HL Deb 25 January 1983 vol 438 cc131-6

3.7 p.m.

The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgarne)

My Lords, I beg to move that the draft Statutory Sick Pay Up-rating Order 1982, which was laid before the House on 16th December 1982 be approved.

The purpose of this order is to raise the rates of statutory sick pay and the levels of earnings which will determine the rate of statutory sick pay to be paid. This will fulfil commitments made both here and in another place that the figures in the Social Security and Housing Benefits Act 1982 would be increased before the scheme comes into effect on 6th April this year.

Your Lordships will be aware that the Act provides that SSP rates should normally be increased in line with prices. In the 12 months to October 1982, the general index of retail prices went up by 6.8 per cent. However, the increases to be effected by this order are significantly greater than that; they are, in fact, increases of 8.8 per cent. The reason for this is explained in the report to Parliament by my right honourable friend the Secretary of State for Social Services which was laid before Parliament at the same time as the draft up-rating order. It is, in essence, because the rates in the Act were based on the November 1981 sickness benefit rates. As your Lordships will know, these rates were based in turn on a forecast of the movement in prices over the 12 months to November 1981 which was 2 per cent, less than the actual movement in prices over that period. That shortfall was made good for sickness benefit. It is important to get the starting rates of SSP right, so in this special situation we considered that we should increase the SSP rates by an extra two percentage points.

The rates have been rounded to the nearest 5p in line with normal social security practice. I can assure your Lordships that this will not cause extra problems for employers who will, in most cases, have to work in daily rates. To help employers we are publishing daily rate tables in the contributions tables to be sent to all employers next month.

The two higher earnings levels, by reference to which employees will qualify for the different rates of SSP, have been increased by the same percentage to keep the same level of incentive for employees to go back to work. However, they have been rounded down to the nearest 50p, in line with our practice when setting the lower earnings limit for national insurance contributions. And that, of course, is the lowest earnings level for SSP.

Thus employees who earn £65.00 or more a week will qualify for the new higher SSP rate of £40.25 a week. People who earn at least £48.50 but less than £65 will qualify for the middle rate of £33.75, and those who earn at least the lower earnings limit—which will be £32.50 from 6th April—but less than £48.50 will qualify for SSP of £27.20.

Your Lordships will wish to know that in future we intend to increase the SSP rates and earnings levels in line with the actual yearly increase in prices as of October in the year concerned, although, as your Lordships will be aware, when deciding on the increase in any particular year the Secretary of State must also take into account the general state of the economy and any other special circumstances which may obtain at the time. Deciding on the use of the October figures means that the review will take place, and the new figures will be announced, before the end of the year. It will then be possible to include the figures in the contribution tables which are sent to employers early in the new year, so that employers will have reasonable notice of the new rates before they come into effect each April. The rates and earnings levels will be included in the department's leaflet NI 208.

It is claimed that employers—especially small employers—will not understand the scheme and will—either through ignorance or malice—not pay SSP when it is due, or pay the wrong amount. The department has therefore issued a guide to employers; this has been praised as a simple and clear guide to the scheme. Officials have also mounted an education programme providing speakers for seminars and answering queries from employers. The private sector is also playing its part in spreading awareness of the new scheme through provision of training, management aids and record keeping systems. All the indications are that most larger employers—who employ the majority of employees—are already taking steps to ensure a smooth implemetation of the new scheme.

In the three months before the scheme's introduction we shall be making special efforts to reach small businesses, who need a shorter preparation time. In co-operation with organisations representing small businesses, the department has prepared a simple record sheet to help small firms work out SSP entitlement and keep records. It is entirely optional — more sophisticated and more wide-ranging systems are being made available commercially. But the deparment's basic form will be available to firms which wish to make use of it, and it will greatly help them operate the scheme correctly and with the minimum of extra administration.

The contribution tables which will be distributed to all employers in early February will contain information about SSP additional to that in the employers' guide. There will also be a general message reminding employers about the advent of the scheme and action that they should be taking by way of preparation. A national publicity compaign has now been launched at a cost of no less than £750,000. As I have already indicated to your Lordships, the SSP scheme will come into effect on 6th April this year. The increased rates and earnings levels in this order will allow the scheme to start off on the right footing. My Lords, I beg to move.

Moved, That the draft order laid before the House on 16th December be approved.—(Lord Trefgarne.)

3.14 p.m.

Baroness Jeger

My Lords, although we must all welcome any increase, however mean and inadequate, in sickness benefit, I would not want your Lordships to think that we on this side of the House have relaxed in our objection to the whole scheme. However, your Lordships will be relieved to know that I do not propose this afternoon to repeat all that was said when the legislation was going through the House. The noble Minister has made it clear that this small increase is related to the retail price index. I want to submit to your Lordships that the retail price index is not always the best guide to the cost of living for the poorest people. The poorest people often do not have mortagages; they do not benefit from the changes in interest rates.

I would also remind your Lordships that, for the purpose of calculating the retail price index, national insurance contributions are not included. Under the legislation to which this statutory instrument refers, people on unemployment and sick pay are going to have to pay insurance contributions instead of having their cards franked, as happened under the previous system. I want to ask the noble Minister whether he is going to take into account the fact that these considerable sums will have to be paid, for those in receipt of the lowest sum, out of £27.20. Therefore, the money they actually receive is going to be considerably less than £27.20—which is small enough.

I must also ask the Minister what consideration the Government are giving to the fact that these benefits are being brought into income tax, so that by the time the recipient has paid national insurance contributions, which he did not have to do previously, and by the time he has paid income tax, which is an innovation, how much is he actually going to be left with? I should like to remind the noble Minister that he is not statutorily tied to the retail price index. If he will look, as I am sure he often does, at Section 7(4) of the Act, it says: the Secretary of State shall estimate the general level of prices in such manner as he thinks fit. This seems to give the Minister power to look at the price index as it affects the poorest people and not to be bound by the RPI, which has a very wide relevance but is often unfair to the elderly and to the sick. I am especially concerned about the question of national insurance contributions and about the taxability.

I was glad to know that much publicity is going to be given to these new rates, and I hope that that will be effective. In that connection, I must lastly ask the noble Minister why this minuscule piece of paper which describes the up-rating of statutory sick pay costs 75 pence. Surely that is not a question of fair dealing or fair trading.

Lord Banks

My Lords, I should like to thank the noble Lord, Lord Trefgarne, for his clear explanation of the purpose of this order. We on these Benches did not approve the transfer of the first eight weeks of sick pay to employers, for reasons which we set out when the Social Security and Housing Benefits Bill was before the House. We did not approve either of the three levels of benefit, since there is no such differentiation in national insurance sickness benefit. However, the Bill became law, and we all understood that the levels of benefit would be up-rated before the Bill became effective in April of this year.

This order provides that up-rating. In his report the Secretary of State reminds us, as indeed did the noble Lord, Lord Trefgarne, that the original statutory sick pay rates were based on the sickness benefit rate in November 1981. That was done, according to the Secretary of State, to ensure that employees as a whole would receive the same extra income from the statutory sick pay scheme after tax and national insurance contributions had been deducted as they would lose by the withdrawal of State sickness benefit, if that were taxable. Therefore, the original statutory sick pay figures were based on the November 1981 national insurance sickness benefit figure.

The statutory sick pay figures will be up-rated by this order, as the noble Lord explained, by 6.8 per cent. to account for inflation between October 1981 and October 1982, and 2 per cent. to account for the under-estimate which is admitted in the November 1981 sickness benefit figure. That is a total of 8.8 per cent. But sickness benefit was up-rated by 11 per cent. last November, 9 per cent. for estimated inflation and 2 percent. for the November 1981 under-estimate. So there is an admitted over-estimate in the 1982 figure, and we have been warned that there may be clawback next year.

My question is whether the discrepancy between the sickness benefit up-rating of 11 per cent. and the statutory sick pay up-rating of 8.8 per cent. will not break the link between the two, to which both the Secretary of State and the noble Lord, Lord Trefgarne, have referred. Does this not mean that statutory sick pay has fallen behind sickness benefit, at least until the next up-rating? Will it not be better to be on sickness benefit than on statutory sick pay? And will it not be better to be sick when there is a strike, because in those circumstances you get sickness benefit and not statutory sick pay? I should be grateful if the Minister could clarify those points, although in principle we have no objection to the order.

Lord Kilmarnock

My Lords, from this Bench I, too, wish to thank the noble Lord for explaining the purpose behind the order with his customary clarity, and I wish to raise only two points. First, it may seem generous to up-rate sick pay by 8.8 per cent., but surely it is to give with one hand and take with the other to up-rate the threshold by the same amount, incorporating the 2 per cent. benefit shortfall of 1981 in the threshold figure? I can see no justification for incorporating that 2 per cent. in the threshold figure, particularly as the Government are planning in future to up-rate the threshold simply by the increase in the RPI. Perhaps the Minister would comment on that.

My second point is that surely this illustrates how badly in need of reform is our social security system. Schedule 1 paragraph 2(c), of the 1982 Act disqualifies from statutory sick pay those earning under the lower earnings limit of £32.50 a week, and that is reiterated in the Secretary of State's report. We all know that many people in low-paid jobs prefer not to pass that limit in order not be "clobbered" by the savagegly regressive contribution of 9 per cent. of earnings immediately they earn that extra £1 or £2. The ground of their disqualification is that they have not contributed. Would the noble Lord not agree that it is absurd that someone earning £33 should qualify for statutory sick pay while someone earning £32 should not?

Lord Trefgarne

My Lords, I am obliged to your Lordships for the reception that has been given to the order. I will deal with a few of the points that have been raised, because your Lordships are doubtless anxious to get on to the next business.

The noble Baroness, Lady Jeger, wondered whether we were right to use the RPI as the historical basis for up-rating in this matter. Much is said about the suitability of the different price indices for this purpose. The fact of the matter is, however, that if one looks at the different movements of the different indices over the years, one finds precious little to choose between them at the end of the day. We thought this particular index was the right one for this matter; that is why we chose it and why we have taken account of it in this up-rating. Noble Lords pointed out that my right honourable friend is not obliged to stick precisely to the figures shown by the increase in this index, but that is a feature of the original legislation, to which Lady Jeger drew attention.

As for national insurance contributions, at the bottom end of the scale, which we are considering today, wage-earners will not be required to pay national insurance contributions at all, whether on their earnings or on the statutory sick pay that they would have been getting; so that point does not arise. I am sorry that the noble Baroness found the document she showed me rather expensive. The cost of these documents is related to the number of copies they expect to sell, and that may be a reflection on the arcane nature of this matter. The noble Lords, Lord Banks and Lord Kilmarnock, raised some detailed points. In view of the following business perhaps they will forgive me if, on this occasion, I write to them with the answers.

On Question, Motion agreed to.