NICs Bill goes back to Lords despite ‘cui bono’ of contention

The Lords passed two opposition amendments to the National Insurance Contributions Bill in February (see report here). Peers agreed to a Lib Dem-sponsored amendment that added an additional condition whereby freeport national insurance contributions (NICs) relief would be available only if the freeport governance body maintained a public record of beneficial ownership of businesses operating in the freeport tax site. And they backed a Labour proposal that provided the Treasury with the power to amend the eligibility period attached to zero-rate relief for armed forces veterans.

Financial Secretary to the Treasury Lucy Frazer said the Lib Dem beneficial ownership amendment agreed in the Lords was ‘unnecessary’. She said that saying prospective freeports are required to set out how they will manage the risk of illicit activity, each freeport must agree a governance structure with the Government, and the Government requires each freeport governance body to undertake ‘reasonable efforts’ to verify the beneficial ownership of businesses operating within the freeport and share it with HMRC and law enforcement agencies. The freeport governance board is a third party, and therefore does not have the locus to release such information about a business to the public, she said.

The second reason Frazer gave was that the requirement would also partially duplicate the People with Significant Control register at Companies House. She added that the Economic Crime Bill will introduce a register of overseas entities’ beneficial ownership of UK property and reform our unexplained wealth orders regime, anyway, and there is also a planned fundamental reform of Companies House in the pipeline.

The minister said Labour’s amendment on veterans passed by peers was also unnecessary: “we felt that a 12-month qualifying period struck the right balance between supporting veterans as they transitioned to civilian life and wider taxpayers’ interests.” The Bill already contains other levers to increase the generosity of this relief, if needed, such as increasing the threshold at which employers of veterans start paying NICs and extending the overall period of the relief.

Labour’s Shadow Financial Secretary James Murray said a ‘crucial context’ for the Lords amendments was the Government’s plans for specific relief from NICs just one month before they raise NICs for workers and businesses across the board. Murray repeated Labour’s view that the NICs rise on workers ‘is the worst possible tax rise, at the worst possible time’ especially with energy prices now rising.

Murray spoke in support of the Lib Dem amendment saying Labour have long argued for transparency over the ownership of UK assets. In recent days, this has come to a head, with the Government finally admitting and accepting the urgent importance of establishing a public register of the overseas owners of UK property, he said. He said the Government have a chance with this Bill to ‘prove that they have learned those lessons’.

He then spoke about Labour’s own amendment calling for a zero rate of NICs for employers of armed forces veterans for a period of one year beginning with the earner’s first day of civilian employment after leaving the armed forces. The MP said it is a simple measure, giving the Government flexibility to adjust the operation of the relief if doing so might improve veterans’ ability to find long-term employment. He claimed Frazer’s predecessor as Financial Secretary Jesse Norman agreed to ‘reflect’ on the policy when the Bill was debated in the Commons last year.

Richard Thomson, SNP, supported Labour’s veterans’ amendment, saying for too many of our ex-servicemen who are leaving the services, the transition to ‘civvy street’ is far more difficult than it needs to be. Thomson said the amendment was a ‘perfectly reasonable addition… giving the Treasury a degree of flexibility on how to implement the measure that would otherwise be lacking in the Bill as drafted’.

On freeports generally, the SNP spokesperson put on record his satisfaction at the agreement that has eventually been reached by the Scottish Government and the UK Government over freeports, or green ports, of which two will now be established in Scotland, with the bidding process opening in spring this year and the first sites opening, hopefully, in spring 2023. But he said that, ’while hardly the ‘Grand Theft Auto’- style dystopia’ that they have sometimes been portrayed as, the potential for criminality and non-compliance with taxation, employment rights, health and safety or environmental regulations and obligations with freeports is clear, as is the potential for broader economic displacement.

On the Lib Dem amendment, Thomson said it helps to answer the ‘cui bono?’ (who stands, or stood, to gain) test and provides the minimum amount of due diligence that we should expect in exchange for the status and the exemptions on offer. He is sceptical about Frazer’s argument about governance structures being enough, saying MPs know how ‘labyrinthine and byzantine’ corporate structures can be. He added: “We should have transparency and accountability baked into the corporate structure and public reporting at the outset.”

Lib Dem business spokesperson Sarah Olney said one of the principal issues with freeports is the risk of money laundering and it is ‘remiss’ not to use this opportunity to strengthen the Bill’s provisions to provide greater transparency. Olney does not think that the measures that the Minister outlined are good enough, for example it is not enough for Companies House to maintain a record. Unless government bodies know the source of companies’ wealth, what they are trading, who are the beneficial owners, it is ‘impossible’ to know who is operating in the freeports and for what purpose.

Winding up the debate, the Financial Secretary rebutted Murray’s criticism of the NICs rise on workers, saying ‘it is vital we tackle social care’. Defending the Government’s record, she claimed the UK was the first country in the G20 to create a ‘free, fully public’ beneficial ownership register, and on that register we have 5.6 million names and more than 4.4 million UK companies. She repeated that the Government is introducing, in the Economic Crime Bill, a register of beneficial owners of overseas entities, further powers in relation to unexplained wealth orders, and further powers to sanction. She said Companies House will get the power to challenge information that appears dubious.

The Lib Dem amendment was taken out of the Bill after a vote in the Commons (295 – 198) and so was Labour’s amendment (298-199).

Now the Commons has rejected the two opposition amendments, the Bill goes back to the Lords, where peers need to decide whether to ‘insist’ upon them, sparking a round of ‘ping pong’ between the Houses. Typically, the Lords eventually give way on such matters but often the Government will offer a compromise amendment or reassurances of action in some form, during the negotiations that take place between the Houses.

Full Hansard of the debate is here.

By Hamant Verma, CIOT Senior External Relations Officer