New Clause 1 - Zero-rate contributions for employees of green manufacturing companies

National Insurance Contributions Bill – in the House of Commons at 7:07 pm on 6th September 2021.

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‘(1) This section applies where—

(a) a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) of the 1992 Act in respect of earnings paid in a tax week in respect of an employment,

(b) the green manufacturing condition is met (see section [Green manufacturing condition]), and

(c) the employer (or, if different, the secondary contributor) elects that this section is to apply in relation to the contribution for the purposes of section 9(1) of the 1992 Act instead of section 9(1A) of that Act or section 1 of this Act.

(2) For the purposes of section 9(1) of whichever of the 1992 Acts would otherwise apply—

(a) the relevant percentage in respect of any earnings paid in the tax week up to or at the upper secondary threshold is 0%, and

(b) the relevant percentage in respect of any earnings paid in the tax week above that threshold is the secondary percentage.

(3) The upper secondary threshold (or the prescribed equivalent in relation to earners paid otherwise than weekly) is the amount specified in regulations under section 8.

(4) For the purposes of the 1992 Acts 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 as a result of this section.

(5) The Treasury may by regulations make provision about cases in which subsection (2) is to be treated as applying in relation to contributions payable in respect of a tax week in a given tax year only when—

(a) that tax year has ended, and

(b) all contributions payable in respect of a tax week in that tax year have been paid.’—(Richard Thomson.)

This new clause provides National Insurance contributions relief for businesses engaged in green manufacturing

Brought up, and read the First time.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

With this it will be convenient to discuss the following:

New clause 2—Green manufacturing condition—

‘(1) The green manufacturing condition is that the employer is engaged in the manufacture of products within the categories designated under subsection (2).

(2) For the purposes of subsection (1), the Secretary of State must by regulations designate categories of products that in the opinion of the Secretary of State are manufactured with the aim of increasing environmental standards.

(3) The categories of products designated must include—

(a) wind turbines, and

(b) electric vehicles.’

This new clause is linked to NC1.

New clause 3—Scottish Government Covid payments: exemption from primary Class 1 contributions—

‘(1) A primary Class 1 contribution is not to be payable in respect of any Scottish Government Covid payment.

(2) For the purposes of subsection (1), a “Scottish Government Covid payment” means a payment of £500 pro rata to any NHS Scotland or social care worker in accordance with the announcement made by the Scottish Government on 30 November 2020.’

This new clause provides exemptions for Scottish Government Covid payments to NHS Scotland and social care workers.

New clause 4—Employment allowance for national insurance contributions—

‘(1) In section 1(2)(a)(1) of the National Insurance Contributions Act 2014 (employment allowance for national insurance contributions), for “£4,000” substitute “£16,000”.

(2) The provisions of subsection (1) will remain in force until 30 September 2023 and will then expire unless continued in force by an order under subsection (3).

(3) The Chancellor of the Exchequer may by order made by statutory instrument provide that the provisions which are in force will continue in force for a period not exceeding two years from the coming into operation of the order.

(4) No order will be made under subsection (3) unless a draft of the order has been laid before and approved by a resolution of both Houses of Parliament.

(5) The Chancellor of the Exchequer must lay before Parliament a review of the effects of the provisions in subsection (1) on employment, the performance of small businesses and GDP growth no later than 30 September 2023.’

This new clause would quadruple the employment allowance from £4,000 to £16,000 for two years. At the end of the period, the Chancellor of the Exchequer would be required to assess its effects and would be able to seek parliamentary approval for the policy to continue for up to a further two years.

Amendment 1, in clause 2, page 2, line 26, at end insert—

“(e) the employer pays, as a minimum, a living wage to all staff it employs, and

(f) the businesses operating in the freeport in which the employer has business premises have collectively—

(i) put in place a strategy setting out how the freeport will contribute to the target for net UK emissions of greenhouse gases in 2050 as set out in the Climate Change Act 2008 as amended by the Climate Change Act (2050 Target Amendment) Order 2019,

(ii) put in place a strategy setting out how the businesses will ensure that no goods passing through the freeport are the products of slave labour, and

(iii) carried out an environmental impact assessment of the operation of the freeport.”

This amendment provides conditions to businesses in freeports. These include a strategy on how the freeport will contribute to the target for net UK greenhouse gases emissions, a strategy ensuring no goods passing through the freeport are products of slave labour, and an environmental impact assessment of the freeport.

Amendment 2, page 3, line 11, at end insert—

‘(4A) For the purposes of subsection (1)(e), the living wage per hour—

(a) for the financial year 2021-22 is—

(i) £9.50 outside of London, and

(ii) £10.85 inside London; and

(b) for each year after the financial year 2021-22 is to be determined by the Living Wage Foundation.’

This amendment defines the living wage, payment of which is one of the conditions businesses would have to meet under Amendment 1.

Government amendment 3.

Photo of Richard Thomson Richard Thomson Shadow SNP Deputy Spokesperson (Treasury - Financial Secretary), Shadow SNP Spokesperson (Wales), Shadow SNP Spokesperson (Northern Ireland)

I rise to support amendments 1 and 2 and new clauses 1 to 3 in my name.

I went over the reasoning for these amendments in some detail on Second Reading and in Committee, so I am sure the House will be relieved to hear that I do not intend to go into quite that level of detail again. The arguments I made then still stand, that the Government should not forgo tax revenues or give advantages to some businesses that are not available to others in terms of national insurance exemptions without securing meaningful commitments in return and in advance.

For that reason, we believe reciprocal benefits should be baked in from the start, both in the strategic economic objectives that we presume are being sought and in ensuring the very best employer behaviour, so that we are incentivising the kind of corporate behaviour that we want to see and encouraging future manufacturing to develop in that way.

We particularly wish to see greenports evolve—greenports are the Scottish Government’s model for freeports—to help tackle the climate crisis and to ensure the protection of workers’ rights. SNP amendments 1 and 2 would help to ensure that freeports and greenports do not end up contributing to a race to the bottom on workers’ rights and broader standards.

New clauses 1 and 2 get to the heart of the matter, by ensuring that employers within the designated freeports pay, as a minimum, a living wage to all staff they employ; by setting out how businesses can ensure that no goods passing through freeports are in any way the product of, or have benefited from the contribution of, slave labour; by setting out how freeports can contribute towards achieving legally binding climate change commitments; and by ensuring that the environmental impact of freeports is properly considered in each case, so that they can be seen as an exemplar, rather than simply being compliant with existing legislation.

We believe firmly that if national insurance exemptions are to be made available, they should be for enterprises that are helping us to transition towards a low-carbon economy. In those new clauses, we have specified two categories of manufacture—wind turbines and electric vehicles—that we consider should be covered. The opportunity is inherent within new clause 2 for the Secretary of State to designate a much wider range of products that also can contribute towards that objective.

We have a choice here: we can grant these incentives and hope—this depends on one’s political taste—that we let 1,000 flowers bloom or that the invisible hand of the market will somehow deliver the economic and social objectives being sought; or, with some judicious framing of the Bill, we can help to increase the likelihood of achieving a set of positive outcomes from those objectives.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

I understand the purpose behind the new clause, but new clause 1 refers to “green manufacturing companies”, whereas new clause 2 talks about manufacturing products that “include” wind turbines and electric vehicles. So could those companies not undertake all kinds of very polluting activities within their business but still qualify for the exemption for all their employees if they make some wind turbines and electric vehicles? That is how this seems to be drafted.

Photo of Richard Thomson Richard Thomson Shadow SNP Deputy Spokesperson (Treasury - Financial Secretary), Shadow SNP Spokesperson (Wales), Shadow SNP Spokesperson (Northern Ireland)

I thank the hon. Gentleman for that intervention, but I do not believe that is the outcome. If we are looking to incentivise, these are a substantial set of incentives, and they have to be for the promotion of what I have described. A phrase that may be familiar in his Thirsk and Malton constituency is, “You shouldn’t get owt for nowt”. That is simply the intention here: to make sure we are getting these objectives that are being sought.

Photo of Kevin Hollinrake Kevin Hollinrake Conservative, Thirsk and Malton

They say that the road to hell is paved with good intentions. The intention may be something different, but the way the new clauses are drafted and the fact that new clause 2 says “include” means that so long as a company does some of those things, it could burn coal to produce electricity and still qualify under the new clause. That is the position as far as I can ascertain, but the hon. Gentleman may be able to explain the difference.

Photo of Richard Thomson Richard Thomson Shadow SNP Deputy Spokesperson (Treasury - Financial Secretary), Shadow SNP Spokesperson (Wales), Shadow SNP Spokesperson (Northern Ireland)

As I say, the hon. Gentleman and I will have to agree to disagree on that. If the Minister or the Government do not believe the new clause can meet the objectives in the way I have set out, it is open to them to try to achieve those objectives in some other way. I have no huge expectation of this new clause making it into the Bill, but the intention is clear, the new clause is clear and the Government should be using this incentive to drive exactly the sort of outcome I have set out.

On new clause 3, the Scottish Government are to be commended for the way in which they have sought to recognise the contribution of our health and social care heroes and how they have responded magnificently throughout the pandemic. It remains a source of great disappointment that the UK Government have not followed suit or supported that by allowing one-off payments to be made free of tax and national insurance, instead treating them as a top-up to wages rather than as a bonus. Rather than having the Scottish Government gross up those payments, as the Minister has previously argued should happen, surely it would be better if the UK Government were simply to exempt the payments from NI. I am certain that if that power was devolved to the Scottish Government to exercise, that is exactly what the Scottish Government would do. This shows the limitations of the current devolved fiscal settlement and the requirement to operate within what are, in essence, fixed budgets, which would make it impossible for the Scottish Government to make those payments net without impacting on other spending lines.

That sets out clearly the intentions of our provisions. As I say, I do not intend to go on overly long about them, but they are worthy of support. I have no huge expectation that the Government will change their mind, having listened to those arguments and rejected them at previous stages. Nevertheless, they are important arguments of principle as to what we should be trying to get out of this to match the good intentions, which are clearly there on freeports, in order to achieve positive social and economic outcomes.

As a final plea, I encourage the Minister, once again, as I have at previous stages, to ensure that the UK Government are working at all stages with the Scottish Government to make sure that we can bring forward a form of freeports in Scotland that meets these objectives.

Photo of Sarah Olney Sarah Olney Liberal Democrat Spokesperson (Business, Energy and Industrial Strategy), Liberal Democrat Spokesperson (Transport) 7:15 pm, 6th September 2021

I rise to speak to my new clause 4, which would quadruple the employment allowance from £4,000 to £16,000 for two years. I tabled it for several reasons. The Government’s Bill rightly identifies that changes to national insurance contributions for both employees and employers have a role to play in stimulating economic activity. That is why they wish to have special NI provisions for freeports and, elsewhere in the Bill, for veterans, to help them back into work and stimulate economic activity in freeports. Interestingly, the Government are indicating in this Bill that they see a role that national insurance contributions can play in stimulating economic activity. I will not labour the point, because Madam Deputy Speaker has made the rules clear on that, but we expect to see further announcements later in the week on NICs, which I think will contradict what this Bill is seeking to do.

NICs have an important role to play in stimulating economic activity, and I wish to speak particularly about our small and medium-sized enterprises. So many of them have been hit badly by the pandemic, especially those in our retail, hospitality and tourism sectors. One thing that many of us here can agree on is that as we come out of the pandemic we expect to see some big changes to the way business operates. We expect possibly to see more online working and more working from home, and we may well see new businesses come in to replace old businesses that did not survive the pandemic to deliver the new services that will support new ways of working and perhaps new ways of living. People will live further away from town centres. What new opportunities will there be in suburban constituencies such as mine, and even rural constituencies, to deliver services for people who would not previously have spent as much time there? So this is an interesting time, but I believe the Government should, above all, be prioritising economic growth and most particularly employment at this stage.

Photo of Mike Wood Mike Wood Conservative, Dudley South

What assessment has the hon. Lady made of the cost to the Exchequer of her new clause?

Photo of Sarah Olney Sarah Olney Liberal Democrat Spokesperson (Business, Energy and Industrial Strategy), Liberal Democrat Spokesperson (Transport)

I have not made an assessment of the cost, but that is partly because it would be difficult to manage that against the extent to which my proposal could, as I said just a minute ago, stimulate the economy, which is what we should prioritise at this time, particularly for small and medium-sized enterprises. If we can, we should stimulate SME growth, particularly in new sectors that may well benefit from changes in the way we do business in this country. Richard Thomson commented in particular on businesses that pursue carbon-free ways to deliver goods and services, which are such a priority. These are big areas for growth and we should be pursuing them.

In particular, we should support employment in new industries. In the past few weeks we have seen a great deal about skills shortages. We really need to improve skills development in existing industries—we have seen massive skills shortages in respect of drivers of heavy goods vehicle and care workers—but there are also lots of opportunities in the new industries and particularly in the green economy. We really need to support employment and encourage people to develop the skills they need to take their place in what I think will be the new, future economy.

Photo of Sarah Olney Sarah Olney Liberal Democrat Spokesperson (Business, Energy and Industrial Strategy), Liberal Democrat Spokesperson (Transport)

I would like to make some progress, if that is okay.

We should at this time pursue economic growth and job creation above all other concerns, because we face an uncertain few months in our economy. We could face a wave of closures and redundancies as the various support schemes that the Government introduced to get us through the pandemic come to an end. There could well be lots of redundancies as the furlough scheme closes. Business rates exemptions and deferred VAT payments are coming to an end, so if we can reduce the pressure on businesses by relieving them of some of their national insurance payments, that will help them to ride out the coming period when they will need to repay some of the costs. VAT on hospitality is going back to 12.5% from the end of this month. All such financial pressures are coming at a time when we think prices will rise and the universal credit cut may well hit household incomes and supress demand.

I propose new clause 4 because instead of a selected NICs cut for companies in freeports, I would prefer that we target the cut at SMEs, at this urgent time when we want to stimulate economic growth and support employment.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

I am grateful for the opportunity to speak on Report on behalf of the Opposition. As we have made clear throughout the passage of this legislation through the House, we will not oppose the Bill. We have, however, used the opportunity of the debates we have had so far to raise important questions with Ministers about some of the approaches they have decided to take.

As we know, clauses 1 to 5 introduce a new zero rate of secondary class 1 national insurance contributions for employers who take on employees in a freeport. The zero rate will apply from April 2022 and allow employers to claim relief on the earnings of eligible employees of up to £25,000 per year for three years. Clauses 6 and 7 also introduce a new zero rate of secondary class 1 national insurance contributions, in this case for employers of armed forces veterans.

Photo of Rosie Winterton Rosie Winterton Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. It is important to address the amendments before the House at this point. We will have the Third Reading debate later.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

Thank you, Madam Deputy Speaker. I shall briefly address the amendments we have been discussing as they relate to veterans’ employers’ national insurance relief. As we made clear on Second Reading and in Committee, this is a vital issue. Veterans deserve the Government’s full support as they seek civilian employment after their service to our country. The Minister may remember that on Second Reading and in Committee I asked him and his colleagues to explain why the employers’ relief for veterans is for 12 months—much less than the three years of relief for employers in freeports that the Bill also introduces.

Photo of Mike Wood Mike Wood Conservative, Dudley South

I wonder whether the shadow Minister could help me: which amendment is he currently speaking to that addresses employers’ relief for veterans?

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

If the House would rather I did not address the issue of veterans’ employers’ relief, I am happy to move on, but it is an important one to address. I would welcome your guidance, Mr Deputy Speaker.

Photo of Nigel Evans Nigel Evans Deputy Speaker (Second Deputy Chairman of Ways and Means)

We are considering just the amendments before the House. You will have an opportunity to talk much more widely on the whole Bill when we come to Third Reading, which will follow immediately after the votes.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

Thank you for that clarification, Mr Deputy Speaker. In that case, let me decide where in my speech to pick up. Forgive me for the slight procedural difficulty—if it is okay, I shall reserve my right to speak later.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury

I am sorry that James Murray was not able to revisit his greatest hits from Committee or other previous stages of the Bill, but unfortunately he is required to speak to the new clauses and amendments before us, which is what I will do.

The Scottish National party has tabled new clauses that would create a new zero rate of secondary class 1 NICs for employers classed as “green manufacturing companies”, including those that produce wind turbines and electric vehicles. As the House will know, the Government take support for the green economy extremely seriously. For example, since 2013 the Government have provided £150 million per annum to the Aerospace Technology Institute—investment match-funded by industry—including £84.6 million of investment to develop zero-emission flights and further support for other potential zero-emission aircraft concepts.

In addition, the Government are to spend nearly £500 million in the next four years to support the UK’s electric vehicle manufacturing industry as part of our commitment to provide up to £1 billion for the development and mass production of electric vehicle batteries and the associated supply chains. The funding is available UK-wide and will boost investment in the UK’s strong manufacturing base.

Of course, the Government have also stated their ambition to deploy 40 GW of offshore wind capacity by 2030, alongside a commitment to invest £160 million in ports and manufacturing infrastructure. The goal of that investment will be to encourage up to £20 billion of much-needed private investment in coastal areas and to support up to 60,000 green manufacturing jobs by 2030. The Government’s commitment to support green manufacturing is therefore quite clear.

Unfortunately, new clause 1 would introduce a major change to the tax system of a magnitude that would require the careful consideration of costs and benefits and, in fact, goes far beyond what should be included via amendment in a Bill such as this one. The design of a sector-focused tax relief is not straightforward and would add complexity to the tax system. By contrast, there has been no consultation on, costing of or impact assessment made in relation to the measure proposed in new clause 1. For those reasons, I urge the House to reject it.

On new clause 3, covid-19 has proven to be the biggest health and economic threat faced by the UK in decades. Key workers, including NHS staff and social care workers, have done extraordinary things, as the House recognises, to keep the public safe in the continuing fight against the virus. For their part, the Government hugely value and appreciate such important contributions to the covid-19 response. However, as I will explain, the Government do not believe that the new clause is appropriate or necessary. Under long-standing rules, any payments made in connection with an employment incur income tax and national insurance contributions. Such payments also count as income for the purposes of calculating entitlement to certain benefits.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

In Northern Ireland, we have done something just a wee bit different. It is a £500 bonus, and if the 20% of tax and the national insurance at 12% are added in, that means that the Northern Ireland Executive is paying £735 per individual. Is the Minister aware of that, and would he replicate it in the rest of the UK?

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury

I think the hon. Gentleman knows that the £500 payment has been offered across devolved Administrations. It is important that he has made that point, and I recognise it, but that does not really affect the point at issue in relation to the new clause, which is about the £500 payments that the Scottish Government are making to health and social care workers, which they are using to function as a top-up to wages. We therefore consider that these payments are taxable as earnings under the normal rules.

I will also, if I may, highlight the fact that the UK Government have provided more than £5.9 billion of additional funding for the Scottish Government this year through the Barnett formula. If the Scottish Government had intended health and social care workers to benefit by at least £500, they were entirely free to gross up the payments perhaps to £735, as has been done in Wales, in order to take into account the tax and NICs liabilities. Indeed, the Scottish Government remain able to do so if they really believe that the higher figure is appropriate.

New clause 4 has been proposed by the Liberal Democrats and would increase the employment allowance from £4,000 to £16,000 for two years and would also require the Chancellor of the Exchequer to lay before Parliament a review of the effect of this policy on employment, on the performance of small businesses, and on GDP growth by September 2023. Very surprisingly for a Liberal Democrat amendment, there is no mention on how this increase would be paid for. Such a policy change would be expensive and unnecessary. The Government have already taken significant actions to support small businesses through the employment allowance in its current form. In fact, businesses and charities up and down this country have benefited from the allowance since it was introduced in 2014. As a result, more than 1 million employers are reducing their annual national insurance contributions bills, and around 650,000 have been taken out of NICs altogether.

The new clause talks about further increasing the allowance. On that point, let me remind the House that the Government only recently raised the allowance from £3,000 to £4,000 in April of last year in order to help small businesses and boost employment levels. Members should also not forget the NICs reliefs that have been included elsewhere in this Bill. There is also the question of affordability. The current cost of the employment allowance is estimated to stand at around £2.3 billion a year. There is significant support for businesses within the NICs system already. Increasing the employment allowance in this way would be an extremely costly use of taxpayers’ money and, again, a measure wholly out of keeping with the Report stage of this Bill, let alone that it is not consulted on, costed, or accompanied by any impact assessment. For all those reasons, the new clause should be resisted.

The SNP has already tabled amendments, but not spoken to them, in respect of clause 2, which places additional eligibility criteria on freeports in relation to employment rights, equalities and the environment. [Interruption.] I am sorry, Richard Thomson has spoken to them. These criteria would add complexity and potential delay. By singling out freeports for these measures, they would also be burdening an important source of business growth. Let us take greenhouse gas emissions for example. The Government are already committed to reducing carbon emissions. That is why this country became the first major economy to implement a legally binding net zero greenhouse gas emissions target by 2050. That target is reflected in the UK’s high regulatory standards—standards that apply across the economy including for businesses operating in freeports. Indeed, the bidding prospectus for freeports in England embedded net zero ambitions as part of the assessment of bids.

As regards amendment 1 on the living wage, the Government are already committed to supporting that in employment, which is precisely why they introduced the national living wage in 2016. It is of course vital to ensure that no goods passing through freeports are the product of slave labour. Slavery is a global problem, which is why employers in freeports will need to meet the same high regulatory standards on slave labour as other businesses in the UK. For all these reasons, I urge the House to resist this amendment.

Finally, I turn to Government amendment 3. The policy intent here is that the veterans’ measure should apply to the whole United Kingdom. This amendment corrects a small drafting error by replacing reference to the Social Security Contributions and Benefits Act 1992 with a reference to that Act and the Social Security Contributions and Benefits (Northern Ireland) Act 1992, reflecting the original policy intent. I trust that Members will agree that this is a minor and technical amendment and should be included as part of the Bill.