HC Deb 06 January 2004 vol 416 cc190-222

Order for Second Reading read.

2.11 pm
The Paymaster General (Dawn Primarolo)

I beg to move, That the Bill be now read a Second time.

The Bill is a modest measure, which continues the work undertaken with employers on reducing paperwork and record keeping that is considered unnecessary. It is a technical Bill, and I do not intend to pore over the detail of each and every clause this afternoon—as I am sure hon. Members are greatly relieved to hear—because that pleasure awaits in Committee. Rather, I intend to give the House an overview of the reasons for the changes that are being made and of what the Bill will do.

In 1997, the Government considered the way in which the tax and national insurance systems operated. Income tax under PAYE—pay as you earn—and class 1 national insurance contributions are paid largely by the same group of people. They are both collected in the same way—by payroll deductions administered by employers. That creates duplication of administrative effort. Both employers and ordinary taxpayers were required to deal with two different organisations in relation to their tax and national insurance affairs. That was especially the case for employers who were visited regularly by both the Inland Revenue and the Contributions Agency to check on their operation of PAYE and contributions. Therefore, my right hon. Friend the Chancellor of the Exchequer announced at the time of his March 1998 Budget that the Contributions Agency and the Inland Revenue would be merged. He said: Employers and employees will…benefit from…the establishment of a single organisation to deal with both income tax and national insurance. At the time, that move was widely welcomed by business and by Members on both sides of the House.

The merger was implemented by the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and, again, Members on both sides of the House supported it. However, as my noble Friend Baroness Hollis made clear during the debates on the Bill in the other place, it did no more than provide for a technical transfer of functions—of the Contributions Agency"— which was then in the Department for Social Security— to the Inland Revenue and of policy responsibility for collecting national insurance contributions to the Inland Revenue and Treasury. She continued: Over time these transfers will reduce the burdens on business and take a first step towards removing the technical differences between tax and NICs rules that employers fear will trip them up."—[Official Report, House of Lords, 10 December 1998; Vol. 595, c. 1038.] In the four years since that transfer, we have done a great deal of work towards that aim. Officials in the Inland Revenue regularly meet employers' representatives to discuss the issues that concern them and to see whether they can find ways to put them right.

A lot has been achieved since 1997. We have made significant steps towards simplifying national insurance contributions. We have abolished the entry fee. Before 1999, when people reached the lower limit for starting to pay national insurance, it was calculated as a percentage of all their income. We restructured it to ensure that only the amount of earnings above the lower limit was liable to national insurance. We have aligned the primary and secondary thresholds with the income tax thresholds so that tax and national insurance both start at the same time. We have radically simplified the number of rates of employers' national insurance by reducing them to one. We have made significant changes to the way in which the Inland Revenue is organised so that tax and national insurance matters can be administered together. For example, the Revenue now operates joint employer compliance reviews covering tax and national insurance, and has introduced some new teams for the joint handling of expatriates' tax and national insurance affairs.

In some areas, however, the administrative alignments that we want to make require changes in primary legislation. The Bill includes those measures.

Rob Marris (Wolverhampton, South-West) (Lab)

My right hon. Friend mentions the simplification that has already taken place without the need for legislation such as the Bill. Has she any idea of how much money has been saved for business through that simplification?

Dawn Primarolo

I do not have those figures to hand, but they would have been included in the regulatory impact assessments as the changes were made. I am happy to look into that and to ensure that my hon. Friend receives a detailed answer. I hope that I will have the opportunity to respond at the end of the debate.

Mr. John McFall (Dumbarton)(Lab/Co-op)

My right hon. Friend will be aware that administrative simplification is extremely important to business: indeed, the Select Committee on the Treasury has received several submissions on that issue. She mentioned the joint committee that is working with business representatives. Can she give us a flavour of the comments that they are making, as that would be helpful to my Committee's future inquiries?

Dawn Primarolo

In going through each part of the Bill, I am responding directly to observations that have been made. Indeed, draft clauses were circulated to interested parties to check with them that the proposals in the Bill met the requirements that they identified. As my hon. Friend will be aware, some people would like a complete alignment of tax and national insurance. But that involves significant difficulties: first, the national insurance system flags entitlement to benefit; and, secondly, the increased requirements that would be placed on employers to provide the detailed information that we would require in order still to be able to judge on individuals' benefit entitlement were greater than those of the current system. To assist employers, the Government are trying to ensure that, wherever possible, the national insurance system runs in the same way as the tax system as regards inspection, appeals, payments, recovery or—as is touched on in the Bill— share schemes. Perhaps I shall deal with my hon. Friend's points as I cover each clause; if not, I am happy to return to them at the end of the debate.

Mr. Mark Prisk (Hertford and Stortford) (Con)

Is the Paymaster General ruling out any further alignment of the various systems?

Dawn Primarolo

I am not ruling out further alignment. It is sensible to proceed by recognising the principles of the national insurance system in terms of flagging entitlement for the individual, and the responsibility of the employer and the employee to make their contributions. However, we are continuing our consultation exercises and discussions with the teams—they are not limited by a time period, and are an ongoing central function that is now required—and if any further clear improvements can be developed, the Government will certainly consider them. I cannot say that there are any obvious ones that we would want to introduce now, but I would not like to mislead the hon. Gentleman. As businesses and officials continue to hold discussions on the day-to-day operation of the system, it is impossible to say that no other changes will ever be requested. The door is not closed, but I am not aware of having omitted anything from the Bill that would be required in this regard. Of course, certain points have been made in those discussions, and I am sure that they will be the subject of more detailed debate in Committee. At each point the Government have had to make decisions on how the system operates, and I would be happy to tell the hon. Gentleman exactly why we have made those decisions.

The Bill aligns officers' powers to obtain information when investigating national insurance contributions with their powers in relation to tax. This relates to the point made by my hon. Friend the Member for Dumbarton (Mr. McFall). It will bring clarity for employers and introduce a consistent approach by Inland Revenue officers. Opposition Members specifically sought this move when the transfer of national insurance to the Inland Revenue was originally debated. At that time, it was recognised that differences existed between the then contribution agencies and the Inland Revenue's inspection powers. The Government felt, however, that a thorough review was needed to determine whether those differences were justified, and, if not, what type of alignment was necessary.

We have undertaken such a review and concluded that the old national insurance powers needed to he replaced by those most commonly used for tax and other aspects of the Revenue's business. This does not amount to an extension of the Inland Revenue's powers; in fact, the reverse is the case. The Bill provides for the Inland Revenue to abandon the powers of entry and examination that it has for national insurance purposes. It does not have such powers in relation to tax matters, and it is inconsistent that it should have them for national insurance.

We therefore propose to replace the Revenue's current power to obtain information for national insurance purposes with a power that ensures that, when the Revenue asks for information, the request is subject to third-party scrutiny to ensure that it is reasonable. We consulted employers' representatives on these changes and they supported them. In particular, the Chartered Institute of Taxation has welcomed the intention behind this legislation, as has the TUC.

Norman Lamb (North Norfolk) (LD)

Will the Paymaster General explain a little further how the third-party scrutiny will work?

Dawn Primarolo

In judging whether it is making a reasonable request, the Inland Revenue will need to consider and refer to a commissioner. We are aligning all the processes and appeals processes in one common system, rather than keeping the two separate systems that we currently have. I am sure that the hon. Gentleman appreciates that it is much better for employers to operate one set of rules across both tax and national insurance, and to deal with only one organisation in doing so. Because of the way in which national insurance is dealt with in legislation, that cannot be achieved in a finance Bill; it requires a national insurance Bill. That is the reason for our discussing this Bill today. Perhaps I can elaborate on this matter in my next point on debt recovery, to demonstrate to the hon. Gentleman what I mean.

Mark Tami (Alyn and Deeside) (Lab)

Will my right hon. Friend tell us how long an average case would take, using this process, and how that compares with the present system?

Dawn Primarolo

Perhaps I can respond by giving an example that relates to debt recovery. If I explain what the powers are at the moment and how they will change, my hon. Friend will be able to see that they are proportionate. I was concerned to ensure that we were not using a sledgehammer to crack a nut, and that we were not introducing a huge amount of procedure to deal with a small issue. For example, the debt incurred in relation to class 2 national insurance contributions over a year is about £100. In my view, it would be disproportionate to operate a system separate from the tax system to recover such an amount. The Bill is therefore pushing together all the debt into one process, and operating at a de minimis level, as outlined in the legislation. How long the process will take once the minimum level that triggers the recovery has been reached depends on the employer's response. If they accepted the liability and paid it, it would take a matter of days from the requirement to pay. If they did not, and the case went to the appeals procedure, it could take slightly longer. Perhaps I could provide examples when I explain the next clause.

The main alignment measure deals with the way in which the Inland Revenue recovers debt. The vast majority—about 97 per cent.—of national insurance contributions are collected with tax, and since 1975, any debt has been recovered under tax rules. The Bill aligns the debt recovery rules for the remaining 3 per cent. of national insurance contributions with the tax rules. Until now, national insurance contributions payable by the self-employed—mainly the £2 a week flat-rate class 2 contributions—have been recovered under different rules, which can be rather lengthy and unclear. This means that a person owing both tax and class 2 national insurance contributions could face two separate actions. The Bill puts that right by aligning the periods of notice required for distraint action in England and Wales, and for the application of a summary warrant in Scotland, with those that apply to tax debts. It also aligns the procedure that applies to Northern Ireland with that of England and Wales.

These changes are essentially a tidying-up exercise that will allow the Revenue to operate more effectively. While debt recovery might not always be a pleasant experience for the person from whom the debt is being recovered, it is obviously important that it should be a straightforward, single, swift action across all the areas in which debt is outstanding to the Inland Revenue.

Mr. Prisk

The Paymaster General rightly says that the need to align the procedures is important, and that is welcome in principle. However, does she accept that reducing the notice period from 30 days to seven, in some cases, represents a diminution and a significant change, and that those affected need to be made aware of it? Some people who are used to the old rules could find themselves getting caught out. Can she assure the House that proper notification will be made prior to the implementation of this measure, so that those who could be caught out will be properly informed?

Dawn Primarolo

The hon. Gentleman makes an important point. Of course, informing the individuals concerned of the change in period to seven days will be important, and that will be done. Often, when a debt is outstanding for national insurance contributions, a tax debt is also outstanding, and the tax debt is within seven days. Therefore, such a move, although it appears to be a change from seven to 30 days, actually puts all the arrangements within one procedure, with which individuals and companies are already familiar because it is the procedure that applies to tax. I am sure that he has also read, because he is assiduous in his preparation for Bills, that when the Lord Chancellor's Department conducted an extensive consultation on the question of periods of notice and best practice, seven days was the recommended notice period. Of course, the position in Scotland is slightly different, because we are following the legislation in Scotland. It is an important point, however, that we may wish to investigate in a little more detail in Committee.

The other change in this area is a new regulation-making power that will allow the Inland Revenue to apply tax legislation to the recovery of this type of national insurance contributions debt in future, without having to introduce consequential primary legislation. Basically, that means that the rules covering tax and taxes Acts will still be subject to scrutiny, but the two sets of rules will be kept aligned so that we do not need to keep returning to the House to make primary legislation.

As hon. Members will be aware, most national insurance contributions are outside the scope of the annual Finance Bill. The power that we intend to introduce in the Bill is similar to that which applies to the other 97 per cent. of national insurance contributions. It is therefore important to understand the scale. The fact that we require primary legislation is related to the structure of national insurance. The purpose is to enable us to keep the tax and national insurance rules in alignment in future. Otherwise, as I said, we would constantly need to find space in parliamentary time for small technical Bills, when the principle on tax had already been dealt with in the House. Clearly, if we can assist the House in that way, that will be a desirable outcome.

I want to turn to the important issue of employers' national insurance obligation on securities-based earnings. An alignment of administrative rules for tax and national insurance is important, but we are also mindful of those areas in which, because of the structural differences between tax and national insurance, alignment is not the answer. Instead, we need to make sure that we enable individuals and employers to meet their obligations in relation to national insurance contributions in a way that is fair and straightforward.

We received representations saying that employers were facing difficulties because of the rules on paying national insurance contributions when earnings were paid in the form of shares or other securities. The majority of securities-based earnings are share based. The Government and, I think, all Members, are keen to encourage employees to have a stake in the company for which they work through share ownership. It is a good incentive, and it is good for employees' motivation and therefore for productivity. The awarding of shares recognises employees' work within the company and enables them to share in their firm's success. We therefore encourage the payment of share-based earnings by employers. Because of that, and because of the representations that we received, we have included in the Bill two measures that will offer employers choices in the way that they meet their national insurance contributions obligations when they make payments of earnings in the form of securities. We believe that those will make a positive contribution to help employers who want to reward employees through share-based earnings.

I now want to turn to the question of recovery of primary national insurance contributions. First, the Bill extends employers' liability to cover primary national insurance contributions paid on behalf of their employees and ex-employees when the earnings have been in the form of securities. That means that both employers and employees will be able to choose how those obligations are met, and ensures that employers are not forced to carry the charge themselves. Secondly, it addresses a problem faced by employers who pay earnings in the form of restricted or convertible securities. The timing and the amount of employers' national insurance contributions on those securities are unpredictable, which gives rise to large accounting difficulties for employers. The Bill will allow an employer to ask an employee to fund the employer's secondary national insurance liability on post-acquisition earnings received from restricted and convertible securities. In doing so, however, the Bill will not introduce a new facility but will extend the scope of a facility introduced in 2000 that allowed that transfer of liability on unpredictable share option gain. That facility has been well received and applications for its use have been received from more than 1,800 employers. We believe that the extended facility introduced in this Bill will also be widely used.

Norman Lamb

In a sense, the Paymaster-General has answered my question. I understand entirely how the present restrictions might act as a disincentive to employers to offer the kind of securities that are dealt with in the Bill. Does any evidence exist, however, that trends in the offers of such securities-based remuneration by employers are being held back, as suggested by the representations?

Dawn Primarolo

We accepted the representations made by employers that circumstances existed in which they did not feel able to offer securities or share options, on the basis that they were not properly protected in terms of the unpredictability of such options. Clearly, it is difficult to quantify how many share options would have been given, but given that we received those representations during the consultation on simplifying national insurance and tax administration—to which my hon. Friend the Member for Dumbarton (Mr. McFall) referred—and given the evidence in them, we believe that this is the correct way forward.

In making provision for this arrangement, however, we have been careful to ensure that the central principle within the national insurance contribution system—that employers and employees have a liability, and that employers cannot transfer unreasonably liability to employees or put pressure on employees in relation to the transfer of that liability—is protected in the way that we have approached the Bill. Clearly, that is a difficult line to walk, and we have tried to ensure at all costs that the principle is maintained and that employees do not come under pressure in circumstances where share-based options, or the offer of them, would not be a sensible way forward.

Rob Marris

Paragraph 13 of the explanatory notes says: Clause 1…and supporting secondary legislation will extend the ability of the employer to recover contributions in two ways". and goes on to delineate them. I accept that that is in the explanatory notes rather than the Bill, but I am slightly confused by the statement that both methods of recovery require the written consent of the employee". If the employee's written consent is required, why is primary legislation necessary to deal with what could be simply a written contractual matter between employer and employee?

Dawn Primarolo

An employer's national insurance contribution could be transferred only in the narrow case of share options. The rest of the system protects the principle that employers pay. As I told the hon. Member for North Norfolk (Norman Lamb), the written consent of employees was considered necessary to ensure that they fully understood their obligations in accepting share options. We do not intend employees to be put under undue pressure in the transfer of earnings-based remuneration that would escape employers' NI contributions.

I am sure my hon. Friend agrees that, while we should try to facilitate the share options that all Members want to encourage, it is incumbent on us to ensure that there is no breach of the basic principles of the NI contributions system.

Rob Marris rose—

Dawn Primarolo

I must bear in mind that when my hon. Friend is present I should pay a little more attention to my own explanatory notes.

Rob Marris

I thank the Paymaster General for her generosity in giving way again. Will she clarify a point for me? I may well not have interpreted it correctly, for, as she will appreciate, it is very technical. Will she confirm that if a written agreement is made between employer and employee transferring liability for the employer's contributions on security options to the employee, and if the employee does not meet the cost of that transferred liability, the Treasury will not seek to recover it from the employer?

Dawn Primarolo

My hon. Friend is right: this is complicated. I believe he was a member of the Standing Committee that considered what became the Finance Act 2003, which engaged in extensive discussion of the new schedules on share ownership and the complexities of the requirements involved. That legislation arose from the unpredictable gains resulting from share ownership. The Government want to ensure that when a gain accrues to an individual and is realised, either the employer or the employee meets the NI liability. In these circumstances, the employee would have accepted liability, and the amount would be paid when a gain had been realised, as long as it was within the range required for NI to be triggered. I hope my hon. Friend is satisfied with that answer.

Let me now deal with a slightly easier, more straightforward part of the Bill. The final clauses deal with statutory sick pay and statutory maternity pay. The Bill makes important reforms to the way in which the Inland Revenue oversees SSP and SMP schemes, to protect the rights of sick people and new mothers. Responsibility for their operation was transferred to the Revenue at the same time as the transfer of responsibility for NI contributions. The compliance regime was transferred from the then Department of Social Security unchanged. Failures to comply with SSP and SMP obligations are currently dealt with as a series of minor criminal offences, as is benefit fraud. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) mentioned the consultation document that we issued to businesses on the simplification of tax and national insurance; this is one of the matters mentioned in that document.

Treating non-compliance as a criminal offence is clearly out of step with the Revenue's practice of imposing civil penalties for compliance failures, and is disproportionate to the nature of the failures involved. The Bill aligns SSP and SMP regimes with the regime governing other parts of the Revenue's business. The arrangement introduced by the Bill is identical to that introduced for statutory paternity and adoption pay by the Employment Act 2002. Our proposed system of civil penalties is proportionate to the failures to which it applies, and will be easier to implement.

It is important for an effective compliance regime to operate. The vast majority of employers comply with their obligations voluntarily, and we are grateful for that, but we should bear it in mind that a small minority seek to avoid those obligations, either deliberately or through inaction. That is unfair to employees and to other employers. The Bill will protect employees' rights and also provide a level playing field for all employers. We are also introducing regulation-making powers enabling employers' SSP and SMP records to be inspected on the same basis as their payroll records.

All the issues I have mentioned were identified by business when the Inland Revenue actively sought, through its consultation exercise, to simplify the operation of national insurance in particular—to align its procedures with tax procedures and to remove the burdens of unnecessary record-keeping and unnecessary repeated inspections of the same material by different teams.

As I have said, this could be politely described as a technical Bill, but it is also a crucial enabling Bill. I assure Members that these changes are important to employers who administer and pay national insurance on behalf of their employees, to employees who become ill or have children and need the protection that the state affords through SSP and SMP, and to the tax and national insurance payers—all of us, essentially—who fund the administration of the NI system. We want to ensure that the system is as efficient as possible, that it is fair and that the requirements it places on both employees and employers to give the necessary information to the tax authorities are proportionate. On that basis, I commend the Bill to the House.

2.49 pm
Mr. Mark Prisk (Hertford and Stortford) (Con)

I thank the Paymaster General for her thorough opening remarks. I apologise in advance for my throat. I think it was the Chief Secretary to the Treasury who described me as sounding rather like Edgar Lustgarten. I think that today I sound more like Gollum. I apologise if there is a creak and a crack halfway through—we shall see.

The Bill has two distinct aspects. The first part seeks to change how employers administer national insurance contributions for, as the Paymaster General said, securities or share-based earnings. That change is a direct result of the ill-considered decision by the Chancellor to impose an additional 1 per cent. on employees' contributions over the upper earnings limit.

The second part, as the Paymaster General mentioned, is intended to align the administration of both statutory sickness and maternity payments, as well as national insurance contributions. Those changes seek, in her own words, to tidy up previous, incomplete legislation and, according to much outside expert opinion, should have been enacted some years ago.

Both parts of the Bill, therefore, arise from past errors and oversights by the Government. If, as such, it is both an admission of those failings and an attempt to correct them, it would be churlish not to welcome it. Despite that, we intend to ensure thorough scrutiny of the Bill throughout its progress. However, our ability to fulfil that parliamentary role will be hampered by the fact that significant parts of the Bill will be published in secondary legislation, at a later date. This Government, perhaps more than most, have an unhealthy habit of pushing through substantial legal change by the abuse of secondary legislation. That means that we, as a House, rarely get the opportunity to see the proposed legislation in its finished form. There always seems to be a key part missing.

In that sense, law-making under Labour has become a bit like buying cheap self-assembly furniture: you do not know whether you have all the pieces, you are not quire sure what the instructions are telling you and you cannot be absolutely certain that it will all fit together.

Rob Marris

It sounds like the Tory party.

Mr. Prisk

It sounds very much like the Labour party.

The danger is that, unlike the results of a visit to MFI, we cannot take Labour's bad laws back if we do not like the end result. Therefore, can the Paymaster General explain the scope of the secondary legislation? Which parts of the Bill will it refer to? How will it affect both taxpayers and national insurance payers? What consultation with those affected is she planning? When does she expect it to be published?

I turn to the specific elements in the Bill. Clauses 5 and 6 seek to align the respective administration of income tax and national insurance. As such, while welcome, that part of the Bill is long overdue. As the Paymaster General mentioned, that part follows the 1998 Budget and the accompanying Taylor report, when the Government denounced the dual systems of income tax and national insurance. Ministers cited those as being unduly onerous for the 1 million or so employers who had to run them simultaneously. Indeed, the then Secretary of State for Social Security, the right hon. Member for Edinburgh, Central (Mr. Darling), told the House that they have to cope with two separate sets of rules. Moreover, if they have questions, they have to deal with two separate Departments. Those starting out on their own—perhaps starting up their own business or in other self-employment—also have to deal with separate Departments on tax and on national insurance. I therefore believe that the case for change is overwhelming."—[Official Report, 8 February 1999; Vol. 325, c. 37.] Nearly five years later, the job is still not complete. Indeed, the Institute of Chartered Accountants in England and Wales bemoaned the Government's failure to act after even three years. In a statement, the tax faculty of the institute said that the stated merger benefits had not been achieved and that performance of the merged national insurance contribution office had in that time deteriorated. The faculty went on to highlight a string of problems. The claim forms had become more, not less, complicated. Employers would ring a dedicated helpline, only to get no reply; and if they did get a reply, they found that many expert personnel had left the service and they could not get the advice that they needed.

Peter Bickley, technical manager of the institute, said at the time that the handling of national insurance contribution matters appeared if anything to be getting worse, with a knock-on effect on the burdens placed on business and those who paid national insurance contributions. He said that it was essential that steps were taken to ensure that the merger achieved its objectives and reduced burdens; otherwise, there was a danger that the merger would fail to deliver the promised benefits. That was in 2002. Since then, of course, similar incompetence has emerged in the dismal handling of the new tax credits, for which the Paymaster General is also responsible. Therefore, can she tell the House whether performance standards are better now than they were before the merger, as was promised by the Chancellor? Has the burden of compliance gone up or down since then? Can she explain why it has taken another two years, following the statement by the institute, to bring these measures before us today? Was the delay a huge mistake or—worse—deliberate?

Some people will say that this part of the Bill applies to just 4 per cent. of the national insurance fund. That is true but for tens of thousands of self-employed people it represents 100 per cent. of their contributions. In other words, for many people the five-year failure to clear up the rules is a real financial headache.

I appreciate, perhaps more than most, that the Paymaster General is no friend of the self-employed. After all, it was she who imposed crude and ill-judged measures such as IR35 and the recent reinterpretation of section 660A of the Income and Corporation Taxes Act 1988. Indeed, we are told that she is now planning to clamp down on thousands—who knows, millions—more owner-managed businesses under paragraph 5.91 of the pre-Budget report, yet, just like the five-year delay on national insurance, there is to be no consultation, and no information to enable firms to plan ahead. Why will she not listen to small businesses on that matter?

This Government, and this Minister in particular, treat the self-employed as second-class citizens. It is a woeful record, based largely on ignorance, and her actions show the Chancellor's words on enterprise to be just empty rhetoric.

I turn to clauses 1 to 4 relating to securities or share-based earnings. That part of the Bill is a direct consequence of the Chancellor's decision to impose an additional 1 per cent. national insurance charge on employees' earnings over the upper earnings limit. There were many things wrong with the Chancellor's decision to hike up national insurance last spring. It will, for example, act as a serious drag on the competitiveness of our economy, as it is in effect a tax on jobs.

Dawn Primarolo

I should like to give the hon. Gentleman an opportunity to correct himself. The changes on share-based provisions in the Bill have absolutely nothing—zero—to do with the 1 per cent. and everything to do with representations made to the Government by employers about the options they required in order to simplify the operation, a point that his Government, in 18 years, never addressed.

Mr. Prisk

The Paymaster General admitted that she had not quite read her explanatory notes when she replied to an intervention from the hon. Member for Wolverhampton, South-West (Rob Marris). It is her own explanatory notes that highlight the fact that we have a 1 per cent. surcharge on earnings over the upper earnings limit and that is what has triggered this decision, so she cannot try to get out of it that easily.

Mr. David Ruffley (Bury St. Edmunds) (Con)

Just for the record and in support of my hon. Friend, the Paymaster General might like to turn to page 11 of the Inland Revenue's regulatory impact assessment. Paragraph 2 states: The introduction of the 1 per cent. NICS charge on employees' primary NICS liability above the upper earnings limit could have an unintended impact on employers' ability to recover from an employee the primary NICS arising on non-cash payments of earnings", proving my hon. Friend's point absolutely 100 per cent.

Mr. Prisk

Naturally, I am grateful to my hon. Friend, not least for reinforcing the point being made. It is no good the Paymaster General's saying, "It is nothing to do with us," when the Government's own documents show that this is a consequence—unintended, but a consequence nevertheless—of such action.

Dawn Primarolo

Unfortunately, the hon. Gentleman has misunderstood. I do not dispute what the hon. Member for Bury St. Edmunds (Mr. Ruffley) said, but the point was that this was an issue regardless of whether or not there was a 1 per cent. additional liability. The provision was triggered not by the 1 per cent., but by a previous consideration.

If the hon. Member for Hertford and Stortford (Mr. Prisk) wants to make a point about the additional 1 per cent., he is of course entitled to do so. But he should be very careful not to mislead the House; otherwise, he will need to explain whether he believes that, before the 1 per cent. was added, there was no problem and no simplification of NICs was necessary. Does he believe that—yes or no?

Mr. Prisk

The phrase, "unintended consequence" means something that is a result of someone else's actions. That is what the Paymaster General's own documents say, and that is the truth of the matter.

Rob Marris

I caution the hon. Gentleman against selectively quoting, be it consciously or unconsciously, from the explanatory notes. Paragraph 12 says: Most employees who receive security-based remuneration earned above the upper earnings limit, which is £30,000. We should note the reference to "most" employees, not all. There are companies that have share-based options for people who earn considerably less. This legislation will deal with the difficulties that those lower-earning employees would experience. The hon. Gentleman should take note of the use of the word "most".

Mr. Prisk

Unfortunately, the hon. Gentleman is reading the wrong document. I do not know whether he has had a chance to read the regulatory impact assessment, but that is the document that we are referring to, and it uses the phrase "unintended consequence". That is the line that the Government have put out. We have quoted it, and I am more than happy to do so again. [Interruption.] Well, it is in the Government's own document; if it is untrue, perhaps the Paymaster General will now correct it.

Mr. Peter Atkinson (Hexham) (Con)

If the hon. Member for Wolverhampton, South-West (Rob Marris) had continued to quote from the explanatory memorandum, he would have discovered that it does indeed mention the 1 per cent. figure. It states: Most employees who receive security-based remuneration earned above the UEL and the employer did not have to pay primary contributions on their behalf. From 2003 onwards there is a 1 per cent. primary Class 1 contribution".

Mr. Prisk

The hon. Member for Wolverhampton, South-West told us that one should not quote selectively, but the danger is that that is just what he has done.

Despite the Paymaster General's protestations, the truth is that, as she said in her opening remarks, when an employer makes a security-based payment of earnings, there is no national insurance liability until these payments are realised—for example, when options are exercised to acquire shares. At that point, the employer is liable to pay both the primary and the secondary national insurance contributions due on the employee's gain. Until 5 April last year, most employees would have already paid their contributions up to the upper earnings limit, through the usual pay-as-you-earn system. However, from 6 April 2003, as a direct consequence of the Chancellor's decision, an additional 1 per cent. has been due on earnings that exceed the UEL. That is largely in accordance with the Government's own documents. Of course, employers have faced the difficulty of trying to recover the primary contributions to which the Paymaster General referred.

The Bill is therefore designed, we are told, to enable employers to recover these contributions through new agreements and joint elections. As such they are, as the Paymaster General said, generally welcomed by employers and outside organisations. Indeed, encouraging employee share ownership is very important. When people have a stake in their workplace, it benefits everyone. When a company's performance is enhanced by the ideas and efforts of the people who work for it, it is right that those who have contributed to such success should be able themselves to share in the rewards. And the knowledge that they have a financial stake in their company can only encourage such people to strive to perform better—to add value, if one likes—leaving not only themselves but customers, investors and the economy as a whole better off.

Of course, promoting wider share ownership is a Conservative value. Indeed, when we privatised so many of the old Government operations, we ensured that the employees had a share. That is why more employees bought and owned shares under the last Conservative Government than ever before. As I recall, at the time the Labour party, including the Paymaster General, bitterly opposed such changes. State ownership, not share ownership, lay at the heart of Labour's beliefs. [Interruption.] The hon. Member for Wolverhampton, South-West seems to be suggesting that that is still the case.

Rob Marris

indicated dissent.

Mr. Prisk

Now, it would seem that Labour Members have realised the error of their ways. So I do hope that in her response, the Paymaster General will confirm—as I am sure she will—her Damascene conversion to promoting wider share ownership. It is a very welcome conversion, and I certainly look forward to hearing more about it later.

When we consider the Bill in detail in Committee, we shall be able to ensure that the clauses achieve the Government's stated aims. However, we shall also want to know why some opportunities for reform have been overlooked. Before today's debate, I took the opportunity to discuss the Bill with a number of outside organisations, including ProShare, an excellent independent organisation that promotes wider share ownership. It raised one important issue that other experts have also mentioned, and I should like to touch on it now to see whether the Paymaster General will respond. She said that she was not aware of any omissions, but this may be one that is worthy of genuine consideration.

The problem arises when, for example, an employees' trust established by the company founder holds shares and/or cash that cannot be distributed to employees without triggering a liability to NICs for the employer company. Where, for example, the employer company is now owned by persons other than the founder—for example, an institutional investor—the shareholders may be opposed to any move by the trust to distribute benefits, as that would create a new national insurance liability for the company, and so reduce its net assets. Typically, however, a trust cannot reimburse the employer for the cost of those contributions, as that would benefit a non-beneficiary and would therefore breach its own rules. If there is no further need for an employer to fund the trust, as is usually the case, there is no opportunity for other set-off arrangements to compensate the employer company.

Therefore the problem is that money trapped in a trust that is owed to employees cannot be released because the company, quite naturally, is concerned about a triggering of liability that it would then have to pay. In other words, we have a stalemate.

Rob Marris

The hon. Gentleman offers an interesting example. As I understand it, he is talking about a scenario in which, for example, a family trust has become divorced from the family company because the company has been taken over. But surely that contingent liability would have been factored in when a determination was made as to what share price should be offered by the person taking over the family company. Therefore, such liability would have already been taken into account.

Mr. Prisk

That should normally be the case, but there are a number of exceptions. My purpose in raising this issue is to share in the hon. Gentleman's concern that a problem does in fact exist, and to see whether we can get the Paymaster General to elaborate on it. I understand the point that he makes; indeed, I have raised it myself.

I understand from ProShare and other outside bodies that this problem affects a number of companies and several thousand employes. I therefore ask the Paymaster General why it has been overlooked, and whether the Government plan to address it in the immediate future. If the Government were willing to introduce appropriate amendments to the Bill on this issue, we would certainly be willing to look on them constructively.

At the heart of the Bill lies the need to correct the Government's previous errors and omissions, and in that sense we welcome it. The need to correct the problems associated with securities-based earnings and the recovery of NICs is clear. Indeed, as the party that has encouraged more people to own shares than any other, the Conservative party wants to help to remove any barriers to wider share ownership. We are waiting to see and examine the proposals in detail, but we hope and expect to do so positively.

At the same time, we feel strongly that the Government should have acted far sooner to realign the rules for tax and national insurance and statutory payments. It is somewhat bizarre that a Secretary of State can call the case for change "overwhelming", only for nothing to happen for five years among his ministerial colleagues. The fact that that has been to the disadvantage of the self-employed is a disgrace, and it follows on from the shoddy treatment all too often meted out to them by so many Ministers in the Government. The next Conservative Government will redress that discrimination.

The Bill is important, but it is, as the Paymaster General acknowledged, largely technical in content. As such, I can confirm that, although we plan to scrutinise the measure properly in Committee, it is not our intention to oppose it in the Lobby at the end of the debate.

3.10 pm
Norman Lamb (North Norfolk) (LD)

I thank the Paymaster General for her helpful explanation of what is clearly a very technical Bill and also for the way in which she took interventions during her presentation.

I want to make it clear from the outset that we welcome this uncontroversial and constructive Bill. It is extraordinary that, since its publication before Christmas, it seems to have passed by without comment from anyone. It seems as though no organisations have made representations in response to the publication of the Bill. We checked with several organisations, but discovered no briefings. That is not necessarily a bad thing, although the Bill is unlikely to excite people either today or in Committee.

We also need to recognise that the Bill is part of a process that has continued for some years. The most significant step was the transfer of administration of national insurance, statutory sick pay and statutory maternity pay from what used to be the Department of Social Security to the Inland Revenue in April 1999. I heard what the hon. Member for Hertford and Stortford (Mr. Prisk) said about how slowly matters have developed since then. I share his concerns, but it is notable that the transfer of responsibility, which meant that one organisation dealt with both tax and national insurance, never happened under the previous Conservative Government.

After the transfer, we had an announcement in the pre-Budget report of 1999 that consultation would take place between the Inland Revenue, employers' representatives and so forth to assess how to reduce the technical differences between tax and national insurance. In turn, that led to the technical discussion paper, which makes pretty heavy reading, that was issued in June 2000 and considered a number of areas for possible reform. A summary of responses to that document was published in July 2001. As the hon. Member for Hertford and Stortford said, that was two years ago and progress made since then appears to have been slow.

The Bill deals with only one of the issues in the discussion paper—the power of officers to check employers' records. I shall return to the other issues later. As the hon. Member for Hertford and Stortford said, there has been considerable criticism of the pace of change since the transfer of administration to the Inland Revenue. We have already heard that, back in April 2002, the Institute of Chartered Accountants complained that the supposed benefits of merger had simply not been achieved even three years after the merger had taken place. The institute highlighted the potential benefits that the Government had mentioned: reducing the burdens on business and people; sharing experience, knowledge and skills in combating avoidance; making better use of resources; enabling a more joined-up approach to customer service; and achieving a gradual alignment of tax and national insurance rules.

However, areas of concern were also highlighted in April 2002: long delays in dealing with correspondence; correspondence sometimes not being dealt with at all; a less than helpful national insurance helpline for employers; lack of consistency between local offices, head offices and the employers' helpline; and national insurance issues and associated problems being downgraded in importance following the merger. Such was the analysis of members of the Institute of Chartered Accountants. Key national insurance personnel appeared to have moved on or left, leaving a gap in the understanding of issues, yet claims for repayment of national insurance had become more complicated. As we have heard, Peter Bickley, the technical manager of the institute's tax faculty, claimed that the national insurance service had deteriorated since the merger, and he described national insurance as the Cinderella of taxes, and called for urgent action to ensure that the objectives of the merger were achieved and the burdens on business reduced.

There have also been repeated complaints about the national insurance recording system—NIRS2, as it is known. Although there seems to have been some improvement, problems are still being reported. Given that the Bill's purpose, according to Inland Revenue's own press release, is to improve administration of national insurance and statutory payments and to provide a more efficient service to customers", it is reasonable to ask the Paymaster General whether she is satisfied that all the criticisms made in April 2002 have now been properly addressed.

Dawn Primarolo

It was my intention to say, should I catch your eye, Madam Deputy Speaker, that I will answer with precision every one of the allegations made in 2002.

Norman Lamb

I am grateful for that helpful intervention.

Furthermore, on the computer front, we have witnessed all sorts of chaos at the Revenue in recent months regarding the computer systems for the introduction of the new tax credits—a matter on which the Paymaster General gave evidence to the Treasury Committee. We also know that the contract with EDS is not being renewed. Given the problems experienced with NIRS2 and the tax credit system, can the Minister provide any reassurance that those problems are now behind us? Can she clarify the relationship between the various Inland Revenue computer systems and the systems that will go out to tender? Can she give some reassurance about the co-ordination between the different systems to ensure less confusion in future?

Dawn Primarolo

On that narrow point, I should like to answer the hon. Gentleman's question now. As he knows, the NIRS2 computer was commissioned and brought in by the previous Government; the present Government unfortunately had to sort out the mess. The system is now stable and is working effectively. It supplies the necessary information to the national insurance system and is part of the wider contract. The hon. Gentleman also referred to tax credits, but he will be pleased to hear that the two systems are not connected. As I said, we now have a stable, operational system, thanks to the Labour Government clearing up the mess of the previous Conservative Government.

Norman Lamb

I am grateful for that reassurance, but I have to say that I have heard reports of continuing problems with NIRS2. I hear what she says—that all the problems have been resolved.

Dawn Primarolo

I thank the hon. Gentleman for his graciousness in giving way again. He will find that there have been no problems with the operation of the computer system. Other problems took several years to clear up because of the initial failure under the previous Government. That was connected with contributions, but the problems have now been overcome. As for the operation of the system, the computer platform is stable and operates effectively.

Mr. Ruffley

The hon. Gentleman sat on the Treasury Sub-Committee, which produced a fine volume: "Inland Revenue Matters: Tenth Report of Session 2002–03". That all-party committee includes Labour Members, and it took evidence from the Paymaster General in the course of producing the report. The last sentence of the report states: This inquiry has raised serious questions about how the Department has been led. What does that say about the Paymaster General's performance?

Norman Lamb

I am grateful to the hon. Gentleman for reminding me of the conclusion reached by that all-party committee. Certainly, the concerns raised during the Treasury Sub-Committee's inquiry into a number of matters at the Inland Revenue gave rise to serious concern about the Department's leadership. Questions were asked about whether there should have been resignations at that time. Serious concerns have been expressed about leadership at the Revenue in connection with matters such as the issue of contribution notices, the Mapeley Steps scandal, and the introduction of tax credits. The Paymaster General has tried to reassure the House about the Revenue's administration of national insurance, but we are not convinced that things will be as smooth in the future as she has suggested.

As for the principle of the merger of tax and national insurance, the Government have chosen to take an incremental approach to reducing differences between tax and national insurance. They want to improve and, where possible, merge the administration of those two taxes. However, the Bill has little to do with what many people consider desirable—the full merger of tax and national insurance. The Paymaster General dealt with that briefly in response to an intervention, and it was also referred to in the discussion document issued in 2000.

I recognise that significant policy issues had to be addressed if merger were to be pursued. There would be significant distributional effects, and the future of the contributory principle would need to be looked at. However, the 2000 discussion document referred to a report published in March of that year by the payroll subgroup of the Better Regulation Task Force, which described full-scale merger as a "long-term goal".

One possible indication of the Government's intent was the 1 per cent. rise in employers' national insurance contribution applicable above the upper earnings limit that was introduced in the 2002 Budget, as the hon. Member for Hertford and Stortford noted. That increase was pretty much indistinguishable from a rise in income tax. It conveniently avoided any technical breach of the manifesto commitment not to increase income tax, even though its effect was precisely the same. However, was it also a move towards the eventual merger of tax and national insurance?

Rob Marris

The 1 per cent. increase in employers' national insurance contributions was not akin to a 1 per cent. increase in income tax. It was levied with the specific purpose of funding the NHS. Two thirds of NHS spending goes on pensioners, who by and large do not pay national insurance contributions. The rise was an example of this generation paying for the health of the previous generation—and a good thing too.

Norman Lamb

I am grateful for that intervention, and perhaps I should clarify what I said. For employees, there is no difference between an increase in national insurance contributions and an increase in income tax, and savers also got off scot free as a result of the way the increase was introduced.

Will the Paymaster General confirm whether it is Government policy to pursue merger as a long-term goal? Is that the Government's ultimate objective? I hope that she will provide some clarity on that. If so, is any time scale envisaged? What is the Treasury's state of mind on the issue? What view does it take of the potential savings for employers arising from a full merger of the two systems? Has a regulatory impact assessment been made of the effect of full merger?

I turn now to what has been left out of the Bill, which is another matter raised by the hon. Member for Hertford and Stortford. As I said earlier, the Bill deals with only one of the issues included in the Revenue's 2000 discussion paper. It does not deal with ways to make it easier for employers to cut national insurance contributions correctly, with the definition of pay for tax and national insurance purposes and the differences of approach between the two taxes, with the assessment of national insurance contributions for UK employees seconded abroad and the guidance offered by the Revenue for people in those circumstances, or with the assessment of national insurance contributions on payment of vouchers made by third parties.

It may be that all those matters have been dealt with in other ways, such as through secondary legislation or amendments to the guidance issued by the Revenue. However, I hope that the Paymaster General will clarify the position on each of those matters, so that we can understand exactly where things stand in the wake of the consultation exercise held two and half years ago.

The 2000 discussion paper referred to a plan to introduce secondary legislation to implement a number of specific reforms by April 2001. Was that time scale achieved? On page 18 of the response document, it is noted that there was general agreement among those who responded to the consultation that a proposal to transfer from class 1 to class 1A the liability for national insurance contributions in respect of funded unapproved retirement benefits schemes should be adopted. The Inland Revenue responded that that would be dealt with through changes to primary legislation. Has that happened?

It would be helpful if the Paymaster General provided us with a checklist showing progress on all the intended reforms covered in the consultation process and referred to in various other contexts. Has guidance been amended, where that has been necessary and where it has been suggested that that would happen? Has secondary legislation been introduced to deal with other matters raised in the consultation process? Are there any other outstanding issues that require primary legislation? Does the Paymaster General envisage introducing any other measures, by either primary or secondary legislation, that have not been dealt with in consultation and which are currently in the pipeline? In other words, is this the end of the reform process, or are further changes envisaged in the relatively near future?

I shall make a few comments about the Bill's specific provisions. Clauses 1 to 4 deal with national insurance payable on securities, and make it easier for employers to recover contributions, by agreement, from employees and ex-employees. They also enable employers and employees to agree that the employee should pick up the tab for the employer's national insurance payments, in circumstances where the employer awards restricted and convertible securities to an employee. I understand that the Paymaster General dealt with that point. There is a potential unpredictability about the scale of the national insurance liability when such securities are issued to an employee, because of the unknown value of the securities in the future. I can see that that could act as a disincentive to employers who might contemplate offering securities to their employees. We share the Government's objective of encouraging wider share ownership, so the removal of that disincentive is welcome.

An exchange of interventions in the speech by the hon. Member for Hertford and Stortford addressed the point about any link with the 1 per cent. increase. It is clear from the Government's regulatory impact assessment that there is a direct link. It states: Until 5 April 2003, it was unlikely that primary NICs would be due on share-based earnings as, typically, employees would have paid up to the UEL on their regular cash earnings. But from 6 April 2003 there has been a further 1 per cent. due on earnings that exceed the UEL. The two measures in this clause are intended to remove some of the restrictions placed on the employer's ability to recover the primary NICs payable with respect to securities-based payments of earnings. It would helpful if the Paymaster General, in the spirit of openness, could confirm that link when she responds to the debate.

Clauses 5 and 6 deal with aligning the periods of notice required for distraint action, as between tax and national insurance. The old social security legislation provided for a 30-day notice period in respect of NI, compared to a seven-day period for tax—14 days in Scotland. It is eminently sensible to reduce the notice period for NI to the same length as for tax. As the Paymaster General said, that is in accordance with the recommendations made by Professor John Beatson QC in his review of bailiff law.

Clauses 7 and 8 deal with the powers of Inland Revenue officers to gather information for tax and NI purposes. In essence, the Bill unifies the powers relating to tax and NI and in the process removes overbearing powers that exist in relation to NI. In a separate consultation exercise conducted by the Revenue on that specific matter, respondents had said that the NI powers were "disproportionate with few safeguards". It is a rare but welcome moment when Government actually reduce their powers in relation to the citizen. That should be celebrated and I congratulate the Paymaster General on that achievement.

Clauses 9 and 10 deal with the compliance regime for statutory sick pay and statutory maternity pay. In contrast with the regimes for tax, NI and the new schemes for statutory paternity pay and statutory adoption pay, if employers fail to meet their obligations under the SSP and SMP schemes, they commit a criminal offence. All the other regimes provide for civil penalties. Again, the Government have recognised that criminal offences are, in their words, wholly disproportionate to the compliance risk". The proposal therefore is to replace the criminal offences with civil penalties, which is to be welcomed, with two caveats. First, concern has been expressed recently about the Government's tendency to raise extra cash by way of increasing penalties for all sorts of breaches of administrative rules. Can the Paymaster General confirm what plans the Government have for the size of the penalties in the future? Will they be pegged and what guidance will be given on the size of the penalty, up to the maximum provided for, in any particular case? Secondly, the burden of proof with a civil penalty is of course lower than that with a criminal offence, and the penalty would be imposed by the Revenue rather than a court. Can the Paymaster General reassure us that the powers will be used in a proportionate way? I am aware of the powers of the Revenue with regard to compliance with the national minimum wage. Are the powers in that area consistent with those proposed in the Bill? Is there now a consistency of approach to compliance in all the various areas of the Revenue's powers?

The discussion document mentioned an anomaly in that there was no power for Revenue officers to inspect an employer's records on SSP and SMP. Legislation was promised—on page 6 of the responses paper—to provide such a power. Has that been achieved?

I realise that I have covered a number of technical issues, which is inevitable in a technical measure, so it might not be possible for Ministers to provide answers to all my questions today, but I should be grateful if the Paymaster General would give an undertaking to write to me, especially given the fact that the Standing Committee is due to sit soon, with answers to each issue I have raised that she is unable to deal with today.

The Bill is a small but important step in the right direction and we shall support it. It is long overdue; I am amazed at how long the Government have taken to introduce it, although I appreciate that primary legislation is required, which takes longer than secondary legislation. However, one hoped that it would have been drafted a little sooner, given the problems that the issue causes for employers. Despite the fact that the Bill is overdue, however, it is none the less welcome.

3.35 pm
Mr. David Ruffley (Bury St. Edmunds) (Con)

I begin by congratulating my hon. Friend the Member for Hertford and Stortford (Mr. Prisk), the shadow Paymaster General, on his admirably lucid and trenchant speech. His forensic ability will be a great help to us all in exposing the technical weaknesses in the Bill and ensuring that they are thoroughly scrutinised in Committee.

Although the Bill is by common consent a technical measure, it nevertheless illuminates how the Government run the national insurance system. First, clauses 1 and 2 were necessitated primarily by the unintended consequence of one of the Chancellor's many stealth taxes.

Secondly, clauses 5, 6, 7, 8, 9 and 10, which relate to powers to check employers' records, to the recovery of national insurance contribution debts and to a civil penalty system for statutory sick pay and statutory maternity pay, are all changes that have been brought forward in an extremely dilatory and tardy fashion. The intervening delays that successive Labour Ministers have tolerated have been greatly to the disadvantage of hard-pressed businesses. A truly business-friendly Government would have acted sooner to cure the deficiencies under which those businesses have laboured.

Finally, it is regrettable, although not surprising given the Government's track record on abusing the House, that when we vote on Second Reading, important regulations will not have been made available to us and we shall not have debated them in the Chamber. I refer especially to regulations under clauses 1 and 2 relating to NICs on security-based remuneration and employees' liability. We should at least have seen those regulations in draft. I deprecate the Government's pathological tendency to try to make changes—whether technical or otherwise—through secondary legislation, which, almost of necessity, is likely to receive less than thorough scrutiny.

I begin the body of my remarks with some comments on clauses 1 and 2, which will be of particular interest to companies and individuals who believe in employee share ownership. At present, as I hope we all know, an employer can make a security-based payment of earnings to an employee, but in the case of an options scheme, NICs liability will not arise until the options to acquire securities are exercised. In that eventuality, an employer will be liable to the Revenue not only for the secondary NICs liability, which is the amount that an employer pays, in a secondary role, on an employee's gain, but also for the primary NICs liability—the employee's own NICs liability.

Until 5 April 2003, as the regulatory impact assessment demonstrates, it was extremely unlikely that primary NICs, which were employees' liability, would be due on any share-based earnings because, in most cases, employees would have paid their fair whack up to the upper earnings limit, beyond which—before April 2003—they paid no national insurance. I hope that that point is clear to the Paymaster General, as she did not appear to grasp it during earlier interventions.

In practice, as the regulatory impact assessment makes clear, employers were not liable for the primary NICs liabilities of their employees because there were none above the upper earnings limit. That seems a fairly straightforward point. What the Paymaster General further does not understand, although it is spelt out in her own regulatory impact assessment, is that all that changed after 6 April 2003, when the Chancellor stealthily introduced a further one percentage point charge on earnings that exceed the upper earnings limit.

I am afraid that I will have to repeat the rather mealy-mouthed language of the regulatory impact assessment, which talks about the introduction of the 1 per cent. NICs charge on employees' primary NICs liability above the upper earnings limit having an unintended impact on employers' ability to recover from employees the primary NICs arising on non-cash payments of earnings such as securities. Nothing could be clearer. The phrase "unintended impact" does not do full justice to the Chancellor's shameless tax-hiking cynicism in sneaking in that stealth tax, about which nothing at all was said during the 2001 general election campaign—an election, incidentally, in which tax issues figured prominently.

During that general election campaign, Mr. Jeremy Paxman asked the Prime Minister on "Newsnight", on 22 May 2001, whether any reasonable person wouldn't suppose that you…propose to increase national insurance contributions. The Prime Minister replied, "They shouldn't." Yet less than one year later, in the 2002 Budget, the Chancellor said that with effect from April 2003, he would raise the rate of NICs paid by employees from 10 to 11 per cent., with an extra one percentage point on earnings above the upper earnings limit. In today's figures, that applies to anyone on class 1 contributions earning more than £30,940 a year. That was certainly a breach of Labour Ministers' oft-repeated pledge that they would preserve the upper earnings ceiling.

Labour Members should mark well the fact that in our report on the 2002 Budget, the all-party Treasury Committee—I repeat that it includes Labour Members—said about the new charge: To insist…that the upper earnings ceiling remains intact seems to us mere sophistry. We note this departure from previous practice could be viewed as a move of the National Insurance contribution system towards that of general taxation. In other words, in practice, in the real world, it is an increase for top-rate taxpayers. That stealth tax hit employees above the upper earnings limit, who are paying an extra one percentage point, but the crucial point, which I hope has been exposed by my hon. Friend the shadow Paymaster General, is that employees and employers were caught, many for the first time, by that new tax hike.

Currently, some employers can, with employees' agreement, retain some of the securities granted to employees to cover any primary NICs liability that that employer has to make. However—I have to say, with respect, that this was not properly explained by the Paymaster General—that ability to enter into an agreement is subject to some very serious, onerous eligibility criteria. It can apply only to security-based earnings provided, first, that they are paid to former employees; secondly, that the payment is in the same year that they cease to work for that employer; and thirdly, that the employee has insufficient monetary earnings from which the employer can recover that primary liability. That is the position at the moment.

The proposals in clauses 1 and 2 are necessary to relieve more employers than satisfy those criteria from the new tax burden that they have been saddled with as a result of the Chancellor's NIC hike. Those clauses will also allow the retention of securities by an employer to pay primary NICs liabilities arising on securities-based payments to former employees in the year after they cease to work for that employer. Are the provisions technically sensible, as I have outlined them? Yes, the clauses are welcome. However, we are forced inexorably to the conclusion that they would not have been as necessary if the Chancellor had controlled his tax addiction, rather than jacking up national insurance over the upper earnings limit.

The clauses will make it possible for more employers, with the agreement of employees, to withhold an amount in securities equal to the value of the primary NICs liability that they pay on behalf of those employees. The problem that we face this afternoon is that clauses 1 and 2 rely on regulations, so if we are to be able to answer two important questions about the agreements, we need to see the regulations. How exactly may an agreement be entered into between an employer and employee? Secondly, what specific types of earnings will be the subject of any of the agreements? I think that the hon. Member for North Norfolk (Norman Lamb) touched on that point when he gave us his definition of earnings, and mentioned the lack of one in the Bill. We do not know, because the regulations have not been produced.

I looked for enlightenment in all the literature that the Inland Revenue has produced for the debate and turned—probably unwisely—to the frequently asked questions section of the Inland Revenue internet site. One question is: Once the bill becomes an act can I ask employees to enter into these agreements? The answer given on the website is that an employer will be able to enter into these agreements once the bill receives Royal Assent, and the Clauses are given effect by a treasury commencement order and the necessary supporting Regulations are in force. These will be laid before Parliament following Royal Assent. The form that the agreements will take is a material question for the House to consider on Second Reading, but we do not know that because we do not have the regulations in front of us. We do not know whether the agreements will be in a standard form. We do not know whether they will be written in plain English so that employers will be given the comfort that their interests will not be compromised and that they will not let themselves in for excessive liabilities above those for which they should be liable.

I assume that the regulations will be detailed and will cover such points, because there would otherwise be no need for the Government to delay revealing the details and keep us in suspense until Royal Assent. If the matter is straightforward, why can we not see the draft regulations now? Perhaps the Paymaster General will enlighten us on the form of the agreements and tell us why she has not published the regulations that will govern them.

Mr. Prisk

I do not wish to interrupt my hon. Friend's flow, because he is making an extremely powerful point, but one problem is that there has been a five-year delay. Does he share my bewilderment and concern that although the Government have had five years to introduce the measures, they are now saying, "We need to get this through now, put a timetable on the Committee and rush ahead", when we do not know the content of the regulations?

Mr. Ruffley

I share my hon. Friend's concern but I do not share his surprise. We have become used to the Minister who oversees the department of the Inland Revenue having lapses of concentration—to put it mildly. I urge those who think that that is a partisan point not to say so, because her recent tenure in office overseeing the Inland Revenue department is comprehensively criticised by an all-party group—the Treasury Committee, which includes a preponderance of Labour Members. I shall quote again the last sentence of our 2002–03 report on the Inland Revenue, which said: This inquiry has raised serious questions about how the Department has been led"— a reference to the Mapeley shambles, NIC notification periods and the tax credit shambles. I share my hon. Friend's concern about the tardiness with which some of the department's business is brought to the House.

Clauses 7 and 8, relating to officers' powers to check employers' records, illustrate a further slackness in the Government's management of our national insurance system. National insurance contributions and the administration of statutory sick pack and statutory maternity pay were the responsibility of the Contributions Agency. That was transferred to the Revenue in 1999. We were told at the time that that would ensure an alignment of the tax and NIC rules of administration and that everything would be much more efficient, businesslike and clear. However, as the Institute of Chartered Accountants said in April 2002, on the third anniversary of the merger, progress has been slow. The ICA was justified in making that criticism.

We were given a further commitment by the Chancellor of the Exchequer on 21 March 2000: The Inland Revenue will set out options for ensuring that its officers have common and appropriate powers for their examination of employers' tax and NICs records"— the issue covered by clauses 7 and 8. That statement was made in the Inland Revenue Budget press notice REV10, comically entitled "Helping to Get it Right". In July 2001, the Revenue published a summary of the comments it had received following its much vaunted consultation issued in June 2000. Although clauses 7 and 8 are welcome and seem technically adequate for reducing inspection powers relating to national insurance that do not exist for straightforward income tax inspection, it tells us a lot about Treasury Ministers that it has taken the best part of five years to make the change, as my hon. Friend the shadow Paymaster General observed.

The different inspection powers for income tax and national insurance have been difficult for some employers to understand. Clauses 7 and 8 achieve alignment. In particular, clause 7 dispenses with the powers that allow officers involved in NIC inspection to enter premises, question anyone found on those premises and compel them to provide information and documents without first subjecting those requests to third-party scrutiny. I add my voice to that of other hon. Members and ask the Paymaster General to explain in more detail how future third-party scrutiny might occur. Above all, perhaps she will explain why the misalignment rectified in the two clauses was first flagged up as something that required action during the passage of the Social Security Contributions (Transfer of Functions, etc.) Act 1999. That is hardly a great advertisement for the efficiency of Treasury Ministers.

The concern about efficiency, and the way in which the Paymaster General dispatches business, was raised, as I said, in "Inland Revenue Matters", the 10th report of the 2002–03 Session produced by the Treasury Sub-Committee. It exposed not just one but a catalogue of administrative failures in the Revenue, oversight of which is provided by the Paymaster General herself. In relation to the Mapeley fiasco, we concluded: The conflicting evidence given to the Committee by the Chairman of the Inland Revenue and the Paymaster General has not resolved the vital question of whether in future the tax haven status of bidders for Government contracts can or cannot be taken into account. Our Committee then examined last year's tax credit shambles—there is no other word for it. Let me remind the House that the chairman of the Revenue is the gentleman responsible for the fair and proper administration of the national insurance contributions system. He had few answers as to why the tax credit system ground to a halt, and, to be honest, his evidence did not inspire confidence in his office. As was made clear, by 2 July 2003 nearly a quarter of a million applications had not been resolved, more than 100,000 unresolved applications had been received more than a month earlier, and as a result of delays the Inland Revenue had to make nearly 200,000 emergency payments. In addition, more than 400,000 applicants received their first payment of tax credits on a date later than the one of which they had been notified.

At the time, the Paymaster General offered her commiseration, but not her resignation. The fact that a flagship project for which Treasury Ministers were responsible disintegrated as it did says a lot about the way in which Treasury Ministers run the Revenue.

The third and in many ways most potent criticism in that report on the Revenue and its Ministers focused on the national insurance contributions deficiency notice failure. The notices are a means of informing individuals about gaps in their contribution record in any given year, so that, if they want to, they can make up those contributions. Doing so will enable them to ensure that they get their full basic state pension entitlement, so it is an important notice—or so one might have thought. Amazingly, however, no Minister was consulted or informed of the decision, taken in 1998, to suspend NICs deficiency notices. Admittedly, the responsibility belonged to the Contributions Agency, but that agency's functions had passed to the Treasury, via the Department of Social Security.

Following the transfer of responsibility for that important function to the Inland Revenue in April 1999, the Paymaster General became the responsible Minister. It is astonishing that it took her officials until March 2003—the best part of four years—to inform her of the problem and its significance. As our Committee reported, that was not a happy state of affairs and it did not inspire confidence in the Revenue. That is why in our conclusions we stated that serious questions had been raised about communication between the Minister and her senior officials at the Inland Revenue.

I mention those failures in the context of a Bill that purports to make the NICs system more efficient and better for the people who pay that levy, whether they are employers or employees. Many of the clauses are tardy responses to long-standing problems, and one might ask senior Inland Revenue officials and the Paymaster General herself why from time to time there appears to be a culture of complacency in that important area of public policy, which affects individual families as well as wealth-creating businesses. I make my comments more in sorrow than in anger, and certainly in the hope that a clear message will be sent to Ministers and Revenue officials that Parliament is watching them. Only then will their performance improve when implementing the provisions of the Bill—if, indeed, it is passed.

On a less critical note, I hope, I shall close by raising a point that Deloitte unearthed in its pre-Budget analysis in December 2003. In connection with the Bill, it noted the lack of any legislation for funded unapproved retirement benefits schemes, or FURBS. It noted that when the Bill was published on 27 November 2003, the anticipated draft NIC legislation on FURBS was missing. Deloitte said that it understood that the intention to effect a class IA liability on employer contributions from 6 April 2004 was overtaken by the Government's move to simplify the tax treatment of pension schemes from 2005.

Deloitte observed that the Government's pension proposals had been published, and it appeared that from 6 April 2005 there would be no NICs on employer contributions to FURBS, either class 1 or class 1A, and in addition that there would be no NIC charge on benefits paid out of FURBS if those payments were within registered scheme limits, the employer relationship had ceased and the benefits were consistent with the new pension benefit rules. Deloitte observed that that looked as if it were good news for national insurance contributions in relation to FURBS after 6 April 2005—but the business community is not entirely sure that that reading of the situation is correct, and wants to see more detail relating to FURBS and NICs.

If Deloitte is right, the corollary is that the contested Revenue claim to class 1 NICs on employer contributions to FURBS will continue for another year. Can the Paymaster General shed some light on that narrow but important technical point?

In conclusion, I believe the Bill includes provisions that should have been passed years ago, or which are needed now to undo the damage caused by the pernicious tax-raising consequences of the Chancellor's own actions. As such, the provisions are not, in themselves, wholly objectionable. Nevertheless, the Paymaster General needs to answer the detailed questions posed to her this afternoon by my hon. Friend the Member for Hertford and Stortford and me.

4.2 pm

Dawn Primarolo

With the leave of the House, I shall respond to this afternoon's interesting debate. I shall respond particularly to points made by Opposition Members on the imposition of the 1 per cent. national insurance rise effected last year. First, however, it is important to reiterate the purpose of the Bill.

The Bill takes forward the Government's commitment that the Inland Revenue will work with employers' representatives and others on reducing technical differences between the administration of tax and national insurance. It extends employers' options for meeting their national insurance contributions liability when paying earnings in the form of shares or other securities, and it helps protect employees' rights to statutory sick and maternity pay by improving the means of tackling employers who fail to meet their obligations.

The hon. Member for North Norfolk (Norman Lamb) asked me a number of questions, first with regard to the accusations made by the Institute of Chartered Accountants in its report of April 2002. I confirmed in an intervention that I would answer those points. I shall also give the hon. Gentleman the time line that he requested, to demonstrate to the House that much has been done in the past five years. Not only did the Government, on their election, merge the Contributions Agency with the Inland Revenue—which the previous Government failed to do for 18 years—but there has been steady progress across the board in achieving the objectives that we set. A great deal has been achieved since 1999—and, indeed, since April 2002, when the Institute of Chartered Accountants made its observations. The institute referred to the integration of national insurance contributions into the general work of the Inland Revenue and welcomed it, saying that there were benefits and that it had resulted in a much greater awareness of national insurance issues across the board—something that the previous Government totally failed to achieve.

The first two points made by the Institute of Chartered Accountants related to long delays in dealing with correspondence and a failure to deal with it. I think that the performance speaks for itself, however, and I shall give the House the details. The performance of the national insurance contributions office, or NICO, in dealing with the public has been shown to be at the very highest level. Its last report, published in November 2003—the hon. Member for North Norfolk is free to go back through its previous reports—showed that more than 93 per cent. of post was dealt with completely and correctly within 15 days, and that more than 98 per cent. of phone calls were answered within 20 seconds. I wonder how many MPs' offices manage such a response rate. More than 93 per cent. of complaints to the director were investigated and dealt with within 15 days. That deals with the first two allegations.

The next two allegations related to the employers helpline and the lack of consistency. Again, the issues relate to procedures and structures that this Government have put in place. If hon. Members wish to know how bad things were, they merely have to look at the situation pre-1997 and the difficulties that employers experienced at that time. There is now a dedicated national insurance contribution contact centre in addition to the employers helpline. The staff are trained to handle both national insurance and tax aspects of employers' queries. The report refers to a period almost two years ago when the helpline was not fully established. I ask hon. Members to ponder for a split second how long it takes to conduct training and to put such facilities in place, fully equip them and make them operational. As I said, the previous Government had 18 years and did not manage it. The feedback is currently very positive. The Inland Revenue is continually updating and reviewing guidance to ensure consistency across the Revenue and the national insurance contributions office. We have a better guidance project and are in consultation with the public and employers to ensure that the highest standards of guidance are available to staff and the public.

I turn now to accusations Nos. 5 and 6, which are that national insurance issues and problems appear to have been downgraded and that key national insurance personnel appear to have moved on or left. There is a full integration of employer compliance reviews, with all employer compliance officers fully trained in national insurance. That is precisely what the employers said that they needed. National insurance contribution knowledge forms part of a mandatory examination programme of inspectors who will be involved in dealing with medium-sized and large businesses. A rolling programme of national insurance training is being undertaken to ensure that inspectors who completed their initial training before the merger took place now have knowledge that goes across the whole organisation.

How long do hon. Members seriously think that it takes to bring all that information together—one minute, or two or three minutes? That is functioning now and that result has been achieved. Staff involved in handling queries at inquiry centres have also been trained so that there is a point of contact for employers—precisely the objectives of the merger. As I said, a dedicated national insurance contact centre has been established, in addition to the employers helpline. New teams dealing with expatriate workers are trained to handle both their tax and national insurance inquiries. That is an improved service. It is going on now and it has been doing so over the past five years.

Mr. Prisk

Will the Paymaster General give way?

Dawn Primarolo

No, I should like to make some progress.

Then we come to the accusation that claims for the repayment of national insurance have become more complicated—but there have been no such changes. In fact, the merger has allowed us to simplify the procedure by enabling national insurance staff handling repayments of class 4 national insurance contributions to have access to the self-assessment system so that they can quickly verify the amount overpaid through self-assessment without having to make separate inquiries to tax personnel. And we have enhanced the system to enable the automatic issue of application forms for repayment when someone has paid more than the maximum contribution in class 1.

Those are issues that have been dealt with in consultation. Opposition Members make it sound as though nothing has been done, because they choose to believe that rather than looking at the facts.

Mr. Prisk


Dawn Primarolo

I will not give way.

Opposition Members repeatedly suggested that the list of aims for the merger had been left filed in some corner with no action being taken. The hon. Member for North Norfolk helpfully suggested that perhaps a timeline or checklist would help, so I shall give it to him. We received several proposals, and have acted on all but one. The first was that we should adopt the Inland Revenue tax information powers for all classes of national insurance, statutory sick pay and statutory maternity pay. That is in the Bill. The next was that we should adopt Inland Revenue inspection powers for SSP and SMP. That is in the Bill. The next was that we should repeal section 110ZA of the Social Security Administration Act 1992. That is in the Bill. The next was that we should make some minor changes to the powers to inspect employers' records contained in regulations to make the national insurance regulations match the tax regulations. That was done in 2000. The next was that we should ease the calculation of class 1 national insurance on marginal items of pay—for example, expenses—by giving employers more time to process payments. That was achieved by amending guidance issued to employers. The next was that we should simplify the procedure for dealing with arrears and errors involving class 1 NICs by using estimation, while protecting individuals' contributory benefit entitlement. That was achieved by issuing new guidance on the calculation of NICs to Revenue staff.

The next proposal was that we should align the definition of pay for the purposes of tax. We are making that alignment where possible, as opportunities present themselves, in consultation with employers. The next was that we should move the national insurance charge from class 1 to class 1A on employer payments into FURBS—funded unapproved retirement benefit schemes. The hon. Member for Bury St. Edmunds (Mr. Ruffley) asked why that was not in the Bill; I shall return to that in due course. The next was that we should extend the deadline for payment of NICs due in respect of employees seconded abroad. That was done with effect from the 2002–03 tax year. The next was that there should be better guidance on the tax and national insurance liability of remuneration packages of employees seconded abroad. That has been taken on board as part of the review of residence and domicile. The next was that we should make minor amendments to national insurance regulations to align tax and NICs treatment of certain travel expenses. That was completed in 2000 through regulations. The final proposal was that we should extend the scope of PAYE settlement agreements to cover third parties, which would allow third parties to account for tax and national insurance on payments that they make to the employees of others. That matter is still outstanding.

Having suggested that nothing has been done, the hon. Member for North Norfolk asked about initiatives. I can give him examples of help being given directly to employers. They are being encouraged to make greater use of new technology instead of the traditional paper that causes many of the mistakes that come back to bite them later. That is being achieved by making online services more comprehensive and user-friendly, and by providing electronic guidance. Our business support team workshop provides targeted support to employers through one-to-one visits, enabling employers who have made mistakes to get themselves on to surer ground for the future and to avoid unnecessary obligations through promoting dispensation and PAYE settlement agreements. There are employer helplines and nationwide networks of local offices that can advise on all queries. I could go on.

That is not a record of this Government doing nothing, as Opposition Members suggest. Their description of inaction is a correct description of what they did when they had the opportunity to change things but did nothing.

The hon. Member for North Norfolk asked whether the Government believed that there should he a structural alignment of tax and national insurance. If he reads the employers' observations in the various studies, he will see that there are very mixed views on that issue. The biggest problem is to determine whether removing national insurance would place more obligations on employers by requiring a flag in the system relating to entitlements to contributory benefits. The Government are not attracted to the structural alignment that he suggests, for all the reasons that are widely known and outlined in the literature. Our approach is to continue to work with employers' representatives and others to examine opportunities to align the tax and national insurance rules at a practical level, where possible, while always having regard to the importance of protecting individual benefit entitlements.

The hon. Gentleman also asked about the penalties regime. The £300 penalty is the maximum that could be charged for each incident. In regard to statutory sick pay and maternity pay, if someone were to fail to produce their SSP records for 25 employees, the maximum penalty would be a total of £7,500. The penalties must also be proportionate to what has taken place, and cases in which an employer has failed to pay SSP or SMP do not usually involve penalties of more than a few hundred pounds. Clearly, however, we must be able to deal with such cases.

Norman Lamb

Will the Paymaster General clarify whether determining the scale of the penalty is provided for in guidance or in regulations? I hope that she will forgive my ignorance, but I should be grateful if she would clarify how guidance is given to officers on determining the scale of the penalty.

Dawn Primarolo

It would have to be taken into consideration whether an employer had made a genuine, and quite minor, mistake. In such cases, it is best that the mistake is just corrected. The example that I gave earlier, however, involving the complete failure of an employer to pay a large number of employees without explanation, was not a minor mistake. In such cases, we need to ensure that the penalties bite. They are not intended to be used in cases of genuine mistakes, of which the tax system has a great deal of experience, when employers and employees have done their best to get things right. Any penalty we sought in such cases, if we sought one, would have to be proportionate to what had gone wrong. There is no automatic trigger. The aim is to ensure compliance and for there to be no need to use the penalties, rather than the reverse. We do not want to assume that whatever penalties are available will be used.

Several points were made about the Government's raising national insurance by 1 per cent. It is important to remind the House—although this matter is not connected to the Bill, it was mentioned in the debate, so I shall respond—that the 1 per cent. increase, which was supported by the general public, was the biggest ever sustained growth and investment in the national health service, amounting to more than £40 billion extra being spent until 2007–08, compared with 2002–03. As my right hon. Friend the Chancellor pointed out, it spreads the burden as widely and as fairly as possible, matching costs to ability to pay. Pensioners are not affected by those changes, as they do not pay national insurance. That ensures that the national health service remains free at the point of need, and accessible to all irrespective of income—I understand clearly that those are principles to which the Conservative party does not subscribe. That money pays for 80,000 more nurses—

Mr. Ruffley

Will the right hon. Lady give way?

Dawn Primarolo

No. That money pays for 80,000 more nurses, midwives and health visitors, 25,000 more doctors and 100 new hospitals in the United Kingdom—extra spending that is widely welcomed.

Mr. Ruffley

Will the right hon. Lady give way?

Dawn Primarolo

No. With which bit of "No" is the hon. Gentleman struggling—the n or the o?

Hon. Gentlemen sought to suggest that the arrangements in the Bill were made because of the 1 per cent. increase, which was not a stealth tax and which was clearly demonstrated and explained and widely supported. The issue at stake—as I tried to explain, but which they could not quite grasp—is that the change is necessary because any employee can receive shares whether or not they have earned above the earnings limit. The additional 1 per cent. is payable only for those earning above the upper earnings limit. Of course, those employers will be particularly affected, and the explanatory material on that has been absolutely straightforward. To say that the 1 per cent. has caused us to table the clause, however, is simply wrong. It is not the case.

Mr. Ruffley

Will the right hon. Lady give way?

Dawn Primarolo

No, I want to make progress.

During the debate, hon. Gentlemen sought to raise a range of issues that are not connected to the Bill, to which I now seek to respond. The hon. Members for North Norfolk and for Bury St. Edmunds raised the issue of funded unapproved retirement benefit schemes and their absence from the Bill. We were considering including in the Bill a change to the national insurance treatment of payments to FURBS, which would have moved the national insurance liability from class 1 to class 1A. The proposal has recently been overtaken, however, by our thinking on the future of unapproved schemes under the simplified regime for pensions and the Government's pension simplification proposals published on 10 December 2003. Under those circumstances, given the potentially short-lived nature of a change in the Bill, I considered it more sensible to await the outcome of the consultation.

Under the new regime, the national insurance status of payments into non-registered schemes will depend on the benefits paid out of the scheme, rather than being subject to national insurance in all cases. There will be no charge on national insurance contributions when benefits paid out are consistent with the general benefits that can be paid from a registered scheme. That will encourage employers to fund genuine pension benefits. It was on that basis that the proposal was removed.

The hon. Member for Bury St. Edmunds, whom I thought was an experienced Member of the House—but there we go—knows perfectly well that regulations are produced after a Bill is passed. I can confirm, however, and it is my practice as a Minister in dealing with the Finance Bill and other Bills, that I will be more than happy to provide the Committee with the detail that has been requested on the draft regulations. I sincerely hope to be in a position to make those draft regulations available to the Committee in time for its discussions.

Mr. Ruffley


Dawn Primarolo

Before the Bill is completed. Clearly, the hon. Gentleman would wish to have sight of them before that.

The hon. Member for Hertford and Stortford (Mr. Prisk) asked what would happen if a family trust divorced from the original family company could no longer pay its share-based benefits. I know of only one case of a trust being unable to pay benefits without creating a national insurance liability for the new employer, but if the hon. Gentleman knows of other cases perhaps he will tell me of them. The matter had been discussed at length with officials and with the parties involved. While I appreciate the difficulties, I am sure the hon. Gentleman is not suggesting that we should legislate for a single case.

Mr. Prisk

I am grateful to the Minister for finally giving way. Would she be receptive to submissions on the subject? A number of outside experts—including ProShare, which I know she strongly supports—have made clear their anxieties.

Dawn Primarolo

I am happy to confirm that I will consider any submissions on issues in the Bill that are made to my officials and subsequently to me, but it is not incumbent on the House to alter primary legislation to correct a matter which a trust has the power to change, or which places a trust in difficulty as a result of its own decisions.

I am grateful for the opportunity to explain the issues that have arisen today. I look forward to the Committee stage, when we can expect to debate a number of points at more length. Again, I commend the Bill to the House.

Question put and agreed to.

Bill read a Second time.