Within 24 hours of the Prime Minister on 7 September announcing a 1.25% increase in National Insurance contributions (NICs) to fund health and social care provision, MPs were asked to approve the proposal – by supporting a Ways and Means motion. This is the mechanism that provides parliamentary authority for most tax-raising measures. That motion – now a Resolution of the House – provides the foundation for a Bill to implement the proposed Health and Social Care Levy.

On 9 September, the day after the House had agreed the Ways and Means resolution, the government announced at Business Questions that the Bill would be taken through all its Commons scrutiny stages in a single day, on 14 September. The Bill will still have to go through the House of Lords, but that House’s powers are curtailed in respect of revenue-raising matters. As Erskine May makes clear, the role of the Lords in respect of finance is “to agree, and not to initiate or amend”. Once the Bill clears the Commons, it will thus undergo no further substantive scrutiny or amendment. The policy will therefore have been announced and legislated for by the House of Commons within a week.

It is not clear why there needs to be such a rush to legislate when important details about the policy implications are not yet clear.

In an Impact Assessment for the Bill that is rather light on detail, the government makes clear that the provisions will have “a significant macroeconomic impact, with consequences including but not limited to for [sic] earnings, inflation and company profits”. Ministers estimate that the Levy will affect 1.6 million employers. The government also acknowledges that the Levy may have “an impact on family formation, stability or breakdown as individuals, who are currently just about managing financially, will see their disposable income reduce”. The policy also has implications for the machinery of Whitehall, as it will require extra staff and changes to IT systems and will involve compliance costs. However, the government says that “these costs are currently being quantified”.

The government has also acknowledged that the final costings will be subject to scrutiny by the Office for Budget Responsibility and set out in the Autumn budget on 27 October 2021. The provisions of the Bill do not in any case come into effect until the next financial year in April 2022.

Yet, despite the evident lack of detail, the government is pressing ahead – without explanation or justification – rather than waiting to legislate for the proposals around the Budget in October.

If the government intends to ‘fast-track’ legislation through the House of Commons in a day, the House of Lords Constitution Committee has previously advised that Ministers should set out their reasons for doing so in the Explanatory Notes accompanying the Bill and make an oral statement to Peers explaining their position. In the present case, the government has provided no such explanation to the elected House.

• *Authors’ note: On 13 September, after this blogpost was drafted, updated Explanatory Notes to the Bill were published which included a new section justifying the government’s decision to ‘fast-track’ it. The government explained its decision in terms of giving employers and HMRC as much time as possible to implement the changes before the start of the 2022-23 tax year.*

The government estimates that the new 1.25% Levy will raise almost £36 billion over the next three years. However, the Bill does not specify how the money raised is to be distributed between health and social care or between the four nations, particularly in the longer term. Clause 2(2) of the Bill gives the Treasury discretionary power to determine this. What criteria will the Treasury use to determine the allocation?

Clause 2 of the Bill also stipulates that the funds raised from the NICs Levy will go direct to the Department of Health and Social Care, with any deductions made by HM Revenue and Customs to cover the costs of the system paid into the Consolidated Fund (the government’s current account). Health revenue raised via NICs has its own legislative cover – in this case, the current Bill – and so is not subject to scrutiny via the Estimates Cycle. The onus in future will therefore be on the Health and Social Care Select Committee, and/or possibly the Treasury Select Committee, to undertake scrutiny of the Levy via analysis of Departmental Resource Accounts and the Department of Health and Social Care’s Annual Report. On the one hand, under this arrangement, the Select Committee Members concerned will have the power to call Ministers to give evidence before them about the operation of the Levy. On the other hand, backbenchers may find it difficult to secure debating time in the Chamber to enable all MPs to discuss the way in which the Levy revenue has been spent. (This is compared to the Estimates process which, while a weak form of scrutiny, does enable backbench MPs to bid to debate departmental Estimates of interest to them.)

The Bill has potentially important constitutional implications for devolution. National Insurance is a reserved revenue matter. The transfer mechanism that is used to allocate the funding to the devolved nations matters because, as Professor David Bell of the University of Stirling has set out, it could give rise to circumstances in which there was a transfer of funding from England to Scotland, thus undermining the government’s proposition that the new Levy is hypothecated. Are the devolved nations to receive the actual amount of National Insurance raised within their borders, or are they to receive a share of the entire pot based on their population?

There is also no requirement in the Bill for the Treasury or the Health Secretary to consult the devolved administrations about any aspect of the process. This once again sets up the prospect of inter-governmental problems. In the absence of any substantive mechanism for inter-parliamentary relations, the Westminster Parliament will have little oversight of such issues if and when they arise.

Clause 4 of the Bill confers a regulation-making power on the Treasury that is concerning for its width and its inconsistent application of parliamentary scrutiny procedures.

Clause 4(1) allows the Treasury to make regulations that make provision “generally for the purposes” of the Levy. When it scrutinised the Taxation (Cross-Border Trade) Bill in 2017 (a Bill that was also brought in upon a Ways and Means resolution), the House of Lords Delegated Powers and Regulatory Reform Committee (DPRRC) described such wording as atypical and warned that, although seemingly benign, such a provision “might take on a wholly new significance in practice”.

In the current Bill, clause 4(2) lists specific matters that may be imposed through regulations made under clause 4(1). However, the list is not exhaustive: these are ‘examples’ only. The DPRRC has previously highlighted how non-exhaustive lists do not have the effect of narrowing a wide power.

Moreover, the examples listed in clause 4(2) are themselves wide. Regulations may:

• make provision about reliefs or exceptions from the Levy (clause 4(2)(a));

• disapply or modify the application of National Insurance contributions legislation which, as a result of clause 3(1) of the Bill, is applicable to the operation of the Levy (clause 4(2)(b) and (c)); or

• make provision about the application of, or modify the application of, any provision of ‘the Tax Acts’ in relation to the Levy (clause 4(2)(d)).

The drafting of the clause 4 power closely resembles some of the regulation-making powers in the Taxation (Post-transition Period) Act 2020. Supporters of the clause 4 power might therefore point to precedent. However, MPs should question whether this is by itself a sufficient justification for conferring such a wide power on Ministers. Powers conferred by a Bill, and the degree of parliamentary scrutiny applied to their exercise, should be considered on their own merits.

Moreover, the Taxation (Post-transition Period) Bill was introduced and passed at speed in December 2020 to prepare for the end of the post-Brexit Transition Period. It is not clear that similar urgency – which might justify taking a similar broad power – exists in the present case.

Under clause 4, regulations that have the effect of limiting the application of, reducing or removing any existing relief or exception to the Levy are to be subject to the affirmative scrutiny procedure (clause 4(4) and (5)). Any other regulations made under clause 4(1) are subject only to the negative scrutiny procedure (clause 4(6)). Therefore, regulations that create new reliefs or exceptions to the Levy, or otherwise modify the application or operation of the Levy, will not require House of Commons approval so long as they do not limit, reduce, or remove an existing relief or exception to the Levy.

The justification for this approach is unclear. As of 13 September 2021, no Delegated Powers Memorandum (DPM) – which would set out the government’s arguments for taking powers – has been published for the Bill. A DPM is produced for the attention of the DPRRC. The much-reduced scrutiny role of the House of Lords in relation to finance matters means that MPs are once again at a disadvantage, because less information is provided to them in the elected House to support the scrutiny process.

Powers are traditionally judged not on how the government says that it will exercise them, but on their actual scope and how they are capable of being used. Government policy can change, and it is therefore important that powers are considered on the basis of what they will in fact allow, rather than on the basis of what it is said they will be used for.

MPs should be clear about the level of authority they are delegating to government Ministers, and be confident that they will not regret forgoing their ability to fully scrutinise future government decisions or the decisions of future governments of different political complexions.

Given the significance of the regulation-making power sought in this Bill, MPs may wish to consider whether a higher degree of parliamentary scrutiny should apply to all uses of it, not just to regulations that limit, reduce, or remove an existing relief or exception to the Levy.

The research for this paper was supported by the Legal Education Foundation as part of the Hansard Society’s Review of Delegated Legislation

Fox, R. & Vangimalla, D., The Health and Social Care Levy Bill: four questions about scrutiny and accountability, (London: Hansard Society), 13 September 2021