National Insurance Contributions Bill

I thank the noble Baroness and the noble Lord for their contributions to the debate. It is an interesting place to start. It is important to note that it is not simply that it must appear to the Treasury to be expedient before regulations can be made. In the case of new backdated charges to national insurance, it must be expedient,"““in consequence of the retrospective tax provision””." That means that regulation will have to be in consequence of the tax legislation which Parliament will already have scrutinised and passed. That is the moral basis for the process. Examples of factors which might be relevant in assessing expediency could include the need to keep national insurance in step with tax, and the seriousness of the threat posed by a particular type of avoidance scheme. In relation to consequential regulations under new Section 4C, which do not alter liability, the expediency test is not unconstrained but must be viewed in the context of specific statutory purposes. Ultimately, it is Parliament that will decide on whether the changes are implemented, because the regulations will have to be subject to the affirmative resolution procedure. That means that the provisions cannot be used capriciously. The noble Baroness pressed me to define where else that was used in tax legislation; I am afraid that in the few seconds allowed I have not had the chance to review the extensive body of legislation. If I declined to define ““expediency”” at Second Reading, I was and still am anxious not to put anything on record that could be said to constrain the normal meaning of that word, as would be interpreted through due process. Like her, I looked at the dictionary—the definition includes a range of things. ““Expedient”” is also defined as including ““suitable”” and ““appropriateness””. In the context of the process and the involvement of Parliament, no further definition is needed. I would like to draw the attention of noble Lords to the report on the Bill by the Delegated Powers and Regulatory Reform Select Committee. It concluded:"““We consider that the powers in the bill are sufficiently circumscribed and are appropriate. In particular:""(a) the power applies only where a provision of the Income Tax Acts relating to employment income is given retrospective effect and the Treasury considers it appropriate to make the regulations to reflect (wholly or partly) the retrospective tax provision;""(b) the NIC regulations may have retrospective effect only if it appears to the Treasury to be expedient to make them retrospective in consequence of the retrospective tax provision. Combined with (a), this in effect ensures that the NIC regulations cannot be retrospective to any greater extent that the tax provision;""(c) there is a cut-off point of 2nd December 2004 before which retrospective provision may not be made; and""(d) the draft of the regulations must be laid before Parliament within 12 months of the relevant tax change, thus limiting the period of retrospection””." I accept the assurance that in principle there is support for the provisions. The amendments would restrict legislation aimed at closing down avoidance schemes. It would be done by requiring the regulations that have retrospective effect to be made only if it is ““reasonable””. That caveat would reduce the deterrent effect of the 2 December 2004 Statement made to the other place and the objective of the Bill to put an end to avoidance. A reasonableness test is more susceptible to differing degrees of interpretation and involves value judgments on how often opposing interests should be balanced. We accept that there is a difference between the two. For example, what is ““reasonable”” to a user of an avoidance scheme is not likely to be so for a competitor who is at a commercial disadvantage because they have not chosen to avoid national insurance. Requiring the higher threshold of reasonableness is not warranted when the regulations will be reflecting tax provisions which Parliament will already have sanctioned. The amendment would make it more difficult to ensure that retrospective national insurance regulations were introduced so that avoidance would continue unchecked. The amendments would weaken the ability of the Bill to provide for the introduction of regulations to tackle specific avoidance schemes. Such amendments would also weaken the deterrent effect of the 2 December 2004 Statement, and the Bill, and compromise HMRC’s ability to respond to sustained avoidance activity, putting at risk national insurance that would otherwise be collected to pay contributory benefits and fund the NHS. That would be clearly unreasonable. I hope, on that basis, that the noble Baroness will feel able to withdraw the amendment.