HL Deb 03 July 1991 vol 530 cc1066-82

8.4 p.m.

Report received.

Clause 1 [Class 1A contributions]:

Lord Mottistone moved Amendment No. 1: Page 3, line 3 at end insert; ("(aa) for the tax year beginning with 6th April 1991 in calculating the cash equivalent of the benefit of a car or fuel for the purposes only of determining Class 1A contributions under this section the car shall be treated as being unavailable by virtue of paragraph 2 of Schedule 6 to the Income and Corporation Taxes Act 1988 for the purposes of section 158(5) of that Act and paragraphs 2, 3(2) or 5(2) of that Schedule, for each day of the period from 6th April 1991 to the date on which this Act receives Royal Assent but this provision shall be without prejudice to the application of section 158(5), or paragraphs 2, 3(2) or 5(2) of that Schedule to any other periods in that tax year for which the car was unavailable for use.").

The noble Lord said: My Lords, this amendment is designed to ensure that changes in the Bill are not retrospective. It seeks to achieve what was set out by my noble friend Lord Cockfield in Committee on Amendment No. 5 which was put forward by my noble friend Lord Boyd-Carpenter. He said that it was normally the right course to prevent retrospection in taxes. The amendment seeks to do that.

There is a great deal of reason behind the amendment. I shall not bore your Lordships with every detail as time has rattled on. However, I should like to make one or two points which I do not think were made at earlier stages of the Bill. The Bill will generate an income of more than £600 million for the National Insurance Fund. No one can dismiss that as petty cash. Even after one allows for off-set savings, the proposal amounts to a 2.25 per cent. surcharge on the employers' contribution to the National Insurance Fund.

This Government, unlike their predecessor, have always recognised that national insurance surcharges of that order destroy jobs. Indeed, they have said so in the past. That must be a particular danger in time of recession. Nor is it a burden which falls evenly. Where the business car is an essential tool of the trade for marketing or managing distant sites, more employees have them. In those cases, meeting this national insurance surcharge will be like finding the best part of an extra week's pay for every employee involved. No Minister in this Government would think of suggesting that an extra 1 or 2 per cent. on pay could do anything other than push up costs in a way which would damage competitiveness. Yet that is precisely what the impact of the Bill will be where the business car is in widespread use.

A second concern about the Bill is the damage that it threatens to our domestic car industry. Clearly, it will depress company car purchases. That will particularly hit our domestic car industry which wins a Lang share of this most demanding market and does so primarily on merit.

Finally, there is the question of practicality. The proposed legislation would be retrospective. It is that which in my amendment I seek to avoid. For many of us here, that is bad in principle. When we come to look at its impact on industry we can see that retrospection would also be bad in practice.

My noble friend the Minister has been consulting on practical arrangements, yet whatever he decides will apply from the date of the last Budget. That is a cause of particular unease because companies not only face new demands from the Department of Social Security but demands which will vary according to something they do not measure with precision now and cannot see how to do so objectively —the precise mileage done by an employee on company business. Perhaps my noble friend the Minister will be able to devise a suitable scheme. But how are employers to apply it retrospectively when they do not know what it is? My amendment effectively means that the national insurance liability could flow only from the date when the Bill is enacted, by which time my noble friend the Minister will have had time to sort out the administrative details. That would remove the objectionable question of retrospection and all the worries about arbitrary regulation that go with it, and because national insurance liability would not start until the Bill became law it would reduce significantly the extra charges in respect of company cars that businesses will face next year as they struggle through to the recovery. The National Insurance Fund would clearly still be the net gainer and the Minister would have moved to a more equal treatment in respect of cash and perk cars, but the cost to industry of the charge would be reduced by perhaps £150 million. That could be of vital help at a crucial moment in the upturn of the country's economy. I beg to move.

Lord Boyd-Carpenter

My Lords, as my noble friend Lord Mottistone explained, the purpose of this amendment is to take out the retrospective character of the charge. As my noble friend the Minister will recall, we had some discussion about this in Committee. I should like now to make it clear to him that, as the Bill stands at present, this is a retrospective provision. In Committee my noble friend disputed that fact. He said that the Bill did not breach any principle of retrospection and that, it is a Budget measure". [Official Report, 25/6/91; col. 509.] He went on to say that Budget measures usually come into force immediately. Of course, my noble friend is perfectly right to say that the intention to introduce such a charge was mentioned in the Budget speech. However, with the greatest respect, that does not make it a Budget measure. Indeed, there is nothing in either of the resolutions or in the Finance Bill which would impose the charge. If there had been, there would be no necessity for this Bill. Moreover, what are we doing with the Bill if it was a Budget measure put into effect by the Budget?

What happened was that the Chancellor of the Exchequer, in the course of the Budget speech, indicated, perfectly properly, that it was the intention of Her Majesty's Government to introduce such a proposal. I noticed that fact with regret because I do not think that social security contributions should be dealt with by the Treasury. On the contrary, I believe that they should be dealt with, as is this Bill, by the Department of Social Security.

The point that I ask my noble friend the Minister to understand is that the mention in the Budget speech has no effect at all on the imposition of the charge. The charge will only become lawful if and when this Bill receives Royal Assent. I hope that my noble friend now accepts that fact. If he will allow me to say so, I believe that he has perhaps been a little misled by his ignorance of the Budget procedures. It is perfectly true that under the Provisional Collection of Taxes Act many changes in taxation made by the Budget operate from Budget Day; that is, generally, from six o'clock on Budget Day. Budget resolutions are carried and, under the Provisional Collection of Taxes Act, those taxes are lawfully levied for the rest of the summer until about 5th August generally when the Finance Bill becomes enacted. In fact, if one looks at the Budget it will be seen that there are many such provisions.

My noble friend is also wrong in saying that all Budget provisions normally operate from Budget Day. If he were to look into the matter, he would find out that many taxation changes of a capital nature operate only from about 5th August when the Bill becomes law. I hope noble Lords will forgive my stressing the point. I do not wish to appear repetitive. But, as my noble friend did not appear to understand on the last occasion, I feel it incumbent upon me to spell it out closely. The fact remains that mention by the Chancellor of the Exchequer of such an intention has no effect whatever in imposing the charge. The charge is imposed by the Bill which is before us tonight and which has not yet become law.

At present, the Bill says that the liability will run from the beginning of this financial year which is now nearly three months old, or perhaps a little more. Therefore, the effect must be retrospective because liability will be piling up from Budget Day which was in March. All this is to take place under a Bill which will certainly not receive Royal Assent until the current month of July.

I hope, therefore, that my noble friend will accept first that this is indeed retrospective. If he accepts that fact, I ask him to consider that retrospective taxation has always been regarded as contrary to proper policy and administration. I must confess that it is not unusual to admit retrospection in favour of the taxpayer. But it is very unusual, and has always been regarded as oppressive, to impose retrospective taxation on the taxpayer for the benefit of the state.

The amendment of my noble friend Lord Mottistone will remedy the situation. If accepted, it will ensure that the liability to pay this charge will arise from Royal Assent, whenever that may be. That is important from the point of view of principle. Moreover, from a practical point of view, as my noble friend Lord Mottistone said, it will also have considerable advantages. The effect of the Bill, as was made clear on Second Reading and in Committee, is to impose an additional charge on industry. At the very moment when the Government are, very properly, urging industry to keep costs down they are seeking to impose this provision. If the amendment is accepted, at least industry will be broken in gently. It will not have been accumulating a liability over the past three or four months: the liability will arise only from Royal Assent. I ask my noble friend seriously to consider whether that is the proper way to proceed.

My noble friend received due warning that this point would be raised because it was mentioned during the previous two stages of the Bill. I hope that he took advantage of the opportunity to consult with his right honourable friend, and indeed with the Treasury, on the matter. Knowing the position of a junior Minister, I realised that it would be very difficult for him to accept this amendment without reference to his seniors in the department. I trust that my noble friend will be able to tell us that, because of the desirability of softening the immediate effect of this imposition on industry and in deference to the principle that retrospective taxation is a bad thing, the Government will accept the amendment.

8.15 p.m.

Baroness Turner of Camden

My Lords, when the Bill was before this Chamber both in Committee and on Second Reading, we made it clear that our main concern in relation to it was the difficulty which we saw in making a distinction between those who had a car as a perk and those who needed to use a car as a part of the tool of their trade. Indeed, I mentioned sales representatives and I believe that the noble Lord, Lord Banks, mentioned district nurses, health visitors, and so on.

Of course we were a little concerned when the noble Lord, Lord Boyd-Carpenter, pointed out on Second Reading that it looked as though the Bill provided for retrospective legislation. We share the view that that is not a very good principle. However, the Minister claims that it is not retrospective. I shall listen with interest to his reply. I must stress that we on this side of the House welcome attempts to increase the money available in the National Insurance Fund. Therefore, if the noble Lord, Lord Mottistone, decides to press the amendment to a Division, I do not think that we shall be able to support it, even though we understand all the arguments which have been advanced by him and by the noble Lord, Lord Boyd-Carpenter, as to the undesirability of the retrospective effect of this legislation.

Having once accepted the principle that we should like to see more money going into the National Insurance Fund, if the provision were to be adopted it would mean that this time round—that is, this year —there would be rather less money than would otherwise have been available. With those few words, I have to say that, although I have much sympathy with the amendment, we on this side of the House would not be able to support it if it were pressed to a Division.

Lord Boardman

My Lords, I support the amendment for three reasons. The first is the retrospective nature of the Bill. My period as Chief Secretary in the Treasury was much briefer and less distinguished than that of my noble friend Lord Boyd-Carpenter, but I am familiar with the procedure and endorse what he said. I believe that this legislation is retrospective. I shall be interested to hear what my noble friend the Minister has to say about it.

My second point was also made by my noble friend Lord Boyd-Carpenter. It relates to the burden that is placed upon companies and employers at a time when they wish to minimise their costs. They will not have prepared for this imposition which, although not payable until next year, must be accumulated in their accounts and provided for in their costs today. This is the one time when every action possible should be taken by the Government to minimise the burdens falling upon industry and commerce.

My third point is a minor one, but for practical purposes it is important. It relates to the administrative troubles that will be created in calculating back what has been happening over the past three months, or whatever it may be. For all those reasons I hope that my noble friend will be able to accept the amendment.

Lord Banks

My Lords, I listened carefully to what the noble Lord, Lord Boyd-Carpenter, said, and, failing some explanation from the Minister, it appears to me that there is a retrospective aspect to the Bill. To that extent, I support the amendment. I agree with the view expressed by the noble Lord, Lord Boyd-Carpenter, and the noble Baroness, Lady Turner of Camden, that we do not like to see retrospective legislation and should like to see the end of it if possible.

Lord Renton

My Lords, the arguments in favour of the amendment have been so well deployed that there is no point in my trying to add much. I should like to reconcile two conflicting factors that have arisen. One understands the view of the noble Baroness, Lady Turner of Camden, when she says that she would like to see the charge on the National Insurance Fund reduced. That is a laudable aim but, on the other hand, in trying to establish the revival of our economy we should be trying to avoid placing extra burdens on industry. As has been said, this charge is a considerable extra burden.

At this stage anything which increases industrial costs should be avoided. If it adds to those costs retrospectively and in a way which, as my noble friend Lord Boyd-Carpenter pointed out, is, in an elementary sense, contrary to our legal principles— namely, by a Minister merely declaring an intention in the Budget Statement, with nothing happening until the Bill was introduced—that in itself is an unsatisfactory way to add to the burdens on industry.

We are now on Report. I do not believe that my noble friend wishes to divide the House on this tonight. The arguments are strongly in favour of asking the Government to think again. They could think again about this proposal between now and Third Reading. If they thought again, it would not involve a heavy cost on the Exchequer. By thinking again in the way proposed, the placing of a heavy burden on industry could be avoided.

Lord Henley

My Lords, my noble friends Lord Mottistone and Lord Boyd-carpenter have founded their case for delaying the start of the Bill on the rules which apply to Finance Bills. They suggest that Budget measures are introduced by Budget resolutions which give them legal status until the Finance Bill has received Royal Assent, and that under that procedure it is acceptable for proposals to be announced in the Budget Statement to take immediate effect once the relevant resolution has been passed. But since that procedure does not apply to this Bill they argue that it would be retrospective taxation for the new charge to apply from 6th April, in advance of Royal Assent.

Following the Committee stage, I looked carefully at, and have been advised carefully about, the arguments advanced by my noble friends. As one who has never been a Member of another place, I say with all due respect to two former Treasury Ministers that my advice is that their arguments are based on a misunderstanding of the procedures used for Finance Bills. As I shall explain, the arrangements proposed in the Bill for Class 1A contributions mirror exactly the arrangements adopted for the introduction of new taxes.

The Finance Bill is brought in on resolutions. The resolutions merely determine the scope of the Bill. They cover every provision in the Bill, including those not due to come into effect until after Royal Assent. But, the important point is that those resolutions give no statutory effect whatever.

However, there is a different set of resolutions which does give temporary statutory effect. Those are resolutions under the Provisional Collection of Taxes Act. They are necessary where it is intended to collect the tax or implement the change before Royal Assent, such as the increased duty on whisky which my noble friend mentioned in Committee. Once passed, and subject to the various conditions which are specified in the Provisional Collection of Taxes Act, such a resolution gives a particular measure legal status on a temporary basis until Royal Assent.

However, a Provisional Collection of Taxes Act resolution is unnecessary for those provisions where it is not intended to take any action to collect the tax until after Royal Assent. They become law only when the Finance Bill receives Royal Assent. But it is accepted practice—indeed common practice—that they can take effect from the beginning of the tax year. If my noble friends examine Finance Acts carefully they will find many examples of provisions increasing liability which take effect from 6th April, which were not introduced under a Provisional Collection of Taxes Act resolution and which therefore did not become law until Royal Assent at the end of July or the beginning of August.

One example from this year's Budget is the proposal to charge capital gains tax on non-resident trusts. If the Finance Bill is passed, the charge will have effect from Budget day but no Provisional Collection of Taxes Act resolution was required because no collection of the tax will be made until well after Royal Assent. Another, perhaps even better, example is the new charge in respect of mobile telephones. Again, no resolution granting temporary statutory effect was passed by the House of Commons.

To show that the comparison with what is proposed in the Bill is even closer, I should like to describe the introduction of the then new capital gains tax. When that was introduced in the 1965 Budget, it was covered by a general Budget resolution which was passed by the other place. That was not a Provisional Collection of Taxes Act resolution because that Act did not, and in fact still does not, apply to capital gains tax. Nevertheless, the proposal was to introduce the new charge on disposal of assets on or after 6th April 1965. The new tax did not become law until the Finance Bill 1965 received Royal Assent in the summer. Once the Bill became law, the new charge, legally and properly, ran from 6th April 1965. Like the proposals in the Bill, the introduction of the capital gains tax from 6th April had been announced in the preceding Budget, alerting people to the need to maintain appropriate records for it.

As I have already made clear, the Social Security Bill is not a Finance Bill and is not subject to Finance Bill procedures. But the arrangements proposed in this Bill for bringing the new contributions into effect are exactly the same as those which would apply to a new tax and which commonly apply every year to other Finance Bill measures increasing liability.

Lord Boyd-Carpenter

My Lords, will my noble friend allow me to intervene? Would he care to give examples of cases where provisions which have nothing to do with finance or a Finance Bill but which were wholly separate measures dealing, according to their title, with social security were applied months before they received Royal Assent?

Lord Henley

My Lords, I do not wish to give a precedent of that kind, as I have been trying to make clear. I have stated that the Social Security (Contributions) Bill is not a Finance Bill but the procedures in this case are analogous and they are the best ones to follow. We are doing nothing that has not been done in similar Finance Acts.

8.30 p.m.

Lord Boyd-Carpenter

My Lords, I am sorry, but is my noble friend really saying that this Bill is equivalent to a finance Bill?

Lord Henley

My Lords, I am not saying that it is a finance Bill. I am saying that it is analogous to a finance Bill and therefore it is perfectly proper to follow the same procedures and to make the announcement in the Budget that this charge will be introduced and then, subsequently, to bring in the legislation. That is what we have done.

Lord Boardman

My Lords, will my noble friend permit me to intervene? Can he give an illustration of a case where a Bill other than a finance Bill has raised taxes retrospectively?

Lord Henley

My Lords, my noble friend Lord Boyd-Carpenter has already asked that question. I said that I was unable to give such an example. I said that this is not a finance Bill; I accepted that. I said that it was a social security Bill relating to contributions to the National Insurance Fund. However, I feel that the procedure followed by the finance Bills is the correct procedure to follow in this case. It is entirely analogous.

I should like to turn to the question put by all four of my noble friends on the additional charges on business. As I said in Committee, and I have just repeated it—and I have no shame in repeating it—one must see these measures as part of the overall Budget package. I stress the word "package" because at Committee stage my noble friend Lord Boyd-Carpenter misheard me and thought that I was trying to suggest that it was part of the finance Act. It is part of the overall Budget package. It is accepted that there will be an extra £400 million charge to business as a result of these measures.

However, at the same time as that was announced, other changes were announced in the Budget. The main ones which were beneficial to business as a whole were as follows. The main rate of corporation tax was reduced to 34 per cent. for 1990–91 and 33 per cent. for 1991–92. Companies were allowed to carry back trading losses for three years instead of one. The waiting period for bad debt relief was reduced from two years to one year and for small businesses the corporation tax threshold and limit for marginal relief were both increased by 25 per cent. Small firms were allowed to make PAYE and national insurance contribution payments quarterly rather than monthly.

The value to industry of all those changes will be £750 million in 1991–92 and well over £1 billion in 1992–93. I believe that the additional cost of £400 million net as a result of charging national insurance contributions on cars should be seen in that light. I hope, therefore, that my noble friend Lord Mottistone will not feel it necessary to press the amendment to a Division.

Lord Boyd-Carpenter

My Lords, before my noble friend sits down, is he really arguing that a mere statement by the Chancellor of the Exchequer or any other Minister in a Budget speech or in the Budget debate has authority for imposing taxation?

Lord Renton

My Lords, before my noble friend answers that question, will he say what the statement was in the Budget? Did it in any way forecast the very complex provisions of the six clauses of the Bill covering five and a half pages?

Lord Henley

My Lords, I never said that the Budget statement had legislative authority. I said that following the Budget certain resolutions have to be passed in another place for the increases in tax which come into effect immediately. We cited the example of spirits and such items. However, if my noble friend had been listening to me he would have heard that there are many other matters relating to taxation which are not covered by the Provisional Collection of Taxes Act resolutions and do not need to be. I cited capital taxes as one example and also the case in this year's Budget of the proposal to charge capital gains tax on non-resident trusts.

Lord Mottistone

My Lords, I am afraid that I am very disappointed indeed. Although I took the trouble to tell my noble friend what I was going to say, he did not take the trouble to answer what I said at all. I am also unhappy that he was not given examples of Bills that are not finance Bills which have been made retrospective in this way. He only quoted examples that were finance Bill matters.

My noble friend Lord Boyd-Carpenter pressed the Minister on this point and he has still not come up with an example—perhaps because there is none. That may be why my noble friend is unable to give us any example of a retrospective non-finance Bill. Perhaps this is a new ploy that is being tried. I am sorry that noble Lords opposite will not support us if we go any further because it is a matter of importance which transcends the case in question. I think that we are being fiddled and I do not believe that my noble friend gave us a good example which matched the case we have here.

I hope that we shall receive an answer. I shall seek to obtain one as I do not believe it is entirely right that your Lordships' House should not be given a clear-cut example which matches the circumstances which we are tackling. It might have helped—but my noble friend said nothing about it—if he had suggested how businesses could be aided if the Bill goes through as it is at the moment and my amendment is not included in it. For example, he could have given an undertaking —which he more or less gave at an earlier stage of the Bill—to ease industry's concern over the retrospection by giving an assurance that in complying with their obligations under the Act and the 1975 Act, employers themselves need keep no mileage records other than a written statement from each relevant employee of his business mileage and that reliance on good faith in such statements would not result in penalties or imposts on the employer.

Employers fear that this little bit of legislation is the thin end of the wedge to make them responsible for collecting records from their employees. That often happens in other respects, but the Bill itself does not say that. I am surprised that my noble friend had nothing to say on the point. Perhaps he has something to say now.

Lord Henley

My Lords, I am not quite sure that I follow my noble friend. Obviously employers will have to pay the money; it is a charge on employers. We are charging national insurance contributions on employers providing a benefit for their employees.

Lord Mottistone

My Lords, the point is that at the moment employers do not have to keep any close records. The employees are expected to keep a close record of when they use their cars for business purposes. That is what I do and what most noble Lords do in order to claim on the House. However, there is no close record of such movements held by companies; they do not have to do so. What companies are fearful of is that they will somehow be made responsible for telling the Government the detail of the business claims that are made by their employees.

Lord Henley

My Lords, we have never said that detailed records need to be kept. Obviously the employer will have to seek information from the employee, because the employee will have details about his business mileage during the year. However, it is not detailed information that the employer will need. The nature of the business itself will sometimes give an indication as to whether they will come in the band below 2,500 or above 18,000. It will be up to the employer to get that information from the employee and obviously, before using the information to calculate his liability, the employer will have to satisfy himself that it is reasonable and consistent with the nature: of his employee's responsibility. That is common sense, and is no different from the kind of safeguard which a responsible employer would take on other matters.

Lord Mottistone

My Lords, yes, indeed that is true but one wants to be sure that, having said all that— and of course good employers do that automatically —somehow this rather nasty little Bill will not mean that some official somewhere will call upon the employers to keep more detailed records than they find it necessary in order to perform the functions about which my noble friend has just been talking. If I could be reassured on that I should be a great deal happier.

Lord Henley

My Lords, obviously I would hope that officials would not behave in that manner. I have said before that we shall be holding consultations and I repeat that assurance. We shall be publishing detailed guidance later this year following our consultations with employers. We hope that the right solution can be found so that employers, and obviously our own inspectors, will be satisfied.

Lord Mottistone

My Lords, with that tiny reassurance, and the fact that noble Lords opposite are not prepared to go steaming into the Lobbies with me on this amendment, I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Lord Mottistone moved Amendment No. 2: Page 3, line 25 at end insert: ("(d) so far as the figure of 18,000 miles wherever mentioned in this Act or in the Income and Corporation Taxes Act 1988 is relevant to the application of this Act but for no other purpose, there shall be substituted for that figure the figure of 10,000 miles").

The noble Lord said: My Lords, this amendment has been specially phrased to take care of the points made by my noble friend Lord Henley in his comments made at col. 497 during our Committee stage on my Amendment No. 1. What this amendment seeks to do is to put into the Bill and into the Income and Corporation Taxes Act of 1988 the more accurate figure in equivalent places, of 10,000 miles.

The amendment deals with two concerns. The first is that there is too little distinction made between the business car and the "perk" car. The business car is supplied because it is a real tool of the trade. As the Bill is currently framed, a company car is only regarded as a business car in these terms if its annual business mileage exceeds 18,000 miles. This is not only arbitrary; it is unfair. Many company cars are provided to salesmen and sales support staff, who simply cannot deal with customers without such vehicles. A salesman based in, say, East Anglia, will easily cover 18,000 miles in contacting his quota of customers but his colleague in south London could drive all day, every working day, at metropolitan speeds and never clock up such a mileage, yet his need to keep in touch with customers is just as great.

Similarly, a site manager on a major construction project may not clock up 18,000 miles but without his car he would have no means of moving around and doing his job. All figures in this area will be arbitrary, but 10,000 miles at least has the merit of reflecting the average mileage of a business car user, as indicated in the Ministry of Transport's survey a decade or so ago in 1975–76.

The second concern is cost. Savings here would be less than if retrospection were to be avoided, and they will not be in excess of £100 million. That is what I am advised, and that would be a very welcome relief to those businesses facing this charge at a time when funds will be tight and cost competitiveness will be at a premium across the emerging single market.

What I said in relation to the pressure on companies at the moment in relation to the earlier amendment applies very much again to this one. My noble friend did not take up that point on the earlier amendment. He did not say that he realised—perhaps he does not realise—that businesses at this moment are in a period of recession when everything matters and every little penny counts. He did not take up that point and as I agreed not to press the earlier amendment I think the very least he can do to show that he understands the problem of business is to accept this one. I beg to move.

8.45 p.m.

Lord Boyd-Carpenter

My Lords, I hope very much that my noble friend the Minister will take the good advice he has just been given by my noble friend Lord Mottistone. The point is of course that 18,000 miles is a very high figure in respect of certain people operating company cars: that is to say, people operating them in metropolitan or built-up areas. As my noble friend said, people in East Anglia, or in country areas, will probably very easily come up to 18,000, but a car is just as necessary for many people in business, many people representing companies and many people securing sales in urban areas, where you would find it extremely difficult even if you drove like mad all day, to build up 10,000 miles. Therefore it is not only a severe imposition but also an extremely unfair one and one which, if he will allow me to say so, reflects very little credit on the Government.

Baroness Turner of Camden

My Lords, this of course follows on from what we said when this matter was debated in Committee. Again it is the issue of the sales representative who works in London, who clearly would have great difficulty in clocking up 18,000 miles a year—in fact it would be absolutely impossible—but who still needs his car for business purposes. Even if he uses it all the time so that he has no time left for private use of the car, he would still find it very difficult to reach the figure of 18,000.

Then of course there are people who are employed as district nurses in urban areas or, as my own stepdaughter is, employed as a health visitor in an urban area, who find it very difficult to achieve a total of 18,000 miles a year. It seems to me that what has been suggested is extremely sensible. I understand that when we discussed this in Committee it was felt that the amendment then moved was in some way flawed. I am sure that the noble Lord, Lord Mottistone, will have taken advice on that, and this time round I hope that the Minister may find it possible to accept the amendment.

Lord Boardman

My Lords, I have only one brief point to add in relation to this amendment, and that is, if you calculate 18,000 miles on a daily working day basis, it means something like 80 or 90 miles a day, if my arithmetic is right. To contemplate doing that in an industrial, built-up area, such as in the suburbs of London or in central London, would show how impossible it would be for anyone doing that mileage at the same time to have any time to use the car for recreational or other purposes. I support the amendment.

Lord Banks

My Lords, I also support this amendment. When we discussed this matter on Second Reading I said that I felt the figure of 18,000 was too high. The noble Lord, Lord Mottistone, has explained that the figure of 10,000 was found—a few years ago certainly—to be the average at that time. No doubt it still is, and therefore it seems a much more appropriate figure to have than 18,000. I support the amendment.

Lord Henley

My Lords, my noble friend Lord Mottistone has explained why in his view the threshold for treating cars as tools of the trade is too high and should be reduced. He has supported his arguments by citing 10,000 as being the average business use. I have to say, and would go on to argue this, that I do not think the average business use is necessarily the relevant figure we should be looking at on this occasion. First, my noble friend will remember that at Committee stage his amendment on these lines was defective. He comes forward on this occasion with an amendment which, I am advised, so far as we have been able to make out in the brief time that we have had it, is not defective. However, it would have the effect of disaligning the national insurance and income tax rules in this case. Obviously, the 18,000 would still exist for income tax charges on the employee. I do not think that my noble friend would agree that disaligning the two rules would be attractive to employers at this stage.

Lord Boyd-Carpenter

; My Lords, if that is a worry, then the Finance Bill is going through another place at the moment. Would it not be simple for the Government to introduce an amendment into that Bill to apply the income tax?

Lord Henley

My Lords, my noble friend makes a point. I was just saying that on this Bill, we would not wish to disalign national insurance contributions. I would go on to say why we think that the figure of 18,000 is the right one, and therefore that it would be wrong for this Bill to take national insurance levels down to 10,000 miles when the income tax figure was 18,000.

The second and most important reason why the figure of 10,000 average business miles is irrelevant is that the charge on company cars will arise because of their availability for private use. The employer will be paying a contribution in respect of the benefits enjoyed by the employee just as if he had paid him in cash rather than making a car available. We know from the 1988–90 national travel survey statistics that on average the level of private motoring is not affected all that much by the extent of business use. But the discount for high business mileage in the income tax scale charge system was introduced to recognise the argument that where business mileage is exceptionally heavy there may be—and I stress may be—some effect on the availability of the car for private purposes.

The noble Baroness, Lady Turner, said that people might be so busy driving business miles that they did not have time to do any private miles. If there is no private use, as we have heard again and again, obviously there would be no national insurance liability because the car would be solely available for business use. The point simply does not arise.

The 18,000 business mile threshold is intended to reflect, therefore, this exceptional category of cars. The threshold proposed by my noble friend is far too low. It would apply to nearly half of all company cars and would not simply deal with the exceptional case. On the contrary, it would move the break right into the middle ground—close to the average business mileage, as my noble friend said.

The system would become anomalous with a big reduction in employers' contributions for cars whose business mileage is just above the average, and no reduction for those just below. The level of the threshold is, of course, a matter for judgment, but I hope that the House will accept that we have it about right. Lowering it to 10,000 would mean that the essential link between the employer's contribution liability and the value of the private benefit enjoyed by the employee would be lost.

My noble friend Lord Boyd-Carpenter and others argued that it was unfair to employers in urban areas. I accept that in some parts of the country employees are less likely to cover 18,000 business miles a year even though they are in their cars for as long as, or for a longer time than, employees operating in rural areas. Perhaps the noble Lord and the noble Baroness would like to have different rates for urban and rural areas, but there are a number of other relatively minor points of that kind which arise from the scale charge system. We have to recognise that the scale charge system is a simple method of assessing the value of benefits and for seeing that its application is fair in the vast majority of cases; and that it avoids the necessity for employers to maintain the comprehensive mileage record s that my noble friend Lord Mottistone would have feared m every case.

The argument advanced for a much lower rate because of the problems of people in urban areas could not justify a reduction in the 18,000 mile threshold for all company car users irrespective of where they were. It would be extremely complicated for employers, employees and the department to reflect within the system the different travel conditions both in urban and rural areas. I believe that the case for using the income tax scale charge structure and the supporting provisions of the Bill as drafted are strong. I hope therefore that my noble friend will feel able to withdraw his amendment.

Lord Mottistone

My Lords, I am grateful to my noble friend for his full explanation as to why he thinks the 18,000 figure is more correct. There may be scope for study to see if we agree with it—it is quite impossible for me to disagree with it at this moment—and see whether the CBI, who advise me on these matters, consider my noble friend's reply useful in working out how to secure an alteration in the future.

I was sorry that my noble friend had nothing to say about the plight of industry. It could be that the Department of Social Security, and perhaps the Treasury, deliberately hide under the carpet their understanding—if they have one—that all their moneys come from successful industry. Perhaps my noble friend will note that point.

It is not sensible for these major government departments to ignore the fact that companies are under strain at this moment and need to be helped. If they want to bring in legislation of the sort we are dealing with now, they would have done better to put it off for a year rather than try to do it at this moment. It is sad that the total picture of how the country is kept together by successful business is ignored by these juggernaut departments. They have plans, and they do not stop to think whether those plans will be a disaster this year. It appears from what my noble friend failed to say that they do not stop to think about that. However, I shall try to use the information in the future with regard to this amendment. At this stage I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 [National health service allocation]:

Lord Banks moved Amendment No. 3: Leave out Clause 4.

The noble Lord said: My Lords, in the Second Reading debate I made it clear that we supported the principle behind the Bill. However, I raised the position of district nurses or community nurses under the Bill. I suggested that they should either no longer have contracts which oblige them to have company cars, or else they should be exempt from car tax and employees' national insurance contributions.

In his reply on 7th June the noble Lord, Lord Henley, said at col. 861: The noble Lord, Lord Banks, made a point in regard to district nurses. I confirm that there is no tax or national insurance contribution if there is no private usage. I felt on reflection that this reply was not entirely satisfactory. It seemed to require further probing. I am advised that it is not possible to amend the Bill to secure this point, so I decided to raise it further by seeking to remove Clause 4, the part of the Bill that deals with the health service.

After all, there is private usage in this case. As I mentioned on Second Reading, the district or community nurses pay a contribution to the health authority, their employers, which is held to be a payment in respect of private usage. Would the district or community nurses be able to claim that there had been no private usage in these circumstances? As I understand it they cannot do so at the moment.

The amount that the nurses pay for private use is deducted from the "cash equivalent' which their car is judged to have for the purposes of income tax. The effect is that any tax nurses pay on their car is therefore purely for the business use of the vehicle. Having already made a payment in respect of any private use of the vehicle, community nurses are being taxed to do their jobs.

As if tax on their cars were not enough, many community nurses lose out on petrol costs. Under Whitley Council regulations, nurses are reimbursed petrol expenditure according to manufacturers' published urban cycle miles per gallon rates. However, because the nature of their work demands it, they have continued stops and starts as they carry out the various house calls that they have to make. As a result, most community nurses manage fewer miles per gallon than manufacturers claim. As a result, nurses end up out of pocket. Community nurses already pay for the private use of their cars. Therefore any tax that they pay on their vehicles is solely for the business use. The tax is a personal surcharge on the head of every nurse delivering care in the community. If they were excluded from car tax and employers' national insurance contributions, that surcharge would be lifted. That would appear to be in line with the Prime Minister's stated view while he was Chief Secretary to the Treasury when he said in another place on 9th May 1989: there will always be room for some carefully considered and limited tax incentives to meet particular needs".

9 p.m.

Lord Boyd-Carpenter

My Lords, the noble Lord, Lord Banks, has raised an interesting point. The proposal to drop Clause 4 gives one a chance of illustrating the extent to which the Bill is simply an instrument of taxation. As I said earlier, it is misnamed the "Social Security (Contributions) Bill" because here we have a clause under which part of the takings—I use that word deliberately—to be raised will go to the National Health Service. I have no complaints about that. The National Health Service requires a great deal of financial support, but it is a rather revealing aspect of the Bill that it is thought necessary to provide in it that some share of the takings shall be diverted from social security to the National Health Service.

As this is the final amendment, perhaps my noble friend will also answer a question that has intrigued me for some time. Perhaps he can tell your Lordships whether the provisions of the Bill apply to ministerial cars.

Lord Henley

My Lords, if my noble friend had taken the trouble to read the Second Reading debate in another place, he would know that that question was put by a Member of another place to my right honourable friend Mr. Scott. My right honourable friend answered it by saying that it did not apply to ministerial cars as they are not provided to individual Ministers but come from a pool, which is somewhat different.

Before I deal with the substance of the amendment, perhaps I may refer to some of the points made by my noble friend Lord Mottistone when he wound up the debate on the previous amendment. I did not answer then because I felt that it was wrong for me to intervene again at Report stage. My noble friend said yet again that I and my department were not aware of the plight of business. I stress that the measure is part of the Budget measures. The overall package has been a good package for business and has brought about quite a dramatic reduction in the burdens on business. I quoted some concessions amounting to £750 million this year, and well over £1 billion next year, which more than takes up the £400 million net that the Bill will take from employers.

Perhaps I may now turn to the amendment itself. I must confess to being completely puzzled as to why the noble Lord, Lord Banks, has tabled an amendment to remove the clause which simply allows a certain percentage of the takings from the new class 1 A contributions to go to the National Health Service. My noble friend Lord Boyd-Carpenter suggested that this was an indication that this was yet another taxation Bill in that the money was going not to the fund but to the National Health Service. My noble friend, who is an old hand, will remember that that has always been the case with the National Insurance Fund. From the earliest days in 1948 through to the days when my noble friend was Minister for Pensions, a certain percentage of the National Insurance Fund has always gone to the health service. That has always been the case. As my noble friend will know from Question Time this afternoon, although the use of the health service is not dependent upon contributions —it is dependent purely on residence—it has always been the case that a certain percentage of the fund goes to the health service. This clause merely mirrors what happens as regards the rest of the fund. There is nothing new about that. I should have thought that my noble friend would be able to remember his days as Minister for Pensions.

Lord Boyd-Carpenter

My Lords, I am grateful to my noble friend for his kindly reminder of a matter of which I was perfectly well aware, as he knows. However, I was making the point, which he has not answered, that the fact that some of the proceeds of the Bill will be diverted to the National Health Service indicates, first, that the Bill is misnamed because the contributions go beyond social security, and, secondly, the nakedness of the argument that it is other than taxation, and retrospective taxation at that.

Lord Henley

My Lords, if I accepted what my noble friend said, that would be true of all social security Bills that raised or changed charges on national insurance contributions, including those that were piloted by my noble friend through another place many years ago.

Perhaps I may now address the points raised by the noble Lord, Lord Banks, particularly in relation to district nurses. I reiterate the assurance that I gave both on Second Reading and earlier this evening that there are no tax or national insurance liabilities if there is no private usage. The noble Lord mentioned the case of district nurses who often pay a certain amount for private use. Any tax or national insurance liability will be reduced pound for pound for each pound that they pay for their private usage. So if they pay for the full value of their private usage, there will be no liability whatever. However, if they are paying less than that, their liability will be reduced by that amount only. I hope that that assurance satisfies the noble Lord.

Lord Banks

My Lords, I am grateful to the noble Lord, Lord Henley, for the attention that he has given to the points that I raised. I still believe that the community or district nurses are in an unfortunate position. It is true that, over and above the amount that is deducted as the figure which is set out in the regulations, they pay tax on the amount that represents money that they have spent because of the work done.

I am not happy with that answer. The Minister said that he was puzzled as to why I decided to move this amendment. I explained at the beginning of my remarks that I was moving it because this was the only way to raise the point again at this stage of the Bill. As I mentioned earlier, I am not altogether happy with what he said. I do not consider that he has answered the point that I raised. However I certainly do not want to delay the passage of the Bill any further. Therefore I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.