HL Deb 20 December 1984 vol 458 cc756-60

1.6 p.m.

The Earl of Caithness rose to move, That the draft order laid before the House on 10th December be approved.

The noble Earl said: My Lords, the purpose of the order is to raise the rates of statutory sick pay (known as SSP) which employers pay to people in their employment when they fall sick. The order also raises the levels of earnings which determine the rate of SSP which is payable. The new rates and earning levels will, subject to your Lordships' approval, take effect from 6th April 1985.

Section 7 of the Social Security and Housing Benefits Act 1982 requires that these amounts are reviewed annually to determine whether they have retained their value in relation to the general level of prices. In the 12 months ending October 1984 the retail price index rose by 5 per cent. The draft order now before us accordingly provides for an equivalent increase of 5 per cent. in the SSP rates and earnings levels which will apply from April 1985.

There are three rates of SSP and in accordance with normal social security practice, the new rates have been rounded up to the nearest 5p. The two earnings thresholds covered by the up-rating are also being increased by 5 per cent. These have been rounded down to the nearest 50p. Again, this is in line with normal practice. The lowest earnings threshold below which no SSP is payable is not subject to up-rating by this order. This is set by the Act to be the same as the lower earnings limit for Class 1 contributions, which will be £33.50 from 6th April 1985.

The effect of the order is that from next April employees who earn £71 or more a week will qualify for the new standard weekly rate of SSP of £44.35. those who earn at least £53 but less than £71 will qualify for SSP of £37.20. And those who earn at least £35.50 but less than £53 will qualify for SSP of £30. These rates represent an increase of £2.10, £1.75 and £1.45 respectively on the present rates.

The new rates, when approved by Parliament, are included in the contribution tables, which are sent to all employers in the new year. This gives employers notice of the new rates well in advance of when they come into operation. The new rates are also publicised in leaflet NI 208, a revised version of which is issued by the Department of Health and Social Security each year.

The SSP scheme has been operating smoothly since April 1983. In particular, we have no evidence that the rates of SSP have resulted in hardship or difficulties for employees or in administrative and financial difficulties for employers. The draft order provides for the SSP rates to keep pace with the rise in the general level of prices and I therefore hope that it will meet with your Lordships' approval. My Lords, I beg to move.

Moved, That the draft order laid before the House on 10th December be approved.—(The Earl of Caithness.)

Baroness Jeger

My Lords, I should like to begin by wishing the Ministers on the Government side a Happy Christmas, but I am not sure whether all the recipients of statutory sick pay will want to offer the same wishes. However, because of the time and the situation I shall only say to the noble Earl the Minister that when the Social Security Bill comes to us in the new year we shall want to go into the whole matter in more detail.

I should like to ask the noble Earl two questions. First, has the department any information from employers, and especially from small business employers, about the difficulty of implementing this complicated scheme? I have received many complaints from small business employers about the difficulties of paying out this money and the delay in getting it back from the Government. Secondly, I should also like to ask about the timing. The timing of these changes is different from the timing of the social security up-ratings. That seems to be a bit of a problem. I do not know why the Government have decided that there should be a different date for this up-rating from that for the up-rating of ordinary social security benefits.

I shall leave the matter there. I point out to the noble Earl the Minister, for whom I have the greatest respect, that though I am not pushing him any further today, I shall come back with other, more fundamental questions later. However, so far as today is concerned, I hope that the noble Earl will perhaps be able to deal with the two problems that I have raised and then we can leave the matter there.

Lord Banks

My Lords, I should like to join in thanking the noble Earl for his very clear explanation of this order. As he explained, the order increases the three rates of statutory sick pay to take account of inflation. It increases them by 5 per cent. We on these Benches have no objection to that; in fact, we would object if it were not done. So we support the approval of this order.

As the noble Baroness, Lady Jeger, has said, the whole question of statutory sick pay will be thoroughly discussed when the Social Security Bill comes before the House with its proposal to increase from eight weeks to 28 weeks the period during which statutory sick pay is paid.

In his report in November on the Social Security (Contributions Re-rating) Order the Government Actuary said: The estimates for the amounts of statutory sick pay to be recovered by employers from contributions are based, of necessity, on the sickness experience of the National Insurance Fund prior to its introduction. The first data relating to statutory sick pay is expected early next year, but until it becomes available there remains a special degree of uncertainty in the estimates". In view of that statement by the Government Actuary, when we discussed that order I asked whether it was sensible to proceed with the increase from eight to 28 weeks in the light of what the Government Actuary had to say. The noble Lord, Lord Glenarthur, has been good enough to write to me about the matter and he says that the Government now have 75 per cent. of the data and all is in line with the Government Actuary's estimates. That is certainly fortuitous, but it remains true that the Government could not have known that that would be so when they first introduced the Bill. That change, when it comes, will eliminate sickness benefits altogether for very many, although they will remain for some.

I should like to ask the noble Earl whether he thinks it sensible to have different rates of statutory sick pay and sickness benefit—three rates of one and one of the other—and different qualifications; to have one taxed and the other not taxed; and to have families and children worse off under statutory sick pay than under sickness benefit? Is there not a need here for simplification and rationalisation?

Finally, the noble Lord, Lord Glenarthur, in the letter to which I have referred says that the mistakes which are being made by employers in providing statutory sick pay are mainly technical and of a comparatively minor character. Yet the National Federation of Self-Employed and Small Businesses recently found that one in four of small businesses were making errors over statutory sick pay. I wonder whether the noble Earl can say how thoroughly the department has monitored the operation of statutory sick pay?

I have nothing more to say today, but I look forward to a more searching examination of statutory sick pay when we discuss the Social Security Bill. In the meantime, I support the approval of the order.

The Earl of Selkirk

My Lords, my noble friend has given figures for different categories of statutory sick pay. I should like to know whether they are dealt with as gross income or whether they are income subject to income tax and social security payments?

The Earl of Caithness

My Lords, I am grateful to the noble Baroness, Lady Jeger, the noble Lord, Lord Banks, and my noble friend for taking part in this very useful and interesting debate which has given the House a renewed opportunity to consider some of the underlying principles of the statutory sick pay scheme in the light of its operation to date.

A number of points have been raised and I shall deal first with the point raised by my noble friend Lord Selkirk purely because it is at the forefront of my mind. I can tell my noble friend that, yes, statutory sick pay is subject to income tax; it is classed as earnings.

The noble Baroness, Lady Jeger, raised a number of points. The first concerned the implementation of the scheme and the difficulties encountered, especially by small businesses. As the noble Baroness will know, the Income Data Services Study of June 1984 stated that: After one year's operation it would appear that the implementation of SSP has gone remarkably smoothly. Only the Federation of Self-Employed and Small Businesses remain convinced that the scheme is not working satisfactorily". This was also a point raised by the noble Lord, Lord Banks. There has been some difficulty for small employers, but these are mainly of a technical nature. I gather that about 20 per cent. of the company schemes of which inquiries have been made have had these difficulties. As a result there have been very minor small overpayments or underpayments.

As regards the extra administrative work, both the noble Baroness and the noble Lord will be pleased to note the amendment that is due to be introduced in another place at the Committee stage of the Social Security Bill to try to help small businesses in this way.

The noble Baroness, Lady Jeger, also raised the point as to why SSP is not up-rated at the same time as social security benefits. It is more convenient for employers to deal with an increase in SSP rates at the beginning of the tax year, rather than in November. The contribution rates change in April and the lower earnings limit for contributions concerning the lower rate of SSP also begins at that time. Therefore it is natural to start SSP in April.

The noble Lord, Lord Banks, raised the very important point—and I am grateful to him for giving me notice of it—of whether it is necessary to have two separate and different benefits for sickness. One of the major reasons for introducing the statutory sick pay scheme in April 1983 was the duplication which existed between state and private provision. The DHSS was paying some 10 million sickness benefit claims a year, but the rapid growth of occupational sick pay schemes meant that most claimants were also getting sick pay from their employers and many were on full pay. Often the employer offset the amount of sickness benefit against the sick pay he paid.

There was then duplication of both effort and provision. This was not sensible and the SSP scheme was accordingly introduced in April 1983 to cover the bulk of short-term sickness—the first eight weeks. As the noble Lord, Lord Banks, knows, from April 1986 we are proposing to extend SSP to cover the whole 28 weeks for which sickness benefit is currently payable. This means that for most employees SSP will completely replace sickness benefit and there will be less duplication on that front. However, it will still be necessary to retain the sickness benefit scheme for those people not entitled to SSP—for example, the self-employed and unemployed are not covered. Also, some employees are excluded from SSP; people over pension age or who have been receiving state sickness or invalidity benefit within the last eight weeks are examples of these.

Thus, while I agree with the noble Lord, Lord Banks, that, with the extension of SSP to 28 weeks, two schemes for short-term sickness are not necessary, we must continue to provide state sickness benefit for those people who, for a variety of reasons, may not get SSP. I understand that those who are entitled to SSP comprise something like 90 per cent.

The statutory sick pay scheme has been launched successfully and is proceeding with remarkably few difficulties. It has successfully achieved and will continue to achieve the objectives for which it was set up. The order before the House proposes adjustments to the statutory minimum rates of sick pay so as to keep their value abreast of the general rise in prices, and I trust that it will receive your Lordships' approval. Perhaps I may conclude by wishing the noble Baroness and the noble Lord, Lord Banks, a very happy Christmas and, in spite of a Bill coming before us, a quiet New Year.

On Question, Motion agreed to.