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National Insurance Contributions Bill

Volume 758: debated on Tuesday 6 January 2015

Report

Amendment 1

Moved by

1: Before Clause 1, insert the following new Clause—

“Secondary Class 1 contributions: apprentices under 25Zero-rate secondary Class 1 contributions for apprentices under 25

(1) SSCBA 1992 is amended as follows.

(2) In section 9 (calculation of secondary Class 1 contributions), in subsection (1A), after paragraph (a) insert—

“(aa) if section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to the earnings, 0%;”.(3) In section 9A (the age-related secondary percentage), after subsection (1) insert—

“(1A) But this section does not apply to those earnings so far as section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to them.”

(4) After section 9A insert—

“9B Zero-rate secondary Class 1 contributions for certain apprentices

(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above, this section applies to the earnings paid in the tax week, in respect of the employment in question, if the earner is a relevant apprentice in relation to that employment.

(2) An earner is a “relevant apprentice”, in relation to an employment, if the earner—

(a) is aged under 25, and(b) is employed, in the employment, as an apprentice.(3) For the purposes of this Act a person is still to be regarded as being liable to pay a secondary Class 1 contribution even if the amount of the contribution is £0 because this section applies to the earnings in question.

(4) The Treasury may by regulations provide that, in relation to relevant apprentices, there is to be for every tax year an upper secondary threshold for secondary Class 1 contributions.

That threshold is to be the amount specified for that year by regulations made by the Treasury.(5) Subsections (4) and (5) of section 5 above (which confer power to prescribe an equivalent of a secondary threshold in relation to earners paid otherwise than weekly), and subsection (6) of that section as it applies for the purposes of those subsections, apply for the purposes of an upper secondary threshold in relation to relevant apprentices as they apply for the purposes of a secondary threshold.

(6) Subsection (7) applies if—

(a) a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above,(b) the earnings paid in the tax week, in respect of the employment in question, exceed the current upper secondary threshold (or the prescribed equivalent) in relation to relevant apprentices, and(c) the earner is a relevant apprentice in relation to the employment.(7) This section does not apply to those earnings so far as they exceed that threshold (or the prescribed equivalent) (“the excess earnings”) and, accordingly, for the purposes of section 9(1) above the relevant percentage in respect of the excess earnings is the secondary percentage.

(8) But the Treasury may by regulations modify the effect of subsection (7) in a case in which the earner falls within an age group specified in column 1 of the table in section 9A(3) above.

(9) In subsection (2)(b) “apprentice” has such meaning as the Treasury may prescribe.

(10) The Treasury may by regulations amend subsection (2)(a) so as to alter the age that an earner must be in order to be a relevant apprentice (and regulations under this subsection may have the effect of allowing anyone who is of an age at which secondary Class 1 contributions are payable to be a relevant apprentice).”

(5) In section 176(1)(a) (regulations subject to affirmative procedure), after “section 9A(7);” insert—

“section 9B(4), (8) or (10);”.

(6) SSCB(NI)A 1992 is amended as follows.

(7) In section 9 (calculation of secondary Class 1 contributions), in subsection (1A), after paragraph (a) insert—

“(aa) if section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to the earnings, 0%;”.(8) In section 9A (the age-related secondary percentage), after subsection (1) insert—

“(1A) But this section does not apply to those earnings so far as section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to them.”

(9) After section 9A insert—

“9B Zero-rate secondary Class 1 contributions for certain apprentices

(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above, this section applies to the earnings paid in the tax week, in respect of the employment in question, if the earner is a relevant apprentice in relation to that employment.

(2) An earner is a “relevant apprentice”, in relation to an employment, if the earner—

(a) is aged under 25, and(b) is employed, in the employment, as an apprentice.(3) For the purposes of this Act a person is still to be regarded as being liable to pay a secondary Class 1 contribution even if the amount of the contribution is £0 because this section applies to the earnings in question.

(4) The Treasury may by regulations provide that, in relation to relevant apprentices, there is to be for every tax year an upper secondary threshold for secondary Class 1 contributions.

That threshold is to be the amount specified for that year by regulations made by the Treasury.(5) Subsections (4) and (5) of section 5 above (which confer power to prescribe an equivalent of a secondary threshold in relation to earners paid otherwise than weekly), and subsection (6) of that section as it applies for the purposes of those subsections, apply for the purposes of an upper secondary threshold in relation to relevant apprentices as they apply for the purposes of a secondary threshold.

(6) Subsection (7) applies if—

(a) a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above,(b) the earnings paid in the tax week, in respect of the employment in question, exceed the current upper secondary threshold (or the prescribed equivalent) in relation to relevant apprentices, and(c) the earner is a relevant apprentice in relation to the employment.(7) This section does not apply to those earnings so far as they exceed that threshold (or the prescribed equivalent) (“the excess earnings”) and, accordingly, for the purposes of section 9(1) above the relevant percentage in respect of the excess earnings is the secondary percentage.

(8) But the Treasury may by regulations modify the effect of subsection (7) in a case in which the earner falls within an age group specified in column 1 of the table in section 9A(3) above.

(9) In subsection (2)(b) “apprentice” has such meaning as the Treasury may prescribe.

(10) The Treasury may by regulations amend subsection (2)(a) so as to alter the age that an earner must be in order to be a relevant apprentice (and regulations under this subsection may have the effect of allowing anyone who is of an age at which secondary Class 1 contributions are payable to be a relevant apprentice).”

(10) In section 172(11A) (regulations subject to affirmative procedure), after “9A(7),” insert “section 9B(4), (8) or (10),”.

(11) The amendments made by this section come into force—

(a) for the purposes of making regulations under section 9B of SSCBA 1992 or section 9B of SSCB(NI)A 1992, at the end of the period of 2 months beginning with the day on which this Act is passed, and(b) for remaining purposes, on 6 April 2016.”

My Lords, in Committee, I outlined the Government’s intention to table an amendment to give effect to the important initiative regarding apprentices announced by the Chancellor of the Exchequer in his Autumn Statement on 3 December. I now move this amendment to the Bill. As noble Lords will be aware, the Chancellor announced that the Government will abolish employer class 1 national insurance contributions for apprentices under the age of 25 from April 2016. This builds on the removal of employer class 1 national insurance contributions for all under-21 year-olds from April 2015.

Amendments to Section 9 and new Section 9B of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 give effect to the Government’s intention to abolish employer class 1 NICs for apprentices under the age of 25 from April 2016 by introducing a zero rate of secondary class 1 NICs for employers of apprentices under the age of 25 on the earnings of those employees. The zero rate will apply to earnings below the upper earnings limit.

As the Chancellor made clear, apprenticeships are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. Under this Government, employment is at its highest ever level while unemployment is now lower than when they came into power. However, there is still more to do. The Government will provide a zero rate of employer’s class 1 NICs on the earnings of apprentices under the age of 25 from 6 April 2016. The measure will apply both to new and existing apprentices aged under 25 and is not time-limited.

The first main feature of the new clause is that there is a regulation-making power to define “apprentice”. There are existing statutory definitions relating to apprenticeships. For example, in England and Wales, the Apprenticeships, Skills, Children and Learning Act 2009 introduces the concept of an “apprenticeship agreement”, which is defined in part with reference to an apprentice. Because education and training is a devolved matter, and not all apprentices are employed under apprenticeship agreements, we will need to look at the approaches taken towards apprenticeships in the different devolved Administrations. The power will allow time to discuss the definition with stakeholders such as the Skills Funding Agency and its devolved equivalents. The power will also enable us to respond simply to changing statutory definitions and requirements in the future.

Secondly, there are regulation-making powers to vary the age group to which the zero rate of secondary class 1 NICs for apprentices applies. For example, the Government could in the future allow for an increase in the age bracket of apprentices falling into the zero rate band of secondary class 1 NICs. Thirdly, there is a regulation-making power to ensure that the benefit of the zero rate of secondary class 1 NICs for apprentices can be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means to introduce an upper secondary threshold for apprentices in the same way as we are doing for under-21 year-olds. This threshold will be set at the level of the upper earnings limit in the 2016-17 tax year.

The Government believe that this measure, alongside other initiatives on apprenticeships and the abolition of employer’s NICs for under-21s from April 2015, will help to address the problem of youth unemployment in the UK. I beg to move.

My Lords, I begin with an expression of gratitude to the Minister. As he indicated in his speech, he was kind enough in Committee to indicate the thrust of amendments that would be tabled on Report. He duly fulfilled that promise. Therefore, when I received his letter dated 22 December—I give the House the opportunity to imagine just when I settled down to read this letter—it did not cause quite the degree of consternation that the Minister might have thought. It was not an unfortunate Christmas present but merely confirmed that the Government were in fact carrying out their intentions with regard to the Bill. Therefore, I thank him for his letter, timely as it was.

As we indicated at Second Reading and in Committee, we are supportive of the broad intent of the Bill and the form of the NICs position. We welcome the particular amendment, but nevertheless have some anxieties which I hope the Minister will assuage. What will be the level of scrutiny to ensure that this change to the NICs position in order to encourage apprenticeships does not result in a rerun in apprenticeships of some of the aspects we have seen of the Government’s obvious enormous delight in the number of self-employed people?

We are all too well aware that the increase in self-employment conceals in many respects great difficulty for people who cannot get work in any other way, so they engage in the most risky process of advancing and safeguarding their lifestyle. What reassurances can the Minister give that this extension of the reduction in national insurance contributions will not lead to unscrupulous employers using this strategy in order to reduce the taxation that ought to be paid?

The Minister must know that there are certain areas where self-employment is very significant. We should mention in particular the construction industry. All of us in the House recognise that that industry has particular patterns of labour engagement—that goes without saying. Nevertheless, we also know that evasion can be carried out with regard to taxation in this respect. The noble Lord must appreciate that the addition which this legislation presents as regards the under-25s, for example, might lead to difficulties.

The Government are passing this Bill without a clear definition of “apprenticeship”; they say that they are working on it. In due course a definition will be introduced in legislation which the Government say will meet the requirements. It is to be subject to secondary legislation at a date that is certainly some way in the future. Given that the Government are emphasising the importance of apprenticeships in this Bill, we would have hoped that the Minister would have got some way towards defining the term.

I can give him some illustrations of what a proper definition of apprenticeship might look like. It might indicate that the apprenticeship should normally last for two or three years at the least. It might indicate that apprentices should be new entrants to the area of work rather than existing employees. The fact that the Government have made no real attempt during the passage of the Bill to address these issues means that we fear that what they will do with it, if they have the chance, will reflect their present activities; namely, that a great number of apprenticeships involve merely rebranding workers who are already at a place of work and calling them apprentices without identifying what the skills acquisition and development actually involves.

Under this Government, one in five apprenticeships has lasted for only six months. One has to question the quality of apprenticeships in which these skills can be achieved in such a limited time. It is also the case that the vast majority of apprenticeships have gone to people well beyond the age of 25. This is about rebadging, not about enhancing or offering opportunities.

Although we will not express opposition or divide the House on the proposals in the amendment that the Minister has just advanced, we had hoped that the Minister would have presented the amendment in the context of a real drive towards the proper advancement of apprentices rather than continuing a policy of which there is much criticism and which we in the Labour Party intend to address when we form the next Administration.

My Lords, I am glad the Labour Party intends to address this when it forms the next Administration—if it ever does—but it would have done better to have addressed it when it formed the last.

As far as evasion is concerned, there is no evidence that employers will seek to use this measure to, for example, claim that a large number—or any number—of their staff are apprentices who are not actually apprentices. They will be required to meet the conditions of the regulations. The regulations that we are setting out in secondary legislation will include, at the least, an accredited form of training—for example by the Skills Funding Agency or its devolved equivalents. Employers will need to be able to confirm to HMRC that the employee in question is indeed an apprentice. The conditions will be designed in such a way that it will be easy for employers to provide verification if asked by HMRC on a routine compliance visit. The bull point is that there is no evidence whatever, circumstantial or otherwise, that employers either have been or will seek to use this relief, or existing funding schemes for apprentices, to get an unfair benefit.

The noble Lord asked about definitions and why we have not included a definition of apprenticeships in the Bill. As I said, there is a definition of “apprentice” in the 2009 Act, which is the starting point for the definition that we propose to put into secondary legislation. We have to consult with and seek the agreement of the devolved Administrations, which will take a little time. There is also an advantage in having an ability to amend the definition, which is obviously easier to do in secondary legislation, rather than in having a very detailed definition in the Bill.

We obviously share the noble Lord’s concern that the quality of apprentices and apprenticeships should be as high as possible, and we have worked very hard to ensure that. The principal way that we have been doing it is through supporting so-called Trailblazers, which are employer-led apprenticeship standards and assessment approaches. More than 1,000 employers, in more than 75 sectors, have been involved in those; 73 standards have been approved and published and more than 75 new standards are in development. These cover a wide range of sectors, from fashion to nuclear, law, banking and the Armed Forces.

The first apprenticeship starts under the new, improved standards began in September last year and the programme will continue. Our aim is that from 2017-18, all apprenticeship starts will be on the new standards. I hope that that will go some way to reassure the noble Lord that we are as concerned as he is to drive up the quality of apprenticeships so that young people—or indeed people of any age—taking part in them will get something of real value to themselves and to the economy more generally. I hope that I have been able to answer the noble Lord’s questions.

Amendment 1 agreed.

Clause 2: Consequential etc power

Amendment 2

Moved by

2: Clause 2, page 1, line 13, at end insert—

“(5A) A statutory instrument containing (with or without other provision) regulations under this section that amend or repeal a provision of an Act may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”

My Lords, as I mentioned in Grand Committee on Monday 15 December, the Government are bringing forward four minor technical amendments to Clause 2 and Schedule 1, which deal with simplifying the collection of class 2 NICs payable by the self-employed.

Amendments 2 and 3 are the Government’s response to the report of the Delegated Powers and Regulatory Reform Committee on the delegated powers contained in the Bill, which was published on 27 November. The report drew to the attention of the House the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. This power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee said that in its view the justification given in HMRC’s delegated powers memorandum was not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and recommended that in this instance the power should be subject to the affirmative procedure. I can confirm that the Government have considered and acted on the report of the Delegated Powers Committee. Amendment 2 provides that regulations made under Clause 2 which amend or repeal primary legislation are to be subject to the affirmative procedure. Amendment 3 provides that the negative procedure will continue to apply to any use of the power set out in Clause 2 where a statutory instrument does not contain any regulations modifying primary legislation.

Amendments 4 and 5 are minor and technical amendments that the Government intend should be made to the draft legislation in the Bill that deals with simplifying the collection of class 2 NICs payable by the self-employed. Amendment 4 amends Schedule 1 to the Bill, which inserts new Section 11A into the Social Security Contributions and Benefits Act 1992. This is being made to ensure that the relevant self-assessment—SA—penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subject to two different regimes, but this particular penalty was unintentionally omitted. Amendment 5 makes a corresponding amendment to the Social Security Contributions and Benefits (Northern Ireland) Act 1992. I hope that noble Lords will feel able to support these minor amendments.

My Lords, I have not the slightest difficulty in commenting favourably on technical Amendments 3, 4 and 5, which of course I understand the necessity for. I am glad the Government have brought them forward. Nor am I against Amendment 2—far from it, I am very much in favour of Amendment 2.

I merely draw to the attention of the House the very credible work of our colleagues in the Delegated Powers and Regulatory Reform Committee, which drew this issue to the attention of the Government in a way that gave them just sufficient time before Christmas to get their act together and indicate that they were going to table amendments on Report to give effect to the committee’s recommendation, which is to ensure that such a significant part of the legislation should be subject to the affirmative procedure and therefore much closer and more effective scrutiny in Parliament than the negative procedure. I am very much in favour of Amendment 2 and I congratulate our colleagues. I am sure the whole House is very appreciative of the work that is done by the committee. Once again it has done something that the House can take great pleasure in approving.

Amendment 2 agreed.

Amendment 3

Moved by

3: Clause 2, page 1, line 14, after “section” insert “that does not have to be approved in draft under subsection (5A)”

Amendment 3 agreed.

Schedule 1: Reform of Class 2 contributions

Amendments 4 and 5

Moved by

4: Schedule 1, page 9, line 33, at end insert—

“( ) Schedule 24 to the Finance Act 2007 (penalties for errors);”

5: Schedule 1, page 12, line 33, at end insert—

“( ) Schedule 24 to the Finance Act 2007 (penalties for errors);”

Amendments 4 and 5 agreed.