Peers back amendment to increase freeport transparency

In changes made during report stage debate of the bill on Monday, peers agreed to a Lib Dem-sponsored amendment on the establishment of a public record of beneficial ownership of businesses operating in freeports, and to a Labour proposal to make it easier to extend the availability of National Insurance (NI) relief for armed forces veterans.

The government amendments related to scrutiny of regulations and the earnings thresholds up to which employers can take advantage of zero-rate NI schemes for freeport employees and armed forces veterans.

This followed consideration of the Bill at committee stage last month, a report on which you can find on the CIOT Blog (Peers accused Government of misuse of National Insurance Fund, 13 January 2022).

You can read the explanatory notes on the Bill here.

The marshalled list of amendments for debate at report stage is here and the Hansard of the full debate is here.

Summary of debate

Group One - Upper secondary thresholds and regulations

The first of three groups of amendments saw 10 government amendments debated and passed.

Amendments 12-14 clarify the parliamentary procedures that are to be used to enable exemptions from self-employed NICs for coronavirus self-isolation payments and the period for which freeport and veterans relief will be available. The exemptions for isolation payments will now require regulations under the negative procedure whereas previously it was proposed there would be no need for regulations at all. Regulations to amend the Freeport and veterans reliefs were to be subject to the draft negative procedure but will now require the draft affirmative procedure. This means they need to be positively debated and approved by both Houses of Parliament (NB. This will often be in committee rather than on the floor of the House) rather than passing automatically unless a successful ‘prayer’ obtains a debate.

Representing the government, Viscount Younger explained that the government was bringing forward these amendments in response to the recommendations of the Delegated Powers and Regulatory Reform Committee (DPRRC) as well as the representations of peers in earlier debates.

Amendments 1, 4 and 7-11 set the upper secondary thresholds and prescribed equivalents in relation to the tax year 2022-23 (for freeports relief), and in relation to the tax years 2021-22 and 2022-23 (for veterans relief), and make consequential amendments.

Younger explained to peers that the upper secondary threshold is the threshold up to which employers can claim a zero rate of NICs in relation to these reliefs. After this point, employers will be liable to secondary class 1 NICs at the standard rate. He said it was necessary to put this in the bill because there would not be time to make regulations between the bill being passed and the new tax year.

Younger attempted to explain why the government are proposing different thresholds for the freeports (£25,000 per annum) and veterans (£50,270 per annum) reliefs. He said that the government had designed its freeports policy to “support growth in underdeveloped areas” while the veterans relief was to “support veterans as they transition into civilian life”, which required “a targeted, more generous annual threshold”.

Both Baroness Kramer (Lib Dem) and Lord Tunnicliffe (Labour) welcomed the government’s amendments but expressed concern that ministers had not acted on the full recommendations of the DPRCC report. They would have liked to have seen further amendments limiting the power of government to modify the criteria for freeport schemes, but acknowledged that significant progress had been made.

Amendments 1, 4 and 7-14 were passed.

Group Two – Freeport relief conditions

This group contained two amendments, both tabled by Lib Dem Treasury spokesperson Baroness Kramer. Both amendments were to clause 2 of the bill, which sets out the conditions that must be met in order to qualify for relief from National Insurance payments. Amendment 2 sought to ensure that relief is only available if the freeport maintained a public record of the beneficial ownership of businesses operating on the site. Amendment 3 aimed to provide for a review of the impact of this measure.

Baroness Kramer said the timing of these amendments was appropriate, given the increasing prominence in political debate of stories involving money laundering in the United Kingdom, which she said had been valued by the government at up to £100 billion per year.

Kramer said that freeports had become ‘notorious for attracting crime’ and would ‘enhance the money laundering process’ in the UK. While ministers have insisted that freeport operators keep registers of beneficial ownership, these will not be made public. She told peers:

“Frankly, this is almost mind-blowing, since every Conservative Chancellor since George Osborne has stressed that registers must be public to be effective. We regularly lecture every country around the world on this issue, including the overseas territories and the Crown dependencies.”

She said amendment 2 would require that registers “are not only held, verified and available to enforcement agencies but made public”.

Amendment 2 received the support of Labour Treasury spokesperson Lord Tunnicliffe, who told the chamber that such a register would be an “easy win” for the government in its efforts to increase transparency and tackle money laundering.

Responding for the government, Viscount Younger said the amendment “although well-meaning, is not necessary”. He said the government was already taking “firm and co-ordinated action” to tackle economic crime. On freeport policy specifically, he told peers that operators have been required to set out how they will manage the risks posed by illicit activity, as well providing clear governance and ownership structures. Making a register of beneficial ownership available publicly, as opposed to just law enforcement, would be inappropriate, he argued.

Despite the government’s opposition, amendment 2 was passed, by 195 votes to 179. Amendment 3 was not moved.

Group Three – Veterans relief conditions

This group again contained two opposition amendments, this time tabled by Labour’s spokesperson, Lord Tunnicliffe. Amendment 5 sought to clarify that employer zero-rate relief when employing veterans may apply to multiple employers, in cases where a veteran has more than one form of employment during the eligibility period. Amendment 6 aimed to grant the Treasury a power to extend the eligibility period attached to zero-rate relief for veterans, should that be deemed desirable to improve the ability of veterans to find long-term employment.

Lord Tunnicliffe said that amendment 5 would help to clarify the position that relief from National Insurance would apply to armed forces veterans with more than one employment during the period of eligibility. He said that the bill as currently written did not explicitly address this provision. Responding for the government, Viscount Younger said that this provision was already provided for in the legislation and was unnecessary.

Tunnicliffe said amendment 6 would give ministers the power to extend the qualifying period of this relief “quickly and simply and – crucially – outside the Budget and Finance Bill cycle”. Younger replied that the government had considered this matter carefully and concluded that the 12-month qualifying period as proposed in the Bill “struck the right balance between supporting veterans as they transitioned back to civilian life and wider taxpayers’ interests”.

Despite Viscount Younger’s protestations, peers backed Amendment 6 by 197 votes to 175. Amendment 5 was withdrawn.

What’s next?

The Bill will now receive its third reading in the House of Lords at a date that is still to be agreed.

Following this, it will be returned to the House of Commons, where MPs will have the opportunity to consider the amendments that have been proposed by the Lords. It is likely they will reject the two opposition amendments and send the bill back to the Lords, where peers would 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.

Chris Young, CIOT External Relations.