its website, and the hon. Lady or any other interested Members would be able to view it there. It will not be a private document only for the consumption of members of the Committee. I hope that will reassure her that we intend carry out a review in due course and that will be available for those who take an interest in it.

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I thank the Minister for that response—that I should set in my diary between 2023 and 2025 to regularly check the Treasury Committee’s website to see whether the review has been published. I am being sarcastic but, to be honest, it would be better if the Treasury could just commit to sending it to those Members on the original Bill Committee in all circumstances, rather than us having to imagine when the Treasury happens to do the review and have to go on and happen to find it on the right possible day. That would make for better lawmaking in this place. I will not push this because of the drafting error—it would not make sense to press something that has a mistake in it—but I will probably return to it on Report.

Clause, by leave, withdrawn.

Bill to be reported, without amendment.

Committee rose.

Written evidence to be reported to the House

NIC 01 Chartered Institute of Taxation