§ 5.54 p.m.
§ Lord HenleyMy Lords, I beg to move that this Bill be now read a third time.
§ Moved, That the Bill be now read a third time.—(Lord Henley.)
§ Lord MottistoneMy Lords, in the course of this Bill passing through your Lordships' House, I sought to show that its effects will be grave for industry in a period of deep recession. On Report my noble friend the Minister in one of his answers said that those effects will need to he measured against the various benefits to industry which were given in the Budget.
It is not the opinion of the CBI that the benefits are anything like as great as my noble friend sought to persuade the House. But that is not the main burden of what I want to say at this last stage of the Bill. As noble Lords will know, since the Bill was debated at previous stages, evidence has become available to show that the British car industry is in a very serious position. In various ways this Bill will make matters even worse.
In recent years the Government have set out on the Long March towards fiscal neutrality as between cash in kind and the pay packet. So far that march has been relatively painless. The British car industry has continued to thrive. Employers have continued to buy company cars and the Government have benefited from increased income. This time changes have come during the first major recession for over a decade. It is hurting. Businesses are very cost conscious and are actively reconsidering company car policies. That has a particular effect on our domestic car industry because companies prefer to buy British. When these changes were announced in April, it may have looked as though exports could take up the slack; but with world sales now expected to fall by over 1 million this year, And sales in Europe down by 2 per cent. overall, despite the enormous boost from the East Germans abandoning their Trabants, it is now clear that our car manufacturers' best efforts abroad cannot make up for what is lost at home.
We now see the results. When the Ford workers at Halewood return from their summer break, they will not be making cars. Supply has outstripped demand. For two weeks they will be engaged only in training and maintenance. After that they are expected to manufacture for only three days a week. The Cardiff Business School estimates that 100,000 new car sales will be lost this year as a direct result of the changes made by this Bill and other related moves in the Budget. Lost revenue to the Exchequer from that lost 100,000 motor cars will be at least £215 million. So over half the net gains that the Government expected from this measure will simply not now materialise. There will be further lost revenue from workers right across the automotive industry who, like those at Halewood, will spend less because their earnings have been affected.
Perhaps the Government were not looking mainly for revenue but for change in behaviour. The lesson that we have learnt as these debates have progressed is 54 that, if we want businesses to move away from company car provision, whether for environmental or other reasons, the signals that they receive should be clearer. When companies reconsider their car policy, it usually confirms to them that the vast majority of cars—over 80 per cent. according to one survey—are straightforward business tools and not perks. There is a myth, which is widely fostered in the press, that business executives are swanning around at company expense in luxury cars which are loaded with every conceivable gadget. It may come as a surprise to noble Lords to learn that more than half the number of company cars are Escorts, Fiestas or their equivalents; in other words, small functional cars. Only one in eight cars is at the large end of the range.
Firms who read the message from the Government as meaning that they are being urged to cut back on car provision find that whichever way they turn they are inhibited by the interpretation of the VAT legislation by the Customs and Excise. That has been the subject of informed press comment. An offer of a cash alternative which is accepted by one employee will lead to that consideration being taken as the basis for charging VAT on company cars provided to the remainder of the workforce.
"Proceed with caution" is the message from these debates, my Lords. Before going any further, whether next year or later, the Government must consult all those affected. The Government's package for industry this year will clearly produce different results from those expected. I have described them. When the Government make impositions on industry such as those referred to in the Bill, they tend to be read as a signal to change behaviour. They indicate that the whole picture needs to be considered. General government policy should be so framed that it offers a path to tread, rather than a minefield in which a move in any direction is fraught with danger.
I conclude with one plea. The world has moved on since the Bill was first drafted, as I and others have sought to demonstrate. Now that the recession will be longer than we had originally hoped, and recovery slower, the widespread anxiety is that delay even until next spring—which the Bill embodies—will not be long enough to avoid real damage in terms of the national insurance costs already accruing. I hope that that fear may yet be recognised by regulations now in preparation and that thought may be given to how the timing of payments will be handled in the first difficult year of living with this watershed Bill. Small though the Bill is, it is also a watershed.
I suggest that ideally thee Government should seriously consider delaying Royal Assent while they discuss whether the Bill will do more harm than good—I have endeavoured to show that it will. The Government could use the Summer Recess for such considerations and, it is hoped, for discussions with interested parties. After that, if those deliberations confirm my doubts, they could withdraw the Bill. If not, it could receive Royal Assent in the autumn.
I hope that my noble friend will give serious consideration to the points that I have made and will bring all that I have said to the attention of his right honourable friend.
§ 6 p.m.
§ Baroness Turner of CamdenMy Lords, I have considerable sympathy with the view expressed today by the noble Lord, Lord Mottistone. However, I have a problem about giving him complete support. On this side of the House we wish to see a strong National Insurance Fund. We are not happy about anything that could result in less money going into the fund than that which is now proposed by the Government. We also object to the way in which the Government's own policies have depleted the fund. For example, the bribe of national insurance rebates given to people to leave SERPS and to take out personal private pensions has cost over £6.75 billion. There has also been the failure over years to maintain the supplement from the Treasury.
However, we have to consider the current situation and not the one that we would have wished existed. We believe that the Government have failed adequately to consult over the Bill. I agree completely with the noble Lord that there should have been more consultation with the CBI. I remain unconvinced that enough has been done to draw a distinction between a car provided as a perk and cars which have to be used by people such as sales representatives, district nurses and health visitors as a necessary tool of the trade. I would prefer, too, to see senior executives provided with safe and efficient transport as part of the tool of their jobs rather than the substantial salary increases that have been recently reported.
I share the misgivings voiced on the other side of the Chamber as to the burden now being placed on small firms, in particular small industrial firms. We are in a recession. There could well be a knock-on effect on employment. I am concerned about that too. The noble Lord is quite right to emphasise the importance of the motor car industry in the British economy.
Those are anxieties that we have voiced on various occasions during the passage of the Bill through the House. On this side of the Chamber we shall not and have not opposed the Bill for the reasons that I have stated. However, I believe that there should have been much fuller consultation. I support the view that in future there ought to be consultation with all concerned before such a Bill is rushed through both Houses of Parliament.
§ Lord Boyd-CarpenterMy Lords, it is certainly the case that the Bill has not been received with any manifest enthusiasm in any quarters of the House. It is a misdescribed Bill. It is not, as its title suggests, a Bill designed simply to improve social security contributions. It is a measure of taxation levied on employers as the result, no doubt, of some deal between government departments for the raising of additional substantial sums. It is not, as is normal with social security contribution Bills, one directly financing an improvement in social benefits. It is simply designed to raise money by way of taxation. I shall return to that point later.
Any Minister supporting a good Bill, and with good briefs, can do so fairly easily. However, it requires a Minister of very conspicuous ability, when very badly briefed—as my noble friend has been—to 56 support what everyone who has spoken on it regards as a thoroughly bad Bill; and to continue to support it with vigour, panache, drive and decision, whatever his real thoughts may be. As has been often said, anyone can argue a good case, but to argue a really bad case demands conspicuous ability in an advocate. I am glad to be able to say—because I am a great admirer of my noble friend—that his handling of this disagreeable, inadequate and unpopular measure has given him the opportunity to demonstrate his very distinguished abilities which I am sure will carry him much further in the service of this House and this Government.
It is significant, as the noble Baroness, Lady Turner, said, that the Bill is not opposed by Her Majesty's Opposition. Of course it is not. They basically like the idea of imposing an additional charge upon employers. I believe that the more subtle of them realise that they are being presented with what in certain circumstances they might feel is a very helpful precedent: that is, the provision of retrospective taxation. As a result of earlier discussions, we now know that there has been no legal provision yet enacted to cover the raising of this money. Simply to say that there is reference in the Budget, or that it was referred to in the Budget speech, simply ignores the fact that putting some factor in the Budget or in the Budget speech has no legal effect unless it is covered by the Provisional Collection of Taxes Act and by the resolutions under that Act taken on Budget day.
Liability to pay that impost is being accumulated and has been so accumulated over the past three months. Until the Bill is law that is a liability that is being imposed without any parliamentary authority to date and simply retrospectively. Many people, in particular in another place, have condemned retrospective taxation as oppressive, unfair and to some extent unconstitutional. One could be left with a certain suspicion that a Labour Government which would substantially wish to increase taxation—indeed, in order to carry out half of their pledges they would have so to do—would find the measure a helpful precedent. A net revenue of more than £400 million per year is proposed to be raised under a measure which is not yet law and when imposing a similarly unfair impost a Labour Government might find it convenient to be able to say, "Well, the Government did it under the Social Security (Contributions) Bill 1991". I fully understand the fact that the Opposition have not found it desirable to oppose the Bill.
The Bill has other technical defects. I shall not waste the time of the House because the matter was discussed earlier in full. It contains two provisions under which it can itself be amended by regulations made under it. In other words, the power to legislate is taken away from Parliament and given to the Government with full capacity to amend what Parliament has enacted. Those provisions are contained in Clause 1(7) and Clause 2(5). That is another thoroughly bad example of legislation.
The practical objection to the Bill is on even broader grounds, although the previous grounds are significant. It is true that the measure could hardly be 57 more ill-timed being introduced at a time of recession. The motor car industry is already in difficulties and there is no disputing the fact that the Bill has done additional harm. If one accepts the estimates of the Cardiff Business School it has substantially reduced the purchase of cars just when the industry is in deep recession. The Bill will add substantially to the costs of most employers again just at the time when the Government are rightly urging employers to keep their costs down and urging restraint in wage claims. They are pointing out the necessity of keeping costs down in order to preserve our competitiveness and to counter inflation. Yet, at this very moment the Government have come forward with a Bill which has the direct consequence of increasing industrial costs. Not even the eloquence of my noble friend Lord Henley has enabled them to explain that.
I am glad that your Lordships' House has taken it upon itself to discuss the measure. It will be no secret to some noble Lords that the Government's business managers, in co-operation with those of the Opposition, had planned to take the Bill straight through to Third Reading without a Committee stage or a Report stage. It is to the credit of this House that this measure was not permitted to have that treatment but has been fully discussed.
There arises the question of what the attitude of your Lordships' House should be. In reality this is a measure of taxation. If we were to reject the Bill we should be departing from the conventional understanding between the two Houses. On merit there is a strong case for rejection, but that would breach the understanding and arrangements that exist between the two Houses and would therefore be a considerable mistake. Accordingly, your Lordships' House is right to send the Bill back to another place, if that is the case, with comments that it is ill-conceived, ill-timed and a mistake.
It is no pleasure to me—one who is a whole-hearted supporter of the present Government and a great admirer of so much of their work—to feel bound to make such comments about a measure, not of the first importance, which the Government have brought forward. But the best of governments slip occasionally. Sometimes, in particular during times of transition, deals are done between departments which do not reflect favourably on the Government's policy as a whole. This is such an example.
Having expressed our views on the measure we should send it back to another place indicating that if its Members are foolish enough to disagree with this House it is up to them. We should let the Bill go either to another place or to the statute book with our comments on ill judgment. We should stress once again that measures of this kind should not be introduced by any government without full consultation with those concerned. That point, which I am sure is right, was made so well by the noble Baroness, Lady Turner. If one wants an awful warning of the effects of neglecting that point one has it in this Bill. We are parting with the Bill but not with the feeling that we are parting with an old friend.
§ 6.16 p.m.
§ Lord HenleyMy Lords, I am sorry that my noble friend does not feel that he is parting with an old friend. First, I assure the noble Baroness, Lady Turner, that the state of the balance of national insurance funds is perfectly healthy. I totally reject her allegation that the incentive to opt out of SERPS should be seen as a bribe. I ask the noble Baroness to congratulate the Government on the success of our personal pensions policy which has seen some 4 million people take out personal pensions during the past few years. That will dramatically reduce the burden of national insurance contributions on future generations to pay for the levels of SERPS which are so irresponsibly promised by the party opposite.
During our detailed consideration of the Bill a number of important matters were raised to which I shall turn in a moment. Before doing so it is worth repeating the basic principle on which the Bill is based. As I have already explained, its purpose is to plug a gap in the national insurance system by ensuring that an employer who provides his employee with the benefit of a car for private use—and I stress the words "for private use"—faces a contribution liability in the same way as if he had paid that employee in cash. The Bill is designed to produce greater fiscal neutrality between cars and cash and to achieve a more level playing field for employers. The choice between the provision of a car or the payment of cash will no longer be distorted by national insurance considerations. I believe that there is widespread support for that principle.
I turn first to the allegations made by my noble friends Lord Mottistone and Lord Boyd-Carpenter that the measure will cause damage to the United Kingdom car industry at a particularly sensitive time. We always consider carefully the impact on industry of any such changes. I recognise that the change is unwelcome to the car industry and to retailers at a time when sales have in any event fallen sharply from their recent record levels. However, we do not believe that the proposals will have any significant effect on United Kingdom car producers.
The United Kingdom car industry is healthy. In 1990 exports were 45 per cent. higher than those for 1989, largely balancing out the effects of the recession on domestic sales. The levels of interest rates and business confidence are far more important factors. My noble friends and other noble Lords will know that interest rates have fallen from their peak and are close to the average for the past decade. That is already having a beneficial effect on business confidence.
In any event, company cars are by no means all produced in Britain; many are foreign. Employers are increasingly buying a wider range of company cars rather than merely buying British cars. I do not believe it to be right that the National Insurance Fund should subsidise the British car industry.
Nevertheless, my noble friend Lord Mottistone raised an important point. I confirm that my right honourable friend the Chancellor of the Exchequer has made it clear to the car industry that when he makes next year's Budget judgments, he will bear in 59 mind the effect of this year's measures in particular as regards national insurance, and he is very conscious of the importance of the car industry to the economy as a whole.
There have been allegations about the lack of consultation before this measure was introduced. As I have said on many occasions, this was introduced as part of the Budget Statement by my right honourable friend the Chancellor of the Exchequer. Therefore, there was no opportunity to make consultations beforehand. However, noble Lords will remember that, during our Second Reading debate, I said that we had had one round of consultation with the department's employers' panel. The two month period for submitting comments has now come to an end and a total of 32 letters from individual firms and employers' organisations have been received. Among those putting forward views have been the Engineering Employers' Federation; the Retail Consortium; the British Computer Society; and Sainsbury's, together with accountancy firms and the Institutes of Chartered Accountants of England and Wales, and of Scotland. There have been many very useful ideas and we are now looking closely at these with the aim of devising a payment and collection system which meets employers' requirements. I should like to take this opportunity of thanking all those who wrote to us; I am confident that the comments we have received will enable us to produce something which meets employers' requirements.
Anxiety has been expressed at the threshold which determines when a car is to be treated as a "tool of the trade". I do understand why this anxiety has arisen; but I think it is important to remember two points. First, the contribution charge arises because of a company car's availability for private use. Bearing in mind what my noble friend Lord Mottistone said about the public's perception of company cars being large limousines, and so on, I should point out that it is entirely irrelevant whether the car is small or large. It is its availability for private use which is important.
Secondly, we know that the level of private use is not affected all that much by the number of business miles. Against this background, I can see no justification for lowering the present threshold. It was introduced in recognition of the argument that where business mileage is exceptionally heavy, there may be some effect on the availability of a car for private purposes. At 18,000 miles, the threshold is intended to deal with the exceptional category of cars where business mileage is very high. Lowering the threshold would mean that the essential link between an employer's contribution liability and the value of the private benefit enjoyed by the employee had been lost.
I now turn to the allegations made by my noble friend Lord Boyd-Carpenter that the Bill contains two Henry VIIIth clauses and that those are unwelcome and should not be allowed. I can go no further than my remarks which I made in Committee. I do not accept that the second clause is a Henry VIIIth clause. As regards the first clause, I gave an adequate justification for its use and I repeat what my noble and learned friend the Lord Chancellor said; namely, that 60 there are occasions when the use of such clauses can be an acceptable means of effecting consequential amendments without the need to require Parliament to consider primary legislation. I believe I justified that in Committee and I hope that my noble friend will accept it.
Finally, I turn to the question of retrospection. Here again, I believe that the anxieties expressed by my noble friends are misplaced. The provisions of the Bill were announced before the present tax year and employers were notified of what would be involved. Although liability will begin from the commencement of the tax year, no contributions will be collected until the tax year which commences after Royal Assent has been given.
§ Lord Boyd-CarpenterMy Lords, although, as my noble friend says, the contributions will not be collected until the end of the tax year, the liability to pay has been accumulating now for three months.
§ Lord HenleyMy Lords, my noble friend is correct and I was about to come to that point. This matter was dealt with in Committee and on Report. My noble friend said that in finance Bills, all such measures would be covered by Provision of Collection of Taxes Act resolutions. As I said on Report, that is not so. I cited precedents. Such resolutions are not necessary. Liability can arise from the beginning of the financial year. There may be no charge or no collection of those taxes until the end of that year and I cited the example of capital gains tax. However, in those cases no Provisional Collection of Taxes Act resolutions were necessary.
§ Lord Boyd-CarpenterMy Lords, before making such a statement, perhaps my noble friend will study rather more closely how those capital taxes have been imposed. He will find that in respect of most of them, not being covered by the Provisional Collection of Taxes Act, liability arose from about 5th or 7th August.
§ Lord HenleyMy Lords, perhaps my noble friend and I can continue this discussion through correspondence. However, I believe that my noble friend will find that he is incorrect and that liability arose from the beginning of the financial year. However, it is obvious that I am not able to convince my noble friend on this matter. The examples which I cited in Committee were not covered by the Provisional Collection of Taxes Act, and therefore the tax became liable from the beginning of the financial year.
I reject entirely what my noble friend said as regards this not being a social security Bill. It is a social security Bill. It increases the resources available in the National Insurance Fund. Therefore, having considered that increase in resources, it will be a matter which my right honourable friend can take into account when setting levels of contributions for future years.
I thank my noble friend Lord Boyd-Carpenter for his personal praise. I regret his criticism of my officials in the department who have given me the utmost 61 support on a Bill which I believe is just, valuable and long overdue. I believe that we have given the Bill due consideration and I commend it to the House.
§ On Question, Bill read a third time, and passed.