HC Deb 21 April 1986 vol 96 cc137-42 11.45 pm
The Minister for Social Security (Mr. Tony Newton)

I beg to move,

That, for the purposes of any Act resulting from the Social Security Bill, it is expedient to authorise the charging to income tax under Schedule E of payments of statutory maternity pay under that Act or, in Northern Ireland, any corresponding provision contained in an Order in Council under the Northern Ireland Act 1974. I shall speak very briefly, but I understand that the hon. Member for Derby, South (Mrs. Beckett) may wish to make some points, and I shall of course reply to them to the best of my ability.

In December the Government published a consultation paper proposing the replacement of most of the present state maternity allowance scheme with a scheme to be called statutory maternity allowance, modelled on the lines of the statutory sick pay scheme. Following the outcome of the consultation on that document, I last week gave details of a revised proposal for a scheme to be called statutory maternity pay, which would bring together much of the present state maternity allowance scheme with the present maternity pay scheme, operated by the Department of Employment, within a single more integrated scheme to assist women giving up employment in order to have babies.

An integral element in both schemes is to make the maternity allowance taxable, in line with general Government policy that income replacement benefits should generally be subject to tax in the same way as other income. That is already the case for such things as retirement and most widows' pensions. The present Government has introduced changes which make most unemployment and supplementary benefit for the unemployed taxable. Statutory sick pay has made the great bulk of sick pay taxable in the case of short term sickness, replacing much of the previous state benefit scheme.

Maternity pay is already taxable. The statutory maternity pay scheme, incorporating much of the present state maternity allowance scheme, will make that part of what is currently maternity allowance taxable, in line with our general policy.

The case for making such benefits taxable is clear both in logic and equity. I think that it is widely accepted on both sides of the House. The basic proposition is that people who have the same annual income, regardless of whether it is all from earnings or partly from earnings and partly from benefit, should pay the same amount of tax. That is what the proposed scheme, and the taxability of benefits under the proposed scheme, will enable us to achieve in this case in the same way as in a number of other cases.

The details of the new scheme have now been laid out in new clauses tabled to the present Social Security Bill. They will no doubt be the subject of a measure of debate in Standing Committee when we reach new clauses next week. The present resolution paves the way for an important aspect of the proposals, namely the taxability. I commend it to the House.

11.48 pm
Mrs. Margaret Beckett (Derby, South)

The first point that I should like to make is that the Minister said that the proposals had been announced last week. I am not sure on which day the announcement was made, because the press release is not dated, but it was on Thursday that the matter came to my attention. He said that a new clause had been prepared. However, so far as I am aware—and I checked a little earlier this evening—it is not on the amendment paper. We are therefore debating a paving proposal for a proposition that is not before us. Some of my questions might therefore have been unnecessary if the proposal had been before us.

I shall confine my remarks within the context of the proposal to make statutory maternity pay taxable and to the reasons for the order. As it is to be taxable, I should like the Minister to comment on the rate at which it is proposed to be paid. As I understand it, in 1980 the maternity allowance was cut by 5 per cent. in lieu, the Government said, of taxation that was to be brought in subsequently. Will the Minister tell us what would be needed to restore the present payments in real terms by that 5 per cent. so that we may have a degree of comparison between what is proposed and what might otherwise have existed?

I believe that in 1981 strong assurances were given—and the Equal Opportunities Commission has drawn attention to this—by the Government, that the proposed changes would introduce a system of benefit which would reflect 100 per cent. of normal pay. The reason for making it 90 per cent. of normal pay was that an earnings-related supplement to maternity allowance would make up the difference. In the comments on the consultation document, the EOC and other organisations have drawn the Government's attention to the fact that these assurances were explicitly given and repeated, and yet it appears from the proposals that it is still intended that the new scheme should be 90 per cent., not 100 per cent. of normal pay. What will the losses be in keeping the figure at 90 per cent.?

The proposed rate of payment seems to be the one that corresponds to the lowest rate of statutory sick pay and is only some 85p more than the existing payment. That hardly seems to be enough to make up for the fact that the proposed sum will be subject to tax and national insurance.

One point about which I should like clarification—as I cannot carry the figures in my head any longer as they have become rather more complicated—is whether the sum is lower than the normal rate at which national insurance contributions would be charged. Therefore, in a sense, if national insurance contributions are to be charged on that sum, that would be exceptional.

I should also like the Minister to give us more up to date information about the number of losers who are expected and about the amount that the Government expect to save. Under the original scheme, although some 5,000 to 10,000 women were said to be gainers, it was envisaged that some 75,000 to 85,000 would be losers. Has that figure been improved or is it worse? The amount saved has been estimated to be about £34 million to £39 million, and I should like to know the Minister's estimates of the present savings.

The Opposition support the contention of the EOC among others, that if there are savings they should go to improve the level of maternity benefit overall, rather than merely going as savings to the Government. That is especially important because there is still clear evidence that there are likely to be twice as many still-births among the poorest families. There is much more likelihood of early death among the poorest families, and it is therefore essential that there should be adequate provision for those families during pregnancy. In 1984 a hospital survey showed that for diet alone to be adequate—and we recognise that there may be limitations on direct comparisons—the amount needed then was some £13.87. An updated figure on that basis would be about £14.70. That is a substantial chunk out of the money that is intended, in theory at least, to meet all maternity needs.

There are other criticisms of the proposal. As the Minister will be aware, we are deeply worried about mistakes that are known to be made in payments of statutory sick pay and the extent to which people in small firms do not receive maternity pay, even under the present system. Most of those comments might better be made when we have the new clause.

The questions that I have asked arise out of the taxable nature of the proposal, and I would welcome the Minister's response.

11.54 pm
Mr. Newton

I understand that the new clauses have been tabled tonight and will therefore be on tomorrow's Order Paper. I understand that it would have been helpful if the hon. Lady had been able to see them before tonight's debate, I hope that she will understand that we have modified the proposals quite considerably in response to the consultation, especially in trying to bring together the existing maternity pay scheme and the formerly proposed statutory maternity allowance scheme. That has inevitably meant a good deal of work, and it was not possible to table the clauses last week.

We made the statement on Thursday, as the hon. Lady said, and put a copy in the mail for all members of the Standing Committee, as the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) will know, so that they should have as much notice as possible, even without the clauses, of the general lines of our intentions. I hope that that will have been thought sensible and reasonable.

I should like to answer the hon. Lady's questions in fairly broad terms and write to her if I have any of the details wrong. My recollection is that restoration of the 5 per cent. abatement in the rate of the existing maternity allowance introduced in 1980 or 1981 would cost about £8 million and that the amount of money involved in the 90 per cent. versus 100 per cent. of maternity pay, given that current expenditure on maternity pay is about £70 million, must be about £6 or £7 million. If I have inadvertently misled the hon. Lady—the figures are taken from my memory rather than from my brief—I shall write to her.

The hon. Lady mentioned the suggestion that the flat rate of statutory maternity pay would be the same as the current lower rate of statutory sick pay, which is £31.60 per week, and suggested that that was only 85p different from the rate of sickness benefit. The current rate of sickness benefit is £29.15 per week, and the difference is £2.45. If I am inadvertently misleading the hon. Lady, I shall write to her. Perhaps she is comparing the current rate of statutory sick pay with the rate of state sickness benefit and therefore of state maternity allowance, which will come into effect in July.

I have compared the present rate of statutory sick pay, payable from the beginning of this month, with the current rate of maternity allowance, which has been payable since November. There is a good deal of room for confusion as matters change during the year because of the rather silly fact that statutory sick pay upratings take place in April whereas all other social security benefit upratings take place in November. Not least of the advantages of the proposals that we have tabled for aligning the tax and benefit years is the fact that that type of anomaly will be removed and, from 1987, everything will go up in April.

In any event, the hon. Lady's comparison does not tell us very much, whether 85p or £2.45, because it ignores the Government's basic proposition that all of these benefits ought to be taxable in fairness to those who derive the same amount on income over a year in ways which do not include an element of social security benefit. That is the basic fact to which I would cleave in putting forward this proposal.

Anyone with a weekly income of only £31.60 would not pay national insurance contributions as that is more than £6.40 a week below the current lower earnings limit. It is also in the nature of events that a woman receiving statutory maternity pay would not necessarily be receiving any other income from her employer that would bring her within the national insurance net. If by some chance she was—and it would be possible in relation to occupational sick pay—it would rank for national insurance contributions if she was above the lower earnings limit.

From that it follows that anyone receiving the higher rate of what will be statutory maternity pay—the six weeks of earnings-related benefit corresponding to the existing maternity pay scheme—will be likely to attract national insurance contributions in respect of those payments as they are likely to be a significantly above the lower earnings limit.

Our present estimate is that about 94,000 women who would have qualified for maternity allowance under the present rules will not qualify for either SMP or the state maternity allowance in 1987–88. These are almost entirely women who were not working when their pregnancies began. In other words, they are people for whom maternity allowance was never designed. It was designed for those in work at the time in order to enable them to give up work in the interests of their own health and that of their babies. Those considerations clearly do not apply to someone who is not working, even when the pregnancy begins. Part of our worry about the present scheme, and one of our reasons for wishing to change it, is that it is poorly targetted in terms of the basic aims that it was expected to fulfil.

Against that figure—and this picks up the hon. Lady's point about ploughing money back into the scheme—about 20,000 women who do not qualify for the present maternity allowance will be brought in—not necessarily to the statutory maternity pay scheme but to the residual state maternity allowance scheme—by the introduction of the recent work test that we are proposing in respect of residual state maternity allowance.

They will be gainers, as will two groups to which the House will, I think, attach some importance. We shall enable what are known as opted-out married women to receive statutory maternity pay. At present they cannot get state maternity allowance, because by definition they have decided not to pay full-rate national insurance contributions, and that excludes them from short-term benefit.

A smaller group, which I know has the sympathy of the House, will also be brought within the changes that we are proposing. As the House knows, there has been some controversy in recent months about the fact that pregnant widows cannot get maternity allowance because it counts as an overlapping benefit with widows' allowance. We propose to remove that overlapping benefit provision to enable pregnant widows to receive statutory maternity pay. That small but sympathy-demanding group will also be assisted by our proposals.

The financial calculations are somewhat complex—as I am sure the hon. Lady knows from some of the discussions we had last year about the extension of statutory sick pay—because of the way in which various items crop up in different bits of the account. It is estimated that the flat-rate element of statutory maternity pay will account for payments by employers of about £112 million, and that is apart from payments of the earnings-related element equivalent to the present maternity pay scheme. It is also estimated that DHSS expenditure on maternity allowance will be reduced by £124 million.

There will be offsetting expenditure of £19 million on extra sickness benefits and supplementary benefit payments. The hon. Lady will see from those figures that there is a modest increase in the amount paid out. Against that there is the taxation issue. I do not think that the hon. Lady asked about this, but perhaps I should tell her that we expect the tax yield from SMP as a whole will be about £30 million. Of that, about £15 million is, as it were, the equivalent of existing taxation because maternity pay is already taxable. That means that the net increase in tax revenue, the amount corresponding to the introduction of taxation on the maternity allowance part of the maternity pay scheme, is around E 15 million. I hope that that is reasonably clear to the hon. Lady, but if in seeking to respond as willingly as I have to her questions I have in any way issued a misleading statistic I shall see that she receives a correction.

Mrs. Beckett

I shall be able to read the Minister's words in the Official Report, but it would be helpful if he could set out the financial calculations. Although I tried to follow with care the figures he gave, I find it a little hard to see how 94,000 women, or a net figure of 75,000 women, can fail to qualify for benefit altogether, although the Minister argues that there is little in the way of financial savings. I should like him to look at that rather more carefully.

My second point is one that I should have asked the Minister first time round and I forgot. It is not entirely clear to me from the press release, but I have taken it from the way that it reads, that the original intention with the statutory maternity allowance and the separate maternity pay scheme was that one might be deductible from the other. That proposal caused a great deal of anxiety during consultation, but I now assume that it will disappear because the schemes are amalgamated. Am I correct in that assumption?

Mr. Newton

There may be some misunderstanding. It has always been the case that where maternity allowance was payable, maternity pay made up the difference to reach the 90 per cent. total. If that were not done, somebody could get more in maternity pay and maternity allowance than she would be getting by way of normal pay if she were at work. Clearly, that is neither satisfactory nor sensible.

We certainly do not envisage that there should be payment of a flat rate equivalent to the present maternity allowance. To make it clearer, take as an example the £31.60 figure. On top of that there would be a payment of 90 per cent. of normal earnings. During the six weeks there would be 90 per cent. of normal earnings and for those qualified for the 90 per cent. over the six weeks, there would be 12 weeks at the flat rate of £31.60. There would not be six weeks during which both the 90 per cent. and £31.60 were payable together at the same time. That is for the same reason as not paying maternity allowance and maternity pay as separate figures.

Mrs. Beckett

As I recall and as I understood from the documentation that I have available—obviously not as extensive as that available to the Minister—the point being made was that people who were not receiving maternity allowance might nevertheless be deemed to be receiving it and would suffer a loss. A number of people responded to that danger during the consultation process and it is not clear whether or not it has disappeared.

Mr. Newton

The technical restraint on the debate is the taxability of the proposed scheme. The hon. Lady is going into some fairly fine detail, and it might be better if I were to undertake to communicate with her at a later stage rather than to detain the House longer tonight.

Question put and agreed to.

Resolved, That, for the purposes of any Act resulting from the Social Security Bill, it is expedient to authorise the charging to income tax under Schedule E of payments of statutory maternity pay under that Act or, in Northern Ireland, any corresponding provision contained in an Order in Council under the Northern Ireland Act 1974.