My Lords, this debate was initially down to have at least a dozen speakers. I am sorry to say that, as the day has worn on—for a very good reason, I am sure—the number of speakers has somewhat diminished. I am sure that they will reappear in Committee and we will have a greater number of Peers interested in this important Bill.
I will start by addressing some of the remarks of the noble Lord, Lord Davies. He gave me due warning of his remarks at the beginning of his speech but, as he will expect, I do take issue with quite a lot of the overly pessimistic comments he made. He said that this was not to do with national insurance and indicated that it was very much a PR exercise and simply a presentation. He is nodding at that. I am afraid that I do take issue with that, but of course it is up to me to prove today and particularly in Committee that this is not the case and that the matters we are bringing forward on this Bill are serious and have serious points and facts behind them.
I gently point out to the noble Lord that the Bill passed through the Commons with just one minor government amendment, which corrected a reference to another Act. On his point about the evidence of free-port clauses working, he will know that Labour tabled some amendments but ultimately withdrew them. That was on the basis that the Government argued they were unnecessary, as we have already indicated that we will review the effectiveness of the NICs relief before deciding whether to extend it.
On that, to answer the point made by the noble Lord and the noble Baroness, Lady Kramer, on whether the NICs relief will be an effective use of taxpayers’ money—which frankly is a fair question—the relief will significantly reduce the cost of taking on new employees and doing business in a free port. This, along with other reliefs being offered as part of the wider package that I mentioned in opening, will support businesses setting up and expanding in free-port tax sites.
The take-up and use of NICs relief in free ports will be monitored to ensure that it is having its intended effect. The Government have written a sunset clause into legislation that will allow us to review the relief’s effectiveness after four years and make a decision on its continuation accordingly. The noble Lord, Lord Sikka, asked about an impact assessment. I steer him towards the fact that a tax impact and information note—a TIIN—has been published alongside this Bill. If he has not seen it, I am more than happy to make him aware of it.
A number of questions, some quite technical, were raised in the debate and I will do my best to answer them. First, on free-port costing, which was very reasonably raised by the noble Lord, Lord Sikka, the OBR approved
costings, including estimates, for all the tax and customs reliefs within the wider free-port offer. The programme is at an early stage of delivery, with the first sites beginning operations last month, but we have already seen significant investment. So there is more to come, but the noble Lord’s question is a fair one.
The noble Lord, Lord Davies, asked specifically about the link between NICs and benefits. The National Insurance Act and the National Assistance Act established the modern welfare state that continues today, as he may know. National insurance continues to fund contributory benefits, including the state pension. NICs receipts are paid directly into the National Insurance Fund and are kept completely separate from all other tax receipts.
The noble Lord, Lord Sikka, asked why NICs are not on unearned income. NICs is part of an earnings replacement scheme to provide help to workers when they are unable to work or retired. Unearned income is excluded as it does not rely on a person’s labour.
The noble Lord, Lord Davies, asked about the design of free ports and whether they will displace economic activity from other local areas. Our focus is on encouraging new investment from around the world and within the UK to create new businesses and new economic activity in free ports. This will create jobs in deprived communities across the country rather than harmful displacement. Employer NICs relief can be claimed only for new employees, encouraging employers and businesses to grow and create new jobs rather than relocate existing ones.
Finally, when designating free ports, the Government require bidders to explain how their choice of tax site location minimises displacement of economic activity from wider local areas, especially other economically disadvantaged areas. Displacement will be assessed in greater detail as part of the formal tax site approval process. Tax sites will be designated only once mitigation of displacement and other factors has been demonstrated by the successful bidder.