TAX AND NATIONAL INSURANCE PAYMENTS (Hansard, 20 July 1979)

§ Dr. Oonagh McDonald (Thurrock)

I wish to discuss this afternoon the case of T. and T.S. Builders. This firm is a labour-only sub-contractor, and as such was engaged on the Alson Road contract last year. About 50 to 60 employees were made redundant last August. They applied for tax rebates and for earnings related supplement to their unemployment benefit.

Some of those made redundant found that they were refused benefit on the grounds that their tax and national insurance contributions had not been paid. The company had deducted the relevant amounts from the employees' wages, but had failed to pay them to the Inland Revenue. The company was then investigated by the Inland Revenue and DHSS inspectors, who have the right to investigate, among other things, a company's wage books in such circumstances. Investigations may take a long time, and during that period those made redundant may not receive benefits and tax rebates. In the case of T. and T.S. Builders, some of the redundant contruction workers sometimes had to wait for several weeks for benefits. Some while in employment with T. and T.S. Builders found that they were unable to claim sickness benefit when due to them.

This case is not an isolated one, and I shall not pursue the details of this particular matter. It simply highlights the fact that many workers in the construction industry and in other trades, such as hotel and catering, find that their employers have failed to pay the tax and national insurance contribution at all, or thave failed to pay contributions on their full earnings. Indeed, some workers in the hotel and catering trade find that their employers will pay the tax and national insurance contributions due on 2293 the wages council minimum wages, but will not pay the tax and national insurance due on their full earnings.

Therefore, workers can be at risk not just because of temporary loss of benefit but due to the fact that, through frequent job changes and with companies coming into and going out of existence, they may not realise that national insurance contributions have not been paid on their behalf. This does not mean that workers will then have no right to unemployment benefit, sickness benefit or pensions. But it means delays in obtaining their proper sickness or unemployment benefits.

It could also mean that, at the end of his working life, the employee who works on a casual or contract basis may find that his full national insurance contributions have not been paid. That may create delays and difficulties for him and he will have to prove how much he has earned, by whom he has been employed and how many of the national insurance contributions he had assumed were paid on his behalf. It is difficult to obtain records that go back over a long period of time and some fly-by-night companies, particularly in the construction industry, may have gone out of existence.

Administrative procedures should be tightened up to protect employees and to ensure that employers pay tax and national insurance contributions on behalf of their employees and at the right time. Employees should know that that has been done without having to wait for an investigation by the Inland Revenue or the DHSS.

Various proposals can be put forward to help solve the problem. The Inland Revenue could send out receipts to all employees. However, the Inland Revenue Staff Federation would have a collective heart attack at that idea. Changes should be made to the pay slip. Under the Employment Protection Act an employee has a right to a pay slip and he may take his employer to an industrial tribunal if he does not receive one. Further, he may take the case to the civil court if his employer fails to record the correct deductions. If the Employment Protection Act were strengthened by laying on the employer the obligation to provide each employee with a pay slip that would alleviate the problem.

2294 The obligation to provide a pay slip should be subject to criminal sanctions so that the employer who fails to provide a pay slip finds himself in court. Furthermore, the employer who fails deliberately to fill in a pay slip correctly should also be guilty of fraud and subject to the sanctions of the court. The pay slip could be provided on a weekly or monthly basis, depending on the way in which the employee is paid. The pay slip should show gross pay and all deductions should be correctly entered. It should record the employer's tax reference number and his Inland Revenue office. The advantage of that would be that employees would be able to check whether correct deductions had been made. If the employee doubted whether the deductions were being paid to the Inland Revenue he would be able to contact the employer's office to check on that, or at least raise a query. Of course, the Inland Revenue deals with each person's tax files on the basis of secrecy.

If the pay slip were recognised as a legal receipt by the DHSS for the payment of benefit, the employee, on becoming sick, being made redundant or on his retirement, would have no difficulty in claiming benefit immediately. That is one way in which the administrative procedures could be strengthened in order to protect the employees' rights to the immediate payment of benefit. It should also help to prevent fraud on the part of the employer.

I do not suggest that this would be a foolproof method of putting an end to the recalcitrant employer who has decided to defraud the Inland Revenue or the inefficient employer who finds it impossible to deal with tax and national insurance tables. However, it is a proposal that the Minister may like to consider. Perhaps he will propose other procedures which would be of prime benefit to employees, for that is where my main concern lies.

Employees working on a casual basis in that way are sometimes on low wages and if they are made redundant or become sick they can be out of pocket for a week or two. That may seem a short time to hon. Members, but it can involve those employees in debts and put them considerably out of pocket. Many workers in the industries that I have mentioned 2295 are affected. I have given only one example. I know that there are others which may be raised in the House in the weeks to come.

I hope that the Minister will consider the problem seriously and respond to my suggestion or find other ways of tightening up the procedures so that employees are protected.

§ The Financial Secretary to the Treasury (Mr. Nigel Lawson)

The hon. Member for Thurrock (Dr. McDonald) has asked me to take the matter seriously, and I start by assuring her that I do so. I fully appreciate the concern that has prompted her to raise the matter. It is important, and it poses a number of tricky problems. The hon. Lady cited one case, but said that she did not want to go into that case because she was more concerned about the general principle. I shall therefore confine my reply to that principle.

The hon. Lady has raised the problems that arise when an employer deducts PAYE tax and national insurance contributions from the wages of his employees but fails to pay the money over to the collector of taxes. It is a problem not merely for the Inland Revenue, but for the employees of defaulting companies.

Two important obligations rest on an employer's shoulders. The first is to provide the collector of taxes and, through him, the DHSS, with a record of the national insurance contributions for which the employer is accountable. The second is to pay over the money.

Ensuring that those obligations are met is the responsibility of the collector of taxes in the first instance. While employers are required to make payments of national insurance contributions, along with PAYE tax, on a monthly basis, the submission of detailed records and the final accounting is done on an annual basis. The collector of taxes is entitled to expect that the accounting is completed within 14 days of the end of the tax year—for example, by 19 April 1979 in respect of the tax year 1978–79. If the employer takes longer than that, the collector of taxes will take steps to press for the outstanding returns. Similarly, if a return has been made but a balance of 2296 PAYE tax and national insurance contributions in respect of the previous year remains outstanding the collector of taxes will press for payment.

As both tax and national insurance contributions, notably the part deducted from pay, are moneys which the employer holds simply as an agent or trustee for the public purse, collectors of taxes are instructed to follow up such outstanding balances especially promptly and to take whatever action appears necessary to ensure that payment is made with the minimum of delay. That can lead to formal court proceedings and, in the end, to whatever may be suitable in the circumstances for enforcing a judgment obtained in the courts.

In some cases—though a relatively small number—despite a collector's best efforts, an employer may remain in default on the submission of national insurance contribution records or payment of money that is due. It is over such a default that employees are understandably concerned about the possible effect on their eligibility for social security benefits. If, through no fault of his own, an employee finds that his benefit rights have been put in jeopardy because of non-payment of contributions by his employer, special provisions exist to safeguard those benefit rights.

Regulation 39 of the Social Security Contribution Regulations 1979, which is repeated from earlier legislation, provides that primary—that is, employees'—contributions payable on behalf of an employee by an employer are treated as having been paid even where they have not been paid provided that the failure to pay was not with the consent or connivance of the employee, or attributable to any negligence on the part of the employee. This provision is operated in appropriate cases where benefit would not otherwise be payable, or would be payable at a reduced rate. The Department's inquiries into non-payment sometimes, of course, take a little time. The provision is also invoked where the contribution debt is found to be irrecoverable in whole or in part. Much the same arrangement applies where tax has not been paid over.

As the hon. Lady very fairly pointed out, that still leaves the risk of possible prejudice against an employee if a national insurance contribution record is 2297 not put into the hands of the collector of taxes when it should be. Therefore, if it is badly delayed, in spite of all that the collector has tried to do and has done to pursue it, it may not have reached the DHSS when some question of social security entitlement on the part of the employee has arisen. The hon. Lady said that the question of delays particularly concerned her.

I understand fully that an employee who has seen from his pay slip that his share of national insurance contribution has been taken out of his pay may well feel impatient, to say the least, if the machinery seems to stand in the way of his getting credit for it. The hon. Lady was saying that we should try to find some better procedures for dealing with this problem. I do not want to go into all the details of the Employment Protection Act, and the form of the pay slip. But the hon. Lady was suggesting that the pay slip itself should be a receipt acceptable as evidence that national insurance contributions and PAYE tax had been deducted from an employee's pay by an employer.

My right hon. Friend the Secretary of State for Social Services has responsibility on the question of evidence of national insurance contributions. However, since there is a very close relationship between that and PAYE deductions and similar problems arise of ensuring that an employee is credited with tax deductions, perhaps I should explain the main difficulty of the pay slip being regarded as a bona fide receipt and definite evidence of deduction.

The difficulty is quite simply one of fraud and abuse. It is not difficult to have a do-it-yourself pay slip arranged, and it seems to me that devising a secure 2298 system, which the hon. Lady's suggestion does not provide, which would not be costly and burdensome would genuinely pose considerable problems. I suppose that that is why this problem is still with us after many years during which the frauds have been growing.

I am particularly doubtful about the feasibility of administering such a system —there are of course the difficulties of dealing with casual workers in industries in which casual employment is widespread—without complicating unacceptably the present arrangement for employers and employees. In acting as agents for the collector of taxes employers are faced with considerable administrative costs as it is. We should not add to them without very careful consideration.

As I have said, I fully recognise me proper concern voiced by the hon. Lady, which I am sure is shared by hon. Members on both sides of the House, and certainly by any hon. Member who has constituents suffering in the way that she has described. For the reasons that I have given, I cannot accept the remedy that she has suggested. However, I give an undertaking to reconsider the problem. If it is possible by reviewing the present arrangements to offer more security to the employee in a practical way, no one will be more pleased than I. I shall need time to consider the matter, as will my right hon. Friend the Secretary of State for Social Services, who is also involved in this area. I shall be happy to consider the problem, and I thank the hon. Lady for raising the matter today.