Statutory Sick Pay Bill

HL Deb 14 January 1991 vol 524 cc987-1045

3.28 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Henley.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 1 [Reductions in the amounts recoverable by employers who have paid statutory sick pay]:

Lord Jenkin of Roding moved Amendment No. 1: Page 1, line 5, at beginning insert: ("(1) In its application to any employer other than an employer during a tax year in which that employer employed on average in the (determined on a weekly basis) not more than five persons, section 9 of the Social Security and Housing Benefits Act 1982 (recovery by employer of amount paid by way of statutory sick pay) shall have effect as modified by the following provisions of their Act.").

The noble Lord said: I begin with an apology. I was not able to take part in the Second Reading debate on the Bill. A commitment outside the House precluded my attendance on that occasion; I therefore join the debate for the first time.

It would be for the convenience of the Committee if, in discussing Amendment No. 1, we were to discuss also Amendments Nos. 3, 4 and 6. I believe that it has been agreed through the usual channels that those amendments should be discussed with Amendment No. 1 standing in my name and that of my noble friend Lord Brougham and Vaux. My justification, if justification is needed, for moving the amendment is that I was the Secretary of State for Social Services, as the office holder was then known, who first announced proposals for statutory sick pay in a Green Paper which I published in April 1980 entitled Income During Initial Sickness—A New Strategy. That strategy contained two elements. One was the transfer to employers of the administration of statutory sick pay for short spells of sickness by employees; the other was the process which became known as self-certification; that is to say, to get rid of the immensely bureaucratic hassle of requiring GPs to certify short spells of sickness in order that people could present the certificates to the local social security office to obtain their sick pay. My recollection is that on the latter point I had substantial arguments, as did other Secretaries of State, with the British Medical Association. However, in the end the change was accepted.

I believe that both strands of the strategy worked extremely well. Both self-certification and the statutory sick pay scheme threw up remarkably few problems and produced significant savings in central bureaucracy. At that time the main argument on statutory sick pay surrounded the method of compensating employers. It is hardly surprising that when the Act comes to be amended by the Bill before us the same arguments have arisen.

Perhaps I could remind the Committee of my original proposal —that employers should pay the statutory sick pay and be compensated by a 0.5 percentage point reduction in the national insurance contribution. I still maintain that that was a remarkably sensible and simple proposal. However, I fear that it did not find favour with the generality of employers, and especially with the organisations representing smaller firms. There was considerable argument, to which I must say the Government listened.

We therefore published a second consultative document in June 1981 in which we set out two options. One was that the employers should recover half their statutory sick pay payments by deducting the amounts due under the NIC; they would also receive one third of a percentage point reduction in their NIC. The second option was that there should be a 0.5 per cent. reduction for all employers, with a further 0.4 per cent. reduction for smaller employers and employers in industries with high levels of sickness. At the time there were many arguments with the National Coal Board, as it then was, and one or two other industries which tended to experience high levels of sickness.

Employers were still unhappy. I can say to the Committee that by the time I left that department my mind was moving towards the proposition that, if we were to obtain the bureaucratic saving which we assuredly needed if we were to meet our manpower targets, we would have to offer employers more. It fell to my successor, now Sir Norman Fowler, to announce the 100 per cent. reimbursement for statutory sick pay. That was announced at the Conservative Party Conference in October 1981, about two weeks after I moved to the Department of Industry.

I hope the Committee will forgive me for rehearsing this matter at modest length. I do so for two very distinct reasons. First, I have always had a keen appreciation of the impact of changes of this kind upon the very smallest firms—those with up to five employees. Secondly, I am by no means opposed to compensation for statutory sick pay at less than 100 per cent. provided it is matched by appropriate reductions in the levels of national insurance contribution.

I notice that my noble friend Lord Boyd-Carpenter was quick to enlist me in his army. But I wish to make clear at this stage that I am not prepared to serve in that army. I believe that the Government have almost got it right. It is right. Given the substantial increase in the number of employers who now operate statutory sick pay schemes, when savings must be found to finance improvements in the welfare state for which there is no other source than central government funds, it is not unreasonable that a modest share of the cost of paying the statutory sick pay should be transferred to employers, provided that that is matched by appropriate reductions in national insurance contributions.

I shall listen carefully to the amendments to be moved by, among others, my noble friend Lord Mottistone. However, as he may be aware, I am not convinced that his amendment is justified. I feel and have always felt that there must be some way of avoiding potential serious hardship for the smallest employers. I know that these are sympathies which engage the attention of the Chamber from time to time. I refer to the small family business, the corner shop, the rural grocer who may be struggling to survive and may employ only one or two people or the tiny start-up operation which has only two or three employees. I am persuaded that as they stand the proposals may cause considerable hardship in those cases if their employees had anything significantly more than the average sickness record.

I suggested a cut-off point of employers with five or fewer employees. I am fully prepared to concede that that may not necessarily be the right test. I do not agree with the noble Earl, Lord Russell, who is suggesting 20 employees. That takes one into a totally different field where averages may have some relevance. For the very small employer the answer and the effect of my amendment would be to take them out of the Bill altogether. That would mean that they would continue to obtain the 100 per cent. reimbursement provided by existing legislation. Although it is not for this Bill but for other legislation, I envisage that they would not then obtain the reduction in national insurance contributions— 0.5 per cent. for the standard rate and the 0.4 per cent. for the lower rates of NIC—which would go to all other employers.

I fully concede that my amendment may not be appropriately drafted and may not even contain the correct tests. However, I maintain that for those small firms the law should remain as it is. They should not be subject to the 80 per cent. reimbursement and would not therefore obtain the reduced NIC.

I advance that argument for two main reasons. It has always seemed to be perfectly reasonable to deploy arguments based on average sickness experience when one is dealing with an employer who may have employees numbered in tens, hundreds or even thousands. Then "average" experience of sickness is relevant. It would be extremely exceptional if there were significant departures from the average experience. However, when one is dealing with employers with up to five employees, averages cease to be relevant and could be misleading.

I read the speech of my noble friend and the whole of the Second Reading debate with a great deal of care. In that debate my noble friend gave examples to establish that the higher rate of deduction which he is proposing for the lower rate of national insurance contribution would in some circumstances benefit smaller employers if they had no more than the average, or even if they went above the average, sickness experience.

I hope that the Committee will forgive me because I propose to base an argument on several lines from what my noble friend said on 11th December. They are these: 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". Pausing there for a moment, I must point out that that is a separate argument, and particularly that of the CBI, which is based on the proposition that it would follow that policy. For the purpose of his argument my noble friend has suggested that course although it is not inevitable. He continues: But the annual saving to the employer on his national insurance 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".—[Official Report, 11/12/90; col. 392.]

My noble friend went on to discuss the employer with 20 employees. I am sure that he is right that if you have the average or a little above it in the incidence of sickness, under the Government's proposals an employer may end up significantly better off. Conversely, if the employees have a sickness record significantly worse than the average, the opposite may be the case. That is the purpose of my amendment. I single out the words which my noble friend used which were: which matches the average incidence of sickness". But what if it does not? People go sick as individuals and not as percentages or fractions.

When one is dealing with tiny firms which employ two or three people, it needs only one person in addition to go sick in, say, a 'flu epidemic or something like that for my noble friend's figures to become largely meaningless. Let us suppose that instead of two employees each being off for three weeks, the employer has two off for six weeks—and a bad dose of 'flu is likely to keep one away for six weeks—it may be said in relation to the average statistics that that would be highly exceptional. In those circumstances the employer would be substantially out-of-pocket. He would then have four times £82.41, which according to my calculator is £329.64. The annual saving on his reduction in national insurance contribution remains at £176.80. In those circumstances he is out-of-pocket by over £150. A very large or even a medium-sized employer is exceedingly unlikely to have a 200 per cent. increase in the incidence of sickness. However, that does not apply to the very small employer. In those circumstances a very tiny employer could be put at a substantial disadvantage.

Logically, the right answer would be to say that he should be compensated for the excess. Let us assume that the reduction in the national insurance contribution is matched by the average sickness incidence. If it can be proved that the employer has had substantially over that, then he can be reimbursed the balance. With my advisers I have tried to devise such an amendment but it was impossible to do so. It was impossible in terms of drafting to make reasonable sense of it. It would also be a totally impossible administrative task for the very smallest employers. I think that my amendment provides the right answer; namely, that we should exclude them altogether.

That brings me to my second argument, to which I attach some importance. For the hundreds of thousands of the very smallest firms my amendment would avoid any administrative change at all. I wish to draw a parallel from another change that was made a year or two back in the same field of statutory sick pay and compensation. The argument had been advanced by the employers, and no doubt also by the larger ones, that the payment of national insurance contribution on the statutory sick pay was something which should be reimbursed to employers. By transferring the payment to the employers they became liable for the NIC on that payment. Three or four years ago the Government agreed to that and an additional 7 per cent. was added to the sum which the employer might deduct from his NIC on that account.

It has been widely argued among the organisations for the very small businesses that valuable though that concession may have been, large numbers of them never actually came to grips with the matter. They never claimed the deduction to which they were entitled. I discussed this matter with my noble friend and his right honourable friend. I am immensely grateful to both of them for the time which they gave to the discussion of this whole issue. I said that if they were seeking to help small businesses additional administrative complications cannot be added. I asked what was the extent of the failure to claim this additional 7 per cent. contribution. My noble friend wrote me a letter in which he set out in great detail the admirable measures which the Government have taken to bring the provision to the attention of every employer. They are very substantial. He went on to say: Despite these efforts, employers' returns suggest that 20–25 per cent. of this additional compensation may be going unclaimed". I am prepared to bet that if the employees are below the lower limit and do not pay a national insurance contribution, some part of the reason may be due to that. A very substantial part of the reason is due to the fact that it is too much hassle for the corner shopkeeper or the little village shop or the start-up business to collect this money.

My second reason is that there is advantage in not having additional hassle and administration at this stage. I am told that any change of this kind is likely to take up to three to four years before it is absorbed by the tens of thousands of the very smallest firms. I have been in government and in my experience the small employers do not actually read the carefully drafted documents which they are sent and they do not read the advertisements in the newspapers. They are much too busy running their businesses. Can we not simply leave them out of this Bill and let them stay as they are? That would avoid any administrative change. One could define who they are and they could be taken out. For the rest, the argument which I adverted to at an earlier stage of my speech will stand. No doubt we shall be debating these matters in connection with other amendments in due course.

There is a third reason which may appeal to my noble friend. It is more speculative. On the Government's figures the balance of additional cost—

3.45 p.m.

Baroness Fisher of Rednal

It is very difficult for us to hear what the noble Lord is saying.

Lord Graham of Edmonton

My noble friend is lucky.

Baroness Fisher of Rednal

We are concentrating but it is difficult. I do not know whether the noble Lord is not speaking into one of the microphones, but we can hardly hear what he is saying. But please do not start again.

Lord Jenkin of Roding

This is the first time that that has ever been said about me. Perhaps the noble Baroness might have words with those who are responsible for the amplification. I normally speak a little further back, but when I started those seats were full. I am coming to an end and no doubt the noble Baroness will be relieved to know that.

On the Government's figures the balance of the saving to public expenditure, less the offset of national insurance contributions, is minus £6 million. I recognise that in the total figures that is probably within a margin of error. The real figures show that the Government lose £6 million more in national insurance contribution than they gain in the switch from 100 per cent. to 80 per cent. reimbursement. However, as my noble friend made clear, some employers lose but some undoubtedly gain. He quoted examples of some who gain.

If this amendment is accepted it will save the smallest employers any administrative hassle and give them the full cost of any statutory sick pay. I have been advised that it will save the Government something of the order of £60 million. I put that figure forward with a very large question mark next to it. Some employers will benefit more from a reduction in NIC than they would pay out in SSP. More employers will benefit than will lose from what is in the Bill but employers who lose might lose very substantially indeed.

The amendment not only provides 100 per cent. reimbursement and thereby avoids hassle, but it may also save the Government some money. Few amendments moved in this Chamber or in another place have that effect. I hope that such considerations may help my noble friend to make some favourable noises about exempting on some test or other the smallest employers from the change announced by my right honourable friend in the statement last year on social security uprating. I beg to move.

Lord Stanley of Alderley

I understand that the amendment in my name and in the name of my noble kinsman Lord Russell is to be discussed with this amendment. My noble kinsman has asked me to open the discussion on our amendment. It is similar in principle to the amendment of my noble friend Lord Jenkin. However, our amendment puts the number at 20 while my noble friend's amendment puts it at five.

Why do we suggest to the Committee and in particular to my noble kinsman Lord Henley—I sympathise greatly with him in his task of having to defend the Bill—that our amendment should be supported? First, small businesses are under enormous financial pressure. The present ruinous interest rates affect privately funded businesses far more than those which have shareholders. Farming in particular is virtually bankrupt. If Members of the Committee do not believe me, I can tell them that in 1989 total farm income was less than that received by the five major Food supermarkets. We cannot therefore afford a single extra penny.

Secondly, as was stated at Second Reading, the Bill is a breach of faith in regard to what was agreed in 1982. In addition, the cost is actually 27 per cent. and not 20 per cent. because 7 per cent. is already being carried by the employer as an administrative cost. Thirdly, for most small businesses, particularly farmers, the extra cost cannot be passed on. That point always missed by the Government and indeed by the Ministry of Agriculture. We cannot pass on our costs.

Fourthly, it will encourage small employers, who employ two out of five handicapped people, to think twice about employing handicapped people. Fifthly, despite the figures given by my honourable friend Mr. Scott in another place (at col. 898 of the Official Report on 28th November), figures reinforced in this Chamber by my noble kinsman on the Front Bench (at col. 415 of the Official Report of 11th December), the small employer who usually employs those on lower salaries will not be better off than the larger one. My noble friend Lord Jenkin put it differently from the way I shall put it. I shall cut some corners. I shall no doubt be carved apart but it will save time.

For instance, I accept that, for an employee earning £50 a week, the employer's contribution will be reduced by a massive 0.4 per cent. as opposed to 0.05 per cent. if the employee is earning £200 a week. However, this generous rebate will reduce the employer's contribution in the first case by 60p a week as opposed to 10p a week in the second case. The actual cost to the employer could be £26.50 a week. Only a stupid bankrupt farmer would accept a deal such as that.

Sixthly, although I accept that a firm which employs three persons but has one sick—this point was made by my noble friend Lord Jenkin in a slightly different way—is in theory no worse off than the firm which employs 90 persons but has 30 sick, the latter situation seldom if ever occurs. The first situation—where one man in three is off sick—does. Moreover, due to the loyalty of employees to the small firm, they seldom take odd days off; and when they are away they are often seriously ill. It is there that these proposals will hit both the employee and the employer. The employer may have to find an extra £26.50 a week and may have to employ contract labour to make up for the loss of a third of his staff.

Finally, we have chosen the exemption number as 20 because there is a precedent for it. It is an exemption in the Employment Act 1989. I hope that my noble kinsman Lord Henley will be able to respond helpfully. I know that he is more than aware of the enormous concern on this point. He has been most helpful to me since the Bill made its unfortunate appearance in this Chamber just before Christmas. I am grateful on this occasion to the Government for giving us enough time to consider its effects. It is certainly no fault of my noble kinsman that it was rushed through another place during a period of considerable political activity. I hope that he will be able to give us some joy on these amendments.

Earl Russell

I am grateful to my noble kinsman Lord Stanley of Alderley for introducing the amendment for us. I asked him to do so because, as I have been teaching, I was not certain that I would be able to be here in time. I am grateful to the noble Lord, Lord Jenkin of Roding, for helping to ensure that I had plenty of time to be in my place.

I hope we can agree on the vital importance of small businesses to the national economy. Seventy-five per cent. of firms have a turnover of less than £100,000. Firms with fewer than 20 employees provide 25 per cent. of the United Kingdom's turnover and employ 33 per cent. of the workforce. Those are not negligible figures. There is perhaps force in the case that small businesses are sometimes more capable of innovation and are therefore more capable than larger ones of responding to changes in the market. A big firm, like a big boat, tends to have a rather large turning circle. I hope that that can be taken as common ground on both sides of the Committee. I hope it can also be agreed that small businesses are risky. Thirty-three per cent. of new businesses fail in their first three years. It is our complaint that the effect of the Bill must tend to be to increase the risk.

I know that the Government believe on ideological grounds in the great virtue of risk taking. I have been tempted, I admit only very late at night, to wonder whether they thought that because risk is such a good thing it therefore needed to be increased. That would be a policy worthy of Ian Fleming's Dr. No. I have no doubt that my noble kinsman will deny that that is the Government's outlook, and I shall be quite ready to accept such a denial; but I should be grateful if he would state his agreement with the Liberal Democrats that the risk of running small businesses is great enough already and does not need to be increased any further. The effect of the Bill must be to increase risk. Instead of having a system of insurance cover which spreads the risk, it moves towards a lottery system in which the costs on each firm are in proportion to the amount of sickness in that firm.

When this amendment was first moved by my honourable friend Mr. Kirkwood in another place, the Minister's right honourable friend Mr. Scott made three objections to it, of which I believe two to be false and one to be superable. As regards the first of these which I believe to be false, he said: Assuming the normal incidence of sickness in many small firms, any extra SSP costs will be offset by reductions in the employer's national insurance contributions".—[Official Report, Commons, 28/11/90; col. 898.] I am aware that they will be partially offset, but the words I shall put forward against those of the right honourable gentleman are the words of the Secretary of State contained in the up-rating statement of 24th October. He claimed that the national insurance reductions would go a long way towards helping employers to meet the extra costs. The Secretary of State admitted that the offsetting is not complete. Moreover, my noble kinsman admitted that in his reply to the Second Reading of the Bill. That claim is in line with costings which employers have been carrying out, and I accept it. Therefore, it will not meet all the costs.

The second objection, naturally enough, referred to an administrative difficulty; namely, that many small businesses have a fluctuating workforce. Clearly that is a difficulty, but it is a superable one. The National Federation of the Self-Employed and Small Businesses argues that it is perfectly possible to take a monthly average at the end of each month which would be arrived at from the national insurance records. That is the same exercise as all our banks undertake when, for good or ill, they calculate our average daily balance over a period of a month. It is by no means impossible. However, if my noble kinsman the Minister seeks to argue that there is more practicality in considering an amendment restricting the effect on small businesses by turnover rather than by the number of employees, I would be prepared to discuss the matter with him provided that the limits on turnover were fixed sufficiently generously.

The third objection made by the Minister was that if this amendment were accepted it would cost £45 million. That is simply not the case. I say that because the Minister has made an assumption of the average incidence of sickness and five, or indeed 20, people are not a statistically significant sample. Where one has a sample which is not statistically significant the incidents will not be average; in fact, the figure may sometimes vary quite widely. Many firms may gain very little from this, but others may lose a great deal.

The amendment put forward by the noble Lord, Lord Jenkin of Roding, deals with five people. A firm which employs five people may genuinely have all its employees hurt in one car crash. They may all be off work for the maximum period of 28 weeks. That could mean bankruptcy. For such a firm, one employee is 20 per cent. of the workforce while in a firm employing 20 employees, two of them represent 10 per cent. of the workforce. As some illnesses are contagious, it means that the random variation will carry with it its own built-in multiplier effect. In a firm employing 20 people, it is possible to have 25 per cent. of the workforce off work suffering from 'flu at any one time. Such an occurrence would make a very severe difference to the firm's chances of survival.

On Second Reading on 11th December at col. 416 my noble kinsman the Minister said that the amount involved is small and that it would not influence employment decisions. I trust that he will forgive me for saying that he has made the classic mistake of looking at turnover when he should have been looking at margins. Turnover may be very big when margins are in fact very narrow. I need only invoke the name of Mr. Micawber to make my point.

If such incidents of sickness push firms over the edge and into bankruptcy it will create unemployment. That is why I believe that the Minister was wrong to claim that the Bill will save £45 million on small businesses. He has altogether failed to calculate the cost of unemployment generated by the Bill to the Treasury. Of course, it is difficult to calculate the cost of unemployment to the Treasury. It is clearly more than simply the amount of benefit paid. One should take into account the cost of administration, the cost to the redundancy fund, the loss of tax revenue, the loss of national insurance revenue and the loss of VAT.

The unemployment unit has carried out costings on such a basis and has arrived at a figure which indicates that the cost of unemployment to the Treasury in a year is £8,296 for each person. However, I shall not insist upon that figure. If my noble kinsman would care to supply a better one, I should be very happy to consider it. I have brought with me my calculator and am willing to review the figure.

However, if the figure quoted is relevant, it is only necessary for 5,245 people to become unemployed as a result of the Bill's provisions for the whole of the alleged saving claimed by the Government to be wiped out. If that should happen, then the one and only benefit that the Government can see arising from the Bill would also be wiped out. In fact, we would have to go through all the anxieties and all the hardships generated by the Bill for nothing.

The arguments for five or 20 people are the same in principle. In my view the noble Lord, Lord Jenkin of Roding, is offering me a quarter of a loaf. Of course, that is better than having no bread. However, I believe that he could have stretched the point and gone so far as the proverbial half a loaf. I imagine that the Government intend to accept his amendment. Indeed, I cannot imagine any government led by politicians doing otherwise. But if by chance the noble Lord finds it necessary to press his amendment, the Liberal Democrats will support it. We shall do so without prejudice to, and reserving our position on, Amendments Nos. 4 and 6. We shall consider further what action to take on those amendments when we have heard the Minister's reply.

4 p.m.

Lord Carter

We have agreed to group Amendments Nos. 1, 2, 3, 4 and 6 together in order to make the debate on the subject more effective. I must say that when I saw the amendment which had been put down by the noble Lord, Lord Jenkin of Roding, I greeted it with modified rapture. In our view it does not go far enough. Indeed, there is much more support outside of this Chamber for Amendment No. 6. So far as we know, his amendment would affect about half of the firms in the country. Nevertheless, it is a start in the right direction.

The noble Lord said that he accepted the principle of matching; that is, compensation for the payment of statutory sick pay being matched by reductions in national insurance contributions. We shall certainly look for his support later today, or at a later stage of the Bill's proceedings, when we try to amend the legislation to ensure that such matching takes place.

As regards Amendment No. 6, this would exempt all employers with fewer than 20 employees and would affect about 80 per cent. of firms. We do not believe that it is impossible to calculate the average number of people employed. The detailed implementation would obviously be a matter for regulation. It is estimated that the cost to the Exchequer would be in the order of £45 million. That means that if the amendment is rejected the cost to small businesses employing fewer than 20 people would be about £45 million. As we have heard, it is especially important to protect small businesses which are now struggling hard to deal with recession.

The point has already been made that 40 per cent. of disabled people are employed in firms with fewer than 20 employees. Those people are less likely to be able to retain their jobs if they are off sick because of their disability. Larger firms can deal with the problems of the disabled person who is off sick. But it is very hard indeed for a small firm. We should be doing nothing to make it harder for the disabled to hold down jobs.

The Minister may raise the issue of complexity. There are a number of factors such as the number of employees, the size of the business and the level of turnover. The proposal in Amendment No. 6 is no more complex than others already in force. Decisions could be taken on the amount of turnover, payroll, or whatever. If the Government have a will we can certainly help to find a way.

The point made by the noble Lord, Lord Jenkin, and dealt with by the Minister at Second Reading, that somehow the legislation must be put into force so that money saved can be used for other benefits, cannot be correct. The Bill is broadly neutral in its effect on public expenditure. The cost of rebates is in the order of £250 million. The cost of reductions in national health contributions will also be in the order of £250 million. Therefore the Bill will have no effect at all in that respect. Money for other benefits this year has come from the £100 million saved by the changes in rates of statutory sick pay, and the thresholds, which are completely outside the Bill. We shall be debating those when we come to the regulations. However, it is a mistake to argue that the Bill is needed this year to provide money for other benefits. If the Government intend to rely on the argument that the Bill is needed to provide such funds, it can only be for the future. That must mean that the Government have it firmly in mind to reduce the rebate percentage in future without a corresponding reduction in employers' national insurance contribution. Therefore I hope the Minister will not attempt to make that point when he comes to argue against the amendments.

Some concession by the Government on the lines of Amendment No. 1 and also of Amendment No. 6 would be a start. We certainly wish to see the effect of any such concession. As I have said, we strongly believe that the exemption limit should be made at the level of 20 employees rather than five but we are prepared to give the Government the opportunity to come back at Report stage, having reviewed the position, and take up an approach which is based not on numbers but upon other factors as well. If any concession which is made does not go far enough then we shall either wish to divide the Committee on Amendment No. 6 or put down an amendment at Report stage which would help to reduce the worst effects of the Bill.

Lord Boyd-Carpenter

I do not know what attitude the Government propose to adopt towards Amendment No. 1, which your Lordships are actually discussing at the moment, but I suspect, if only out of gratitude to my noble friend Lord Jenkin of Roding, they will be recommending your Lordships to accept it. Apart from my noble friend the Minister, during the discussions that have taken place so far, including Second Reading, my noble friend Lord Jenkin of Roding is the only speaker to have had a kind word to say about the Bill. I should be surprised if the Government are not so overcome with gratitude to him that they will not accept his comparatively small amendment.

A very important principle is involved here. The Bill will obviously hurt the small employer: there is no dispute whatever about that. But to say that you must exempt the really small employer from what otherwise you are proposing for everybody else does involve an admission that the measure will do some harm to employers generally. If ever there was a moment when it was singularly unwise to impose any additional handicap on employers, it is surely now. Whether we are in a state of recession is a matter of debate among economists. I would not enter into that. However, we are in a period when industry is facing difficulties and when the Government are rightly telling industry that it must keep its costs down. To come forward at this time with a measure which will increase the costs of industry overall by exacting £100 million from it is surely singularly unwise. An increase of that order may have been all right a few years ago in a time of boom. It may well be all right some years hence if the Government's measures are successful, as I believe they will be, in restoring the economy. At this moment it is a singularly unwise thing to do for the sake of what, in the general run of government expenditure, is a trifling amount but not so trifling to many of the industries concerned.

That is no doubt why, as the Committee will be aware, all those who speak for industry, with a surprising degree of unanimity, are critical. The CBI which normally, as Members opposite will agree, tends to favour the Government, is bitterly critical and so generally are the other organisations of employers and industrialists. They feel it is wrong at this moment to be making an increase in the costs of employers. The fact that the one defender of the Bill, my noble friend Lord Jenkin of Roding, sees it necessary to save the very small employers from what is proposed indicates a general acceptance of that view.

I am very disappointed that after the discussion on Second Reading the Government did not give further thought, as many noble Lords suggested, to whether it was wise in these circumstances to go through with the measure as a whole. Ill feeling has been aggravated by the lack of consultation. In winding up on Second Reading, my noble friend, at col. 415 of the Official Report of 11th December, admitted that the measure had been introduced without consultation. I read his words: 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. It is perfectly clear that had the Government consulted industry or the CBI they would have dropped the measure. They come forward with it simply as a result of a deal done on the expenditure round. I make no criticism of their making deals on the expenditure round. But if you are imposing a burden on people without—because you do it through the expenditure round—consulting them in advance, the matter is infinitely more serious. Therefore I beg my noble friend, even at this stage, to hesitate before going forward with the Bill. It cannot be helpful to our economy in its present state. It cannot do other than create ill will towards the Government in circles where the closest co-operation with the Government is needed.

I hope that the comparatively small amendment of my noble friend Lord Jenkin will be accepted; indeed, I have no doubt that it will be. But apart from giving way on the principle and acceptance of the fact that an extra burden is falling upon industry, the amendment is not really going to cure the mischief of the Bill. That is why I suggest to the Committee that we accept this amendment and other amendments too.

My noble friend Lord Jenkin of Roding appeared to accept that view because in a general passage in his speech he said that it was all right to increase the obligation of employers by way of sick pay provided that a reduction in national insurance contribution matched the increased obligation; but it does not match it, by £100 million.

Baroness Phillips

I support my noble friend on Amendment No. 6 but also join the noble Lord who has just spoken in saying that we are happy with any of the amendments. He also touched on a rather important point of principle which perhaps has been overlooked. I recall a famous debate a long time ago about whether there should be payment for items such as prescriptions that were taken out of the National Health Service; that is, a prescription charge. It was said that the charge would be only a shilling, but once a charge or a reduction has been made a principle has been established. This time the Government are talking about a reduction from 100 per cent. to 80 per cent. Next time they will probably change it again. In other words, they will have introduced a principle.

I am particularly concerned about small retailers. They are a very important factor in this country. In common with many other noble Lords I am astonished at how the Government keep annoying their friends. One gets the feeling that they do not want to remain in government. Perhaps they want another party to come in and put right some of the mess they have made and to return later; but now they are certainly intent on offending their friends. Small retail employers are almost invariably Conservative voters.

Incidentally, listening to the noble kinsmen following one another, I thought we were in the small business industry. I take it they are all related, rather like owners of corner shops. Seriously, if retail employers have to pay more, which they will have to do however small they are unless we can change matters, they will not bear that cost because they cannot. They will pass it on to you and me in the form of higher prices. In the end it is never governments who actually bear the cost of anything; it is the customer, the passenger, we the people who bear the cost. That is totally unfair and impractical and it will not work.

I am quite sure that the Minister, who is not a kinsman I am sorry to say, will see the sheer common sense of the amendments put before him.

Lord Walston

I cannot resist the temptation—it comes so rarely—of expressing my wholehearted agreement with what the noble Lord, Lord Boyd-Carpenter, said and his method of expressing it. I agree also with the noble Baroness and other noble Lords who have spoken. There is extraordinary unanimity in this matter.

Nothing of significance can be added by me to the arguments, which seemed to be incontrovertible, put forward particularly by the noble Earl, Lord Russell. However, I remind the Committee of the devastating or harmful effect that these proposals will have, if passed as they stand, on all small businesses. We know that they are suffering even greater hardship than many other businesses, especially in rural areas where small businesses are of particular significance. It is a matter which will affect not merely the farmer—and I do not like special pleading on my part for that very important industry—but all other industries which operate in rural areas, whether they be garages, workshops, small manufacturing shops, factories, or anything of that kind. This extra small drop, but one which tips the balance, is liable to have a devastating effect not only on small industries in general but on rural activities and the life of the countryside in particular.

I therefore express my complete support for all the amendments that we have embraced in this rather wide-ranging discussion. I urge the Government, as the noble Lord, Lord Boyd-Carpenter, has already done far more eloquently, to withdraw all the proposals and to think again very seriously about their implications.

Lord Birkett

It is clear from speeches in every part of this Chamber that it is small businesses with which we are concerned. We always get into trouble when trying to draw up definitions, and in this case that means the numbers, whether five persons or 20.

One argument which does not yet appear to have been raised is the number of firms which have what might be called private insurance schemes to protect them from the effect of sickness. Certainly the number of firms that have such private schemes was an argument advanced by the Government in proposing the Bill in the first place. If that is one of the arguments I should have thought it would be clear that very few firms employing five persons or under will have such a scheme. Indeed, I should be very surprised if many firms employing 20 or under have such a scheme. In deciding between the two, I wonder whether the number of five is intended to define small businesses as very small businesses. I should have thought that 20 was a more rational figure for the definition of small businesses. In fact, I should be very surprised if it were not a better figure than five.

I am sure noble Lords will be happy to start at five, but in spite of the precision with which the noble Lord, Lord Jenkin of Roding, marshalled his arguments I consider 20 to be a better figure. I hope that your Lordships, in starting at five, will have the courage to go on to 20, and preferably beyond.

Lord Henley

I have listened most carefully to all noble Lords who have spoken in the debate and I intend to concentrate very much on the amendments in hand which, as has been said, relate to the problems that might face small businesses. I do not intend to repeat the arguments put forward at Second Reading on the general merits of the Bill. As the Committee will accept, the Bill has been given a Second Reading.

I touch first on the point made by my noble friend Lord Boyd-Carpenter that this is the wrong time to make these changes despite the reduction proposed in national insurance contributions. That criticism has been made particularly in relation to provisions contained in the Bill. It is argued that the present economic climate is such—a point which my noble friend made very forcefully—that it is wrong to introduce a measure which adds to employers' costs, however little those costs may be. However, that is to forget the very real growth there has been over the years in occupational sick pay coverage. I am now talking about the generality and it is a factor which is much welcomed by all. There is never a perfect time to make any changes but I can assure the Committee that the provisions in this Bill, in the light of the proposed reduced national insurance contributions, are not as significant as feared.

I have listened most carefully to my noble friend Lord Jenkin, who speaks with a wealth of experience in this area. He was the Secretary of State at the Department of Health and Social Security, as it then was, at the time when the statutory sick pay scheme was being developed and was personally involved in the discussions which took place with employers and their organisations at that time. Naturally, the Government take very seriously what my noble friend said and we are most grateful that he came to see my right honourable friend and myself before Christmas to outline his anxieties about the Bill.

However, as I am sure my noble friend accepts, the Government are not unsympathetic to the fears that have been expressed by and on behalf of small employers about the provisions in the Bill. As I told the House during Second Reading, my right honourable friend the Secretary of State and I have met representatives of the National Federation of Self Employed and Small Businesses. I had a further meeting with them only a few days ago which was most useful. We have also received letters from numerous organisations representing the small business interest as well as from some individual employers.

The Government appreciate that now is not an easy time for business, especially for small firms in the size range which my noble friend has identified in his amendment. I fully accept the comments made by Members of the Committee on this point. I shall come back in a few moments to the precise terms of my noble friend's amendment and I hope I shall have something to say then which will be helpful to my noble friend and to the Committee. However, I wish first to spend a little time on the effects of the reductions in national insurance contributions.

Before I touch on that, perhaps I may make a few comments on the financial effect of the Bill. The noble Lord, Lord Carter, said that the financial effect was neutral. The Bill gives savings in public expenditure which enable the Government to devote resources to areas of greater priority in the social security system. My right honourable friend Lord Jenkin made that point.

The National Insurance Fund is independent of the Consolidated Fund. I am sure that the noble Lord knows perfectly well that statutory sick pay is not a drain on the National Insurance Fund; it comes indirectly from the Consolidated Fund. Quite separately, the current state of the National Insurance Fund has allowed us to propose reductions in employers' contributions which we hope will go some way towards meeting the complaints that have been made. I hope that the Committee will be prepared to welcome all these factors.

4.30 p.m.

Lord Carter

Will the noble Lord give way? I am extremely grateful to him for doing so. I referred to the total public expenditure, which is broadly neutral. It is £250 million on each side. The Committee would be extremely grateful to the Minister if he could confirm that the Government see the rebate in the National Insurance Fund as completely separate. The reduction in the compensation is not always to be matched by the reduction in the national insurance contributions.

Lord Henley

I can give no assurance as to what my right honourable friend or any future Secretary of State might wish or be able to do. It all depends on the state of the National Insurance Fund. On this occasion, my right honourable friend has found it possible to make some reductions in the level of national insurance contributions. He proposes to make those when we lay the order for them. He also proposes to make changes to the banding. Those are broadly neutral in cost, but the financial effects of the Bill produce savings. As I explained during Second Reading—

Lord Boyd-Carpenter

Would my noble friend be good enough to confirm what I said? It was that the effect of the Bill is a saving in public expenditure. Can he quantify that, please?

Lord Henley

The effect of the Bill will be to produce a saving of the order of approximately £250 million, though I cannot remember the exact figure. At the same time we propose reductions in national insurance contributions payable by employers which will broadly match that. We are also changing the bands of statutory sick pay, which will produce further savings of £100 million. I think it would be easier to explain that when we reach the amendment in the name of my noble friend Lord Mottistone, which I understand relates directly to those savings.

Lord Harmar-Nicholls

I believe that the noble Lord, Lord Carter, deserves a fuller answer to his question. It is true that we would not expect my noble friend to speak either for the present Secretary of State or for future governments. However perhaps he can indicate whether the general intention behind the amendment is to set a precedent that could be followed and that may well be followed. I think my noble friend ought to make clear whether decisions on both those legs will be taken separately.

Lord Henley

As I said, I cannot bind my right honourable friend. He must look at the current state of the National Insurance Fund before he makes any reductions. The two are quite distinct. I cannot promise any matching reductions, should there be any future changes.

As I explained during Second Reading, in putting together the combined package of SSP changes and national insurance contribution reductions, the Government have paid particular attention to the special problems of the small employer. I explained to the House how the reductions would work and gave some examples of the practical effects for employers of different size and sickness experience. It is clear from the representations which continue to be made that the extent of these has not been fully grasped and I hope that the Committee will bear with me if I go into a little more detail about this. It is a very important point and should go on the record.

Although the proposed reductions go across the whole spectrum of employers' contributions, they are proportionately much greater in respect of employees in the lower earnings bands—that is, those earning £185 a week or less. Thus, from April 1991 it is proposed that the lower rates of 5, 7 and 9 per cent. should be reduced by 0.4 per cent. to 4.6, 6.6 and 8.6 per cent. respectively. This compares with the much smaller reduction of 0.05 per cent. on the employer's contribution in respect of employees earning over £185 a week.

Concentrating the reductions on the lower paid will particularly help those employers who would benefit from my noble friend's amendment. This is because such employers are generally more likely than the larger employer to have employees in these earnings ranges working for them. The contribution reductions in total are worth £250 million to employers and £150 million of this sum is made up from the changes in the lower rates.

Baroness Seear

I am sorry to interrupt the noble Lord but this point is important and it is not too easy to get clear what is meant. He seems to assume that small firms automatically employ people at lower wage levels. I accept that this is often true but there is an increasing number of small firms which employ only a few people who are, however, at a relatively high-tech level. Therefore those firms may pay relatively high salaries to that small number of people. I challenge the assumption that because the number of employees is small they are necessarily low paid. If I have got the argument right, I believe that is what the noble Lord suggests, but I do not believe that it is correct.

Lord Henley

I totally accept what the noble Baroness suggests. It is only a trend, but the smaller employer tends to pay lower wages. Perhaps I may give one example: many farmers tend to be small employers. No one would argue that the agricultural wage is one of the highest; it tends to be on the low side. Immediately all farmers will enter the discussion. This is only a trend, it is not automatically the case. If the noble Baroness will bear with me, I hope that what I have to say will to some extent open a possibility that might solve the problem rather than dealing with the matter purely in terms of the small employer, automatically assuming that he is the one with the low-paid employees.

I wish to expand on some of the examples I gave to the House at Second Reading. Statistics show that on average an employer can expect about 20 per cent. of his workforce—that is, one in five of the workers—to be absent from work because of sickness during the year and that the average amount of sickness is about three weeks. I do not believe that there is any dispute about these figures of average levels of sickness. They have certainly been accepted by a number of the organisations that have been in touch with us.

On this basis, if we take the employer with five employees all earning £150 a week, if one of those employees is away for a total of three weeks in the year, there will be a net gain to the employer of £173.59. That assumes not just the 80 per cent. reimbursement of SSP but that the employer tops up the difference between the lower rate and higher rate of SSP by occupational sick pay. Even if two employees are both away for three weeks in the year; that is, double the average level of sickness, there is still a gain of £91.18. If in the same size of employer, the employees were earning £184.50 a week; that is, just below the earnings level at which the standard rate of contributions would become payable, the savings of an employer experiencing the same degree of sickness as I have just described would be even greater: £825.79 and £764.98 respectively. If we look at an employer with 20 employees in those earnings ranges, the saving would be even more marked. Many Members of the Committee will have seen the calculations produced by the National Federation of the Self Employed and Small Businesses. The federation was kind enough to give me a copy of those calculations when it saw me last week, for which I thank it. Those show the effect on a single employee at four different earnings ranges. I do not dispute those figures, but it would be more realistic to look at the position in the context of the total number of employees in the workforce and the likely sickness that they would experience, as I have done in the examples I have just given.

I believe that I have said enough to emphasise the extent of the advantage which smaller employers (if their employees tend to be low-paid) have providing—I accept this is an important proviso—that they do not experience abnormal sickness.

I dc not for a moment pretend that all employers will gain, or break even, from the combined effect of the SSP/NI contribution package. That would be an absurd claim. The package as a whole cannot be neutral. The same considerations do not apply in respect of employees earning more than £185 a week, where the reduction in the employer's national insurance contribution is not so high. Of course, the very small employer, described by my noble friend, who has the misfortune to experience significant sickness in his workforce will not have the opportunity to recoup the extra SSP costs from the reduced national insurance contributions.

It is this last situation—the small employer experiencing above average sickness in his workforce—to which the Government have been giving particular consideration since Second Reading. We have been especially impressed by the representations made about the difficulties of applying averages to employers that have very few employees. Although most spells of sickness are short, if, for example, an employer with two employees should have one of those away for a protracted time (in the extreme case for the full 28 weeks for which SSP is payable) he would not only have insufficient other employees to gain from the reductions in national insurance contributions, he would probably also have to employ someone else whilst the employee was away. In larger firms neither of those situations will necessarily apply.

In the light of those considerations, we have been giving thought as to how the situation might be alleviated for such an employer. We have given serious consideration to my noble friend's amendment, and that of my two noble kinsmen. We feel that my noble friend has pitched his amendment at about the right level (five employees), whereas we feel that my noble kinsmen Lord Russell and Lord Stanley, who have pitched it at 20, have probably gone too high because at that size averages will begin to bite, if I may use that expression. But following what I said earlier, the particular problem we are seeking to redress is that of the small employer with abnormal sickness loads, who will not get the full benefit of the proposed reductions in National Insurance contributions. What we have in mind is a procedure which would enable a small employer—I stress we are only talking about small employers—to revert to claiming 100 per cent. SSP after an employee has been sick for a specified number of weeks.

As the Committee will appreciate, the crunch is how we define a small employer. My noble friend's amendment suggests five employees or fewer; a subsequent amendment from my noble kinsman Lord Russell proposes fewer than 20 employees. As I have said, we think my noble friend has it about right. As he will know, however, the use of a specific number of employees as the determining factor as to what is or is not a small employer is not without its difficulties. There could, for example, be problems where the employer's workforce fluctuated. We also need to look at how we deal with associated employers. There could also be problems with an employer with a large number of employees all earning below the lower earnings limit and only two or three above that limit.

We are, therefore, urgently exploring at the present time, possible other parameters which might be used to define a small employer to see whether those would be more sensible than relating any new rule specifically to the number of employees in the workforce at a particular time. I want to stress we are not ruling out the use of numbers. We are, for example, looking at how a small employer is defined in other legislation to see whether that can help. Another promising possibility is to relate the definition to the amount of national insurance contributions paid in the previous year. That would have the advantage for the employer of excluding from the reckoning any employees earning below the lower earnings limit who did not quality for SSP.

4.45 p.m.

Lord Stanley of Alderley

Will my noble kinsman give way? When he says that he is not ruling out a numbers definition, is he open to the suggestion that the figure might be more than five?

Lord Henley

I cannot go that far. We feel that five is about right. As I have said, once we go above five averages begin to bite. The compensation we propose through the reduction in national insurance contributions will begin to take effect. It is only with the small employer that we see problems. I am afraid that I cannot offer my noble kinsman any hope that we might consider more than five employees.

As the Committee will understand, we need also to look carefully at the administrative consequences of such an arrangement to try to provide the most practical and viable method for employers—a point rightly stressed by my noble friend Lord Jenkin, because employers, especially small ones, sometimes have problems in administering statutory sick pay and other matters relating to my department and the Inland Revenue in operating what might be a dual system of reimbursement.

I cannot usefully take this matter any further now. Although I accept the spirit of my noble friend's amendment, the Government cannot accept it as drafted. I give a specific undertaking that the Government will come forward on Report with their own amendment along the broad lines I have indicated. In the light of that I hope my noble friend will feel able to withdraw his amendment, and that my noble kinsman Lord Russell will not press his amendment.

Lord Jenkin of Roding

I am grateful to all Members of the Committee who have supported this group of amendments. In particular, I express my warm appreciation for what my noble friend the Minister has just said. When I moved the amendment I said that the test of referring to the number of employees might not necessarily be right. I am attracted by his suggestion of quantifying the exemption, if such it be, by reference to the amount of national insurance contributions paid. It seemed to me that that might have considerable advantages.

I hope that my noble friend will be open to argument on the question of what the effect of the exemption would be. Although he dealt with the point very briefly, he indicated that the effect would be 100 per cent. reimbursement over and above a certain level of statutory sick pay.

Lord Henley

The intention would be to reimburse those who suffered abnormal levels of sickness when their statutory sick pay extended beyond a certain time. I am afraid that I cannot go further than that.

Lord Jenkin of Roding

That is what I was afraid of. With the greatest respect to my noble friend, I am not sure that the small businesses we are talking about would find it possible to administer such a system. My suggestion would take them out of the Bill altogether and leave them in exactly the same position as they are now. I hope that my noble friend and my right honourable friend in another place may still feel able to consider that option.

I fear that, if there is to be additional relief for firms whose employees suffer exceptional sickness, in the end the position will be the same as with the 7 per cent. compensation for the national insurance contribution, up to 25 per cent. of which is never claimed, as my noble friend told me in the letter that I quoted. If that is the case we may have spent nearly an hour and a half to no avail because those eligible will not be able to benefit from the amendment. I make no apology for spending the time of this committee on considering the problems of small businesses. I hope that my noble friend will look very carefully at a suggestion which will not involve those small firms in any additional administration. That is what we want to see.

Lord Henley

I do not want my noble friend to be under any misapprehension. I do not believe that we can follow a line under which there would be two separate rates depending on the size of the firm. It is a question of finding a suitably simple form of reimbursement which would allow small businesses, when they experience exceptional levels of sickness, to receive 100 per cent. reimbursement.

Lord Jenkin of Roding

It would be churlish of me if I did not acknowledge that my noble friend has gone a very long way towards meeting the spirit of the amendment. It is clear from the way in which he has addressed your Lordships that the Government are open to further representations and discussion as to precisely how the relief may be defined and administered. We should all be grateful to my noble friend for the fact that there is to be relief for the very smallest firms. Having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 2 and 3 not moved.]

The Deputy Chairman of Committees (Lord Aylestone)

If Amendment No. 4 is agreed to, I cannot call Amendment No. 5.

Earl Russell moved Amendment No. 4: Page 1, line 11, leave out from ("payments)") to ("and") in line 15 and insert ("after the words "prescribed circumstances," there shall be inserted the words "and in the circumstances in paragraph (aa) below";").

The noble Earl said: One has to be grateful for small mercies. This one is very small. I should like to ask my noble kinsman whether he can explain further one point which caused me some considerable surprise. He said that when one reaches 20, statistics begin to bite. I have never known anyone to publish an opinion poll based on 20 respondents. If such a poll were published I should be very surprised if anyone gave it very great weight. Before the matter is disposed of, can my noble kinsman tell us whether he has any statistical evidence for the proposition that at the level of 20, statistics begin to bite? I beg to move.

Lord Henley

I am not sure that the expression I used was a happy one. However, my noble kinsman will understand that the greater the number of employees a firm has the more relevant average levels of sickness will be. There are particular problems which affect firms with a very small number of employees so that those statistics become irrelevant. However, I believe that one can say that at the level of 20 employees they are relevant and over the year will average out at more or less the same level for all, depending on the different degree of sickness in different industries.

Earl Russell

If my noble kinsman will write to me before Report stage justifying that statement I shall read what he says with a great deal of interest. I wait to see what the Government bring forward on Report and in the meantime I shall reserve my position.

Baroness Seear

The Minister made the even more surprising statement that above five statistical figures start to have some meaning. I cannot imagine how he arrived at that conclusion. Will he also explain that in his letter to my noble friend? It seems a most extraordinary figure to have arrived at.

Lord Henley

I shall write to the noble Baroness. The fewer involved the less relevant a statistic might be to an individual employer.

Earl Russell

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Mottistone moved Amendment No. 5: Page 1, line 14, leave out ("80") and insert ("91").

The noble Lord said: I noted what my noble friend Lord Jenkin of Roding had to say and the many points that have been taken care of in the discussion of earlier amendments. My noble friend had a hand in putting together the scheme in the early 1980s, and he was succeeded by my right honourable friend Sir Norman Fowler. The key point is that at that time there was full consultation with industry. In relation to this particular Bill there has been no consultation at all.

Notwithstanding the fact that my noble friend Lord Henley said at Second Reading (at col. 414 of Hansard for 11th December 1990) that he could assure the House that: There will be ample time for consultation… My door will remain open to any person", in fact, he and his right honourable friend the Secretary of State have not discussed the matter with the CBI. On 10th January my right honourable friend the Secretary of State wrote to the CBI—

Lord Henley

My right honourable friend and I have had a meeting with the CBI.

Lord Mottistone

There was a meeting before Christmas but not after Christmas. In the final sentence of his letter, my right honourable friend the Secretary of State said: I think we are both fully aware of each other's position. I am doubtful, therefore, that any further meeting would serve any useful purpose at this time". That seems to me to be a blunt way of not discussing the matter.

One point that may be relevant to the earlier amendments is that it might be helpful if my noble friend Lord Henley were to have discussions with the CBI when considering what he might put in place of Amendment No. 1. That might redress some of the balance.

I turn now to my amendment. It would have the effect of making the Government's package of proposals for changing the statutory sick pay scheme cost neutral. That is the key feature of what we seek to achieve by changing the figure of 80 per cent. to 91 per cent. In this area there is no connection with the 91 per cent. that was mentioned earlier in another connection. It happens to be the best arithmetical result in order to make the cost completely neutral.

Under present proposals the reduction of employers' National Insurance contributions would broadly compensate employers for the 27 per cent. reduction in the amount of SSP reimbursed. However, the Government have offered no compensation for the increased costs which employers will bear as a result of the changes in SSP rates announced in the Secretary of State's annual benefit uprating statement. Because of the rise in earnings threshold which determines entitlement to the higher rate of SSP, fewer employees will be eligible for the higher rate of SSP, losing £9 per week. In many cases employers would have to make up the shortfall and their costs would therefore rise by as much as £100 million, according to the Government's own figures.

My amendment would increase the employers' reimbursement rate to 91 per cent. This would increase the amount reimbursed to employers by £99 million, and as long as the reduction in employers' national insurance contributions remains as proposed, the total package would therefore be cost-neutral on the Government's calculations. With the economy now in recession such a change is surely necessary. That is the basic reasoning for this amendment.

We had occasion to ask employers how much they reckoned the proposals in the Bill would cost them without the amendment. I shall leave it to my noble friend Lord Boyd-Carpenter to tell your Lordships exactly how much these companies think the cost will be, because it was his initiative that led to these figures being produced. The fact of the matter is that in this affair it will be very much a matter of rough justice, however it ends up. There will be some winners but very many more losers, and some losers may lose a great deal.

It is all very well to worry about the small firms. Of course we do not want small firms to go bust. In my part of the country, the Isle of Wight, we probably have more small firms per head of population than most other parts of the country, so I do not decry what has been said on the earlier amendments. But the success of this country in producing enough wealth in order to survive and pay for things like social security depends on the bigger companies, and they must be considered too.

As very much a half-way house solution I strongly recommend to your Lordships and to my noble friend on the Front Bench that the figure of 91 per cent. goes some way, but not all the way, to making a fairer balance of charge as between industry and government. I hope very much that my noble friend will feel that he can accept it. I beg to move.

5 p.m.

Baroness Turner of Camden

From these Benches I rise to support the amendment. The noble Lord, Lord Mottistone, in introducing the amendment has spoken, as he frequently does, on behalf of employers and has expressed the views of the CBI. I should like to express concern about the propositions in the Bill from the standpoint of employees.

Everyone in this Chamber, and I think the Government, wants to see a growth of occupational schemes. The reason why the Government say the Bill is now a possibility is that it is claimed that occupational schemes have grown enormously, and the figure of 91 per cent. of all employments has been advanced. We know that not all occupational schemes are good ones; some of them have exclusion clauses and others provide only a limited amount of cover, but in my view employers are unlikely to agree to improvements in existing occupational schemes or to their introduction if they do not think they are going to get reimbursement of SSP. In particular, those employers who hitherto have been making up the difference between SSP and full pay will have to pay more money in make-up, as the noble Lord, Lord Mottistone, has said, because of the changes in the lower and higher rates of SSP. Therefore, any pressure that might be exerted to improve existing schemes is not likely to meet with a very realistic or helpful response from employers.

I share the views which have already been expressed that at a time of recession it is in nobody's interests, either employees of small firms or employees in much larger organisations, if further costs are imposed upon employers in the circumstances outlined in the Government's propositions both in relation to the Bill itself and in further proposals outlined by the Minister.

I very much hope that the Minister will be able to say that he sees some point in the amendment and that the Government will view it with some favour. I support the amendment.

Earl Russell

The noble Lord, Lord Mottistone, has made the key point about the amendment; it is the break-even amendment. Even the Secretary of State did not claim that employers actually break even as things are. The National Federation for the Self-Employed has calculated the effects of having one employee sick. At £100 a week the employer would lose £6.77 a week; at a wage of £184.50 a week the employer would lose £17.97 a week.

I understand that the noble Lord, Lord Boyd-Carpenter, is going to quote the figures collected by the CBI for individual firms. They are telling figures, and I look forward to hearing him quote them. I should like to add just one more figure which was made available to me at 12 o'clock today. It comes from the Committee of Vice-Chancellors and Principals, which calculates that the Bill will cost the universities £1 million a year. I think that that is in line with the other figures that the noble Lord intends to quote.

That aspect also draws attention to something that has not yet been mentioned, which is the effect of the Bill on the big public sector employers. Here we have a further problem which may tend to diminish any putative saving that the Government think they will derive from the Bill. I dread to think what the figure may be for the amount that the Bill is going to cost the National Health Service. If it goes ahead, the Government will have to decide whether they are prepared to allow beds to close to provide the necessary savings or whether because of the political consequences it will be necessary to stump up the necessary cash. I think it very likely that they may find they have to stump up the necessary cash, in which case the putative saving is diminished even further than we thought it would be.

The Bill is also going to have quite a serious effect on local authorities. I thought that this Government had got into enough difficulties with local authority finance and did not need to go looking for more. Evidently they are gluttons for punishment, but I do not think that this Chamber should necessarily help them to get it.

I want to mention two further points, one of which is the GATT. Your Lordships may ask what the GATT has to do with statutory sick pay. My answer is nothing. That is precisely why it is relevant—an answer which is perhaps superficially, on a Gilbertian level of paradox. It is true that we are seeing a more activist GATT. It is true that farmers who are concerned by this Bill are at the moment in the firing line. The Prime Minister said just before Christmas that it would be a tragedy if the GATT ended with no agreement being reached. I think that is a view from which there would be very few dissentients in this Chamber. That means that we may be placing upon farmers today, and perhaps on other producers tomorrow, burdens which many of us would place only with very great regret.

With a more activist GATT in the field it will be vital to any country to hang on to those ways of softening life for employers and making it cheaper for them to stay in business which do not contradict any GATT rules. As far as I know, reimbursing employers for statutory sick pay is not contrary to GATT rules, and in the near future ways of helping our employers which are not contrary to GATT rules will be like gold. Where we have anything like that we should keep it.

I shall make one final point. My noble kinsman the Minister dwelt on occupational sick pay schemes. I agree with what he said, but there seems to me to be a risk that as business does not like uncertainty and as this Bill will increase uncertainty dramatically for some businesses and significantly for others, firms may be slightly less eager to develop occupational sick pay schemes than they are at present. Therefore this Bill may do damage to a development in which the Minister and I believe, as do most of the rest of the Committee. I for one would regret it.

Baroness Seear

Perhaps I may ask the Minister to comment on a point arising from the speech of the noble Lord, Lord Mottistone. If I understood the noble Lord aright, he said that a lower paid worker under conditions of sickness is likely to be worse off because of the proposed changes.

So far in this debate it has not been mentioned that a high proportion of low paid workers are members of ethnic minorities who are apt to be employed to a considerable extent although not exclusively by other members of ethnic minorities. If it can be shown that this Bill will have an unduly unfavourable effect on ethnic minorities, it could be seen as a case of indirect discrimination. As I fully realise, like most cases of indirect discrimination it would not be intended, but that would be the consequence. That might lead to a case before the European Court.

That is a point which has been put forward by the Institute of Personnel Management. It is an important point to take into account.

Lord Boyd-Carpenter

In discussing this amendment the Committee has been considering the financial effects of the Bill. Perhaps my noble friend the Minister will allow me to say that so far he has been rather coy in his response to questions about those effects. I therefore invite his attention to the Statement on the financial effects of this measure as given on the front of the Bill. It states perfectly clearly that: "Clause 1 will produce savings in public expenditure of £181m in 1991–92, rising to £190m in 1992–93 and £197m in 1993–94. In addition subsection (3) of the Clause will result in an increase of national insurance income of £71m, £75m and £78m in the three respective years". That seems clearly to indicate—indeed it is the purpose of the Bill—that there will be a saving in excess of £100 million of public expenditure. That is how the whole matter started; namely, as part of the expenditure round and as the deal struck between the Secretary of State for Social Security and the Treasury. We know that; and we also know that it was done without consultation. I believe that it is useful that the Committee has a clear view of the financial effects centrally.

As my noble friend Lord Mottistone said, the CBI has been researching among its members as to what will be the additional costs to them. Understandably a number of companies are not happy about disclosing their names—although one of them has—but the CBI at least is satisfied that for a large chemical company the additional cost will be £460,000 a year and that for a large manufacturing company it will be as high as £2 million a year. To Marks & Spencer, which is a very well known and efficient firm and to its credit the company let its name be disclosed, it will be £600,000 a year.

We are not therefore dealing in small change, even with such big companies. It is also a time when they are desperately trying to keep down their costs and when appeals rightly are being made by the Government to trade unions not to inflate industrial costs by excessive wage demands. Yet the Government now come forward with a proposal which will increase the costs of those firms by figures of that kind. Consequently the purpose of my noble friend's amendment, which is designed to deal with that situation and which he assured the Committee would do so (I have not myself followed his calculations but I know that he is extremely well informed on these matters), is to prevent that increase in costs.

I wonder whether any students of our economy at the moment would not feel that it is the duty of Parliament to do everything possible to restrain the increase in industrial costs in the present situation and that it would be wholly irresponsible of Her Majesty's Government to insist on putting them up artificially.

5.15 p.m.

Lord Carter

Before the noble Lord sits down perhaps I may mention that he referred to a figure of £100 million. Did he deduct in that second figure the £71 million from the £181 million? The effect of this Bill is that one would have to add together those figures. On its own the effect of this Bill is to give an increase in the public exchequer of £258 million.

Lord Boyd-Carpenter

That is true because we are concerned with the difference between the national insurance fund and the national funds, as we are all well aware. I thought it only fair—I do not mind that the noble Lord does not—to add that the increase in exchequer costs was only in part offset by an increase in national insurance fund income. That is a matter of opinion but it seems to me that that is the fairest way to put the matter.

Lord Jenkin of Roding

I owe it to my noble friend Lord Mottistone to spell out in perhaps two or three more sentences than I did in my remarks on the earlier amendment why I feel some hesitation in supporting his amendment. I said that I thought the Government were justified in the general thrust of this Bill subject to the problem of small businesses that we dealt with in the last group of amendments, where the Government indicated that they were prepared to make concessions.

My noble friend Lord Boyd-Carpenter, as one of the first Chief Secretaries to the Treasury, has already adverted to the problem; namely, that when a spending Minister seeks to agree his programmes with the Treasury, specifically with the Chief Secretary (I have sat on both sides of that table as did my noble friend in an earlier decade), the fact is that he is engaged in a trade-off because there is an upper limit to what the Chancellor and indeed almost certainly the Cabinet have already indicated have to be the bounds of public spending.

If one goes back and reads the Statement made in another place and repeated in this Chamber about the social security uprating, one can see that the Minister, my right honourable friend the Secretary of State, specifically referred to the linkage between the savings that could be achieved by this change to statutory sick pay and a number of other highly desirable improvements in the social security system which, by no stretch of the imagination, could ever be visited on anybody else such as an employer. There is here the position of an increasing number of employers operating employment sick pay and paying their employees amounts on different scales but paying them of their own free will because they feel it is part of their responsibility as employers. We have to consider that 91 per cent. of employees are employed by firms which operate some kind of sick pay scheme for their employees. That does not mean to say that the 91 per cent. of employees are covered. Some more research is needed on that point.

One should consider what the Government are able to afford for next year. As the Secretary of State said, they have made these changes open the way to a number of other important improvements both small and large and I think that the Committee will recognise that they are all improvements for which in one way or another every single one of us has been pressing over the years. They are improvements which will now take effect. The independent living fund has multiplied twelvefold in the course of three years and in this year it will have its resources doubled to £62 million. The independent living fund helps the most seriously disabled people who find themselves faced with difficult situations which are often far beyond the ability of the ordinary statutory payments to cover. There are sometimes hundreds and occasionally thousands of pounds necessary to meet the needs of their disabilities. It is done in a most imaginative way.

I have the honour to be a vice-president of Motability and will be handing over to it yet another car. An extra £1 million has been spent on expensive adaptations. There have been changes in the mobility allowance and there have also been changes in income support. Members of this Committee sat through long debates on the Social Security Bill and discussed the problems of income support. The real increase to the basic pension for those aged between 60 and 74 in income support, housing benefit and community charge benefit has been more than the retail price index can justify.

There has also been a major upward adjustment in a field which brings together the interests of elderly and disabled people; that is, the limits relating to residential care and nursing homes. There cannot be any Member who has not been faced with a problem similar to that which I faced in my former constituency. People said that they could not look after their clients on the limits which the Department of Social Security was prepared to allow. The Government have now met that problem and in London where costs are high the increases are substantial. I also remind the Committee that there has been an increase in child benefit for the eldest child.

In the light of my experience as social services Secretary of State and as a Chief Secretary, I regard it as being inconceivable that the Government, in view of the pressures that they face, could make any of those highly desirable changes—for which there can be no other source than the Exchequer—unless they were prepared to offer savings in an area in which employers are becoming increasingly responsible; that is, regarding it as being within the normal scope of employment to cover employees during short-term sickness—

Lord Mottistone

Does my noble friend believe that anything that he has said has any bearing on my amendment?

Lord Jenkin of Roding

My noble friend is asking for a larger reimbursement in order to remain neutral. The Government have had to find savings and I am reminding the Committee upon what they have spent those savings. For that reason I find the amendment impossible. How can one have one's cake and eat it? How can one go from 80 per cent. to 91 per cent. while at the same time applauding all the splendid things which my right honourable friend announced in another place before Christmas? Those matters do not add up. If we are to have the benefit of additional expenditure we must give the Government the facility to find the savings. The Government are doing that by cutting the reimbursement from 100 per cent. to 80 per cent. and changing the banding on social security—

Lord Harmar-Nicholls

Will my noble friend carry that argument to its logical conclusion? He has been rather selective in calling a halt at where he believes the overriding interest of the nation justifies that. If as a result there is an increase in unemployment and the cost of servicing the unemployed continues to eat up some of the margins that he believes the Government will have available, should that not be taken into account?

Lord Jenkin of Roding

We then come to the other side of the equation. The national insurance contributions, and so forth, do not enter into the public expenditure totals. In dealing with the public the Government must balance the extra spending with the reduction in compensation as regards the extra contribution. Broadly speaking, they have done that. When my right honourable friend the Secretary of State for Social Services deals with the Chancellor he is dealing with public expenditure. If he wishes to make improvements in his area of public expenditure he must be prepared to find savings.

I have listened to my noble friend and read the Second Reading debate in this Chamber and the debates in another place. I fear that I cannot accept the main burden of the argument; namely, that the Government should not be acting in such a way because that puts additional expenditure on the generality of employers. I believe that the other improvements are worth that cost and, therefore, cannot find it in my heart to support my noble friend's amendment.

Lord Boyd-Carpenter

Perhaps I may reply to my noble friend Lord Jenkin because he has challenged my proposition. We all accept that the Government's handling of social security improvements has been marvellous and is a fine achievement. However, there appeared to be a complete gap in my noble friend's argument in that he suggested that it must be financed in this way. He will be aware that the capacity to finance the present social security system and improvements to it depends on the efficient working of our economy. If we cannot create sufficient wealth by the efficient working of the economy we cannot support even the present level of social security benefits, never mind higher levels.

The point made by the critics of this Bill is not that one should not in some way or another finance such improvements appropriately through taxation. On the contrary, the point is that by using this method—incidentally, without prior consultation with industry —one is hampering the efficient working of the economy and therefore the capacity to produce the wealth necessary to maintain our social security system. My noble friend and I have sat on both sides of the table but, with great respect, he now appears to ignore the point.

Lord Jenkin of Roding

Perhaps I may respond and then I shall sit down. One is talking about 0.05 per cent. of the total employment bill which currently runs at more than £300 billion. I should have more sympathy for the employers if I believed that they were seeking to keep down and hold at a more reasonable level the pay increases that they are prepared to give to their employees. I am chairman of various companies and know how difficult that is, but it can be achieved. I have corresponded with the CBI on the subject but now I find that at its conference it wrings its hands about inflationary pay demands which its members are conceding and complains in this Chamber about the 0.05 per cent. which must be set against all the other desirable aspects in the area of social security.

Lord! Peyton of Yeovil

I understood that the point behind my noble friend's amendment is that the Government should not add wantonly to industry's costs. It has been my impression that industry has received a great deal of advice from the Government. It has also been the experience of industry to find that advice somewhat negatived by the process of constantly adding gratuitously to the costs of industry. One is left wondering whether this is a particularly good moment for the Government to choose to add even a small proportion. When my noble friend Lord Jenkin rose to make his point I listened, as always, with profound respect. However, it did not appear to be relevant to the amendment. I believe that the point is simple—that this is not the time to add to industry's costs in any way. I shall not presume to repeat the cogent arguments put forward by my noble friend Lord Boyd-Carpenter. I express only the fervent hope and devout prayer that the Government's ears may be opened and that they will agree to think again. I am minded to support my noble friend's amendment.

Lord Carr of Hadley

Without going into the detailed arguments, I should like to reinforce what has been said. This is not the time at which deliberate additions should be made to the cost of industry. There may be moments when to do that is tolerable but in my view at present it is not tolerable.

5.30 p.m.

Lord Harmar-Nicholls

I am never quite certain about the role of this Chamber as compared with that of the other place when dealing with these matters of detail. In the other place, if one had personal examples from constituents which could help to make the point under discussion on any Bill, one could use such examples to make one's contribution. In this Chamber we seem to feel it our duty to deal only with the global effect, which can run into millions of pounds, or 0.5 per cent. of something, which can amount to a great deal of money.

I should like to revert to the practice which I felt it was my duty to follow in another place. One listens with great care to the overall results which emerge from investigations made by the CBI as presented by my noble friend. However, I am connected with a few companies for which I have responsibility. When these percentages first appeared, I went to some trouble to examine what would be the result. Some of my companies employ perhaps no more than 10 or 12 people while others employ up to 150 or 200 people. Therefore, they cover a broad range.

I should like to tell my noble friend who will answer the debate that the effect of this measure is considerable. At present we are entering into a recession. We hope that it will be short and that we shall quickly return to happier times. However, at present the recession is causing us to think very hard about every penny which must be expended. In this area I can speak with complete authority and over the past two months we have had to dispense with something like 20 people. The financial situation of the companies involved has necessitated that action. I have no reason to believe that my experience, from which I can speak with full confidence, is any different from that of other companies where I am not in such a position.

My noble friend said that this was not the time to add, however marginally, to the problems which industry in general has at present. That is a very cogent point. While this Committee should look at matters globally and should not necessarily be swayed by the good or ill which one small action can bring, I believe that the evidence here shows sufficiently that this is not only the wrong action to take but the wrong time at which to try it.

In a completely different sphere, I should like to take up the very real point made by the noble Earl, Lord Russell, on GATT. During the five years in which I was a Member of the European Parliament (where we went into matters in detail rather differently from the way in which that is done in this Chamber)

I discovered that many of the problems in international trade came under the heading of what were known as "non-tariff barriers". Under GATT, nations could not put on a tariff to protect their various industries. However, they tried to find methods of imposing what effectively amounted to a tariff; for example, by setting standards as to the quality of certain sections of a commodity. We discovered that the Japanese in particular were very adept at being able to produce a non-tariff barrier point which had the effect of putting up a barrier and giving protection very much to the disadvantage of industries in this country.

In this instance, this provision would not be infringing the spirit or the general approach set out by GATT. I agree with the noble Earl that to remove that help, however small it may be, is rather stupid. We could keep within the rules and yet could make a tiny contribution towards helping the general competitiveness of our industry. I came here today particularly to vote for my noble friend's amendment. By keeping this matter as level as possible at this time, we are doing our duty in helping the Government to meet the very grave financial problems which they must face. One is not and should not be oblivious to those problems. By accepting this amendment we should be doing just that. At the same time, we should not be injuring the grave necessity of helping our industries and business generally to play a part in producing the wealth which we need if we are to have the way of life that we believe should be ours today.

Lord Henley

I start by dealing with two points. My noble friend Lord Boyd-Carpenter accused me of being coy on the figures relating to the savings. Quite rightly he corrected me and for the sake of the record I should like to put that right. I said that the Bill will lead to public expenditure savings of some £250 million. It would be correct to say that there will be public expenditure savings from the Bill of around £180 million. In addition, the Bill will mean an increase in national insurance income. My noble friend is always very keen to maintain a distinction between the two and he is quite right to do so. Such an increase will amount to some £70 million arising from the ending of the 7 per cent. compensation. However, that is not a public expenditure saving.

The second point on which I should like briefly to touch is the point made by the Baroness, Lady Seear. She suggested that provisions in the Bill might produce unfavourable consequences for employers of ethnic minorities. If that were so, the Government would be very disturbed. However, I should emphasise that we believe that the provisions in this Bill will have no effect on employees and I do not believe that employers—whether or not of ethnic minorities—will react in the way which the noble Baroness and others fear. However, I undertake that the Government will look at any evidence produced to the contrary by the noble Baroness or anybody else.

When I first saw the amendment of my noble friend Lord Mottistone I was somewhat nonplussed as to why he had chosen the figure of 91 per cent. At first I thought it might be in honour of the new year or that it might indicate some recognition of the figure, which we all quoted, of 91 per cent. of employees working for employers who provided some form of occupational sick pay. However, my noble friend explained his point and I now understand that the level has been very carefully chosen. Nevertheless, I regret that I shall be unable to accept the amendment.

As my noble friend has explained, were the reduction in the reimbursement rate to be restricted to 91 per cent. instead of 80 per cent., this would reduce the public expenditure savings by some £100 million. This would in turn broadly match the savings which will be made through not increasing the higher rate of SSP in April and through raising the dividing line between the two SSP rates to £185 a week.

As the Committee will be aware, the changes affecting the higher rate of SSP and those entitled to it are not part of this Bill. There will be an opportunity to discuss these provisions within the next few weeks when the SSP (Rate of Payment) Order comes before the House along with the other uprating orders. Now is not the time, therefore, to have a detailed debate about these proposals.

It may be helpful in the context of the discussion on this amendment, however, if I briefly set out the provisions which will be in the uprating order and which were announced by my right honourable friend the Secretary of State on 24th October. As the Committee 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 —£46 being the lower earnings level at which national insurance contributions first become payable. It is intended that that lower rate be increased by the full RPI increase of 10.9 per cent. from £39.25 to £43.50, which is an increase of £4.25 a week. The increase recognises the fact that low paid and part-time workers are less likely to receive occupational sick pay from their employer when they fall sick. At the same time the dividing line between the two rates which, as I said, is presently £125, should be increased to cover the whole range of earnings bands within which employers pay the lower rates of contributions. This will be £185 from April 1991. Finally, it is proposed that the higher rate of SSP will stay unchanged at £52.50 a week.

Those changes will reduce public expenditure by around £100 million in 1991–92. The Government maintain that, despite those changes, the vast majority of employees will receive no reduction in the total payment they receive when sick. This is because of the way occupational sick pay under the employer's own scheme interacts with SSP. And here, of course, lies the reasoning behind my noble friend's amendment.

My noble friend argued that although the reductions in national insurance contributions will broadly compensate employers for the costs of the proposals in the Bill, they will not cover the additional £100 million which arises under the uprating proposals. I accept that that is the case. But I cannot accept that it would be right to cover that by pitching the SSP reimbursement rate for all employers at 91 per cent. instead of 80 per cent.

In the first place not all employers will experience extra SSP costs as a result of the changes in the uprating proposals. While we expect most employees affected to have SSP topped up by occupational sick pay, some, of course, will not. Employers without occupational sick pay schemes would therefore obtain the ad vantage of the higher reimbursement rate proposed by my noble friend even though there was no extra cost to them. Similarly, the higher reimbursement rate would apply equally to SSP paid in respect of employees earning £125 a week or less as to those with higher earnings. Such employees will have had the benefit of a full RPI increase, so again the employer has no extra costs. In the Government's view, therefore, there is not a strong case in logic to make the change proposed in the amendment. But even given the fact that for many employers their occupational sick pay schemes will have to bear the cost of the changes in the SSP uprating proposals, the Government do not consider that that should impose a significant burden on individual employers.

I feel that my noble kinsman Lord Russell was scaremongering when he spoke of closing beds in NHS hospitals. The effect of £100 million spread throughout all employers will be very small. It represents only a tiny proportion of the total labour costs over the economy as a whole, which are running at well over £300 billion. It is less than 0.03 per cent., which is even lower than the figure of 0.05 per cent. given by my noble friend Lord Jenkin. The figure of 0.03 per cent. represents £100 million spread over the total labour costs which are running at well over £300 billion.

I acknowledge, as my noble friend said, that now is not a good time for business. But the Government do not consider that that modest shift in the balance of provision between state and business should pose specific burdens on employers. In that context I should perhaps stress the Government's record on employers' contribution rates. I remind the Committee that significant reductions in national insurance contributions have been introduced by the Government for employers as well as for employees.

In 1979 employers were paying 13.5 per cent., including the 3.5 per cent. national insurance surcharge. The Government gradually reduced that amount to 10.45 per cent. In 1985 they introduced the three reduced rates of 5 per cent., 7 per cent. and 9 per cent. for lower-paid workers. Those reduced rates are generally of the greatest help to smaller employers whose workforce is more likely to be among the less highly paid. As the Committee is aware, the Government propose to reduce those rates still further to 4.6 per cent., 6.6 per cent. and 8.6 per cent. from next April. Thus in the case of a lower-paid worker the employer's contribution will have been reduced over the 11 years from 13.5 per cent. to 4.6 per cent. As that amounts to little more than 0.03 per cent. of labour costs as a whole, the SSP changes form a very modest shift in funding to employers, especially when viewed in the context of the Government's past record on national insurance contributions.

Perhaps I can take an example given by my noble friend Lord Boyd-Carpenter which related to Marks & Spencer. I cannot confirm or deny its estimate of an additional annual cost of £600,000. I am not sure whether account was taken of the reductions in national insurance contributions. However, to put that in perspective one should note that according to the profit and loss account for the year ending 31st March 1990 its staff costs as a whole were £671 million. That comparison must put the increased costs it claims it will have into some perspective.

The Government decided on the figure of 80 per cent. reimbursement after careful consideration of all the implications. For the reasons I stated we do not believe that it would be appropriate to further change the level of reimbursement to take account of the £100 million which will be saved from the separate SSP changes to be included in the uprating proposals. In those circumstances I hope my noble friend will withdraw his amendment.

Lord Mottistone

That response is most disappointing. The figures quoted by my noble friend attempt to show that if one generalises very little money is involved—forgetting what happens to the individual firm and the firm that will go to the wall because it is in difficulty. If that is so, a gesture could be made to industry indicating that the Government recognise and appreciate its problems. My amendment does not go the whole hog and do away with the Bill, which is what I should really like to happen. To accept the amendment would be a practical and sensible gesture by the Government at this time to show that they recognise that industry is in trouble and that they are trying to do something about it. At some later stage, when industry is running better, a new Bill could be produced to change the rules.

To say that this is where we must stop and that the Government will not accept the carefully worked out figures which produce a reasonable neutral balance, strikes me as being most unreasonable. I was delighted by the support I received from these Benches from those of my noble friends experienced in industry who know the effect the Bill will have on companies. I was sorry to hear what was said by my noble friend Lord Jenkin. I will not pursue that point because other noble friends shot him down even more effectively than I could do. Those of us who are concerned for industry believe that the amendment goes some way towards recognising the problem. The noble Baroness, Lady Turner, put the point on behalf of the employee. Apart from what the noble Baroness said, I am afraid that we had not studied the impact on the employee as much as perhaps we should. However, it is not only companies wanting to remain solvent and to produce the wealth of the country which are concerned; it is also companies which want to remain solvent and continue to produce jobs for people.

The noble Earl, Lord Russell, said that the vice-chancellor told him that the cost would be £100 million. Not only will we hit employees and companies, but we shall also hit education. Therefore it is surely a matter on which the Government should concede. With that in mind I beg to move.

5.50 p.m.

On Question, Whether the said amendment (No. 5) shall be agreed to?

Their Lordships divided: Contents, 132; Not-Contents, 80.

Division No. 1
CONTENTS
Abinger, L.	Hughes, L.
Addington, L.	Hylton-Foster, B.
Airedale, L.	Irvine of Lairg, L.
Aldington, L.	Jeger, B.
Ampthill, L.	Jenkins of Hillhead, L.
Ardwick, L.	Kearton, L.
Attlee, E.	Kilbracken, L.
Auckland, L.	Kilmarnock, L.
Aylestone, L.	Kinloss, Ly.
Banks, L.	Kirkhill, L.
Barnett, L.	Lauderdale, E.
Birk, B.	Lawrence, L.
Blackstone, B.	Listowel, E.
Bonham-Carter, L.	Lockwood, B.
Boston of Faversham, L.	Longford, E.
Bottomley, L.	Lovell-Davis, L.
Boyd-Carpenter, L.	McIntosh of Haringey, L.
Brightman, L.	McNair, L.
Brooks of Tremorfa, L.	Malmesbury, E.
Bruce of Donington, L.	Marsh, L.
Carmichael of Kelvingrove, L.	Mason of Barnsley, L.
Carnarvon, E.	Mayhew, L.
Carr of Hadley, L.	Mersey, V.
Carter, L.	Milner of Leeds, L.
Cledwyn of Penrhos, L.	Monson, L.
Clinton-Davis, L.	Morris of Castle Morris, L
Cocks of Hartcliffe, L.	Mottistone, L. [Teller.]
Craigavon, V.	Nicol, B.
Darcy (de Knayth), B.	Ogmore, L.
David, B.	Oram, L.
Davies, L.	Peston, L.
Dean of Beswick, L.	Peyton of Yeovil, L.
Denington, B.	Phillips, B.
Donaldson of Kingsbridge, L.	Pitt of Hampstead, L.
Dormand of Easington, L.	Prys-Davies, L.
Elliot of Harwood, B.	Rea, L.
Ennals, L.	Richard, L.
Ewart-Biggs, B.	Ripon, Bp.
Falkland, V.	Rippon of Hexham, L.
Fisher of Rednal, B.	Ritchie of Dundee, L.
Gainford, L.	Rochester, L.
Gainsborough, E.	Russell, E.
Gallacher, L.	Saltoun of Abernethy, Ly.
Galpern, L.	Scanlon, L.
Gisborough, L.	Seear, B.
Gladwyn, L.	Shackleton, L.
Graham of Edmonton, L. [Teller.]	Shaughnessy, L.
	Shepherd, L.
Grantchester, L.	Sidmouth, V.
Greenway, L.	Stanley of Alderley, L.
Gregson, L.	Stedman, B.
Grey, E.	Stoddart of Swindon, L.
Halsbury, E.	Strabolgi, L.
Hampton, L.	Taylor of Blackburn, L.
Hanworth, V.	Taylor of Gryfe, L.
Harmar-Nicholls, L.	Terrington, L.
Harris of Greenwich, L.	Thomson of Monifieth, L.
Hatch of Lusby, L.	Thorneycroft, L.
Hertford, M.	Thurlow, L.
Hollis of Heigham, B.	Tordoff, L.
Hooson, L.	Turner of Camden, B.
Houghton of Sowerby, L.	Underhill, L.
Howie of Troon, L.	Wallace of Coslany, L.

Walston, L.	Wilberforce, L.
Wedderburn of Charlton, L.	Williams of Elvel, L.
White, B.	Winstanley, L.
Wigoder, L.
NOT-CONTENTS
Allerton, L.	Lurgan, L.
Arran, E.	Lyell, L.
Astor, V.	McColl of Dulwich, L.
Beloff, L.	Mackay of Clashfern, L.
Belstead, L.	Mancroft, L.
Bessborough, E.	Margadale, L.
Blake, L.	Merrivale, L.
Borthwick, L.	Milverton, L.
Brabazon of Tara, L.	Mountevans, L.
Brougham and Vaux, L.	Mountgarret, V.
Butterworth, L.	Munster, E.
Caithness, E.	Napier and Ettrick, L.
Campbell of Croy, L.	Nelson, E.
Carnock, L.	Nugent of Guildford, L.
Cavendish of Furness, L.	Orkney, E.
Chesham, L.	Orr-Ewing, L.
Cochrane of Cults, L.	Park of Monmouth, B.
Colwyn, L.	Pearson of Rannoch, L.
Cox, B.	Perth, E.
Davidson, V. [Teller.]	Quinton, L.
Denham, L. [Teller.]	Reay, L.
Elibank, L.	Rees, L.
Elton, L.	St. John of Fawsley, L.
Fanshawe of Richmond, L.	Selborne, E.
Flather, B.	Skelmersdale, L.
Fraser of Kilmorack, L.	Stockton, E.
Gibson-Watt, L.	Strathclyde, L.
Glenarthur, L.	Strathmore and Kinghorne, E.
Gormanston, V.	Suffield, L.
Haig, E.	Swinfen, L.
Hailsham of Saint Marylebone, L.	Teviot, L.
	Thomas of Gwydir, L.
Henley, L.	Trefgarne, L.
Hives, L.	Trumpington, B.
Holderness, L.	Vaux of Harrowden, L.
Hood, V.	Waddington, L.
Hooper, B.	Wade of Chorlton, L.
Jenkin of Roding, L.	Whitelaw, V.
Johnston of Rockport, L.	Windlesham, L.
Killearn, L.	Wynford, L.
Long, V.

Resolved in the affirmative, and amendment agreed to accordingly.

5.57 p.m.

[Amendment No. 6 not moved.]

Earl Russell: moved Amendment No. 7: Page 1, line 24, leave out subsection (2).

Lord Simon of Glaisdale

Am I right in thinking that we shall be discussing Amendments Nos. 7 and 8 together?

Lord Henley

The noble and learned Lord is quite correct.

Earl Russell

There seems to be a general sense that the Government are attempting to do something which is rather unwise. The subsection which I am trying to delete authorises the Government, whenever they see fit, to do it again, and as many times as they like, without recourse to further parliamentary legislation. Clause 1(2) has become known in industrial circles as the clause of Damocles. It is known in this House as a Henry VIII clause. If one looked at the view from Tower Hill one might think that those two names had something in common. I have noticed that when one uses the phrase "Henry VIII clause" it sometimes produces a somewhat glazed expression among noble Lords. Most of us know that there is only one memorable thing about Henry VIII and we cannot quite see how a clause can manage to have six wives.

The procedure was first used in the reign of King Henry VIII. It involves the passing of an Act which authorises a Minister by order to vary the primary legislation. It authorises the Minister to make new law by regulation. I shall not say that that is something which is always improper but it is something which Parliaments in all centuries ought to view with suspicion. It ought not to be done lightly; and when it is done it ought to be for a clearly acceptable objective and with a very clear justification.

In anything that has been said for this clause I do not think that those criteria have in the least been satisfied. I shall not develop the arguments arising from the Donoughmore Scott Report. I hope that the noble and learned Lord, Lord Simon of Glaisdale, will develop those points. I shall say only that I have read the report. I agree with everything that the noble and learned Lord has said in the past about it and I expect to do so again.

When we consider a clause of this kind we have to ensure that there is an adequate check on the Executive. Parliaments are not always the most powerful check on the Executive but they are the check which our system is designed to use. We should use them as best we can. We have to concern ourselves with the object of the clause and we have to concern ourselves with its justification. I am not sure that it does very well on either of those criteria. There is less resistance for some objectives than there is for others. If something on the whole beneficial and not particularly damaging is being done by one of these clauses, we may perhaps be more indulgent to the form of it than we should be in other cases.

We have had a rush of them recently, each for a rather worse objective than the previous one. The Henry VIII clause in the Education (Student Loans) Bill was simply designed to authorise the Minister to vary the list of educational institutions at which students were eligible to receive loans. The House on the whole took the view that that was not a particularly harmful objective. The clause in the Courts and Legal Services Bill was perhaps a little more unusual. It sought to allow the Minister to transfer business from the High Court to the county court. That, thanks to the noble and learned Lord the Lord Chancellor, was modified in the course of its passage. But here we have a very much more dubious objective. The clause is being used to authorise the Minister, by regulation, to lay financial burdens on the subject.

I am sure that my noble kinsman the Minister will wish to object to that form of words. He will wish to say that what we are dealing with is not the laying of a financial burden on the subject but the paying of a reimbursement. In strict form that is true but we are dealing with what is correctly described as statutory sick pay. The employer is under a legal obligation to pay it. If my noble kinsman were to deny that, I would put down a good many amendments at Report stage to ensure an adequate protection for employers. It is something which the employer has to pay and for which he is no longer being reimbursed so in effect it imposes a financial burden on the subject.

I ask the Committee to consider what its reaction would have been if we had not gone through the initial stage of liability with reimbursement but had gone straight to the imposing of a liability without reimbursement with such a Henry VIII clause involved. I think we should have taken a very dim view of it. There are only two objectives which I should regard as more questionable than this. One is the direct laying of new taxes by a Henry VIII clause and regulation and the other is the creation of new criminal offences. We have no sign yet of the Government doing either of those things but such clauses are becoming more frequent. Sooner or later we shall have to send one back and say that it really will not do.

The justification offered for the clause by my noble kinsman the Minister at Second Reading was equally thin. We were given reassurances both by my noble kinsman and by his right honourable friends Mr. Scott and the Secretary of State that the Government had no present plans further to reduce the rate of reimbursement on employers. I entirely accept those reassurances, but they leave the Government with a very thin justification for this clause. In fact when my noble kinsman justified the clause he did so solely in terms of Executive convenience. He said: it is sensible to have a provision that is capable of being changed". He gave the game away by saying: Governments of all complexions acknowledge that as the sensible way to proceed".—[Official Report, 11/12/90; col. 417.] That is simply the voice of the Executive, the voice of administrative convenience as it has been heard for centuries. The trouble is that it does too much. It has never been in accord with administrative convenience to have Parliaments at all. That is why it is rather important that we have them. It has always been a nuisance to busy ministers to have to justify themselves in Parliament. In fact I do not think I am being fanciful in hearing behind those arguments the irritation in Whitehall that it has to go through legislation to get a Bill on the statute book in the first place. That irritation is a mark of quite how necessary it is that we should go through the parliamentary process.

I fully accept that my noble kinsman will move an amendment to introduce the procedure by affirmative resolution. I welcome that. But, with respect, for this House it is not enough. It ensures the ability to debate whatever the Government may do in future but some of us in this Chamber do not always feel that our debates are listened to with quite the attention that we should like to think they deserve. If we speak in this Chamber with the tongues of men and angels and cannot vote, we have no power. What matters is the ability to vote against the Government and occasionally to win.

A great deal of argument is going on about under what circumstances this Chamber may vote on something to do with a statutory instrument. I shall not go into that matter any further—it is sub judice with the Procedure Committee at the moment—but it is at present a convention that this Chamber does not directly vote against a statutory instrument. Therefore, if a further reduction in the reimbursement is introduced by a statutory instrument it will in effect be capable of becoming law without the consent of this Chamber. Another place can and may vote against it, but if we in this Chamber let that go through we abandon our right to say no.

For that reason the increasing use of Henry VIII clauses constitutes a contempt of this House. They are being used to do something which I think is thoroughly questionable in itself. Sooner or later we shall have to vote one of these clauses down and get it taken away. We have argued against them before and yet they become more frequent. When will we have a better opportunity to vote one down? I beg to move.

Lord Stanley of Alderley

I have been reading the reasons given by my noble kinsman Lord Henley at Second Reading for not accepting such an amendment. They are quite unconvincing for three main reasons. He stated first at col. 416 of Hansard that the Government had no plans at present to alter the rates. Then, at col. 417, he said that it would be unwise for him to predict the future. It sounds as if he took those statements straight from Sir Humphrey. I really do not know what they mean. Moreover, he repeated that assurance—if you can call it an assurance—during the debate on the first amendment.

Secondly, my noble kinsman went on to say that the level of national insurance contributions is a separate question and could therefore be adjusted if statutory sick pay was altered. That was a nice use of the word "could". Thirdly, he stated that the principle of the Bill was covered in Clause 1 but that the percentage rate charged to employers was not a principle and therefore was appropriate for secondary legislation. If ever there was a chicken and egg case that is a perfect example.

Finally, unless Members of the Committee support Amendment No. 7, the amendment which has just been accepted will be ineffective, in that the Government could put forward an order to alter the rate back to 80 per cent. or, indeed, back to any rate they wished.

Lord Mottistone

My noble friend has stolen my horse: I had intended to make the same point. The effect of winning acceptance of the last amendment will be completely nullified if Amendment No. 7 is not accepted by the Committee. It will mean that any percentage would be vulnerable.

I turn now to Amendment No. 8. It is my experience in this Chamber that both affirmative and negative orders are just as unattackable—if that is the right word—in this place as if we had no powers over them. We can put forward a good argument, but if the relevant order has been passed in another place—and it is up to the Government to organise that—then there is an unwritten rule that we must more or less let it pass through this Chamber. Moreover, if we do not do so, all sorts of hell could be let loose. Therefore, such opposition has seldom occurred.

In my view orders are not good enough to cover such matters. Of course, administratively, they are splendid but as regards keeping parliamentary control, as mentioned by the noble Earl, we must retain primary legislation to cover such crucial areas. Therefore, I hope that Members of the Committee will support Amendment No. 7 and reject Amendment No. 8.

Lord Carter

It is clear that those of us who have put our names to the amendments, and others, feel that the process of affirmative resolution is not enough. There is a point which is puzzling me and perhaps the Minister will clarify it in his reply. The Bill refers to an order amending the subsection by, any greater or lesser percentage". However, in Amendment No. 8 reference is made only to "a lesser percentage". Therefore, in the most unlikely event of the Government wishing to increase the percentage, would they be able to do so?

I turn now to deal with the effect of this subsection. We on this side of the Committee believe fundamentally in the concept that statutory sick pay is the responsibility of the national community through the national insurance system. We have already debated the fact that this Bill in its totality is not about a saving in costs for this year. If the Government wish to save money they can do so—as they have done this year—by way of the rates and the thresholds of statutory sick pay. They do not need a Bill in order to do so.

Having produced the Bill, the Government say that this year they will roughly balance in global terms the cost to the employer of reduced rebates by reducing the national insurance contributions. The Minister confirmed that these are in fact quite separate issues. Indeed, he did so in his reply to me on a previous amendment. The answer he gave is the reason why the Committee should accept Amendment No. 7. He said that the rebates and the changes in the national insurance programme are entirely separate.

Why therefore do we need a Bill? It is clear that we do not need one in order for the Government to save money. They intend to save money in future years by increasingly shifting the burden of statutory sick pay to employers. Their original intention was to slip through the future changes by way of the negative resolution procedure. They have at least given way on that issue by changing to an affirmative resolution. However, we are quite convinced that this is not the way to do it. As I said, it is not enough. If Members of the Committee will excuse the pun, we hope to help the Government to stiffen their resolution still further by removing the subsection from the Bill.

The Government must return to Parliament through primary legislation if they wish to make changes of principle such as those in respect of the percentage rate of rebate. Such changes must not be brought about by administrative fiat. I urge Members of the Committee to support the amendment so that we may at least in one case stop this increasing practice of government by regulation and replace it with government by Act of Parliament.

6.15 p.m.

Lord Simon of Glaisdale

This subsection is a highly objectionable provision. It is all the more objectionable because it is unnecessary for the purpose of the Bill as it has been explained to the Committee. It is by far the most objectionable of all the Henry VIII provisions which noble Lords have had to consider in recent years. It impinges upon fiscal matters (on charges of the subject) and moreover, as I said, it is unnecessary for the purpose of the Bill.

Our liberties depend upon the balance of the constitution. We do not carry a division of powers to a logic Al extreme and conclusion as does the American constitution. However, by and large we keep separate the judicial, the legislative and the executive functions. Unless that is done, liberty has gone. One saw that when the Reichstag surrendered its legislative powers to Hitler to enable him to govern by decree; in other words, it gave him a Henry VIII clause to cover all that he wanted to do.

I entirely agree with the remarks made by the noble Lord, Lord Carter. Amendment No. 8 is quite insufficient. However, it enables us to examine what has been happening by way of the preparation of legislation and by way of the supervision of the work of parliamentary counsel. On the face of the Bill, this subsection is subject to no parliamentary control. How is it that that fact did not alert anyone? It is only by going back to a section of the 1982 Act which is amended—namely, Section 9—and then chasing through the legislation over many pages to Section 45 that we find that the negative procedure applies. However, that appears only after considerable scrutiny. How was the provision ever introduced with only the negative procedure applying to it?

The Joint Committee on Delegated Legislation produced a unaminous report in the 1972/73 Session. It set out three criteria which would govern when there should be an affirmative resolution. This subsection offends against no less than two of them. In paragraph 46 of the report the committee refers to, Powers substantially affecting the provisions of Acts of Parliament". Those are explained as meaning something other than "trivial or tidying-up" procedures. I do not suppose that it can be pretended for a moment that this is merely a matter of trivial tidying up.

Secondly, reference is made to, Powers to impose financial charges". The noble Earl dealt with that, but the sentence continues: or to make other forms of financial provision. So I am bound to ask: how was the provision ever introduced with the negative procedure alone? Have the Government reneged on the acceptance of the report of the Joint Committee? If not, how did it escape notice? Of course I ask that question rhetorically because your Lordships all know the answer. It is because parliamentary counsel are not responsible to any legal department.

Sir Robert Andrew was recently asked to report on the government legal services. He recommended that parliamentary counsel should be responsible to the law officers. Personally I should have preferred the Lord Chancellor, but Sir Robert's recommendation was certainly better than nothing. However, that was not accepted by the Government and one can only speculate as to the reasons why. The parliamentary counsel still remain responsible only—and only nominally of course—to the Prime Minister, who has other things to do than supervise the drafting of Acts of Parliament.

The other reason why there is no control is that the Legislation Committee of the Cabinet, on which the noble Lord, Lord Boyd-Carpenter, served with such distinction for so long, has abnegated its former function of supervising and scrutinising legislation before it is introduced. I am quite certain that in his day the fact that this was, on the face of it, not subject to any parliamentary control and, on scrutiny, was subject only to negative resolution would have set all the wires humming and the Bill would have been referred back to the department.

So much for Amendment No. 8; hut, as the noble Lord has just said, it does not meet the case at all. The Donoughmore Committee recommended not that it should simply be convenient to legislate in this way but that it should be essential, necessary and proven to the hilt. Those were its words. Of course it is highly convenient for the Executive not to have to bother with Parliament as regards its legislation. The "gentleman in Whitehall" does generally know best, but there is one thing he cannot know. However skillfully he cobbles it up, he cannot tell where the shoe is going to pinch the citizen: only the citizen can tell that.

One need not look beyond this Bill for an example. During the discussions on Second Reading and again today, countless objections of a total and economic nature have been produced to cause the Government to be prepared at least to rethink some matters; and recently your Lordships have carried an amendment against the Government. As was pointed out by the noble Lords, Lord Stanley and Lord Mottistone, this procedure is available to overturn the considered opinion of your Lordships. When Sir William Harcourt went to the Home Office, he called together the officials and said, "My business is to prevent your governing the country so well that an infuriated population will hang you from the lamp posts of Whitehall." That is the purpose of Parliament: to prevent our being governed with excessive efficiency which does not really take account of where a measure bites.

So one comes back to asking again what I ventured to ask last time: do the Government accept the Donoughmore Report? My noble and learned friend the Lord Chancellor indicated that they did, by and large, but certainly nothing appears in this Bill to bear that out. The Memorandum bears no resemblance at all to the Henry VIII clause and neither did the Minister's introduction. It was only when he was reminded to do so that he dealt with it in his reply and then, as has been pointed out by the noble Earl, all he said in effect was that it might be very convenient and it might come in handy some time. That is simply not good enough.

As I have said, this is the worst example we have had, principally because it involves a charge on the citizen. We had a number of Henry VIII provisions, as the noble Baroness, Lady Seear, will remember, on the courts Bill. The most egregious—not as objectionable as this but highly objectionable—was a provision allowing the Lord Chancellor to alter the penalty for an assent. He rapidly withdrew it and all the other Henry VIII clauses except one were made subject to affirmative resolution. The one that was not was a minor one affecting rules of court.

Therefore I ask the noble Lord on the Front Bench: does he really justify this as necessary and does he even say it is proper for the purposes of the Bill? I hope that the noble Earl will carry this matter of high constitutional importance into the Division Lobby, unless the noble Lord, Lord Henley, accepts the amendment. If he does, I shall follow him without hesitation.

Lord Rippon of Hexham

I have high hopes of the new Conservative Administration under the premiership of Mr. Major. We have been promised a change in the style of government. At the very least, I hope this means that we shall pursue our objectives by different means. One of the worst features of recent legislation has been the proliferation of these Henry VIII clauses, to which reference has been made. We are now facing, as the noble and learned Lord, Lord Simon of Glaisdale, said, the worst example that I have known. The folly of the position is shown by the references to the effect of the previous amendment, which will be perfectly useless if this further amendment is not made.

I, too, welcome this amendment providing that there should be affirmative resolution, but I think that the noble and learned Lord, Lord Simon of Glaisdale, was absolutely right when he said that this amendment should not have been necessary. We have had a number of discussions in this Chamber about these clauses. We had a long discussion on the Courts and Legal Services Bill, when we virtually had an assurance, although it was slightly modified to me in a subsequent debate, that the Government would not normally try to introduce measures of this kind by negative resolution. I hope that the noble and learned Lord the Lord Chancellor will look at this Bill and consider how such a thing could happen.

I have been a sinner myself. Indeed in a debate on the 14th February at col. 1408, I gave a striking example of what happened to legislation for which I was responsible, under which an order was subsequently made which had, to my mind, the most devastating consequences. But there was nothing at all that the courts could do about it. So it is fair to say that even the affirmative resolution is no really effective safeguard, not only in this Chamber but in the other place as well.

I can say from my experience that a clause of this kind would never have got through the Legislation Committee when the noble and learned Lord, Lord Simon of Glaisdale, was Solicitor General. There is no doubt about that. The position has become worse and worse and the courts are powerless if Parliament has in effect given delegated powers to the Minister which in practice are often exercised on the say-so of a relatively junior official, even though a Minister's name may be attached to the order.

Only last July the Court of Appeal turned down a challenge to the use by the Secretary of State for Social Security of delegated powers because it had to. There was no doubt that the Minister had power to make the order, so effect had to be given to it although the Court of Appeal expressed stringent criticisms of what it described as "unprecedented and unsupervised power". This power goes further than that.

When I had the opportunity of initiating a short debate on 14th February last year, I suggested as moderately and as modestly as I could the establishment of a Select Committee to scrutinise all Bills and to report whether they contained insufficiently defined administrative powers or proposed any inappropriate delegation of legislative powers. I had in mind what happened in Australia. In 1981 a Senate standing committee was established for the scrutiny of Bills, and it has worked very well. Of course we have plenty of committees to study the past and to peer into the future, but I do not think that we pay enough attention to what is happening at the present time.

I shall not pursue that point but I would ask my noble friends on the Front Bench to have a look at the debate we had on 14th February and also to study the debate which was initiated by the noble and learned Lord, Lord Simon of Glaisdale, on 31st January last year, which went into greater detail about the high constitutional issues that he has raised. It was a debate on both the quantity, which is too large, and the quality of legislation.

I believe that the Government should comply with the recommendations of the Donoughmore Committee that the use of the Henry VIII clause should be severely restricted, and it should always be explained and justified in the Memorandum to the Bill. It should also be remembered that the Donoughmore Committee was considering a very different situation from that which we face today. Heaven knows what it would have thought about a provision of this kind. It was considering a situation in which such a clause had been used only nine times since it was first introduced in a local government Act of 1888, which was limited to such matters as giving the Minister power by order to state the date of the coming into operation of the Act, and was normally limited to a period of 12 months from the coming into force of the Act. In the event, after the publication of the Donoughmore Report no such Henry VIII clause was introduced until after the Second World War. In other words, the Government found it perfectly possible between 1932 and 1939 to introduce complicated public health and local government legislation without feeling the necessity for provisions of this kind.

I do not want to go over all the arguments that have been advanced, not only today but on many previous occasions, but I should like to emphasise that I entirely agree with everything that has been said by the noble and learned Lord, Lord Simon of Glaisdale, both on this and other occasions. We need to emphasise that we are debating or discussing not some obscure or trivial legal point but a matter which has considerable constitutional implications, with dangers that are very real.

6.30 p.m.

Lord Peyton of Yeovil

Many years ago I was called upon to take my place on the Standing Committee which was considering the licensed premises (new towns) legislation. Ever since then I have been able to keep under very strict control, without undue effort, my admiration for our legislative procedures. I recognise that such procedures are a nuisance for the Government and I would have great admiration and respect for any administration that felt called upon to face the problem as a whole. I have rather less respect when a somewhat underhand method is resorted to of merely by-passing the inconveniences of procedures for which successive governments are responsible and of which they are the beneficiaries.

The constant use of the Henry VIII clause is unacceptable. I cannot think that any of your Lordships who voted for the previous amendment could possibly do other than support this one. I conclude my remarks by saying to my noble friend on the Front Bench, who enjoys—"enjoys" may be the wrong word—my entire sympathy in having to carry this particular burden, that I think he is allowing his cheerful good nature and optimism to get a little out of control if he thinks that the crumb of the affirmative resolution which he is offering to your Lordships will play a decisive role in the outcome of this discussion.

Lord Boyd-Carpenter

Now that the Leader of the House is here I hope I may appeal to the Government to think again. I share the sympathies of my noble friend Lord Peyton with my noble friend Lord Henley, who has had to stand up most gallantly not only to numbers but to reason for most of the afternoon. I fully realise the limitations imposed upon a junior Minister, and his inability to go back on what he has said in his brief, but now that the Leader of the House is here it would be helpful if we could be given some encouragement and in particular if we could be given an explanation as to why this subsection was inserted in the Bill. It is not good enough just to say, "Oh well, it might come in handy one day". One can hardly expect Parliament to take that as a serious argument for serious legislation. There must have been some thought in some circles of government that, having got this Bill through and having produced a modest reduction in public expenditure, they could take another gulp and reduce the 80 per cent. to 60 per cent. or something similar. I am sure that the noble Lord, Lord Henley, is far too discreet to tell us that, but it is only fair to tell him the suspicion which arises in the minds of even the most guileless and naive of those such as myself—and of course I couple the noble Lord with myself in that.

Seriously, surely we could be told that the Government are going to have another look not only at this particular subsection, which I hope will be taken out of the Bill in a few moments, but at the whole structure of the Bill; surely they will realise that some of us at least who have been critical are not critical because we enjoy being critical of a government whom we fully support and for whom we have the greatest respect. The fact that we have therefore been driven to oppose the measure might perhaps be thought to suggest there is something wrong with it.

I do not expect the noble Lord, Lord Henley, to get up and say that—if he did he would probably be the ex-Minister tomorrow morning—but I hope that either he or my noble friend the Leader of the House will be able to say that the Government are going to give serious and extra thought to the matter. As the noble Lord the Leader of the House knows, because I wrote to him over the Recess, I begged him and his colleagues in the Government to have another look at the whole of the Bill, the consequences of which seemed and still seem to be most unfortunate and particularly damaging to the Government at an important time. I therefore hope that we may be given some encouragement not merely on this subsection but on the Bill.

Lord Henley

I regret that I shall not be able to satisfy my noble friend Lord Boyd-Carpenter. I thank him for his fairly soothing words after the violence from the noble and learned Lord, Lord Simon, who accused me of violence in my conduct of the Bill through the House. I thought that my responses had been positively honeyed all the way through the Committee stage. In bringing forward concessions or making offers of concessions on some amendments I believed that I had been the opposite of violent. I shall not be able to help very much Members of the Committee who have spoken on this and on my own amendment to which I shall come in a moment.

As I told the House during Second Reading, and as my right honourable friends have said on more than one occasion in another place, the Government have at this time no plans to make further changes in the SSP reimbursement rate. Once again I wish to assure the House that the Government have no private commitment to make progressive reductions in the percentage rate in the future. That being the case, Members have asked: why have the provision at all? I can do no better—

Lord Rippon of Hexham

Will my noble friend give way? Does that mean that there are no present or future plans to change the 91 per cent.?

Lord Henley

I can give no commitment on the amendment. It will obviously be a matter that we shall have to consider and another place will have to consider when the Bill goes back to it.

I was trying to reassure the Committee that we have no secret plans or commitment to make progressive reductions in the percentage rate in the future. I repeat what my right honourable friend said in another place on two occasions, because he quoted himself at Committee stage. The Secretary of State said: We have no plans to make further changes, but given the way that matters have been developing and the continuing need to examine priorities across the whole spectrum of social security, it seems sensible to have a provision that is capable of being changed… A large part of the social security system, including nearly all the rates of benefit —quite apart from the whole range of other rules—is in a form that does not lock it into primary legislation, so that changes can be made by secondary legislation. Governments of all complexions have acknowledged that that is a sensible way of dealing with social security matters". —[Official Report, Commons, 28/11/90; col. 915.] It would be foolish to rule out for ever further consideration of this aspect. The inclusion of the power in Clause 1(2) of the Bill is a sensible arrangement which, as my right honourable friend said, does not lock future changes into primary legislation but enables them to be made by secondary legislation. It follows similar provisions in much of the social security system—for example, changes in the rates of benefits themselves are dealt with in this way.

My noble kinsman Lord Russell and the noble and learned Lord, Lord Simon, suggested that it would be quite extraordinary to use secondary legislation to lay financial burdens on United Kingdom subjects. The truth is that there are very long-standing precedents. Perhaps I may give one example that is particularly relevant: the rates of contributions can and will be varied by secondary legislation and could be increased by the same means. I can say in passing that I am proud to be a member of a Government that has been able to reduce rates of contribution of both employees and employers over the years.

The noble Lord, Lord Carter, also asked why my amendment only offered the affirmative procedure if the rate should be reduced. He is quite correct; if we decided to increase above 80 or the 91 per cent. as it is now, that would not have to be done by affirmative resolution.

During Second Reading and this afternoon, the noble and learned Lord, Lord Simon of Glaisdale, suggested that the inclusion of this provision in the Bill was contrary to the recommendations of the Donoughmore Committee. Modern statutes confer power on the Executive to make delegated legislation which amends the statutes themselves. This is used, for example, to alter financial limits or to make alteration of details within a narrowly defined field. Or, as I have mentioned, to make alterations to national insurance rates.

However, as the Committee knows, the Government have noted the concern that has been expressed by noble Lords on this matter, particularly by the noble and learned Lord, Lord Simon, both on Second Reading and this afternoon. In passing, perhaps I may say that I regret the lack of trust that has been expressed by many of the Government's supporters—my own noble friends—in the assurances that we have given. We have undertaken that should any order under this provision be introduced in the future which seeks to reduce the percentage rate currently applied, it should be subject to the affirmative resolution procedure. That undertaking is fulfilled by my Amendment No. 8. My noble kinsman Lord Russell said that this was of no use whatever because, he alleged, we take no notice in this House of what is said.

Earl Russell

I beg my noble kinsman's pardon, I did not say it was of no use whatever. I said that I welcomed it, but that it was not enough.

6.45 p.m.

Lord Henley

The noble Earl went on to say that the Government take no notice of what he and other noble Lords say when we debate affirmative resolution procedures in the House. I can assure him that we take full note of everything he says, as we shall of the points made by other noble Lords. The affirmative resolution procedure is a great concession.

However, the Government cannot agree to the complete removal of the subsection. It has been the practice of governments of all complexions—and I am sorry that the noble Earl, Lord Russell, does not like that remark for which I make no apology—to proceed by secondary legislation once the main principle has been established. That makes for sensible and efficient government, particularly in the highly complex field of social security legislation.

In the light of what I have said and of the amendment in my own name which follows, which would prevent any further order being enacted without the approval of both Houses of Parliament, I hope that my noble kinsman will feel able to withdraw his amendment.

Lord Simon of Glaisdale

I am sorry to interrupt the noble Lord when he is in the act of sitting down, but would he care to answer the question that I ventured to ask? How did it happen that the Bill was introduced subject only to the negative procedure?

Lord Henley

I think I can only apologise for that omission. As I stated, the Government have now brought forward an affirmative resolution procedure. I hope that the noble and learned Lord will accept it as being good enough and also accept my apology that it was not brought forward subject to the affirmative resolution in the first place.

Lord Rippon of Hexham

Before my noble friend sits down, perhaps I may say that of course we have absolute trust in the present Government, but what about a future government?

Lord Henley

I am grateful for my noble friend's trust in the present Government. I am sure that the noble Lord knows that they will remain in power for a considerable number of years.

Lord Carter

Perhaps I may point out to the noble Lord that at col. 917 of the Official Report in another place on 28th November 1990 his right honourable friend the Secretary of State, Mr. Newton, said: I always seek to be open with the House about such matters and it is not inconceivable that this Government, or any future one, might make a judgment in particular circumstances that it was reasonable to propose a further change in the percentage without compensation, or whatever, through the national insurance system". He referred to "this Government".

Lord Henley

We have never given any assurance that this Government would make no changes. We have just given the assurance that we have no plans at the moment. Circumstances can change. While this Government is in power—which it will be for many years—in changed circumstances obviously different decisions may have to be made.

Earl Russell

I am deeply grateful for the support I have received from every quarter of the Committee. It is a good day when I can agree with everything said by the noble Lord, Lord Boyd-Carpenter. One matter with which I agree was when he expressed sympathy for my noble kinsman the Minister who has had a difficult day. He stood at the burning Dispatch Box, whence all but he had fled. I admire the courage with which he did so. I shall take up two points.

My noble kinsman denied the fact that people take no notice of our debates. I deduce that from, among other things, the presence of the clause in the Bill. Had they taken notice of our debates, it would not have been there. I agree with my noble kinsman that we cannot for ever rule out the possibility of changing the rates of reimbursement for statutory sick pay. There is a procedure for doing that. It is called a Bill. I commend the amendment to the Committee.

6.50 p m.

On Question, Whether the said amendment (No. 7) shall be agreed to?

Their Lordships divided: Contents, 106; Not-Contents, 71.

Division No. 2
CONTENTS
Abinger, L.	Galpern, L.
Addingion, L.	Gisborough, L.
Airedale, L.	Gladwyn, L.
Ardwick, L.	Graham of Edmonton, L. [Teller.]
Attlee, E.
Auckland, L.	Grantchester, L.
Banks, L.	Grey, E.
Beloff, L.	Haig, E.
Birk, B.	Hampton, L.
Blackstone, B.	Hatch of Lusby, L.
Bonham-Carter, L.	Hertford, M.
Bottomley, L.	Hollis of Heigham, B.
Boyd-Carpenter, L.	Hooson, L.
Brooks of Tremorfa, L.	Houghton of Sowerby, L.
Bruce of Donington, L.	Howie of Troon, L.
Carmichael of Kelvingrove, L.	Hughes, L.
Carter, L.	Hylton-Foster, B.
Cledwyn of Penrhos, L.	Jeger, B.
Clinton-Davis, L.	Jenkins of Hillhead, L.
Cobbold, L.	Kilbracken, L.
Craigavon, V.	Kinloss, Ly.
Darcy (de Knayth), B.	Kirkhill, L.
David, B.	Lawrence, L.
Dean of Beswick, L.	Lindsey and Abingdon, E.
Donoughue, L.	Listowel, E.
Dormand of Easington, L.	Lockwood, B.
Elliot of Harwood, B.	Longford, E.
Ennals. L.	McIntosh of Haringey, L.
Ewart-Biggs, B.	McNair, L.
Ezra, L.	Marsh, L.
Falkland, V.	Masham of Ilton, B.
Gainford, L.	Mason of Barnsley, L.
Gainsborough, E.	Mayhew, L.

Meston, L.	Saltoun of Abernethy, Ly.
Milner of Leeds, L.	Seear, B.
Milverton, L.	Shackleton, L.
Monson, L.	Shaughnessy, L.
Morris of Castle Morris, L.	Sidmouth, V.
Mottistone, L.	Simon of Glaisdale, L.
Mountgarret, V.	Stanley of Alderley, L.
Nicol, B.	Stoddart of Swindon, L.
Ogmore, L.	Taylor of Blackburn, L.
O'Hagan, L.	Taylor of Gryfe, L.
Oram, L.	Tordoff, L.
Peston, L.	Turner of Camden, B.
Peyton of Yeovil, L.	Underhill, L.
Pitt of Hampstead, L.	Walston, L.
Prys-Davies, L.	Wedderburn of Charlton, L.
Rea, L.	Whaddon, L.
Richard, L.	White, B.
Ripon, Bp.	Wilberforce, L.
Rippon of Hexham, L.	Williams of Elvel, L.
Rochester, L.	Winterbottom, L.
Russell, E. [Teller.]
NOT-CONTENTS
Arran, E.	McColl of Dulwich, L.
Astor, V.	Mackay of Clashfern, L.
Bauer, L.	Mancroft, L.
Belstead, L.	Margadale, L.
Blake, L.	Merrivale, L.
Blatch, B.	Mersey, V.
Borthwick, L.	Mountevans, L.
Brabazon of Tara, L.	Munster, E.
Brougham and Vaux, L.	Napier and Ettrick, L.
Butterworth, L.	Nelson, E.
Caithness, E.	Nugent of Guildford, L.
Carnegy of Lour, B.	Onslow, E.
Carnock, L.	Orkney, E.
Cavendish of Furness, L.	Orr-Ewing, L.
Chesham, L.	Park of Monmouth, B.
Cochrane of Cults, L.	Pearson of Rannoch, L.
Colwyn, L.	Pender, L.
Davidson, V. [Teller.]	Reay, L.
Denham, L. [Teller.]	Renwick, L.
Eccles of Moulton, B.	Selborne, E.
Elton, L.	Skelmersdale, L.
Flather, B.	Stockton, E.
Glenarthur, L.	Strathclyde, L.
Gormanston, V.	Strathmore and Kinghorne, E
Hailsham of Saint Marylebone, L.	Suffield, L.
	Swinfen, L.
Henley, L.	Thomas of Gwydir, L.
Hives, L.	Trefgarne, L.
Holderness, L.	Trumpington, B.
Hood, V.	Ullswater, V.
Hooper, B.	Vaux of Harrowden, L.
Jenkin of Roding, L.	Waddington, L.
Johnston of Rockport, L.	Whitelaw, V.
Killearn, L.	Windlesham, L.
Long, V.	Wyatt of Weeford, L.
Lyell, L.	Wynford, L.

Resolved in the affirmative, and amendment agreed to accordingly.

6.58 p.m.

[Amendment No. 8 not moved.]

Lord Mottistone moved Amendment No. 9: Page 2, line 1, leave out subsection (3).

The noble Lord said: We change the subject slightly. I shall speak also to Amendments Nos. 14 and 15 which are consequential upon Amendment No. 9. The amendment removes that part of the Bill which takes away from employers the additional amount that they receive to compensate them for paying national insurance contributions on SSP. At present employers are reimbursed an additional 7 per cent. on any SSP that they pay. That reflects the average additional cost borne by employers.

SSP is a state welfare benefit, not pay, and employers should not therefore have to pay national insurance contributions on it. However, one of the unintentional side effects of employers administering SSP was that employers had to pay national insurance on the higher rate of SSP and their employment costs were thus increased. That situation was recognised and alleviated when, in 1985, the Government introduced the additional compensation.

I should also like to remind my noble friends on the Front Bench that the arrangement was introduced at the same time as Ministers extended employers' responsibility for administering the scheme from eight to 28 weeks. It was intended partly—as set out in the DHSS discussion paper published in December 1984 —as a recognition of the extra work for employers as a result of the SSP changes".

The Government are now proposing to withdraw that provision arguing, first, that employers receive compensation for national insurance payments when national insurance may not have been paid and, secondly, that around 25 per cent. of the additional compensation is unclaimed. That is a fact to which my noble friend Lord Jenkin of Roding referred repeatedly in the course of earlier amendments. Neither of those arguments holds water. Compensation is based on the average additional payment paid by employers as a whole. That was the option favoured by Ministers in 1985 and then, as now, it was clear that under that system certain employers would receive more in compensation than they had paid, but that some companies would not receive full compensation.

That method was accepted by the CBI in the interests of administrative simplicity, but employers' acceptance was conditional on the percentage remaining at an acceptable level and on the understanding that the system would not be arbitrarily changed. I emphasise the word "arbitrarily" in view of the way in which this Bill has been handled.

The Government's second argument, that because 25 per cent. of the available compensation is unclaimed all compensation should be withdrawn, seems at best illogical. It is surely not one which the Government would wish to see applied to other areas. The fact that so much compensation remains unclaimed clearly indicates that, despite the Government's assurances, and indeed considerable efforts, the SSP scheme is not as simple to understand and administer as Ministers claim. I expect that the majority of unclaimed compensation belongs to the smaller companies which find it hardest to get to grips with the scheme.

Those are the reasons for my amendments. I hope that my noble friend the Minister will give them serious consideration. If he cannot undertake to accept my amendment as it stands perhaps he will say that he will take it away and think about it so that we might come back to the matter at Report. In view of the general unpopularity of the Bill, as shown by the last two Divisions, and the need for the Government to be seen by industry to be listening to what it has to say and recognising that it has real problems, and in particular financial problems, perhaps the Government may be able to accept the amendment more readily now than they could when they first introduced the Bill. I beg to move.

Baroness Turner of Camden

I rise to support the amendment moved by the noble Lord, Lord Mottistone. Again, I do so with employees in mind. It is not just a question of employers having difficulty with a scheme which, as the noble Lord said, is not as simple as the Government maintain. The evidence indicates that a number of small employers in particular find the provisions extremely complicated. That is no doubt why the take-up of the rebate is so low.

When there are administratively complex issues to be handled employees are automatically affected. That is particularly so if those issues are perceived by employers to add to their administrative costs. As I said in relation to a previous amendment, that makes it much more difficult for unions and employees who are represented to negotiate reasonable occupational sick pay schemes where there are none. It also makes it more difficult to negotiate improved schemes because employers simply do not wish to add to their costs.

For those reasons, and in the light of the fact that the Bill is clearly most unpopular on all sides of the House, I ask the Government to give careful consideration to what has been said by the noble Lord, Lord Mottistone, who has covered the issues very comprehensively. I have pleasure in supporting the amendment.

Earl Russell

I rise only to say very briefly that the Liberal Democrats warmly support the amendment. I agree both with what the noble Lord, Lord Mottistone, said and with what the noble Baroness, Lady Turner of Camden, said. The Bill will have an adverse effect on employment. An almost bankrupt employer is often a bad employer. There are already difficulties in relation to the payment of statutory sick pay. The Bill will not make the situation any better.

Like the noble Lord, Lord Mottistone, I hope very much that the Government will think hard about the amendment. They have had considerable food for thought today and if they do not think hard about it I hope that the noble Lord, Lord Mottistone, will go for the hat trick.

Lord Henley

As my noble kinsman said, the Government have had considerable food for thought today. I cannot offer to take the amendment away and think about the matter with any real hope that the Government will change their mind on the matter. However, I hope that in the light of the defeat that my noble friend inflicted on the Government earlier he will not feel it necessary to press this amendment, bearing in mind that the Government will obviously have to consider their position to some extent.

I should like to explain briefly why we feel that we cannot accept the amendment. As my noble friend explained, the amendment and the associated amendments to the schedule would remove from the Bill the provision which abolishes the additional amount which employers can recover as compensation for the national insurance contributions payable on SSP. The level of compensation is calculated actuar[...]ly each year and represents the estimated total of the employers' contributions payable on both SSP and SMP as a percentage of total SSP/SMP payments. For 1990–91 the rate was fixed at 7 per cent. As my noble friend will know, that means that employers are currently able to recover from their national insurance contributions payable to the Inland Revenue a sum equivalent to 107 per cent. of the SSP they have paid out.

As I have said, that additional amount was intended to compensate employers for the cost of national insurance contributions they pay on SSP. As my noble friend Lord Jenkin said earlier, it has been of only limited success despite widespread publicity. As much as a quarter of the compensation available is never claimed by employers. Even when it is claimed it does; not always fulfil its original purpose. In the interests of simplicity of operation by employers it is available on all SSP paid by employers even where the total amount of SSP payable is below the lower earnings limit and thus does not attract national insurance contribution liability. That is obviously highly unsatisfactory. Moreover, it makes little sense to retain the 7 per cent. compensation rate for SSP once we move from 100 per cent. reimbursement.

My noble friend's amendment would also have financial implications. As the Explanatory and Financial Memorandum sets out, the ending of the compensation rate will increase income to the National Insurance Fund by £71 million in 1991–92, rising to £75 million and £78 million in the succeeding two years.

For those reasons I cannot accept my noble friend's amendment.

Lord Mottistone

I am disappointed that my noble friend did not feel that he could be a little more accommodating. However, I do not believe that this is an appropriate occasion to return to the charge because we could well argue the matter more fully having had the opportunity to read my noble friend's arguments, which I do not think tell us very much more than we already know. We may be able to return to the charge at Report. I shall reserve the right to come back if necessary with exactly the same amendment.

It is sad that the Government are not thinking as they were in the early 1980s when they introduced the scheme. I was involved in a personnel capacity at the time. Nor did they give the same thought to the matter as they obviously did in 1985 when they made the adjustments to which I referred. They seem to have gone hard on and become unhelpful to industry in the course of the last year. I do not think that is wise of the Government, partly because of the economic situation but also because they really ought to he friends with industry for all kinds of reasons, which I would have thought would be obvious to them.

Having said all that, I reserve the right to come back and take leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord Henley moved Amendment No. 10: Page 2, line 18, at end insert: (6) In section 22 of the Social Security Act 1989 (recovery of sums equivalent to benefit from compensation payments) in the definition of "benefit" in subsection (3), the words "subject to regulations under subsection (3A) below" shall be inserted after the word "and", and after that subsection there shall be inserted— (3A) If statutory sick pay is prescribed as a relevant benefit, the amount of that benefit for the purposes of this section shall be a reduced amount determined in accordance with regulations by reference to the percentage from time to time specified in section 9(1) (a) of the 1982 Act (percentage of statutory sick pay recoverable by employers by deduction from contributions)."").

The noble Lord said: In moving Government Amendment No. 10 I will also be speaking to Amendment No. 11 in the name of the noble Baroness, Lady Turner of Camden, and the noble Earl, Lord Russell, which deals with much the same point.

Amendment No. 10 is straightforward and arises from the interaction of the provisions in this Bill with the recoupment provisions embodied in Section 22 of the 1989 Act. Many noble Lords will remember that Act and the discussion on it during the progress of the 1990 Act. Section 22 of the 1989 Act provides for the whole of certain prescribed benefits, including statutory sick pay, to be deducted from compensation for personal injury. The sum deducted is paid over to the Department of Social Security. This is not the occasion to rehearse the arguments which led the Government to enact the recoupment provisions, but an underlying notion is that the DSS should get back from compensation what it has paid out. Having made that point, the reasons for this amendment become apparent. A reduction of SSP funding from 100 to 80 per cent., or 91 per cent., needs to be reflected in the recoupment arrangements. That was brought out during the debate in another place and the point was acknowledged by my right honourable friend the Minister of State who undertook to consider the precise implications of the changes for recoupment. At the time, the department's legal advice was that any necessary change could be incorporated by way of an amendment to regulations using the powers in this Bill. However, that earlier opinion is now subject to some doubt and we consider it to be prudent to remove that doubt by ensuring that there is a specific power in Section 22 of the 1989 Act to amend regulations. That is the nub of the amendment.

The list of benefits covered by the recoupment scheme is contained in the Social Security (Recoupment) Regulations 1990 and we consider that that is the place in which to set out any change in the amount of SSP being recouped. We shall be amending those regulations to provide that recoupment of SSP is on a par with the proportion of government funding.

From what I have said it will be abundantly clear that the Government fully accept the spirit of Amendment No. 11. However, as I explained, we propose to amend regulations to spell out the precise changes for recoupment associated with this Bill. I hope that with that assurance, not only of our intention but of the provision contained in our amendment, the noble Baroness, or whoever is dealing with it, and my noble kinsman will feel able not to move their amendment.

The reasons for Amendment No. 10 are clear and I commend it to the Committee. I beg to move.

Lord Carter

I am grateful to the Minister for that explanation. He has given the assurance we are seeking—that there is no need for Amendment No. 11 because it is covered by Government Amendment No. 10.

Earl Russell

I welcome the amendment. I thank my noble kinsman warmly for the letter he sent to me explaining the amendment in detail. I am glad we have it, and I thank him.

On Question, amendment agreed to.

[Amendment No. 11 not moved.]

7.15 p.m.

On Question, Whether Clause 1, as amended, should stand part of the Bill.

Lord Jenkin of Roding

I should like to make one comment. I very much regret that two amendments have been carried by the House against the Government, particularly after the Government treated my own amendment—the first amendment on the Marshalled List—with such an open mind and with an undertaking to come back.

There is a lesson to be learnt. I base that opinion on previous experience to which I referred earlier. If one is going to change the arrangements which affect employers paying their employees and to make alterations which will be to the disadvantage of some and to the advantage of others, there is enormous benefit in consulting them beforehand. I understand the reasons why it is said that that was not possible in this case; namely, that this was a deal negotiated with the Chief Secretary as part of an overall rearrangement of priorities in the social security budget.

What seems to be happening is that the public expenditure Statement is beginning to acquire some of the characteristics of the Budget. These things are all done quietly behind locked doors. I hope that the amount of leaking to the press of the discussions which go on will never be repeated for the Budget. It is said that somehow it is impossible for Ministers to consult on a proposal on which they are engaged in discussions with the Treasury until they have actually done the deal. I am not sure that that is necessarily right. I understand that the particular proposal was not made by the Treasury but by the Department of Social Security and by my right honourable friend the Secretary of State. I do not see why he could not have said: "Here is something I am prepared to consider, but I must have time to discuss it". It could be done fairly quickly. After all, the public expenditure rounds start with the position papers and previous programmes in May. The serious negotiations do not actually get under way until later; some in July but most in September and then intensively in October. It is quite a long period. If there is to be a change in social security arrangements involving some hundreds of millions of pounds and affecting many millions of employers, and if there is a lesson to be learnt from today's proceedings, it seems to me that it would have been much better to have had full consultation even if that did to some extent interrupt the normal process whereby the public expenditure round was conducted.

I feel a bit churlish in making this point because my own amendment was accepted in essence, but what we have seen is the product of not doing that and of leaving very little time for discussion. The Government should have gone to the employers' organisations and said, "We have got to find £250 million of public expenditure and we want to do it in the easiest and best way of dealing with statutory sick pay, national insurance contributions, or whatever it might be. How can we do this with the minimum of hassle, recognising that there will be some pain and grief to be borne?" If they had done that, I believe there would have been a better response from the CBI, and others, than we have had simply because this was been bounced onto them with very little warning and time for serious negotiation before the Bill came before Parliament. I think that aspect needs to be looked at.

I apologise if I sound unduly censorious but clearly my noble friend, as parliamentary Under-Secretary, does not have these matters firmly within his control; although I hope he will allow me to say that he has batted remarkably effectively today. If I may change the metaphor, I think he has been dealt a difficult hand and in part it has been of the Government's own making.

Lord Henley

I thank my noble friend for those comments. Naturally he would not expect me to comment on them or reply in any detail. My right honourable friend will be aware of what he says and I am sure will take note of it as my noble friend speaks with great experience of these matters.

Clause 1, as amended, agreed to.

Lord Carter had given notice of his intention to move Amendment No. 12: After Clause 1, insert the following new clause:

("Extent: payments condition

.The provisions of this Act, insofar as they amend section 9 of the Social Security and Housing Benefits Act 1982 (recovery by employers of amounts paid by way of statutory sick pay), shall only have effect to the extent of the amount paid by an employer in respect of statutory sick pay paid to an employee during the first three weeks.").

The noble Lord said: I do not propose to move this amendment or to move Amendment No. 13. I need to work out the effects that the amendments that we carried earlier today would have on these proposed amendments. I should like the chance to consider them and take advice. I reserve the right to bring back the amendments at Report stage.

[Amendment No. 12 not moved.]

[Amendment No. 13 not moved.]

Clause 2 agreed to.

Clause 3 [Citation, commencement, financial provision and extent]:

On Question, Whether Clause 3 shall stand part of the Bill?

Lord Henley

I do not know whether it is quite correct to delay proceedings in this manner for a moment or two to allow those who are to conduct the next business time to reach the Chamber. No doubt Members of the Committee would like to have the details of Clause 3 explained to them to a somewhat greater extent.

Like its predecessor clause, which was Clause 2 and which I did not have time to discuss, this clause contains only consequential changes which a quick perusal of almost any social security Bill will show are a regular it feature of social security legislation.

Subsection (1) deals with the citation of the Bill. Subsection (2) provides for different parts of the Bill to come in at different times and for different purposes. I beg to move that Clause 3 stand part of the Bill.

Clause 3 agreed to.

In the Schedule:

[Amendments Nos. 14 and 15 not moved.]

Schedule agreed to.

House resumed: Bill reported with amendments.