HC Deb 26 November 1974 vol 882 cc383-94

10.20 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Alec Jones)

I beg to move, That the Social Security (Contributions) Amendment (No. 2) Regulations 1974, a draft of which was laid before this House on 30th October, be approved. At the outset may I say that I have considerable sympathy with all those who have sought to understand the regulations but, through the good offices of my Department, I will do my best to explain them in as simple language as is humanly possible.

First, I should like to state the purpose of the regulations. These regulations further amend and add to the principal regulations, the Social Security (Contribution) Regulations 1973 which were made on 20th July that year. The principal regulations were first amended by the Social Security (Contribution) Amendment Regulations 1974 which were made on 7th June 1974. The regulations, which do not contain any provisions about benefits, need to be made now to enable employers to be given detailed guidance in time for them to plan for the changeover in April 1975 to the new system of calculating and collecting social security contributions.

The proposed regulations add provisions which prescribe liability for special class 4 contributions for certain persons who are treated by regulations as self-employed. They provide the special rules governing liability for contributions in respect of airmen, mariners and members of the forces and prescribe the conditions of residence or presence in Great Britain for liability or entitlement to pay contributions. They also specify the conditions as to liability or entitlement to pay contributions of persons going abroad or coming to this country from abroad. They also contain tables setting out the weekly and monthly scales of contributions applicable to mariners and members of the forces. These tables are based on the rates set out in the 1973 Act. They will be revised as soon as possible to bring them in line with the rates approved by Parliament when the Social Security Amendment Bill which we have recently been discussing becomes law.

The regulations are made under various provisions of the Social Security Act 1974. It may help the House if I deal with each of the three main subjects of the regulations in turn, explaining the broad principles on which they are based and how they will operate in practice.

Provisions dealing with the liability of the generality of self-employed persons for class 4 contributions have already been made in an earlier set of regulations. The contributions are to be levied on profits or gains within specified limits chargeable to income tax under Schedule D. The regulations now before the House add to those provisions and impose a liability for persons who, as a class, are treated by regulations under Section 1(8)(b) of the 1973 Act as self-employed but whose earnings are chargeable to income tax under Schedule E. Because of the different tax schedule, such contributions could not be assessed and collected by the ordinary method and they would be specially dealt with by my Department and not the Inland Revenue. For that reason they have been referred to as special class 4 contributions. There is otherwise nothing in their nature which differentiates them from other class 4 contributions.

I should add that so far no regulations have been made designating any classes of persons to whom these provisions would apply. No regulations have as yet been made which have the effect of bringing persons into liability for special class 4 contributions and, so far as can be foreseen, the only class which will be prescribed is the clergy.

I turn to the special categories of earners. Schedule B of the regulations adds a new Part VIII to the principal regulations. The Schedule is sub-divided into four cases, A, B, C and D. The first three, A, B and C, provide the special arrangements which have always been recognised as necessary to cater for the unusual conditions of employment of airmen, mariners and members of the forces. Case B also contains provisions aimed at achieving a smooth change over to the new scheme for mariners whose pay and national insurance contributions are settled at the end of the voyage and who are on a voyage on the day when the new arrangements begin. About half the mariners are paid this way. The other half are paid weekly or monthly and can be assimilated in the new scheme in the same way as other employees.

The regulations provide for special rates of contributions to be payable in the case of members of the forces and mariners. In the case of members of the forces, both the employer's and the employee's rate of contribution will be reduced to reflect the fact that, while serving, forces personnel are debarred from receiving sickness and unemployment benefits and do not come within the scope of the industrial injuries scheme. In addition, as members of the forces are not covered by the Redundancy Payments Act, the employer's rate will be reduced by the 0.2 per cent. which is included in the ordinary employer's contribution for that purpose.

Mariners themselves will pay the same rates of contribution as any other employees, but their employers' rate may be reduced in two ways. First, for all mariners who come within the scope of the Redundancy Payments (Merchant Seamen Exclusion) Order 1973, the rate will be reduced by the 0.2 per cent. redundancy fund contribution. Secondly, for mariners employed on foreign-going ships there will be a further reduction in recognition of the special responsibilities which are placed on shipowners by the Merchant Shipping Acts for the medical care and maintenance of mariners during incapacity for work in the course of a voyage. All these reductions have been carefully calculated by the Government Actuary and the parties concerned have indicated to my officials that they are acceptable. They are based on the principles on which similar reductions in contribution liability have operated under the present schemes for many years.

Although the regulations for the special groups in general follow the principles established under the National Insurance Acts and carry forward to the new social security scheme the special arrangements at present in force, there are some differences which require explanation.

The first of these changes relates to non-domiciled airmen and mariners. Under the present scheme, British-based employers of non-domiciled airmen and mariners on home-trade ships are required to pay the employer's share of the flatrate national insurance contribution for each such person in their employ. For non-domiciled mariners on foreign-going ships the employer pays a half-rate contribution except where the ship trades exclusively outside home waters. The employees themselves pay nothing, as is proper since they have only fleeting connections with this country and could not build up entitlement to benefit under our schemes.

We have discussed these long-standing provisions with both sides of the industries concerned and have agreed that the time has come when they may be abolished without detriment to the interests of the employees in those industries who are resident or domiciled in this country. This is without prejudice to the arrangements entered into under the terms of reciprocal agreements with other countries over the years and to the obligations acquired under the ILO Conventions to provide cover for industrial injuries benefits for the nationals of certain specified countries.

The provisions for members of the forces differ from the existing regulations as they affect members of the reserve forces and certain married Service women.

I will deal with reservists first. The provisions secure that in contrast to the present graduated contribution arrangements, the reservist's Service pay which he receives when undergoing training will be taken into account for assessing earnings-related contributions. This is to ensure that during the more substantial periods of training basic benefit rights will be protected. Under the present scheme this is achieved by the payment of flat-rate contributions. Because of the differing pay practices of the Services, contributions will be calculated on an assumed pay interval of a month, thereby avoiding any inequities in liability as between one group of reservists and another. The effect of the new arrangements will be that contributions will be payable on reservists' pay for a month in which a substantiial period of service has been rendered. In practice, this will usually occur at the time of annual camp training.

Married Service women who have opted not to pay national insurance contributions pay no flat-rate contributions at all at present since they are excluded from industrial injuries cover. Under the Social Security Act the reduced rate available to married women also includes an allocation to the National Health Service which it is considered equitable that the married Service woman should also pay. Accordingly, if she so elects, she will pay reduced rate contributions, but at a rate which recognises her exclusion from industrial injuries benefits.

I will next deal with residence and persons abroad. Case D of the regulations prescribes the conditions as to residence or presence in Great Britain which employees, employers and other contributors are required to fulfil in relation to liability or entitlement to pay contributions. Apart from a few differences in detail, the regulations closely follow those of the present national insurance scheme.

Briefly, the general effect of the residence or presence provision is that liability of an employee to pay a contribution will be dependent on his being resident or present in Great Britain at the time of the employment, and the liability of his employer will be dependent on the employer's being resident or present or having a place of business here—though he will be able to pay if he wishes. There will, however, be no liability on either party during the first 52 weeks if the employee is not ordinarily resident here and is sent here by a foreign employer in pursuance of employment mainly carried on abroad.

A self-employed person will be liable to pay class 2 contributions if he is ordinarily resident in Great Britain or if he has been present in the country for 26 of the last 52 weeks. He may, however, if he wishes, pay such a contribution for any week he is present in Great Britain. Entitlement to pay the voluntary class 3 contribution will depend on a person's having been present in Great Britain at any time during the course of the year.

I will deal next with payment of contributions for persons sent to work abroad. The present provision that liability for class 1 contributions shall continue for 52 weeks in respect of per- sons who are ordinarily resident here and who go to work abroad for an employer with a place of business in this country is carried forward to the new scheme, but, unlike the present arrangements, liability will not be conditional on the work abroad being in continuation of class 1 employment in this country. This condition is not being retained because of a number of difficulties which arose from its administration—where, for example, there was a gap between the ending of the employment in this country and the start of employment abroad or the person was not an employed person before going abroad. Persons who remain abroad beyond the period for which class 1 contributions are paid will be entitled to pay class 3 contributions, if they wish to do so, in order to safeguard entitlement to long-term benefits.

I turn now to class 2 and class 3 contributions for periods spent abroad. The regulations make provision for the voluntary payment of class 2 and class 3 contributions by other persons abroad who satisfy the comparatively easy tests of three years' continuous past residence in Great Britain or previous payment of contributions equivalent to three years of insurance under this country's national insurance provisions. The tests are similar to those used at present. The regulations also specify the time limit within which these contributions must be paid, applying to persons abroad the same time limit as will apply to most persons in Great Britain, that is, the end of the second tax year following the year in respect of which the contributions are paid. The present limit, both for persons in Great Britain and for those abroad, is six years.

There is also a transitional provision applying to persons who are already employed abroad at the time the new Act comes into force. This ensures that no new liability is imposed on persons already abroad or on their employers where no liability exists under the National Insurance Acts, but provides that where liability exists under the present scheme it shall continue under the new scheme until the end of the appropriate period of employment abroad. The regulation also provides that persons abroad who are entitled to pay contributions voluntarily under the present Act may pay such contributions after 5th April 1975 provided they are paid within the time limit for such contributions under the present Act or before 6th April 1978, whichever is the earlier.

These regulations have been examined by the Joint Committee on Statutory Instruments. The Committee offered no comment and approved the regulations. I hope that the House will speedily do the same tonight.

10.37 p.m.

Mr. Kenneth Clarke (Rushcliffe)

I am grateful to the Minister for trying to give the House an explanation of these incredibly complicated regulations. I have sympathy with him and those who had to advise him in their attempts to make them intelligible. He read a well-prepared brief impeccably. It is no fault of his that the House has practically emptied in the course of this business.

The regulations are an impenetrable maze. Even though the Minister was kind enough to give me a brief before he started, I shall later read with interest what he has said and study it carefully. One cannot help feeling that one of the snags of the national health system is that tucked away in these regulations, for example, may be the beginning of a worrying constituency case in which a constituent manages to acquire an incredibly complicated contribution which brings him within the terms of the regulations. One knows only too well that on taking up the case the Minister or the Under-Secretary of State is obliged to send back an extremely lengthy letter in another attempt to make clear the regulations relating, for example, to the contributions of people who are employed abroad or who have been mariners.

Part of the regulations relates to the difficult process of trying to sort out the self-employed from the employed. That has been a desperate problem under the national insurance system for a long time, and it has become more difficult. There are many anomalies, and the borderline between employment and self-employment has proved extremely difficult to sort out over the years. For example, until the changes were made in 1973 Members of Parliament were regarded as employed for the purpose of tax but self-employed for the purpose of the national insurance system. Taxi drivers have already been referred to today. Those who are bailees are self-employed for tax purposes but employed for national insurance purposes under the present arrangements.

The Social Security Act 1973 made an attempt to define the difference between employed and self-employed. Sections 1(8), 1(9) and 5 of the Act gave the power to make regulations which would make the borderline clearer. It is clear from the regulations now before the House that that has not been entirely successful. Already the regulations have been amended twice this year. The first amendment was made earlier this year. It was sought to make certain people liable to class 4 contributions over and above any class 1 contributions they had already paid as employed persons, with suitable abatement of the class 4 contribution.

The regulations seek to establish a new special class 4 contribution for various people who would normally have been treated as employed persons but who are by regulation to be treated as self-employed.

Will the Minister make clear why we are continually amending the 1973 regulations? Will he also describe, in terms that might bring them to life a little more, which groups of people we are trying to deal with in these repeated amendments? The regulations seem to bring more people over from the employed into the self-employed category, which in view of the legislation which has just been passed is bringing in more victims to the Government's treatment of the self-employed for national insurance purposes. Which groups of people have not so far been covered and are now to be covered by being made liable to special class 4 contributions?

I realise that the Minister cannot hope to give me the comprehensive list. However, perhaps he can give one or two examples of the category of employment that will be paying this new special class 4 contribution, in order to shed more light on the difficulties that we are having in drawing the borderline between employed and self-employed.

Do these regulations finally sort out the anomalies that can arise under the new regulations following the Social Security Act 1973? After these regulations, will there still be people not paying Schedule D tax? Will there still be some categories paying PAYE Schedule E tax who will be treated as self-employed for the purpose of national insurance? Have these regulations failed to remove the anomalies whereby more people continue to be employed for tax purposes and self-employed for national insurance purposes?

Given that the regulations try to govern the borderline between employed and self-employed people, is it the position that those who wish to do so can still exercise the option, by agreement with the Department, as to the category to which they should belong for the purpose of national insurance?

In an earlier debate, the Minister of State implied that clergymen would still be able to opt as a body whether they were to be regarded as self-employed or employed persons. I gather that the Church authorities have for the time being opted to have their clergy treated as self-employed but reserve the right at a later stage to consider whether they might become employed persons for the purpose of national insurance when what I might call the Castle White Paper gets near to taking legislative form.

I understand that clergymen are not the only group which, as a group, can opt. I believe that some individuals may opt whether they are employed or self-employed for the purpose of national insurance.

I am open to correction, but I understand that a director of a family company is entitled to opt whether he is employed or self-employed. Do the regulations, or any of them, infringe that freedom of action by, say, a director of a family company to decide whether he wants to pay his tax as an employed or self-employed person?

Finally, in deciding whether individual categories are employed or self-employed for the purpose of national insurance, I again refer to taxi drivers. My hon. Friend the Member for Hampstead (Mr. Finsberg) has forwarded to me the representations he has had from the Licensed Taxi Drivers' Association. At the moment taxi drivers are self-employed for tax purposes, but if they are bailees working for a taxi proprietor they are employed persons for national insurance purposes. Taxi drivers as a body have discovered that they are to become self-employed persons for national insurance contributions.

In view of what the Government are doing about self-employed contributions, taxi drivers are somewhat concerned. They believe that the problem arises from the Social Security Act 1973. I am not convinced of that, although the Minister of State sounded earlier as though he was supporting that proposition. It seems that this arises out of some of these regulations and that regulations have been made by the Goxernment defining taxi drivers as self-employed for future reference. Is that the case, or will taxi drivers as a body, be able to choose after making representations, whether they are to be self-employed or employed from April 1975 onwards?

At the moment the elderly self-employed are exempt from national insurance contributions if they are above pensionable age and if they retire within the circumstances set out under Regulation 62 (2) of the regulations now before us. By Regulation 50 any elderly self-employed person appears to be exempt from national insurance contributions, even if he has not retired, if he is more than five years over pensionable age. If that is so, anyone over the age of 70 pays no class 4 contributions even if he is still working and is self-employed.

In view of the representations the Minister has been receiving on behalf of the self-employed, I wonder whether these regulations could be extended so that all those over pensionable age—all over 65 who are self-employed might be relieved from graduated class 4 contributions. Is is right that at the moment they become exempt when they are more than five years over pensionable age even if they are not retired? If so, could not this be extended to those over pensionable age as a body?

I would like the Under-Secretary to say something about the record of contributions made by the self-employed. In reading his speech and studying the regulations the hon. Gentleman may have noticed that Regulation 62 makes a small provision about the record which is kept of contributions made by the self-employed. In these regulations a special class 4 contribution is to be administered by the Secretary of State and not by the Inland Revenue as in the case of other class 4 contributions. What is the reason for this? I wonder whether these regulations are a way of trying to get over the difficulty which I know exists concerning the contribution records of the self-employed under the new system.

The Inland Revenue has collected these contributions. The Minister's Department will be in considerable difficulty in keeping a personal record of every self-employed person's contribution. If a self-employed person's entitlement to benefit is challenged, I expect that it will be a huge administrative job to try to sort out whether that person's contribution record is in order.

Will these special class 4 people be in a better position? Are personal records to be kept of these special contributions? Will the difficulties be overcome so that, in finding themselves treated as self-employed—and thereby treated in a penal way by the Government—these people can at least have the assurance of knowing that the Government are keeping an accurate administrative record of their contributions.

10.50 p.m.

Mr. Alec Jones

It is much easier to ask questions than to answer them. I readily accept, as the hon. Member for Rushcliffe (Mr. Clarke) said, that if the regulations are not as perfect as we wish them to be there might be a few constituency problems. Because of the complicated and technical nature of some of the issues raised by the hon. Gentleman it may not be possible to reply fully tonight, but I assure him that his comments will be examined in depth tomorrow and that he will receive a full and detailed reply.

It is not correct to say that we are constantly changing our mind. The sets of regulations which have been brought before the House are additions and not replacements. It is a question not of amending—although that word is used— but of adding to the existing regulations.

The hon. Gentleman referred to the borderline between class 1 and class 2, but that is not dealt with in these regulations. It will be dealt with in later regulations concerned with the categories of earners.

My hon. Friend the Minister of State said in the earlier debate that after discussion with the Churches the interim decision was to allow the clergy to remain self-employed contributors during the 1975–76 tax year, and that regulations under Section 1(8) of the 1973 Act will be brought forward to provide that clergymen are treated as self-employed earners. Clergymen are the only group which we so far envisage being treated as a special class.

The hon. Gentleman referred to individuals having the right to opt, but that is not so. There is no individual option. Groups can be transferred by regulation, but not individual contributors.

My hon. Friend the Minister of State has promised to consider taxi drivers. All employed taxi drivers will continue to be in class 1, and bailee taxi drivers will be in class 2.

The age of exemption is set at 70 because everyone is deemed for all pension purposes to be retired at that age.

I have picked up one or two of the hon. Gentleman's questions, with assistance, but if there are any questions which I have not answered I shall deal with them by correspondence.

Question put and agreed to.

Resolved, That the Social Security (Contributions) Amendment (No. 2) Regulations 1974, a draft of which was laid before this House on 30th October, be approved.