James Cleverly welcomes moves to simplify and clarify the administrative procedures for employing people to encourage small businesses to employ more people.
James Cleverly (Braintree) (Con)
“The narrative”—those were the word used by the Opposition Front-Bench spokesman in response to the Minister. We should remind ourselves that the narrative is that we are discussing employment-related tax treatments against a backdrop of a significant increase in employment and a significant decrease in unemployment. That goes to the heart of this whole debate. Employment is something that we all want to see expanding through the UK economy. Having started and run a small business and having recruited people to that business, I know that no employer recruits someone with the intention of kicking them out. I hope that that goes without saying, but I have said it nevertheless.
Does my hon. Friend agree that a small business owner with just a couple of staff has to go through a lot of stress in the whole process of making someone redundant? We should not forget that small business owners are people as well, often quite low paid because they are sacrificing salary. That can lead to mental health issues, stress and anxiety.
My hon. Friend is absolutely right. I will respond to her point in a few moments, but it is a very important one and we must not overlook it.
We have had a jobs boom over the past few years, in stark contrast to many other developed economies around the world and across Europe, which has struggled. In particular, in the UK, which is dominated by small and medium-sized enterprises and, indeed, microbusinesses, which often have only one or two principals and one or two employees, it is important that we continue to give confidence to those businesses, many of which do not have a large administrative back-office function. That is often the case, as it was in the business that I started. I was doing the client interaction and sales, and a colleague of mine was doing the journalism side of the business, but we were also the accountants and the HR department. To give confidence to small and microbusinesses that they can employ people, it is incredibly important that everything to do with employment is as simple and transparent as possible.
At the moment, the tax treatments around severance payments are very complicated. Depending on the combination of events, the payment can be taxed any one of a number of ways. Although I did not speak about this set of clauses on Second Reading, I did welcome the Bill, and I welcome this general move to simplify, to clarify and to give small businesses in particular—although of course this affects businesses of all kinds—the confidence to employ people, knowing that the HR and financial treatment around that employment will be as simple as possible.
The Opposition spokesman kept talking as though severance payments were not taxed at the moment, and of course they are. They are taxed—
Above the £30,000 threshold, there are tax treatments. Through the Bill, the Government are seeking to make the treatment of the figure above £30,000 most important and straightforward—[Interruption.] I absolutely welcome that.
Yes, but at the moment it is £30,000, and that is what it says here—[Interruption.]
The Second Deputy Chairman of Ways and Means (Dame Rosie Winterton)
Order. There are too many sedentary interventions, and it makes it rather difficult for the Hansard writers, as well as everyone else.
I am happy to take interventions, but I have never been a particularly good lip reader, so the Opposition will have to help me out on that one.
The Opposition suggested that somehow there would be some terrible Government sleight of hand to try to diddle people out of their money at a point at which they have lost their job, but has been made absolutely clear by the Minister and in the speech made by my right hon. Friend the Member for Forest of Dean (Mr Harper) that there will be transparency in any changes. None are proposed, but if they were, they would follow the affirmative process, which would mean a Minister at the Dispatch Box, in front of the House, being quizzed and questioned by the House. They would have to be voted on by the House. So the idea that there would be some sort of back-office sleight of hand in this is inaccurate.
At a time when we have, unfortunately, heard news of proposed job losses in one of our key businesses, the Opposition’s approach is unwise. I understand why their Front Benchers have done this—they want to have an attack on the Bill—and I am sure that if I were in their shoes, I would find whatever means I could to try to criticise the Bill. The simple truth is that there are no such proposals and nothing in the Bill to imply that there would be, but it is right that the Government maintain the opportunity to be flexible in the future.
Does the hon. Gentleman agree that in the light of the shake-up in these organisations and the dreadful stress that these people are under, introducing this clause at this time is completely inappropriate and heartless? The Government can bring it back another time if they wish.
The hon. Gentleman will be unsurprised to hear that I do not agree with him. The Bill is where the proposal is and the passage of the Bill has been timetabled in the way that it has. The idea that we delay changing the tax treatments of severance payments to a point in time when no one in British society is in the process of losing their job is farcical, as I am sure that, on reflection, he will recognise.
As has been said, the £30,000 threshold means that 85% of termination payments are completely unaffected. I am sure we have all heard anecdotes about businesses seeking to manipulate the definitions of the various elements of severance payments specifically to avoid the tax that is owed. Surely, Opposition Members would wish to make sure, as Government Members would, that tax is applied fairly, dispassionately and transparently, and that it affects all people equally. Once again, a disproportionate burden would otherwise fall on small businesses, which do not have that administrative back-office function and cannot play manipulative games to avoid tax. They are the ones that have to pay the full tax, as is right.
Some companies may have clever back-office accountants looking at ways in which to massage the definitions of the various elements of a severance payment to minimise the tax—tax that is due to the Treasury and that we want and need to fund public services. Surely, the Labour party is not suggesting we should turn a blind eye when a clever set of accountants can massage figures, making sure that the burden falls wholly and solely on small businesses, which do not have the opportunity to employ people to do that kind of smoke-and-mirrors work? I cannot imagine that is what Labour would want to do.
Amendment 4 proposes including the words “injured feelings”. Again, I am sure that this is being proposed with the best intentions, but the Labour party must realise that putting into a Bill a definition that is so vague and open to abuse is just inviting unscrupulous businesses to use it as a means of avoiding the tax that should be fairly paid upon a severance.
I am guessing that the hon. Gentleman is unaware—perhaps he is not—that “injury to feelings” is a legal term. It is used within that profession, and it is recognised and understood. Therefore, it is completely reasonable to include it in an amendment.
I thank the hon. Lady for informing me of that. I am more than happy to look in more detail at that definition, because I do not have it at my fingertips, but putting it in the Bill would present to unscrupulous employers something that looks like an invitation to use this as a back-door route to avoid the tax that should rightly be paid upon severance. It would be unwise for that to go through, because it would send exactly the opposite signal to what we are trying to achieve with the relevant clauses elsewhere in the Bill, which is to say, “If you play by the rules, fine.” The vast majority of people who receive severance pay have no need to concern themselves and neither do the vast majority of businesses. The only individuals who should be a little distressed by what is going through in the Bill are the very small number of companies that have abused the severance payment structures to avoid paying the tax that is fair. I have little sympathy for those companies. If they play by the rules, we are on their side. If they seek to bend or break the rules, I have no sympathy whatsoever.
Kit Malthouse (North West Hampshire) (Con)
I am seeking to ensure my hon. Friend understands that this does not benefit the companies; this is of benefit to individuals who take advantage. There is no tax benefit to the companies because it is income tax that is payable. [Interruption.] Well, there is national insurance—employers’ NI.
I thank my hon. Friend for that intervention. There is little direct financial benefit to the company—
Chris Philp (Croydon South) (Con)
Although, as I am reminded, there is an NI implication. Again, I have heard a number of anecdotes about conversations with departing employees from not the most honourable of companies in which things have been said such as, “If this complaint were to gently disappear, I am sure we can squeeze a little more money into your severance payment, using this route or that one.” This is one of the areas where simplicity and clarity are important, because companies may be using massaging methods to try to get a bit more money into the pocket of a departing employee, so that employee does not to have recourse to the law where inappropriate behaviour has taken place. Dangling some cash in front of them may be being used as an enticement not to take a constructive dismissal case, for example, and that is exactly the kind of thing we want to avoid.
In conclusion, I will be generous in spirit and assume that these amendments are just poorly thought through, rather than anything that is attempting to be more damaging. They would undermine the core direction of travel of the Bill, so I will not support them.