HC Deb 13 May 1998 vol 312 cc387-98

Lords amendment: No. 12, in page 6, line 29, leave out ("subsection (3)") and insert ("subsections (3) and (3A)")

The Parliamentary Under-Secretary of State for Social Security (Mr. John Denham)

I beg to move, That this House doth agree with the Lords in the said amendment.

Madam Speaker

With this, it will be convenient to discuss Lords amendments Nos. 13, 72 and 103.

Mr. Denham

Members of the Standing Committee that considered the Bill will recall that I announced on 25 November last year our intention to introduce this measure, but it may be helpful if I explain exactly what it will do.

When a company owes a contributions debt and fails to pay the debt in full, there will be an investigation to see whether the failure to pay the debt is due to the negligent or fraudulent behaviour of any or all of the directors or officers of the company. If it is, the Secretary of State may decide to transfer the debt and any associated penalty to the directors personally.

During discussions in another place, peers of all parties supported the principles behind the measure. The Government are determined to stamp down on the minority of dishonest business people who defraud the national insurance fund of money that funds benefits for their own employees and other benefit claimants and pensioners.

It is clearly essential that a power to transfer large debts to individuals should be accompanied by a robust appeal system. The clause provides for that, and I am pleased to draw the House's attention to the fact that, following discussions in another place, the Government amended the original drafting of the clause to strengthen the appeal arrangements. In particular, the Bill now states clearly that the onus of proving guilt will fall on the Secretary of State. A tribunal considering an appeal will undertake a complete rehearing of the facts.

We intend that the measure will be used primarily, although not exclusively, to catch phoenix-type directors who deliberately and repeatedly fail to pay contributions—and usually PAYE tax—and then put the company into insolvency, having made a personal financial gain.

The measure demonstrates the Government's determination to clamp down on business fraud. It will help small, honest businesses by tackling the unscrupulous minority who cheat both trade creditors and the Government of moneys owed. We cannot tolerate money that belongs in the national insurance fund to pay people's benefits ending up in the pockets of fraudulent directors.

I hope that hon. Members on both sides of the House will fully endorse the amendments. I commend them to the House.

Mr. Letwin

Perhaps I have been asked to speak from the Front Bench on this important matter because the House is so full.

In common with Liberal Democrat Members, we wholly support the aim of trying to do something serious about phoenix companies, although most of the action that needs to be taken against such companies is not in the Bill, but in other measures. We accept that there is an issue to be addressed in respect of contributions, tax and debts to trade creditors and others, and that action needs to be taken to ensure that moneys that are owed are recouped.

However, the Minister took a slight liberty with exactitude when he suggested that, in another place, members of all parties supported what he described as the principles behind the group of amendments. In particular, I refer to amendment No. 72. Lengthy speeches were made by my noble Friends and by Lord Goodhart on behalf of the Liberal Democrats explaining exactly why the principles behind the amendment are repugnant to us and to the deepest principles of British jurisprudence. Today, we intend to establish the principles that we consider to be of the utmost importance to the legislation and generally.

The problem is well illustrated by the remarks by the Under-Secretary of State for Social Security, the hon. Member for Manchester, Withington (Mr. Bradley) who said in respect of the previous group of amendments that the Government's aim—which we accept is an admirable one—was to streamline the process without denying the rights of individuals. Amendment No. 72 does exactly the opposite: it tramples over individual rights.

In the context of phoenix companies, which have caused so much public concern, it is understandable that there should be an urge to legislate effectively. However, it is not right that the House should legislate in a way that ignores the proper rights of individuals, even in addressing a gross abuse.

The most signal phrase in amendment No. 72 is in what would become section 121C(1)(b) of the Social Security Administration Act 1992. It states that, in order for the Secretary of State to take action, it must appear to him that the failure in question is attributable to fraud or neglect". In another place, Lord Goodhart gave an extraordinarily clear and powerful description of the amendment's effects. He said: the amendment is, I believe, plainly incompatible with the European Convention on Human Rights and therefore with the Human Rights Bill". He specifically referred to article 6 of the European convention, which provides: In the determination of his civil rights and obligations…everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law". Lord Goodhart went on accurately to describe the streamlined process, to which the Minister referred, that would be created by amendment No. 72. He asked: What happens under clause 63?"— now clause 64. He continued: First, the Secretary of State, through members of her staff, investigates the reason for the company's failure…Secondly, the Secretary of State, through another member of staff, concludes that the failure has been due to the fraud or neglect of a director". Lord Goodhart did excessive justice to the phrasing in the clause, because the Secretary of State needs to conclude only that it appears that there was fraud or neglect. He said: There is no provision for any kind of hearing before that conclusion is reached. Thirdly, a personal liability notice is served on the director who is found culpable who becomes liable to pay contributions to the Secretary of State. Lord Goodhart summarised the situation poignantly when he said: The Secretary of State is the plaintiff, the prosecutor and the judge. There is no independent and impartial tribunal. Lord Haskel attempted to rebut the remarks made by Lord Goodhart and my noble Friend Lord Higgins, and his remarks have strange echoes for many hon. Members on both sides of the House who attended to what was said when the Child Support Agency was set up and to what has been said on many occasions about administrative practice.

Lord Haskel said: Decisions in these cases will be taken by a specialised unit". How reassuring. How could anything go wrong if a specialised unit is to make the decisions? Lord Haskel said that the unit will have the necessary training and expertise to deal with the issues involved. To within two words, those are the words spoken by another Minister in another place who was explaining why the CSA would be sure to get all its actions right.

Lord Haskel said: I emphasise that these are not entirely new areas of work for the Contributions Agency…Secondly, a decision will be made only after all the relevant facts have been fully investigated. How frequently we find that the vast apparatus of the social security system achieves perfection in ensuring that a decision is made only after all the relevant facts have been fully investigated. Presumably that is why there are no errors in the CSA's activities, why the Benefits Agency has no Members of Parliament submitting cases to it and asking for facts that have not been fully investigated to be examined afresh and why, in short, the system is perfect. Following that grand assurance, Lord Haskel said: I hope that this reassures your Lordships that we will be taking all reasonable steps". The long and short of it is that, in another place, a senior advocate, who is also the Liberal Democrat spokesman, raised a serious question about the compatibility of amendment No. 72 with the European convention on human rights, which the Government are enacting. Lord Haskel, speaking for the Government, replied that we should be reassured that there would be no human rights problem because the decisions would be made by a specialised unit after all the relevant facts were known and the administrators could be relied on to protect human rights. Nobody in this House could possibly accept that as an adequate rebuttal of Lord Goodhart's points, which were echoed by my noble Friend Lord Higgins.

If we look deeper and ask whether a legal explanation of the compatibility of the amendment with the European convention on human rights was given, I fear that we find no greater assurance. Lord Haskel told the other place: So far as concerns the European Convention on Human Rights, we have discussed the matter…and with officials…We are satisfied that the clause meets the Government's obligations".— [Official Report, House of Lords, 23 April 1998; Vol. 588, c. 1277–80.] That was the last thing he had to say on the matter. Despite the fact that there were two meetings outside the other place between representatives of Opposition parties and the Government, and despite the fact that Lord Goodhart made a learned, long and forceful speech about the matters, all the Government did was state that they were satisfied—without answering the logic—that the amendment would be compatible with the European convention and to laud the administrative practices.

4.30 pm

It may be asked—indeed, hon. Members who want to retire for tea or supper probably are asking—why on earth the Opposition should be going on at such length about such a matter. I shall explain. We are dealing with a case of personal liability. Ostensibly, it concerns a civil penalty. Indeed, Madam Speaker—Mr. Deputy Speaker, I do apologise—on various occasions, the Government have made much of the fact that the penalty is a civil one. However, it is a very strange kind of civil penalty.

When a phoenix company or a purportedly phoenix company collapses and fails to pay a contribution that it owes, the director or directors—the amendment allows for an extension to the manager or managers—may be charged an amount that forces that person into bankruptcy and is out of all proportion to the gain that he could conceivably have made from acting on behalf of the phoenix company, unless there was a further fraud of a vast extraction of funds from the company.

There could be cases in which it appears—I stress the term—to the Secretary of State that there has been a fraud or neglect, to which I shall return, in which the director responsible for the neglect, or who appears to the Secretary of State to have been responsible, has benefited from his directorship of the phoenix company to the tune of, shall we say, £20,000 or £30,000, and finds himself faced with a penalty, with compound interest, of £200,000, £300,000 or £400,000. That does not strike me—I very much suspect that it would not strike any hon. Member—as an ordinary civil penalty. It has all the appearance of a criminal penalty.

The crucial constitutional difference, Madam Speaker, between a civil penalty and a criminal penalty, about which we in the House ought to be concerned, is that a criminal penalty is an attempted deterrent. I apologise, Mr. Deputy Speaker. I have not meant to call you Madam Speaker throughout. I had it so firmly fixed in my mind that Madam Speaker, with all her majestic presence, was in the Chair. I shall try to refrain from addressing her hereafter.

The attempt is not one to allow one party in a civil case to recapture a loss from another party. It is an attempt by the state to create a deterrent against an action that the state believes—and we all accept—is a fraud and wrong, if it has been genuinely conducted in such a way.

The Government have, in effect, accepted that the act and penalty are criminal ones; there is no other reason why they should have instituted an appeal process in which, as the amendment specifically states, the burden of proof is on the prosecution. One would not see that in ordinary civil litigation, but, of course, we would in the tradition of British criminal justice. The Government virtually admit—and certainly ought to admit—that this administrative action relates to a criminal or near-criminal penalty for what is effectively a criminal act.

There is a particular problem, because when the Secretary of State takes such a director not to court but to an administrative tribunal that the Secretary of State has set up, he or she is trying to show that tribunal that neglect has occurred. If the neglect is shown to have occurred, the effective criminal penalty can be levied.

That is an extraordinary state of affairs, because neglect is a highly charged and difficult term and concept. Even in the case of an ordinary, honest company, it is difficult to be sure whether what a particular director has done is neglectful or otherwise. However, it would be easy to argue that there was neglect, as long as one was arguing it before a tribunal that was not especially acute in its legal judgments.

I admit that there has been—thank the Lord—a concession, a listening, by the Government.

Mr. Burns

A climbdown.

Mr. Letwin

I would not want to be as aggressive as to describe it in those terms, but the Government have listened to our argument that at least one legally qualified person should be on the tribunal panel. However, I fear that their listening has not been profound, because no provision has been made for all members to be judges or otherwise legally qualified. It could be that two of the three are not legally qualified.

What is going on? The Secretary of State, through an administrative action, is taking to an appeal tribunal constituted by the Secretary of State—a tribunal two of whose members may not have legal training—a person who is liable to be subject to what is, in effect, a criminal penalty, without a jury. The Secretary of State must then persuade the appeal tribunal that that person should be subject to the criminal penalty because he or she is guilty of the highly vexed charge of neglect, on which even a court with a judge and jury might—indeed ought to—find it difficult to decide.

I fear that what we have here is something different from a streamlined process that does not deny the rights of individuals. There is indeed streamlining—that is the admirable side of the case—but it is a streamlining which I fear rides roughshod over deep principles of British jurisprudence.

Miss Julie Kirkbride (Bromsgrove)

I am interested in what my hon. Friend says, but those of us who have not followed the Bill in as much detail as he has would like to know what the position is at present, how directors of phoenix companies are dealt with, what the change is with regard to the Secretary of State's powers, and who sits on the tribunal. My hon. Friend has gone into some detail about those things, but I am afraid that, at the moment, I am still a little uncertain about the precise arrangements.

Mr. Letwin

My hon. Friend asks some important questions, and I can best answer them by referring her to the straightforward and simple amendment that Lord Goodhart suggested in the other place. It shows clearly both what the current position is and how it should be changed. Lord Goodhart simply suggested that the word "appears" should be replaced by the word "is". That would force the matter before a court, which is exactly where it would currently lie, and where it ought to lie.

In the end, a court ought to decide criminal penalties and whether the actions alleged to have occurred did occur. A court should decide whether the person in question is sufficiently culpable to be adjudged to deserve a criminal penalty, if the action itself is adjudged to have occurred.

That is all we are asking for—a little bit of listening on the spot. We did not see much of that in Committee.

Mr. Waterson

A pragmatic approach.

Mr. Letwin

How right my hon. Friend is; a pragmatic approach is all we ask—a slight change of wording, which must already have been considered by Ministers and officials, because it was proposed in another place. That slight change in the wording would have the miraculous effect of rescuing the Bill, which, as was pointed out in Committee, is already deficient in many respects concerning unrestrained regulation, and bringing it into the terrain occupied by the fine traditions of British criminal justice.

The Minister has a golden opportunity to make that slight listening gesture: a small pragmatic concession to good sense. If he does not do that, this or a subsequent Government will have to amend the legislation once they recognise that some individuals' rights are not respected properly because to the structure that the amendment creates.

Mr. Edward Leigh (Gainsborough)

I have some experience in this area, as, in January and February, I was engaged as a barrister in a seven-week fraud trial involving a phoenix company. Therefore, I may have as much recent practical experience in this area as anyone. I shall try to explain some of the difficulties associated with fraud charges concerning phoenix companies, why I think that the speech by my hon. Friend the Member for West Dorset (Mr. Letwin) was so apposite and why the House should pause before embarking on a novel legal procedure.

Fraud trials are immensely complex and difficult to determine. We are not dealing with simple facts concerning shoplifting, bodily harm or the usual nuts and bolts cases that come before the criminal courts. The fraud trial with which I was concerned involved a phoenix company whose directors were charged with setting out deliberately to close the company. There were no fewer than 3,000 separate exhibits in the trial. There were initially three defendants, but one defendant pleaded guilty. The trial lasted for seven weeks and initially involved three Queen's Counsel, three juniors and solicitors. Hon. Members might think that the trial cost a lot of money—and it did. It cost a lot of money because people's freedom was at stake.

At least two of the defendants were people of previous good character: they were upstanding and credible members of society, and the trial was the most important event in their lives. As it happens, they were found guilty—I shall not go into the details of what happened to them. It took seven weeks to determine the matter in a public court, where the case was aired fully, with enormous attention paid to detail.

The Government's proposal is similar to what they are proposing in the Crime and Disorder Bill—I serve on the Committee that is considering that legislation, and I am making similar points there. The Government are short-circuiting our traditional and very careful ways of determining guilt. In the Crime and Disorder Bill, the Government are introducing all sorts of measures, such as anti-social orders, curfews and so on. Ministers argue that they will not criminalise anyone because they will be civil procedures. They claim that cases will be determined on the balance of probabilities—as will occur in this instance, which is even more worrying. At least matters will be brought before the magistrates court under the Crime and Disorder Bill. In this case, the Government apparently propose to establish a private inquiry.

As my hon. Friend the Member for West Dorset explained to the House, a Government Department will effectively initiate the proceedings. It will be the prosecutor of those proceedings, it was initially to be the defendant in the proceedings—perhaps that will not occur now—and it will be the final judge of the proceedings. If it was the 18th century, people would be up in arms about that. They would be extremely concerned that a Government Department could pursue company directors and other upstanding members of society who are engaged in legitimate business. I know from practical experience—I spent eight weeks this year examining the matter in detail as it applied to one company—that it is incredibly difficult to resolve such issues.

The company with which I was concerned was in Barnsley. For years, it had traded successfully as a subcontractor for British Coal, which had increasingly asked small companies to go into the mines on salvage operations. The company was run by a tremendous character—everyone in the industry knew him—but he flew by the seat of his pants and had, before the new directors were brought in, built up enormous debts with Customs and Excise and the Inland Revenue.

When he was told that his company would go under, he brought in an accountant, who was subsequently charged with fraud, and an investor with experience of investing all over the world—he was a considerable business man—who was also subsequently charged with fraud. The charges against them were that they had created a phoenix company—they had closed down the first company, deliberately leaving behind the debts to the Inland Revenue and to Customs and Excise, and set up a new company, which also subsequently closed down.

4.45 pm

During the trial, these matters were extremely difficult to understand. I think that I am of moderate intelligence—although I am not nearly as bright as my hon. Friend the Member for West Dorset—but, for the first three months in which I read the papers and ploughed through the 3,000 separate exhibits, I found the terms of art incredibly difficult to understand. People who engage in fraud are not fools; they cover their tracks. We are not talking about a poor old lady nicking Kellogg's packets at the supermarket.

At the end of the lengthy trial, it was determined that the defendants had been engaged in fraud. However, there were further complications, as British Coal had started to close down the contracts to the company. The second company went into debt, not because of inefficiency, but because British Coal had turned off the tap, as it were—that was, effectively, the company's defence.

Mr. Letwin

My hon. Friend makes a massively learned contribution, which clarifies matters. Does he agree that the measure could create an even worse situation than the one that he is describing, as we could be dealing not with fraud, but with neglect? From his vast experience of these matters, can he cast any light on how difficult it might be for a court, let alone a tribunal, to establish what constituted such neglect—not even undue neglect—as to lead to a director facing a quasi-criminal penalty?

Mr. Leigh

I am glad that my hon. Friend has made that point, as that has worried me for some time. Fraud has to be proven, which is extremely difficult. We hear numerous complaints in the House about lawyers wasting public money, but it is difficult to determine whether someone has set out to commit fraud. However, it is possible to find out; in the case with which I was dealing, the jury found some pointers that showed fraud.

Difficult as it is to prove fraud, how much more difficult is it, as my hon. Friend the Member for West Dorset said, to prove neglect? Is neglect a matter of incompetence or the changing market, for example? If I was conducting a hearing in the rather alarming specialised unit that is proposed, I am not sure how I could prove neglect. We want to hear much more from the Minister about how the specialised hearings will be conducted. I am also worried about the penalties.

One of the defendants in the trial had no equity in the company, but was an accountant who was paid a fee. The jury concluded, rightly or wrongly, that the fee was out of all proportion to the advice that he gave to the second company. There were literally days of evidence about the amount that he charged. As I understand the clause, an accountant who received a relatively low fee could be held liable for massive debts—more than £2 million in the case that I have cited.

We have deliberately created complex company law over generations to try to encourage enterprise and convince directors that, as long as they do not act fraudulently, they have some protection against the vagaries of the marketplace. Many companies went down in the 1980s through no fault of their own. The issue has been blown up because of the few lackadaisical, or perhaps criminal, directors who have allowed companies to go under and then started new ones; but the criminal courts are there to deal with that.

If the Government are convinced that there is a real problem, they must bring those people before a British judge and jury, and prove beyond reasonable doubt that they are guilty, in which case they should go to prison, or be fined, or both. We are about to enter another massive recession. How many companies will go under through no fault of their own? How many directors will wonder whether they will be liable for national insurance contributions and whether some civil servant will sit in judgment on them?

In the case in which I was involved, it was all very easy: we sat in a comfortable court in London, five years after the company had gone under. Do we remember what was happening in the coalfields five years ago? Debates were raging in the House and miners were losing their livelihoods. The directors' defence was that they were fighting to save the company.

The first defendant had put his whole life into the coal industry, but the company went down. The jury found that he must have known what was happening, and that although he might have been trying to save the company—which was in trouble, perhaps because of investment problems—he deliberately took the decision that the only way in which to save the business that he loved—he employed 150 people—was to close down the first company and leave the debts behind.

Was that defendant fraudulent, negligent or dishonest? All those issues were being determined five years later. What will happen to company directors in future? At least now they have the comfort of knowing, as they struggle with the difficulties of the marketplace, that the company may go down, but that they will not be dragged before a court and have their names besmirched in mud unless they have acted fraudulently. If they have not lied and cheated, they can rely on traditional British justice.

Company directors may be dragged to some secretive tribunal run by the Government, and forced to cough up tens of thousands of pounds and to lose the homes in which their wives and families live. They will have no traditional rights, no jury and perhaps no proper legal aid to help them to deal with the thousands of pieces of paper: if anybody thinks that modern companies are easy to investigate, they are deluding themselves.

Mr. Letwin

My hon. Friend raises another point, to which I did not refer earlier as I wished to bring my remarks, which were perhaps overlong, to a conclusion. Does my hon. Friend agree that the amendment makes it by no means clear, even in conjunction with the schedules, that the directors in question will be able to have proper legal representation at the tribunal?

Mr. Leigh

If that is so, I am absolutely horrified. If the Government tell those companies, which will undoubtedly go under in the next 18 months or two years, that they will be brought before the tribunal with no right to legal aid, that is frightening. It is simply not right. I therefore hope that my hon. Friend will press the Government on this matter. Given the complexity of the issue, it is impossible for people to defend themselves.

I think that I have made my point and need not weary the House further. I hope that I have shared with the House my practical experience of dealing with the issue this year, and have convinced some hon. Members of the practical difficulties. I am prepared to accept that the Government are being entirely honourable, are rightly concerned about the curse of phoenix companies, and want to do something about it. We have been dealing with the same problem in the Crime and Disorder Bill. However, one cannot identify a social or moral ill in society and simply dispense with hundreds of years of traditional civil liberties and legal remedies. A short cut cannot resolve that issue, because that may cause more injustices and problems in the future. I therefore beg the Government to think again on this issue.

Mr. Denham

A number of important points have been made in this discussion. I recognise the support for action against phoenix directors. Companies that go insolvent with unpaid national insurance debts cost about £150 million a year, of which about £50 million is because of phoenix directors.

The hon. Member for Gainsborough (Mr. Leigh) spoke at some length. His impact on me may have been similar to the impact that he had on the jury in the case to which he referred, although he did not say which side of the case he was on.

I recognise the concerns that have been raised about the European convention on human rights, but we are satisfied that the Bill meets our obligations under that convention.

Mr. Letwin

I apologise to the Minister for intervening so early in his remarks, but he has repeated almost verbatim the words of his noble Friend the Baroness Hollis of Heigham, and has not exposed the logic. Can he now tell us exactly on what basis the Government are satisfied that the Bill is coherent with the European convention?

Mr. Denham

Hon. Members will have to make their judgment on this matter. Clearly, we seek advice on these issues, and Ministers must make a judgment on the right position. It is not unusual for officials to take decisions on behalf of the Secretary of State. The clause provides for cast-iron appeal rights where the onus of proof is on the Secretary of State. I shall return to that important point. As has been recognised, changes were made in the original proposals on those appeal rights, and those are now reflected in the amendments.

I reiterate that there is a further appeal right on whether the debt was originally due from the company. The personal liability notice will now stipulate not only the total unpaid debt and the amount being transferred to the individual concerned, but the proportion of the debt for which the recipient is held liable, to enable him to check the calculations used and show exactly what degree of culpability has been found to fall on him. Another important point is that it has been made explicit in the Bill that the onus of proof in any appeal under the provision falls on the Secretary of State rather than on the appellant.

That is an important point because it has been suggested that matters such as negligence are difficult to prove. That is why it is important to state in the Bill that the onus will be on the Secretary of State to establish that case.

Mr. Leigh

Will the Secretary of State have to prove those matters beyond reasonable doubt? Will the burden of proof be the same as in a criminal trial, or will it be on the balance of probabilities, as in a civil trial? I suspect the latter.

5 pm

Mr. Denham

The balance of proof will be on the balance of probability at the tribunal, but it is worth making the point that the measure is a companion to the introduction of the offence of fraudulent evasion.

When the Contributions Agency identifies a director who is hiding behind the shield of limited liability and deliberately withholding the national insurance contributions deducted from his employees' wages, it will be able to choose the better course between transferring the debt and penalty to recover the money from the guilty person's assets, and taking a criminal prosecution, which could send the rogue or accomplices, such as a crooked accountant, to prison for up to seven years. Different alternatives would be available to the agency, depending on the situation it uncovered.

Mr. Letwin

I am grateful to the Minister who, with characteristic courtesy, has given way again. First, his answer to my hon. Friend the Member for Gainsborough (Mr. Leigh), so far as it was a clear answer—in part, it was—was very disturbing, and coherent with what I understand from the amendment.

Secondly, why should we believe that it would ever be the intention of the Secretary of State to use the criminal law to establish a fraud or a similar offence if he had open to him the avenue of establishing before a tribunal—two of its members would not be lawyers, and a lawyer for the defence may not be present—that neglect had occurred on the balance of probability?

Mr. Denham

I heard the points made by the hon. Gentleman in his opening remarks, but I do not accept his case. He claimed that a tribunal was the same as a criminal penalty. If a crime was committed and a prosecution taken, a person could be sent to prison for up to seven years. In serious cases, the appropriate action would be to attempt to ensure that such a serious penalty was imposed under the criminal law. The hon. Gentleman would agree that imprisonment for up to seven years would be a greater penalty than any charge levied as a result of the measures.

On the procedure, I make it clear that people would be able to bring legal representation to the appeal hearings. The Bill does not affect the legal aid provisions, which are properly dealt with elsewhere. We have guaranteed full protection, under an enhanced and suitably qualified and independent appeal system. There are clear precedents for the measures, notably section 61 of the Value Added Tax Act 1994, which places the burden of proof explicitly on commissioners of Customs and Excise when VAT penalties are transferred to directors of companies.

Serious and determined action is required where a director has neglected to carry out duties in respect of national insurance. Directors must understand that there is a clear obligation to deduct and pay over contributions.

Mr. Leigh

The Minister is dealing with the problem of neglect, but I press him further on what he means. Are we discussing neglect in the general management of a company or in contributing national insurance contributions? I am sorry to weary the House, but in my experience, there is often extensive correspondence between Customs and Excise and directors concerning back payments of national insurance contributions. Customs and Excise and the Revenue authorities often deliberately decide not to over-press a company for payment, because that would close it down and kill the goose that may lay the golden egg. How would the specialised unit prove neglect, and would neglect relate only to payments or to the general conduct of a company?

Mr. Denham

The matters in the Bill clearly relate to national insurance matters.

Lords amendment agreed to.

Lords amendments Nos. 13 and 14 agreed to.

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