Clause 3 - Agreements and joint elections: Great Britain
National Insurance Contributions and Statutory Payments Bill
10:15 am
Mr Mark Prisk (Hertford and Stortford, Conservative)
I welcome the Paymaster General's opening remarks. As she said, the clause widens the scope of joint national insurance elections and agreements to deal with convertible and restricted securities. The right hon. Lady highlighted the fact that the benefit of the provision to the employer is that it removes the risk of unpredictable and unanticipated post-acquisition secondary liabilities for national insurance. In some cases, such liabilities can be significant. They may therefore have an impact not only on the employer's profitability, but just as significantly—in some cases, more so—on their cash flow. Those Committee members who have been in business understand that cash flow is often more important than profitability.
As clause 3 is intended to remove barriers to widening share ownership, Conservative Members warmly welcome it, although, as I suspect the Paymaster General will have anticipated, I have a couple of questions about the practicalities and the costs of the clause and the contents of the supporting documentation. I refer in particular to the regulatory impact assessment, which relates, first, to the cost of agreements. Page 5 states:
''Any costs will primarily be associated with drafting a suitable agreement, asking employees to enter into these agreements and ensuring the secondary NICs are recovered from the employee correctly.''
That is fine. The assessment continues:
''However, most employers are likely to incorporate suitable wording into their existing share scheme documents and any cost will become part of the overall cost of setting-up and operating employee share schemes.''
On the face of it, that is fine, but it would be helpful if the Paymaster General could tell us what estimate the Treasury has made of the costs for employers. That is
not elaborated in the assessment, and it is difficult for us to understand the scope, and therefore the implications, of the cost of the agreements.
There is a slight contrast between that matter and the joint elections, on which the assessment is slightly clearer. However, there are still some unclear statements. The next paragraph on page 5 states:
''An employer may incur initial costs for seeking professional advice on preparing a form of election and obtaining Inland Revenue approval and it is estimated this service may cost around £3,000.''
What is the basis of that calculation? In particular, is that per application or per employee? That makes a quite significant difference to a large employer. The assessment goes on to state that the Revenue
''will provide a model form of election'',
and that is welcome. However, it then makes a rather unsupported assertion:
''Additionally, the benefits of a joint election to the employer will outweigh this initial one-off cost.''
That is fine, but perhaps the Paymaster General could explain how that will happen. The assertion seems to be made without any evidence behind it. The Paymaster General will know that I like to make sure that I am clear about the evidence for that kind of assertion.
Can the Paymaster General confirm, pursuant to what I have explained, that the impact on businesses is approximately £1.5 million, on the basis of the figures given: the stated 500 applications and a figure of £3,000 per service. However, perhaps I am misreading things.
On the question of joint elections, I suspect that the error is unintentional, but there is a reference in the relevant paragraph to secondary national insurance contributions being paid by the employee. Of course, employees pay only primary national insurance contributions. I did not quite understand that sentence; I hope that it is just a typographical error.
I want to refer to two aspects of the matter that shape clause 3. Clause 3(2)(b) would insert a new sub-paragraph (2A) into paragraph 3A of schedule 1 to the Social Security Contributions and Benefits Act 1992: that new sub-paragraph includes the term ''artificially depressed market value''. Had this sitting commenced at five minutes to 9, most of us would have been suffering from an artificially depressed market value. However, will the Paymaster General define the term and how the provision will be enforced? Clearly, the market value of the securities will be critical to the whole clause, or indeed the Bill. A definition to show when something has been artificially depressed and when it has not will be helpful. I am sure that it is in the legislation that has been mentioned, but as I am sure the Paymaster General will appreciate, many elements of legislation are affected or amended by the Bill.
By contrast to the term ''artificially depressed market value'', the phrase ''relevant employment income'' is somewhat over-generously defined in the new sub-paragraph (2B) set out in clause 3(2)(b).
Rather than having no definition, we appear to have three. We are told that it means, in relation to the earner,
''an amount that counts as employment income of the earner under section 426 of ITEPA 2003'',
''an amount that counts as employment income of the earner under section 438 of that Act''
or that it is
''a gain that is treated as remuneration derived form the earner's employment by virtue of section 4(4)(a) above.''
I assume, although one should not make assumptions about a Bill, that there should be an ''or'' between (a) and (b); otherwise there is potential for the clause to be misread. No doubt it is an oversight, but I hope that the Paymaster General will clarify it.