§ 3.8 p.m.
§ The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)
My Lords, I beg to move that the Bill be now read a second time.
This is a very short Bill. It has only three clauses and deals solely with the arrangements under which employers can currently recover from their remittances of national insurance contributions the whole of the statutory sick pay which they pay out to their employees when sick. I shall of course come to the precise provisions in the Bill during the course of my speech but first of all it may be helpful to the House if I say a few words about the background to the Bill, which forms part of the Government's proposals for the restructuring of statutory sick pay—for simplicity, I shall refer to it as SSP—which began last year.
When SSP was first introduced there were naturally apprehensions about the impact of the scheme on the part of both employers and employees but it is fair to say that SSP has been largely a success story. Employers quickly assimilated SSP within their normal payroll arrangements and most operate the arrangements with very little difficulty. I accept that smaller employers who have to operate the scheme less frequently may on occasion find it more difficult. That is something which has concerned me in particular as the Minister in the Department of Social Security with 389 responsibility for deregulation. But I am pleased to say that a number of initiatives have been taken over recent years to assist such employers with improved guidance and training.
At the same time occupational sick pay coverage has continued to grow. Research carried out for the department in 1988 showed that 91 per cent. of employees—that is 20 million of the workforce—now work for employers who have occupational sick pay. That is an impressive figure. It reflects—in the Government's view quite properly—the acceptance by employers of much greater responsibility to cover short-term sickness among their employees.
Of course, not everyone is covered. Some new employees under particular schemes may have to serve a qualification period before becoming eligible. Those employees who do not, as yet, have any occupational sick pay cover tend to be mainly people in low paid or part-time employment. The Government have recognised this in the uprating proposals which I will come to in a moment.
There is no doubt that the growth of occupational sick pay schemes now means that for the great majority of those in work, the rates of SSP bear little or no relation to the amount they actually receive when sick. It is right that the Government should take account of this in the future development of the scheme and in considering the distribution of available resources within the social security system as a whole.
I turn now to the actual proposals announced by my right honourable friend the Secretary of State in his Uprating Statement. There are two elements in these proposals: the first concerns the reimbursement arrangements for employers, which is the subject of this Bill; and the second concerns the changes in the rates and earnings threshold for SSP, which will come before the House in due course when the main benefit uprating package is debated early in the new year.
As noble Lords will know, there are two rates of SSP. The lower rate currently goes to those employees whose average weekly earnings are between £46 and £125. The Government intend to increase this rate by the full RPI increase of 10.9 per cent. from £39.25 to £43.50 a week. This recognises that low paid and part-time workers on this rate are less likely to have occupational sick pay.
At the same time the dividing line between the two rates will be raised to cover the whole range of earnings bands within which employers pay the lower rate of contribution. This currently covers employees earning less than £175 a week, but will increase to £185 a week from April 1991. Finally, it is proposed that the higher rate of SSP will remain unchanged at £52.50 a week. Subject to parliamentary approval, these changes will take effect from 6th April 1991. These changes will reduce public expenditure by £100 million in 1991–92. But I should like to emphasise that the vast majority of employees will experience no reduction in the total payment they receive when sick. That is because of the way occupational sick pay interacts with SSP.
390 I shall now deal with the provisions in the Bill. It may be helpful to noble Lords if I first explain how the reimbursement arrangements work. They are very simple. Employers deduct from their regular monthly remittances of national insurance contributions to the Inland Revenue the gross amount of SSP which they have paid to their employees. If the total of contributions due is less than the SSP recoverable, the employer can similarly adjust his payment of PAYE tax. Since April 1985 an employer has also been able to recover in the same way an additional amount by way of compensation for the cost of the national insurance contributions payable on the SSP itself. This amount is fixed each year and is currently 7 per cent. of the total SSP paid.
I turn now to the precise proposals in the Bill. All the substantive provisions are in Clause 1. Clause 1(1) reduces the amount of SSP which employers can recover—by the method which I have just described —from 100 per cent. to 80 per cent. Clause 1(2) enables the percentage to be varied by order and Clause 1(3) brings to an end the additional 7 per cent. compensation rate. Of the two remaining subsections in this clause, the first provides for regulations to enable employers to round the amount to the nearest penny and the second makes a consequential amendment to the 1975 Act relating to the transfer of funds between the Consolidated Fund and the National Insurance Fund. Clauses 2 and 3 deal with consequential and supplementary matters.
As indicated in the Explanatory and Financial Memorandum to the Bill, the change from 100 per cent. to 80 per cent. reimbursement will result in public expenditure savings of £181 million in 1991–92, rising to £190 million and £197 million in the following years. The end of the 7 per cent. compensation rate will increase income to the National Insurance Fund by £71 million, £75 million and £78 million in each of the three respective years.
The main comments on the Bill have not unnaturally centred on the effect on employers. But before coming to these I want to emphasise that the changes in the Bill will have no effect on employees. The Bill does not change an employee's entitlement to SSP in any way.
In considering the effect on employers it is important to look at the SSP changes in the context of the proposed reductions in national insurance contributions—which I will come to shortly—which go a long way towards offsetting any additional cost to employers of the reduced reimbursement arrangements. But first of all, I wish to deal with the charge made in some quarters that the Government have in some way reneged on a previous agreement. I certainly acknowledge that the method of reimbursement was a major factor in the discussions which took place with employers and their organisations before SSP began in 1983. Employers' organisations—including the small business interests—pressed strongly for full reimbursement. I accept that, in the face of having to take on a completely new and untried commitment, this was an entirely reasonable approach. After detailed discussions the Government accordingly agreed to the 391 present 100 per cent. recovery system at the outset of SSP. But I believe it is equally reasonable, now that employers have been successfully operating SSP for nearly eight years and in the light of developments in occupational sick pay, that the Government should take a fresh look at the arrangements. That is what we are new doing.
Some employers have argued that it is not their place to provide short-term sickness cover for their employees. The Government cannot accept this; indeed all the evidence about the growth of occupational sick pay points in the opposite direction. I recognise, of course, that this may not be so easy for the small employer as for major companies. But even where smaller employers do not operate formal schemes, they often make discretionary payments or continue full pay for short spells of sickness.
One matter which has particularly worried business is that, the Government have some deep-laid plan to make progressive reductions in the percentage rate in the future. I can assure the House that the Government have no plans at this time to make further changes. We have, however, noted the concern on this point and my right honourable friend has undertaken that, should any order reducing further the reimbursement rate be brought forward—and, as I have said, we have no such plans—this would be subject to the affirmative resolution procedure. I shall be bringing forward an amendment to that effect in Committee.
I turn now to the ending of the 7 per cent. compensation rate. This is intended to compensate employers for the cost of the national insurance contributions they pay on SSP itself. But it has been of only limited success. Despite widespread publicity, about 25 per cent. of this additional compensation is unclaimed. Moreover, in the interests of simplicity it is available on all SSP paid, even where the total payment is below the lower earnings limit and would not, therefore, have attracted liability for national insurance contributions. This is not a sensible arrangement and is why we have included it within this package of SSP changes.
The Government appreciate the concerns expressed by some employers and their organisations about the costs to them of the SSP proposals. Indeed my right honourable friend and myself recently met representatives of both the Confederation of British Industry and the National Federation of Self-Employed and Small Businesses to discuss the proposals. But let me try to put these costs into perspective. The reduction to 80 per cent. reimbursement from what is in effect 107 per cent. will cost £250 million. While that is not an inconsiderable sum, it represents only a tiny proportion—not much more than 0.05 per cent.—of the labour costs over the economy as a whole, which are running at well over £300 billion a year.
The precise effects on individual employers will, of course, depend on the level of sickness experienced in their workforce; but the implications generally are not expected to be significant. It should be remembered 392 that although SSP is payable for 28 weeks, the average spell of sickness lasts only three weeks. In 90 per cent. of cases, sickness is over within eight weeks.
Nevertheless, side by side with that package of SSP changes, the Government propose to make substantial reductions in employers' national insurance contributions liability. Although those reductions extend across the whole spectrum of national insurance contributions, they have been particularly weighted to help smaller employers.
It is proposed that the standard rate of contribution payable by employers will be reduced from 10.45 per cent. to 10.4 per cent. and the lower rates of 5 per cent., 7 per cent., and 9 per cent.—which currently apply in respect of employees earning up to £175 per week—to 4.6 per cent., 6.6 per cent., and 8.6 per cent. respectively. Those changes will reduce employers' costs by some £250 million, and, as I said earlier, should be particularly helpful to smaller employers, whose employees are likely to be among the less highly paid. For employees earning £70, £120 or £170 a week the employers' weekly national insurance contribution will reduce by 28p, 48p and 68p respectively.
From the discussions we have had, and representations received, it is clear that not all employers have appreciated the significance of those reductions, and it may be helpful if I give one or two examples. If we take an employer with five employees all earning £170 per week, and one employee had three weeks' sickness during the year—which matches the average incidence of sickness—the extra cost in SSP would be £82.41 assuming the employer makes good the difference between the higher and lower rate of SSP with occupational sick pay. But the annual saving to the employer on his national contribution liability as a whole would be £176.80, putting him £94.39 in profit. Even if the same employer had a further employee, also sick for three weeks, he would still make a saving of £11.98. If we look at an employer with 20 employees, again all earning £170 per week, who had four employees off sick for three weeks each, the annual saving would be £377.56.
I do not wish to give the impression that the employer will always come out on top. Clearly, the net effect of the proposals cannot be neutral for all employers. There will be variations depending on individual levels of pay and sickness. For example, the contribution reductions are not so advantageous in respect of employees earning £185 or more a week. But, particularly for small employers, they go a considerable way towards offsetting the costs of the SSP changes and in some cases will more than fully offset them.
As my right honourable friend the Secretary of State made clear both in his up-rating Statement and in the debates on the Bill in the other place, the Government firmly believe that it is better for available resources from the taxpayer to be concentrated on those least likely to have occupational provision or on other areas of social security for which employers cannot provide. That is what we 393 have sought to do in the overall SSP package we are now proposing, an important part of which is included in the Bill. I commend it to the House. I beg to move.
Moved, That the Bill be now read a second time.—(Lord Henley.)
§ 3.24 p.m.
§ Lord Carter
My Lords, the House is grateful to the Minister for his clear exposition of the Bill. But the thanks from these Benches and, I suspect, from other parts of the House stop there. The Bill may, as he said, be one of the shortest of the Session; it is certainly the meanest we shall have to consider. Indeed, the Bill may constitute something of a record. It has three clauses only, yet it has encountered the unanimous opposition of the CBI, the Forum of Private Business, the National Federation of the Self-employed and Small Businesses, the Low Pay Unit, the Disability Alliance, the TUC, the National Association of Citizens Advice Bureaux, the Retail Consortium, the National Farmers' Union, the Building Employers Federation, the Association of Independent Businesses, the Institute of Directors, and the Union of Independent Companies. And that is only today's post!
Similar proposals in an earlier Bill were strongly criticised by the Social Security Advisory Committee. However, the committee was unable to comment on this Bill as it was rushed through the other place with one day only between its Second Reading and its Committee stage and Third Reading. The Government allowed just three weeks between the publication of their proposals and the Bill completing all its stages in another place with, as I understand it, no consultation at all with outside bodies before publication.
The Bill's purpose is clear. As the CBI has said, it contains a fundamental reform of the current partnership between the state and employers in delivering an important social security benefit. It undermines the basis of the agreement between employers and the Government on the administration of the statutory sick pay scheme. I was surprised to hear the Minister say that the Bill would have no effect on employees, because the up-rating associated with it removes 3 million employees from eligibility for the higher rate of statutory sick pay. As a result, some 600,000 people stand to lose an average of £9 per week while sick. Those 600,000 are in addition to the 300,000 who lost £13 a week as a result of the changes in sick pay entitlements from April this year. No fewer than 5 million people have had their entitlement to SSP reduced in the past two years.
All this is happening because the Government are relying upon employers to make up the difference, without knowing how many employees are covered by occupational sick pay schemes. The Minister for Social Security and Disabled People, Mr. Nicholas Scott, on Second Reading in another place on 26th November said:We do not know exactly how many people are covered by sick pay schemes" —[Official Report, Commons, 26/11/90; col. 708.]394 The Minister referred to the statistics contained in a 1988 survey showing that 91 per cent. of the workforce work for employers who provide some occupational cover. That does not mean that 91 per cent. of the workforce are covered. Let me take a simple example —a company has 100 employees but its sick pay scheme has exclusion clauses to omit part-time workers or includes a requirement for a qualifying length of service. One could well find that half the employees only are eligible for the scheme although 100 per cent. of the employees work for a firm that has a sick pay scheme.
We know that 55 per cent. of firms with fewer than 10 employees have no scheme and that 96 per cent. of all businesses employ fewer than 20 people. More than 10 million workers may not be fully covered by occupational sick pay schemes.
Why have the Government introduced the Bill? The answer is simple. It was given by the Secretary of State for Social Security, Mr. Newton, on Second Reading in the other place. He said:The proposals were developed during the public expenditure round that led to my uprating statement on 24 October. They were examined in terms of the context, pattern and the priorities of social security expenditure as a whole" —[Official Report, Commons, 26/11/90; col. 644.]In other words the Chief Secretary to the Treasury must have told the Secretary of State that if he wanted some money to increase child benefit and help the disabled, he would have to make savings elsewhere in his budget. The savings are clear: £100 million in 1991–92 from failing to uprate the higher rate of SSP and by reducing the numbers eligible for the higher rate—a government technique for helping to finance improvements in some benefits by penalising, in this case, the low paid, especially women, who are off work through sickness. It has been estimated that 60 per cent. of all losers will be women. I fear that there is nothing new in that technique. Of the £26 billion that has been given away since 1979 in higher rate tax cuts, no less than £22 billion has come from pensioners by breaking the link between earnings and pensions.
While on that point, it is worth remarking that so long as the up-rating of SSP is linked to the retail prices index and the eligibility threshold is linked to earnings, it is a matter of simple logic that SSP will become a smaller and smaller proportion of the earnings lost through sickness. As a result, more people will become dependent on means-tested benefits. I said earlier that 60 per cent. of all losers would be women. It has been suggested that this could be regarded as discriminatory and might be contrary to Community law.
Why do we have to have a Bill to save the Government £100 million? The saving could have been achieved simply by adjusting the up-rating and changing the earnings threshold —all done through regulations and orders. The answer is simple. It appears in Clause 1(2) and Clause 2(3). The Government have taken the power to reduce employers' reimbursement of SSP from 100 per cent. 395 to 80 per cent., as the Minister said. Then they take the power to make all further adjustments which are bound to be downwards, by regulation or order.
A multitude of employers' organisations are concerned—rightly—that exactly the same thing will happen with statutory sick pay as happened with redundancy rebates. This year, the cost to employers of £258 million will be met by reducing employers' national insurance contributions by £250 million. These are the global figures. The incidence will vary greatly between individual employers and will bite particularly hard on smaller employers.
The Government have refused to undertake that future reductions in employers' reimbursements will he matched by corresponding reductions in national insurance contributions. The Minister for Social Security and Disabled People, Mr. Scott, made it clear at column 703 on 26th November, replying to a Question regarding the linkage between reimbursement of payments by employers and the level of national insurance contributions. He said:These are two quite separate matters. As my right hon. Friend said, this year we are considering the changes in the context of reductions to be made in national insurance contributions. The two, however, are not linked. The only statutory duty that my right hon. Friend has when looking at the national insurance fund is to consider the incomings and outgoings from the fund and to decide what changes may be necessary".At column 704, he said:I have already said that we have no plans to alter, either up or down, the rate of reimbursement for statutory sick pay".—that is after the reduction from 100 per cent. to 80 per cent.—This year we have looked at the proposed changes in the light of reductions in national insurance contributions. We should have to see where we were if we ever wanted to consider changing the rate of reimbursement either up or down".That quotation gives the game away completely. The Minister was careful to say that the Government had no plans at this time to change the relationship between reimbursement and national insurance contributions.
I fear that deep down the Government—or at least the Government so recently espoused of Thatcherite principles—just do not believe that the state has a primary responsibility for sick pay. They see it as simply another example of a public service which could be better done by private insurance. I wish to ask the Minister whether he agrees that the state has an obligation to the sick and that the Government should not seek to shift that responsibility to employers who already have to carry a fair proportion of the cost of sickness. Of course, as the Minister said, they tried this once before in 1980–81 and had to retreat in the face of considerable opposition from employers' organisations. The Government have certainly learnt from that experience. This time the Bill is being rushed through without consulting outside organisations, the Social Security Advisory Committee or the department's internal advisory committee.
396 I appreciate that it is the convention in this House that Bills should not be denied a Second Reading. However, I urge the Minister and his department to think very hard between now and Committee stage to see whether the worst aspects of the Bill and the associated changes in benefits can be lessened. Many organisations have asked for the Bill to he withdrawn while consultations take place. Will the Minister agree to this? After all, we see a positive epidemic of perestroika and glasnost emanating from the new Prime Minister and his Cabinet. Ministers are tripping over each other to distance themselves from the policies they were so loyally defending only three or four weeks ago. Surely this Bill is a good example of just the sort of hasty and ill-considered legislation which should now be the subject of—to coin a phrase a fundamental review so that the effects on hundreds of thousands of small employers and millions of the low paid can be properly researched and dealt with.
As I said, every employers' and employees' organisation that has examined the Bill has urged the Government to think again. The disability organisations are concerned about the effects on the employment of disabled people. Lower paid workers and those in industries with no organised sick pay schemes stand to lose disproportionately. Women in work will be particularly penalised. For all these reasons, from these Benches we urge the Government to think again.
§ 3.35 p.m.
§ Earl Russell
My Lords, I wish to congratulate my noble kinsman on his speech introducing the Bill. I have not heard so able an example of the sedative style of ministerial speaking since the speech with which the noble Lord, Lord Belstead, wound up the debate on the Second Reading of the poll tax Bill.
The noble Lord, Lord Carter, has drawn attention to the Secretary of State's remark that the Bill originated during the public expenditure round. Perhaps that is of some help in explaining the quite remarkable lack of consultation to which attention has been drawn in all quarters. I am delighted to hear that a meeting has taken place with the Confederation of British Industry; better late than never. It should have happened before the Bill was drafted.
The noble Lord, Lord Carter, has drawn attention to the absence of any report from the Social Security Advisory Committee. That is because last year in paragraph 15 of Schedule 6 to the Social Security Act, we authorised the Government to vary statutory sick pay by order. Noble Lords on the Opposition Benches are occasionally accused, in matters of liberty, of having a vigilance too eternal to be taken seriously. On this occasion our vigilance was not great enough. For my part, I am sorry for it.
It is not only a matter of an extraordinary lack of consultation; it is also a matter of the quite remarkable haste with which the Bill has progressed. It is less than a year since I drew attention to the speed with which the Education (Student Loans) Bill was progressing. I did not expect, before the year was out, 397 to find a controversial Bill progressing with a speed that makes the pace of that Bill appear to have the stateliness of an elephant.
It is 35 days since the Session began and this Bill is now receiving its Second Reading in the second Chamber. It is not as though it were uncontroversial. It is not only controversial between the parties; it has caused great discontent among a vast number of organisations, including many of those representing industry: the Confederation of British Industry, the National Federation of Self Employed and Small Businesses, the Retail Consortium and even the Institute of Directors. Moreover, when a Bill causes equal offence to the Labour Party and the Institute of Directors, perhaps we need to wonder whether something has gone badly wrong.
Mr. Michael Meacher, speaking on the Bill in another place —and I paraphrase—said that the effect of the Bill on employers was of greater concern to Conservative than to Labour Members. That remark does not apply to Liberal Democrats. The effect of the Bill on employers is of deep concern to us. We understand that wealth has to be created before it can be spent. One of our biggest objections to the Bill is that it tends, no doubt in a small but none the less significant way, to increase industrial costs.
We have some difficulty in dealing with the Bill for it is part of a larger restructuring of statutory sick pay, including changes in rates which are to be brought about by order. Therefore, we can only address a small part of the iceberg here. However, we should not forget the existence of the rest; nor should we forget the existence of the clause which authorises the Minister to vary the rate of reimbursement to employers by order. I heard and was deeply grateful for the assurance given by my noble kinsman that any proceedings under that heading will be taken by affirmative instrument. However, I wish with respect to ask my noble kinsman and the Secretary of State to think about whether that is quite enough.
I also heard and welcomed the assurances given not only by my noble kinsman but also by his right honourable friends the Secretary of State and Mr. Scott that these provisions are not part of a deep-laid plan and that the Government have no present plans to take advantage of that clause. Naturally I accept those assurances completely, but, as I accept them, I do not see the need for the clause which authorises the Government to vary reimbursements further by order. If the Government do not wish to use that clause, why have they included it in the Bill?
Considerable anxiety has been expressed, notably by employers' organisations, as they fear that the Bill is the thin end of the wedge. I accept that it is not so intended, but if Ministers wish to dispel that impression they will not be successful unless they remove the clause which authorises them to vary the rate of reimbursement further by order. I hope that before we reach the Committee stage my noble kinsman and his right honourable friends will think seriously about that matter.
398 There is considerable doubt as regards the effects of the Bill, especially the effect on public spending and in terms of net cost to employers. I fully accept that employers are in part compensated by the reduction in the rate of their national insurance contributions. However, my noble kinsman said only that the Government would go a long way towards meeting employers' costs. He did not undertake to meet all the costs. Employers are losing not only the 20 per cent. reimbursement at the higher rates but also the 7 per cent. payment which was understood to be a payment to meet administrative costs. Therefore, there is a net loss to employers of 27 per cent. That is certain.
As my noble kinsman admitted, the cost to the employer is a variant because it depends on the rate of sickness in a particular company and in any one year. That is a matter which cannot be entirely predicted. Therefore, anything that any of us say about costs must include an element of conjecture. This measure means that a much greater proportion of the risk of sickness will fall on the individual employer. That seems to me to offend against the basic principle of insurance that there is sense in trying to spread the risk. It seems to me that the Government are on a fork. Either the Bill will place increased costs on employers—in that case, I believe it is undesirable—or it will not reduce public expenditure. If public expenditure is not to be reduced I do not understand why the Government wish to pass the Bill.
I have also heard, notably from the Private Business Forum, a great deal of complaint about the increased burden of administrative work that is being placed on small employers in particular. Small employers complain about a constant deluge of forms. In talking about the discouraging effect that this has, the Private Business Forum is beginning to sound at times like the teachers. That reminds me of the fact that there are more areas now where there is a greater need to roll back the frontiers of the state than there ever were in 1979. What will be the ultimate effect of this measure on our industrial situation and on the balance of costs? We must remember that the measure is being introduced at the beginning of a recession. That does not seem to me to be the right time to increase industrial costs.
There has been a great deal of complaint—a lot of it from the National Association of Citizens Advice Bureaux—about the tendency under the present legislation for employers to dismiss workers who claim statutory sick pay. Good employers will not do that, but one of the reasons I regret having this Bill is that it will, in effect, place the burden that is evaded by bad employers on to good employers. That seems to me to be a bad balance to set.
There is also much anxiety—this should worry the Government—about the number of employers who do not pay national insurance. I cannot see that this Bill will do anything other than increase that number. The Government and sick people will lose from that situation. The concept of awarding full compensation at the lower rate but not at the higher rate will create an effective poverty trap at a level of £125 a week. As soon as a wage is raised to £126 a week the employer 399 has to take on the whole business of administering and paying compensation for the final 20 per cent. of the sick pay. Therefore, the Bill will have the effect of holding down wages. It will also have an effect on hard-pressed companies—during a recession there must be hard-pressed companies—in increasing the drift to part-time work. That is contributing to the growing problem of an underclass. That is revealed in the social security budget, though it is concealed elsewhere. It is a factor which should worry all of us.
The final effect that I believe the measure will have in this area is that suggested by the Minister's honourable friend, Mr. Thurnham, who suggested that, when faced with increased costs, employers would simply increase prices and pass on the costs to consumers. In that way the Bill will increase inflation. That phenomenon has been shown to occur as far back as records exist. I do not see why this measure should be an exception to it.
The Bill is designed to rob Peter to pay Paul, but it will be less effective at paying Paul than at robbing Peter. It will be more effective at increasing industrial costs than at saving public money. The net effects of this Bill will do more harm to public expenditure than we imagine. Employers who do not pay national insurance will diminish public revenue. Wages stopped at a level of £125—if I am right about that—will result in a cost as the Government will have to increase expenditure on housing benefit. Due to the way housing benefit is administered I cannot even attempt to quantify that sum, but that does not mean that it will not arise.
If the measure leads to dismissals, as many of us fear, that again will increase the number of people who depend on the social security budget. It will tend to increase social security spending, not reduce it. Those who turn to part-time work may well find that they have to be supplemented by income support. There will also be an increase in public expenditure by that route. By the time all those effects are considered it is almost certain that the Bill will result in higher public expenditure rather than a saving. The effect of the Bill will al one and the same time be to increase industrial costs, public spending, unemployment and inflation. That is four own goals in a three-clause Bill. That is a record which takes some beating.
§ 3.49 p.m.
§ Lard Birkett
My Lords, I rise to introduce briefly one small caveat into the thinking on the Bill. I refer to small businesses and, in particular, small and slightly irregular businesses. As your Lordships may have predicted, I have in mind the theatre, and the arts in general.
Lest your Lordships should think that this is yet another bleat from a highly articulate, but forever complaining, industry perhaps I may say that I do not believe that it is. When I speak on behalf of the theatre and the arts in general I may unwittingly also be speaking on behalf of a number of small businesses.
I can understand the noble Lord, Lord Henley, speaking about the effect of occupational sick-pay schemes in respect of the whole of industry. I can 400 appreciate that very large firms have very effective and protective schemes and that is not simply because they are large. There is a temptation to believe that the big boys can get it right and the small ones cannot. I believe that it is a matter not so much of size as of predictability. So many of the great industries of this country are not only large but they are predictable. Short of disasters occurring within the market, their output and their employment policies are predictable and they can develop occupational sick pay schemes that suit them very well. I welcome the, fact that they do.
However, in the case of the theatre or the arts in general, matters are very much less predictable. Any small theatre will find that its business will expand and contract like a bellows in the course of a year. Its employment position is totally unpredictable; its income is unpredictable; and its financial position is always unpredictable. It is not just that theatres and the arts in general are always in trouble; it is very difficult for them to arrange schemes that will protect them against the effects of the Bill.
Like every other speaker on this Bill, I cannot rely on statistics. As the noble Lord, Lord Henley, pointed out in his introductory remarks, one cannot apply statistics to the Bill because one would have to predict the level of sickness, the numbers who will be sick and for how long. That is impossible. Therefore statistics will not help us. However, I have a shrewd feeling that the arts in general and the theatre in particular will suffer from the Bill, although I cannot predict whether they will suffer in the first year in view of the quid pro quo outlined by the noble Lord, Lord Henley.
Like the noble Earl, Lord Russell, I was relieved to hear the noble Lord say that there was no plan further to reduce the statutory amount that an employer can recover. Although I recognise that the Minister said that there are no plans at present to use the provision, if one wanted to invent a wedge with a very thin edge at one end and a very thick one at the other, Clause 1(2) would provide a model. I respect entirely what the noble Lord said on the subject. However, I hope that that provision will not be used, because if the 20 per cent. reduction were to become 40 per cent., 60 per cent., 80 per cent., or indeed the facility was removed entirely, the people about whom I am talking—and I am sure that there are far more of them than I wot of, and I speak on behalf of many small businesses—would be very seriously hurt indeed.
When the noble Lord, Lord Henley, replies to this debate—or during other stages of the Bill—I hope that he will think very carefully about what action he can take to make sure that the small and unpredictable element of industry is not hurt, as I fear it may be.
§ 3.54 p.m.
§ Lord Boyd-Carpenter
My Lords, I do not believe that any of your Lordships would accuse me of being a regular exponent of increased public expenditure or an inveterate opponent of economy measures. Nevertheless, I am bound to say that I am sorry that the Bill has come forward this afternoon. I had rather hoped, and I still nourish the hope, that the new 401 Government would give further consideration to the matter. I find myself agreeing entirely with what the noble Lord, Lord Carter, said on that point. Since presumably there is no question of a Committee stage until after the Recess, that will give some time for the Government—no doubt after listening to the advice which the noble Lord, Lord Henley, will give them—to consider further whether it is right to go forward with this measure at this time.
I shall not detain your Lordships for more than a moment or two, but I very much agree with the noble Lord, Lord Birkett, that the effect of the Bill will be most harsh and harmful for the smaller business. I rather doubt that its effects will be confined to the theatre and the arts, although one would naturally regret it in those areas. It will plainly make matters more difficult for the small employer who is unable to spread the cost of the measure over a large workforce. That is one objection to it.
Another objection is the timing. There is no dispute that the measure will increase industrial costs. It must do so, otherwise from where will the increased gain to public funds referred to in the memorandum attached to the Bill come? It will come from employers who, having allowed for a reduction in their ordinary National Insurance contributions, will be paying more in contributions generally. I cannot imagine a worse moment for introducing the measure. Whether or not we use the formidable word "recession", we are obviously in a position in which trade is becoming quieter, perhaps as a necessary consequence of the necessary measures against inflation. However, it is a fact, and surely this is the wrong moment—when employers are struggling to keep going in a failing market—to add unnecessarily to their costs.
My noble friend will no doubt say that it is a very small addition in proportion to employers' vast costs. He said something to that effect in his opening speech. However, that does not deal with the principle. If it is wrong to increase employers' costs then it must be wrong to do so, even by a small amount, at this particular time.
That again is a factor which entitles one to ask the Government to think again about the Bill. It may well he that in the better economic circumstances, which we hope and believe will arise in a year or two, the case for the Bill will be stronger than it is now. However, we are being asked to deal with the Bill now, against the background of the present situation. That seems to me to be a very serious objection to it.
As an old hand in social security matters, I hope that I may be allowed to say that it seems to go against the principle of the old sickness benefit—which was a National Insurance benefit to which the employer and the worker, and the Treasury, contributed—to add deliberately to employers' costs by denying them 20 per cent. (or, as has been pointed out, a total of 27 per cent.) of the refund to which they are entitled under the present system. Surely that is going against that principle, a principle to which I attach a certain amount of importance.
402 I come now to the question of the amount. What is the particular merit of 80 per cent as against 75 per cent., 85 per cent. or any other figure? Have the Government just thought of a figure and put it in? What is the intellectual and logical justification for reducing the repayment to the employer by 20 per cent. (or 27 per cent.) to 80 per cent? What is the justification?
I do not like Clause 1(2) which enables that figure to be altered, admittedly up or down, by statutory instrument. That provision is made less alarming as a result of the concession which my noble friend very properly announced that the statutory instrument concerned would be subject to the affirmative procedure.
§ Lord Carter
My Lords, will the noble Lord allow me to intervene? I am very grateful. He said that the order would allow the rate to be altered up or down. Can he conceive of any circumstances in which this Government would increase the reimbursement from 80 per cent. to 90 per cent., or back to 100 per cent?
§ Lord Boyd-Carpenter
I can indeed, my Lords. This is a very reasonable government. They have just heard a most reasonable speech advocating just that from the noble Lord, Lord Carter, and I hope that they are listening to what I consider to be a no less reasonable speech from one of their regular supporters. I can imagine that a thoughtful government would say, "Well, perhaps we are". As the noble Lord, Lord Carter, will realise, that is the very point that I made at the beginning of my speech, expressing the hope that the Government will give further consideration to the matter and not press on with the Bill at this time.
I wish to make only two other points. First, I suppose that making the employer pay 27 per cent. of the SSP for sick workers may result in some employers becoming more suspicious or careful, whichever way one wishes to look at it, about employing people who have doubtful health. Obviously, employees liable to sickness will appear likely to cost more than employees apparently in good health. Any discrimination against employees who have had bad luck with their health would be a very serious matter socially.
Neither your Lordships nor the Government can shrug off the criticism of all the organisations throughout industry which have objected to this measure. They include the CBI, the Retail Consortium and all those the noble Lord, Lord Carter, very properly quoted. They are unanimously critical of the Bill. It is rare to find those organisations—even the Institute of Directors figures among them—totally in agreement with each other. However, they are unanimous on this point. Surely a thinking and caring government will think and care about the recommendations made by the people who are in the front line—those responsible for running industry who will be exposed to the additional costs and who have warned the Government of the unfortunate effects.
I do not expect that when he replies my noble friend Lord Henley will do other than give his usual robust defence of a government measure. He always does: I often find that the worse the measure the stronger and 403 more robust is his defence, by which I mean that he is a good advocate, as I am sure noble Lords will agree. I hope that after this debate has been studied in the department, as I am sure it will be, and with the Christmas Recess looming, some serious thought will be given to whether it makes sense in the present circumstances to defy the views of practically everybody in industry and at this time put forward a measure which must increase industrial costs. I beg the Government at least to think again.
§ 4.3 p.m.
§ Lord Stanley of Alderley
My Lords, after the speech by my noble friend Lord Boyd-Carpenter, I am sure that I do not want to add to the woes of my noble kinsman Lord Henley. However, although my noble kinsman presented the Bill to your Lordships as the best thing since sliced bread, I have to tell him with the deepest regret that I like neither sliced bread nor his Bill.
I do not usually speak at Second Readings because, like my noble friend Lord Boyd-Carpenter, I generally support the main principles of most government Bills. I am also aware that the powers that be do not pay a great deal of attention to what your Lordships say. I realise that it is extremely difficult to tempt the Government with a carrot. To take the words out of my noble kinsman's mouth, the Government are not a donkey. So, sadly I find it necessary to wait until Committee stage when it is sometimes possible to use the threat of a stick.
However, I dislike the principle of this Bill. Therefore I am somewhat at a loss to know how it can be amended bar sending it right back. I dislike the principle of the Bill for a number of reasons, most of which have already been mentioned. My main objection is that I believe, in common with most noble Lords, that it is the state's main job to protect and help those less fortunate in our society, which in this case are the sick. The noble Lord, Lord Carter, raised that point in the form of a question. I shall be interested to hear what my noble kinsman has to say in reply.
I have to remind him that in 1982 the Government asked, begged and cajoled employers to take over the state's role in administering sickness benefit. The employers did so, albeit reluctantly, and they did it without payment, though it takes work to carry out. Having taken advantage of that offer, the Government now say, "Not only will you administer sickness benefit but you will also part fund it, and just watch out because by instrument we may well increase your share of the funding in the future". The point was made by my noble kinsman Lord Russell. If ever there were a case of my father chastising you with whips and I chastising you with scorpions, this little, mean Bill is one.
Just in case my noble kinsman has not yet got the message, I conclude by repeating that I do not much like his Bill. I hope that he will enjoy the Committee stage when the Christmas spirit that all your Lordships have today been displaying with characteristic warmth will have gone and we shall be back in the cruel light of 1991.
§ 4.6 p.m.
§ Lord Stallard
My Lords, I must begin by apologising for a brief absence which was due to an unavoidable clash of commitments. I heard most of the speeches and confess that I agree with most of the speakers from both sides. So far there has not been much support for this nasty little Bill.
The noble Lord who has just spoken mentioned the Christmas spirit. I had been about to say that just thinking about the Bill has ruined my Christmas. It is certainly in the wrong spirit for me. In his opening remarks the noble Lord, Lord Henley, said that this short Bill represented a success story. The scheme had been a success. All of us have been inundated with letters from employers. I have never had so many letters from employers as well as organisations such as the CBI and the National Federation of Self Employed and Small Businesses which represent thousands of firms and companies, let alone those which are concerned with the employees. None of them says that this has been a success story. In fact most of them infer that they have been conned. They accepted and agreed to it in the first instance because they were to be reimbursed 100 per cent. for the expenditure and administration and so on. They now find that, after the scheme has run for the first 12 months with their help and co-operation, cuts are beginning and it will cost them money. In some cases it will cost £11 per employee per week. That must rebound on the employees. It will affect everybody throughout commerce and industry. If that is considered a success story, I do not know what the noble Lord considers a failure. This is a shocking Bill.
All the organisations mentioned by my noble friend Lord Carter, and accepted by the noble Lord, Lord Boyd-Carpenter, have made strong objections with which I do not disagree. I cannot recall whether the Low Pay Unit and other trade union organisations which represent the employees have been mentioned, nor the people who represent non-trade union employees and so on. They have all seriously examined this measure. I am amazed that a government which will turn somersaults and bend over backwards to offer discussions, meetings and conferences to consider that other abomination the poll tax and seek consensus did not even consult on this Bill. They did not even consult their friends on the Bill. That says something about the Government. I would have referred to the "previous" Government but it is the same Government. They have changed one fellow, but I have seen no real changes and I do not think there will be any. We ought to be careful about going ahead without consultation.
Since the Government were elected in 1979 they have not shrunk from using their massive majority in the other place —the elected dictatorship, as the noble and learned Lord, Lord Hailsham, once called it—to steamroller through much ill thought out, badly drafted legislation. I do not blame the draftsmen. They have been working under tremendous pressure on many Bills since 1979. I have heard the noble and learned Lord, Lord Rawlinson, speak on this point on many occasions. At one stage, before Bills and orders 405 came to the Floor of the House a committee would consider them for omissions, badly drafted clauses and so on. Such consideration has disappeared. We now have the most appalling legislation; and this legislation has been altered 18 times since it was introduced in 1983.
There is something wrong when a new Bill has to be changed so regularly. It ends up as unacceptable to anyone except the Front Bench spokesman for the Government. The Government know that they have a massive majority which will jump when the Whips say "Jump". That position may be coming to an end. I have the impression that the nearer we are to an election the more anxious that massive majority becomes about retaining their seats. Those seats include small businessmen, employers, the CBI and so on. The massive majority is becoming worried. The statutory sick pay legislation will have to be dramatically altered before it is acceptable to the other side.
I have been involved with social security for God knows how many years. I remember when the noble Lord, Lord Boyd-Carpenter, was responsible for social security. I have crossed swords with him, if not personally certainly in correspondence, a number of times. However, since I have been in the House, and since 1979, we have been given a number of reasons why such Bills have been introduced. First, it was to simplify the system. If noble Lords believe that, they will believe the three card trick.
The system was certainly in need of simplification. However, if anyone considers that it has been simplified he should ask the claimants. The forms have become longer, with more questions. People at the bottom of the pile are frightened out of their wits the moment they are offered a form. When I was a Member of another place, they used to come to me on the constituency advice service. They needed most help with filling in the forms. One form is 22 pages long. They do not have to answer all the parts, but one has to explain to them which parts they do not have to answer. It is more complicated than when the form consisted of one or two pages. Do not let anyone kid us that the form is simpler and not as complicated as it was. That is not true.
Secondly, it is said that changes have been made to target the right people. Ask the targets, my Lords. Ask the unemployed. Ask the pensioners who are now struggling to pay two poll taxes when they used to pay only one rate bill. Ask the youngsters who have lost benefits. Who are the targets these changes were meant to benefit? Ask employers who are now worried about their prospects as the cuts begin to bite into what was supposed to be their share of the administrative costs and so on. If these were the people who were targeted, the changes have missed the mark by a mile.
Thirdly, it is said that the changes were to reduce dependency on state benefits. The only way that such changes have reduced dependency is by cutting off many people from the benefit system. I refer to youngsters who receive no benefit and students whose 406 benefits have been cut. They have been pushed into someone else's area—either to the banks for a loan, or on to the streets to beg. The fact that there is no cushion is part of the cause of the increasing social problem. Dependency on benefits was to end. When I referred to ending dependency I meant that a quality of life was to be produced so that people would not have to depend on benefits. It would require the production of more jobs or whatever, and certainly not kicking the problem around, pushing it from one area to another, away from the Government.
The Statutory Sick Pay Bill is another example. It will mean that many people do not receive sick pay. Many of the smaller employers cannot afford to operate the system. We know too that many women, mostly working part time, have clauses in contracts with hours that can be adjusted to make sure that they do not qualify for SSP or for anything else. The employer may say, "Now that it will cost me money, I want to make sure that as many people as possible do not qualify". As another form of reference, the employer may ask, "What is your health record?". He will not ask, "How good are you at the job? How skilled are you? How long have you been employed? What is your experience?". He will ask, "How many times have you been sick", because that affects the profits of the business. It will now be a criterion for employment and will affect people's jobs.
That factor will especially affect the disabled. They have a hard enough job now. If that factor is added—they have to have so many weeks sick pay which will be funded by the employer—the employer will not be too keen to fund it. We all know also about the problems of the blacks and other ethnics. They have a difficult enough job now. If one adds the statutory sick pay factor their position will become impossible.
I do not believe that a government with knowledge of those factors—everyone knows them; they are not something new that I have invented—would have produced such a Bill unless there was something perverse about them. With the noble Lord, Lord Boyd-Carpenter, I hope that the Government will reconsider the Bill before they push it through, using their majority.
The noble Lord, Lord Henley, stated that 90 per cent. of employees are now covered by other occupational schemes. That has been denied by everyone who has anything to do with industry. It is not true. It is almost like the Gallup polls which forecast recent results within the Tory Party.
I do not know who the people were who were questioned in those polls. I do not know how the percentages changed every night. Overnight there was suddenly a reduction in the Labour Party's standing in the polls from 10 per cent., 15 per cent. or 20 per cent. in front to 11 per cent. behind. But nothing had happened except that the Prime Minister had changed.
§ Lord Henley
My Lords, will the noble Lord give way? I ought to correct him. He stated that I said that 90 per cent. of employees were covered. I made it quite clear—the noble Lord, Lord Carter, picked it up—that it was indisputable that 91 per cent. of employees 407 work for an employer who provides occupational sick pay. At no point did I say that that meant that all those people were necessarily covered. I shall deal with the point when I wind up. The noble Lord ought to be clear that I did not say that 90 per cent. of employees were covered.
§ Earl Russell
My Lords, since the point has arisen, will my noble kinsman retreat further to the position taken by the Secretary of State? He stated only that a substantial proportion was covered by occupational schemes. That is at col. 634 of the Official Report of Second Reading.
§ Lord Henley
My Lords, my right honourable friend said that a substantial proportion was covered. What I cannot answer, and my right honourable friend would not be able to answer, is how many people are covered. We know that 91 per cent. of employees work for employers who provide such schemes. We do not know how many are covered. I am certainly prepared to stick to what my right honourable friend said: a substantial proportion.
§ Lord Stallard
My Lords, we hear that intervention with interest. However, the fact remains that the government rationale was based on that 91 per cent. figure. No one involved has accepted the Government's rationale for the basis of the scheme.
I wish to say one word about the future of the scheme. It is worrying many people. If this scheme is allowed to continue it will involve total privatisation. It was the first part of the social security system to be privatised. In effect that part was handed over to the employers. The intention now appears to be to give the responsibility to them completely, gradually whittling away compensation, reimbursement and so on, without providing an adequate response to their problems and queries.
The intention is to privatise and that is totally against everything that the Government have said. I remember the Secretary of State, as he then was, saying that this would be better than Beveridge. The Government were really going to improve on the Beveridge system. It is a complete farce when at the same time they are privatising everything from start to finish. If the Government are beginning to privatise this and make sick people the target of that kind of treatment, it is about time that they not only took this Bill away but went away with it and had a general election. It is absolutely disgraceful.
§ 4.20 p.m.
§ Lord Mottistone
My Lords, I too think it would be better if this Bill did not exist. It is interesting to me that every noble Lord who spoke criticised it, including my noble friend Lord Boyd-Carpenter with his great experience as a Minister for pensions and as Chief Secretary to the Treasury. He ought to know what this is all about, perhaps better than the, department of state which put the Bill forward. My noble friend told us that he believes that it is not a 408 suitable Bill to bring forward at this time, and every noble Lord who spoke gave different examples of how certain people will be badly hit by it.
It is also significant that not only has the CBI objected to the Bill—as your Lordships know, I am principally advised by the CBI in what I say to your Lordships on this sort of matter—but practically every other professional body or trade association that is concerned also considers the Bill to be unsuitable and not one with which your Lordships should be burdened.
Perhaps the most telling point against the Bill, above everything else and apart from the detail, is the fact that at this stage of a Parliament (even if we are to have an election) it has been rushed through. It is a tiny Bill with great implications, as many noble Lords have made clear to us, but it has not only been rushed through but has been rushed through without consultation. That is quite wrong in this sort of area when the Government are seeking to add to the assistance that they are asking from employers in carrying out one of their schemes.
When this system was first introduced nearly 10 years ago great trouble was taken by my right honourable friend Norman Fowler to discuss it very thoroughly with employers because the Government were asking employers to do something for them. I remember very well that, at the beginning, the employers thought that this was just something else they were having to do for government and for which they were not being paid. Whatever we say about 100 per cent. or 80 per cent. reimbursement, the cost of administration has never been paid for. Therefore, the Government rely very much on the employers to carry out this work and it is quite wrong that the Government should not take the same trouble now that they took 10 years ago to get the employers to agree on what they are trying to do.
The Government may have some good arguments, but I must say that my noble friend the Minister did not put forward any convincing arguments, and no other noble Lord who spoke appeared to think so either. If the Government have a good argument they must have it out beforehand with the CBI and with other interested bodies because they are asking those bodies to do something for them. They are changing the rules.
When the CBI and the employers generally agreed to this 10 years ago the administrative responsibility for SSP was agreed to only on the basis that all SSP payments were fully reimbursed. That was accepted by the Secretary of State at the time. My right honourable friend Norman Fowler, then the Minister, said: "Accordingly, the Government have decided to accept the case for 100 per cent. self-deduction".
That argument applies now just as it did in 1981. I come back to the point that if you are changing the rules of a game in which you are asking somebody to share a duty you must discuss the matter beforehand. The Government have not done that and it is quite 409 wrong that this Bill should be not only rushed through the other place at an extraordinary rate but presented to this House without discussions having taken place.
I honestly do not believe that it will help if discussions take place at this stage, because this is a very simple Bill and there is not much room for amendment within it. If discussions take place between now and Committee stage, which is possible, it does not seem to me that it will be easy to get some sort of agreement without accepting that the basis of the Bill is wrong, because there is not enough of it to come to some sort of agreement about minor change. In any case, it has gone through the other place so it will perhaps say, quite reasonably, that it has already approved the Bill in its present form.
Consequently, I say very strongly, as other noble Lords have said, that the best thing the Government can do is to drop this Bill at this stage. If they wish they can then have discussions with the employers' representatives during the next month or so and present us with another Bill which retains the parts of the previous legislation which were accepted by employers 10 years ago and with which they are still prepared to continue.
§ Lord Harmar-Nicholls
My Lords, my noble friend said that he speaks with the authority and backing of the CBI, but I hope he is not saying that even at this late stage, if the Government are prepared to have consultations, he will recommend that they do not take place. I should have thought that half a loaf was better than none. If he cannot get complete agreement then consultation on parts must be good. Perhaps that is what my noble friend said and I misunderstood him.
§ Lord Mottistone
No, my Lords. If it were a more complex Bill I would entirely agree with my noble friend Lord Harmar-Nicholls; but because of the nature of the Bill I doubt whether consultations would prove worth while. I hope that employers do not enter into consultations with their hands tied behind their backs and that the Government do not say, "Sorry, we had consultations, but we did not come to agreement"; or, "We persuaded the CBI" on something about which it patently would not have agreed. That is what I fear. I do not like consultations when there is nothing very much on which to consult; but I fear that that is the case.
It would not be helpful to say much more. Most of the important points on which the CBI has advised me were made by noble Lords and the noble Earl, Lord Russell, in particular. I very much hope that the report of this debate will be carefully read with an open mind, accepting the arguments that have been put forward and not attacking them on the lines, "We must shoot this down and we must shoot that down", and so on. That is not the way to tackle this problem. I hope that something similar to what I have suggested is what the Government, on reflection, will consider to be the best course. If so, I wish them a very happy new year.
§ 4.30 p.m.
§ Lord Gisborough
My Lords, most of the points that I wished to make have been raised but I join noble Lords who oppose the Bill. There is the thin end of the wedge aspect. The Minister stated that the Government had no plans for removing the clause that affects 80 per cent. reimbursement to employers. I cannot see that a future government would not take advantage of that situation in order to try to reduce the amount. If there are no plans for making such an alteration, then I see no need for provision to be made by statutory instrument. There is a lack of assurance from the Government that they will continue to offset the extra cost to employers by reduced national insurance contributions after 1991.
The state has an obligation towards the sick; it should not seek to shift that liability to employers. There is a great concern in agriculture because of the very few people employed in that sector. The same applies to small industries. The Minister stated that the average period of sickness was three weeks. However, it could be longer. I have had experience of one man who was off sick for about a year. Any small business, particularly a farm, employing only one person, would face a catastrophic situation. I know of one company with wholly-owned subsidiaries in Holland and the USA that is now considering transfer of its manufacturing to Holland in order to avoid an increased burden in this country.
The Minister's explanation has allayed some fears. It was a masterpiece. But concern about the Bill is overwhelming. I join those noble Lords who believe that the Bill should be withdraw or redrawn.
§ 4.32 p.m.
§ Lord Simon of Glaisdale
My Lords, I apologise for not putting down my name to speak; I am grateful for being allowed to intervene. I wish to refer to Clause 1(2). It is an example of what is known as a Henry VIII clause. Henry VIII was enabled to alter an Act of Parliament under the Statute of Proclamation; in other words, by ministerial order.
Much has been said already about the Bill. I wish only to point out that Henry VIII clauses were started in approximately 1890 with the first bureaucratic surge. Mostly they were innocuous. But after 1918 they occurred with increased momentum. This aroused considerable concern at the time and the Donoughmore Scott Committee was appointed. It reported in 1932.
When a similar clause was resurrected two Sessions ago—the matter has since been considerably discussed—I understood the noble and learned Lord the Lord Chancellor to state that the Government generally accepted the recommendations of the Donoughmore Scott Committee. One recommendation was that this type of clause should not be introduced into legislation unless strictly necessary. If however, it was introduced it should feature in the Explanatory Memorandum and should be justified to the hilt by the Minister.
It is extraordinary that today we have heard virtually nothing by way of explanation or 411 justification. There is nothing in the Explanatory Memorandum; there was nothing in the otherwise admirable speech of the noble Lord who is in charge of the Bill. Therefore, I am bound to ask whether the Government are reneging on what I understood my noble and learned friend to state during the last Session. Is there any justification for stating that this provision is necessary? If not, so extraordinary a constitutional provision and aggrandisement of executive power at the expense of more normal parliamentary function should not be in the Bill, as has been pointed out by the noble Lords, Lord Boyd-Carpenter and Lord Gisborough.
Again I ask the noble Lord: what is the necessity for the clause? What is its justification? Are the Government standing by the noble and learned Lord's assurance to your Lordships that in general the recommendations of the Donoughmore Scott Report will be observed?
§ 4.35 p.m.
§ Baroness Turner of Camden
My Lords, I agree with my noble friend and a number of other noble Lords who have spoken. This is a very nasty little Bill that is being rushed through without any consultation at all.
As the Minister stated, the intention is to restructure the statutory sick pay scheme. One wonders whether the Bill is a first step on the way to doing away with state involvement in the payment of sick pay to workers and the placing of the entire burden upon employers. The Minister states that there is no intention of doing so at this time. I made a particular note of the words "at this time". However, what will happen in the future? It is not surprising that in current circumstances many people are deeply suspicious of the intention.
It has not been denied by the Government that if the whole package—not simply the Bill—goes through, approximately 3 million workers stand to be worse off than under the present arrangements. Those workers, earning between £125 and £185 per week, will lose eligibility for the higher rate of SSP. As my noble friend stated, 600,000 of the 3 million are expected to claim SSP during the year. They will lose £9 a week each. Sixty per cent. of the losers will be women. Therefore, it is not surprising that on this side of the House we do not accept the Minister's contention that employees will not be worse off.
There are other problems. The Government propose to freeze the higher rate of SSP. That will not be welcomed by employers—and there are some good employers—who make up employees' pay to full salary when they are off sick. The value of the higher rate SSP is being eroded gradually so that such employers will have to pay more money in making up full pay as time goes by. As has been stated on all sides of the House and as the Minister explained the Government intend to cut reimbursement to employers from 100 per cent. to 80 per cent. The Minister claims that the Government will be compensating employers for that loss by reducing employers' national insurance contributions.
412 The organisations representing small businesses are not impressed. They point out that when they first agreed to administer SSP they were told that they would not have to fund it. Now they will clearly have to bear some of the cost. Moreover, an administrative burden is involved which is particularly onerous for small businesses that do not have computerised records or numbers of skilled administrative staff.
The Government are always prating about burdens on business when it comes to protective legislation for employees. That is one of the basic reasons for their opposition to much of the social charter. It is incredible that they should nevertheless be quite happy to impose the extra burden proposed in the Bill. Presumably, there are basic ideological differences with previous administrations, both Labour and Conservative, which believed in a comprehensive system of national insurance. As representatives of small businesses have said, they cannot take on the burden of sick pay for employees. One commented, "We thought that that was what national insurance was all about".
Although willing with some reluctance, as I understand it, to take responsibility on behalf of its members for the original SS pay scheme, the CBI did so because it believed that the Government would continue with 100 per cent. reimbursement and because stability was expected to result from the practice of up-rating in line with inflation. That practice is being departed from as regards the upper rate. As we have said, that means that employers making up to full pay will inevitably have to pay more.
The Government maintain—we have heard it again today—that 90 per cent. of work forces are now covered by occupational sick pay schemes. The Minister clarified that in reply to an intervention. It is however a crucial point that not every member of a workforce which has an occupational scheme is covered by the scheme. A scheme at a particular company may cover some employees and not others. Typically, part-time and temporary employees will not be covered. Senior career staff may be covered, but not manual employees. Moreover, as my noble friend pointed out, schemes vary in the length of time provided. Some may provide sick pay for only six weeks; thereafter the employee will be dependent on SSP.
As we know, the Government will make some savings as a result of this mean measure. However, I question whether those savings are worth the problems which arise from the proposals in the Bill. There are already problems with the present operation of the SSP scheme. The National Association of Citizens Advice Bureaux has cases of clients who have had difficulty obtaining the SSP from employers under the present arrangements. Often people are dismissed when sick, particularly if they are relatively short service employees or part-time workers. Such employees are often not in a position to challenge the refusal of the employer to pay the SSP.
Low pay organisations view with anxiety the Goverment's proposition to reduce reimbursement to 80 per cent. They believe that this may cause 413 employers to look more carefully at applicants' sick records when taking on employees. Those applicants who have had poor health and people with disabilities may find it increasingly hard to obtain employment and, once they have it, to keep it. That may mean further discrimination against people who are unfortunate enough to be diagnosed as HIV positive.
The Equal Opportunities Commission raised an interesting point based on the expectation that women are more likely to be disadvantageously affected than men. As I said, about 60 per cent. of those affected are likely to be women because of their predominance in low paid employment. The EOC wonders whether that may be indirect discrimination since more members of one sex than the other are affected. If so, we may see an interesting reference to the European Court.
There was no reason to depart from simple up-rating in line with inflation. Even so, there is a disadvantage. Since sick pay is intended to replace in part lost earnings, it would be far more appropriate to up-rate in line with the wages index. Up-rating in line with the RPI has already meant an erosion in the actual rate of SSP relative to wages.
This is a nasty little Bill—residual Thatcherism even after the lady has departed. Where is the new caring conservatism of which we have heard so much? I was glad to learn, listening to the contributions of noble Lords opposite and in particular to the noble Lord Lord Boyd-Carpenter, that it is alive and with us in this House.
The Bill has been introduced at great speed. There has been no consultation with the body normally concerned—the Social Security Advisory Committee—or, indeed, with any other body. Also, the Government can make alterations without the necessity of primary legislation; simply by regulation. Although I am not well versed in these matters, I imagine that that was what the noble and learned Lord, Lord Simon of Glaisdale, meant when he referred to Henry VIII.
The Government should take away this matter and re-think it after consultation with all the appropriate bodies including the Social Security Advisory Committee. As a number of noble Lords have pointed out, a vast range of organisations have expressed total opposition to the Bill. That applies not only to employers' organisations but also to low pay organisations, the Trades Union Congress, people looking after the disabled and so on. Very often, those objecting —for example, the Institute of Directors—are those who normally support the Government.
I have some sympathy for the Minister who seems entirely on his own in his support for the Bill. I regret that I cannot join him. I ask him to listen carefully to what has been said. I ask him to take away the Bill and think about it during the Christmas Recess so that we can be told that after consultation with all concerned, it is to be withdrawn.
§ 4.45 p.m.
§ Lord Henley
My Lords, my noble kinsman Lord Russell commented on the style of my delivery in introducing the Bill to the House. He implied that there was a lack of commitment in my devotion to it. I assure him that that is not the case. I am perfectly happy to support the Bill and shall continue to do so. In fact at present I am suffering from a cold and hence my voice—
§ Earl Russell
My Lords, I must make my apologies to my noble kinsman. I intended to convey no such impression and if I inadvertently conveyed it, I withdraw it.
§ Lord Henley
My Lords, I thank my noble kinsman. I was about to say that my noble friend Lord Boyd-Carpenter then went on to say that the weaker the case, the stronger would be my defence of the Bill. Again, I hope that the noble Lord will accept that I shall defend the Bill as strongly as it deserves to be defended. However, I may not be able to make my points in as robust a manner as I would wish because of the problems with my voice.
We have had a very interesting debate on this short Bill although at times it may have appeared to be somewhat one-sided. The Government's view is that this is a fairly modest shift in the balance of short-term sickness provision between the state and business. My noble friend Lord Boyd-Carpenter asked why we had chosen 80 per cent. I repeat that that is a fairly modest shift in the balance. The noble Lord, Lord Carter, asked whether we accepted that there is a state obligation. I should stress that there is a balance of obligation between the state and business. Business quite clearly recognises that, as we have seen from the growth in occupational sick pay provision over the past 10 or 15 years.
There have been complaints that the Bill has been pushed through both Houses with undue haste. There have been complaints also about the lack of consultation. Obviously I can answer only for this House. However, I assure the House that as far as I know through the usual channels we shall return to this Bill in Committee after the Christmas Recess. There will be ample time for consultation with all parties and between myself and my right honourable friend in the Department of Social Security. My door will remain open to any person, or representative of any organisation, who wishes to see me. I believe I can say that the same applies to my right honourable friend. There is no intention to railroad the Bill through the House.
§ Lord Harmar-Nicholls
My Lords, do I understand the noble Lord to be undertaking that between now and the Committee stage there will be consultations not only with the party opposite and with other critics but also with outside bodies? Even at this late stage such consultations may well mitigate some of the details which have caused comment in this debate.
§ Lord Henley
My Lords, I assume that my noble friend was here when I made my opening speech. I clearly stated that my right honourable friend and I have already met representatives of the CBI and the 415 National Federation of Self Employed and Small Businesses Ltd. I was attempting to explain that I was prepared to see whomsoever and whatsoever organisation between now and Committee stage if they wish to discuss the matter with me. My door and the door of my right honourable friend will remain open for that.
I then went on to say that there was no intention to railroad the Bill through either House. It is important that the Bill reaches the statute book at a suitable time to enable employers to make the necessary arrangements with their payroll systems before next April.
I was asked why the Government did not consult employers regarding these proposals in advance of my right honourable friend's uprating announcement. As the House will be aware, these changes form part of the department's overall programme of expenditure. By the very nature of the way in which the process of public expenditure rounds operate—my noble friend Lord Boyd-Carpenter will know this better than I—it was not possible to engage in prior consultations. However, we ensured that employers and their organisations were kept fully in the picture after the first announcement was made.
Concern has been expressed on a number of matters with which I shall attempt to deal. I hope that noble Lords will accept that in the time available I shall not be able to deal with all the points raised. I have already mentioned the point about the lack of consultation. The other major aspects include the question of our imposing an extra burden on industry at a time when it is not necessary; the question of the disabled; the question of employees who earn between £125 and £185 per week losing out; and, most importantly, there was the question of Clause 1(2), about which many noble Lords, including the noble and learned Lord, Lord Simon, expressed considerable doubts. The complicated nature of the forms with which people have to deal was raised and coverage of operational sick pay in general. I shall cover many of those points, but I hope noble Lords will accept that there are time constraints and I am somewhat limited.
Turning first to the question of whether this is the right time at which to impose another burden on employers, I should like to reiterate the point I made in my introductory remarks. Leaving aside the offsetting reductions in national insurance contributions, the savings from the Bill amount to little more than 0.05 per cent. of the employers' overall cost of well over £300 billion. Having said that, if one takes at the same time the fact that my right honourable friend was able to make those reductions and that we have probably the most favourable corporation tax structure in Europe for small businesses, I do not believe that the burden on those businesses is too great.
I turn now to the question of the effect of the Bill on the disabled. It was suggested by my noble friend Lord Boyd-Carpenter and the noble Lords, Lord Stallard and Lord Carter, that as a result of the proposals in the Bill employers would be less likely to take on people with disabilities or those who suffer 416 from bad health. I do not accept that. If employers are influenced by the health of potential employees, the small question of a slightly increased level of payment for statutory sick pay will not influence them. What will influence them is the availability of those potential employees to work. The employer will not take on people who will be absent for a considerable amount of time.
Turning to the levels of sickness experienced by the disabled, what evidence there is points in the opposite direction to their being bad attenders. People with disabilities in the main do not have bad attendance records. Their records are often better than for those of us who are more fortunate. The report Employment in Handicap published earlier this year indicates that half the people in work with disabilities took fewer than five days a year off work for sickness and treatment. Over a five-year period half had not had a spell of sickness or treatment lasting one month. There is nothing in the figures to suggest that the employment of a disabled person leads to significant extra SSP costs for the employer.
Both the noble Lord, Lord Carter, and the noble Baroness, Lady Turner, went on to say that around 3 million employees would potentially lose out as a result of the uprating changes. They were referring to matters not in the Bill but which will be dealt with in the uprating order in due course. I should like to stress that of the 600,000 employees who are expected to claim SSP during the year, the vast majority according to our evidence will receive occupational sick pay and will therefore suffer no overall reduction at all.
§ Lord Carter
My Lords, will the Minister tell the House where the evidence comes from for that statement? How do the Government know that the majority of the 600,000 will be fully covered by the occupational sick pay schemes?
§ Lord Henley
My Lords, I believe I referred earlier to the report that we commissioned in 1988 from IFF. As the noble Lord is aware, the evidence is that 91 per cent. of employees work for firms that are covered. I shall come to the point later regarding how many of those people are actually covered. Our contention is that the vast majority are.
Perhaps I may now turn to the question of the level of SSP and reimbursement and the suggestion that it should be reduced to 80 per cent. We were asked what guarantee we could offer that it will not be reduced in the future. That raises the point made by the noble and learned Lord, Lord Simon, regarding what he called the Henry VIII clauses. He demanded, quite rightly, that I as the Minister responsible for the Bill in this House should justify clauses such as Clause 1(2). Before doing so I repeat the commitment I made in opening that we will be bringing forward an amendment at Committee stage to ensure that any order made to vary that will be by affirmative resolution and not by negative resolution.
I stress again that there are no plans at the moment to alter the reimbursement rate in future years. Nevertheless, in answer to what I regard as a hypothetical question I am sure that the House will 417 acknowledge that it would be unwise for me to offer predictions for the future. I remind the House that the question of national insurance contribution reductions is a separate issue in that they have been made possible following my right honourable friend the Secretary of State's annual review of the national insurance fund. Statutory sick pay is not a charge on that fund. Therefore, in future years the Secretary of State will always be able to take counter-balancing measures in the national insurance fund in respect of income and outgoings from that fund when considering the future level of employers' contributions. Whether that will allow further reductions it is impossible —indeed inappropriate—for me to say.
I turn to the provision potentially to reduce the 80 per cent. in future. It is prudent to have such a provision. As I said, we have no plans to make further changes. Given the continuing need to examine priorities across the whole spectrum of social security it is sensible to have a provision that is capable of being changed. The main principle—namely, that a percentage only of the SSP is recovered by employers—is covered in Clause 1 of the Bill. Variation of that percentage, which is not the main principle—that has already been covered—does not affect that principle. It was therefore considered that changes in that percentage rate should be governed by secondary legislation rather than by primary legislation just as a large part of the social security system, including nearly all the rates of benefit, is in a form which does not lock it into primary legislation. Therefore changes can be made by secondary legislation. Governments of all complexions acknowledge that as the sensible way to proceed.
Turning to the complication of the forms and the problems that that may create for small employers particularly—a point raised by the noble Lord, Lord Stallard, and the noble Earl, Lord Russell—and the extent to which small employers have to cope currently with SSP, that is something in which I have taken a particular interest. It is Department of Social Security deregulation business. We are very concerned to keep burdens on business to a minimum.
Considerable strides have been made over the past two years to better inform employers about SSP. Following independent research, the guidance to employers has been completely revised and represented; a quick guide has been introduced which employers can now use in straightforward cases; a wall chart and video have also been made available. This new literature has been widely welcomed.
Other initiatives include a completely free telephone inquiry service directly for employers on national insurance contributions, SSP and SMP, plus a free seminar service. There is also a representative employers' panel that meets about half-yearly at the Department of Social Security and which consists of all kinds of employers. We take its advice very carefully on how to go about these matters. I accept that there will always be some of the smaller employees who will make mistakes because of the simple fact that they only have to operate SSP 418 infrequently; but I am confident that the initiatives we have taken, and will continue to take, will greatly reduce any problems that exist.
I turn now to the occupational sick pay coverage. I apologise for intervening during the speech made by the noble Lord, Lord Stallard, but I thought it important to do so at that moment. I thought that the noble Lord was accusing me of misleading the House and implying that 90 per cent. of employees were covered. What I said in opening and when I intervened in order to correct the noble Lord was that 91 per cent. of employees work for an employer who provides occupational sick pay; that is to say, only 9 per cent. of employees at present have no opportunity at all to belong to an occupational sick pay scheme. As I said earlier, these will principally be low-paid or part-time employees, often working for small employers. As such, they will normally qualify for the lower rate of SSP which, as I said earlier, has been uprated by the full RPI increase of 10.9 per cent.
One criticism has been that even where an employee works for an employer with occupational sick pay he may not satisfy the employers' eligibility conditions; but we need to put this in perspective. The first point to make is that half the private sector schemes have no exclusion clauses at all. Secondly, in the remaining 50 per cent. of schemes our evidence is that by far the most common exclusion is on length of service, which varies between three and 12 months. Only if an employee in one of these schemes falls sick relatively quickly after he starts a new job will he be affected in practice. While this obviously will occur, I suggest the instances will be few, Indeed, most employers' experience is that incidence of sickness in the early weeks of a new job is lower than average.
The Government stick by their view that the vast majority of employees affected by the overall SSP package—that is, the proposals that will be in the forthcoming SSP uprating order as well as this Bill—will suffer no reduction in the payments made to them when they are sick.
§ Lord Stallard
My Lords, I have read again the paragraph written by the Low Pay Unit on that aspect of the matter. It says that the figure of 91 per cent. is at the least deceptive and at the most deliberately misleading. Part-time temporary casual workers and home workers are more likely to be excluded from such schemes. Workers employed in small private firms are less likely to be covered. Manual workers are less likely to be covered by such schemes than non manual workers. That organisation does not accept the proposals. The people who work nearest to the victims of these proposals do not accept the Government's rationale and I agree with them.
§ Lord Henley
My Lords, yet again the noble Lord has accused me of misleading the House. I intervened to correct him and to make quite clear that I was not at any point saying that I was referring to 90 per cent. or 91 per cent. of employees. I was referring to the fact that 91 per cent. of employees work for firms that are covered and they had the opportunity to acquire some coverage. The noble Lord stated that the percentage of manual workers covered was much lower. I accept 419 that it is lower, but it has increased a great deal. I do not have the figure in front of me but I believe it is above 80 per cent.
§ Baroness Seear
My Lords, the noble Lord said that 91 per cent. of employees work for organisations with schemes. However, 40 per cent. of women work part time. Are they eligible for occupational pensions in the organisations which have schemes but which, in certain circumstances, do not allow part-time workers to join? That would put a different complexion on what the noble Lord said. It is not an intention to deceive, but it is a point that should be made clear.
§ Lord Henley
My Lords, I shall take advice and notify the noble Baroness. My information was that most of the exclusion clauses were based on the length of service and that that varied between three and six months. There are a great many part-time workers who are covered. I shall certainly take advice and write to the noble Baroness. It is obviously a matter to which we can return at a later stage of the Bill.
In conclusion, I re-emphasise what I said in opening this Second Reading debate. Government strategy must be to concentrate available resources on those people who are least likely to have occupational provision and in areas of social security which employers cannot be expected to cover. The provisions in this Bill form part of that strategy and I commend it to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.