Social Security (Contributions) Bill

HL Deb 07 June 1991 vol 529 cc848-61

11.37 a.m.

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

My Lords, I beg to move that this Bill be now read a second time.

This is a short Bill designed to address a deficiency in the national insurance system. Its single purpose is to require employers to pay national insurance contributions on company cars and free fuel made available for their employees' private use. This is a Budget measure and, as I shall explain later, should he seen in that context.

The background to the Bill is as follows. Under present legislation, the earnings on which employers' contributions are due are defined in such a way as to exclude payments in kind. That exclusion dates from the time when such payments represented only a very small proportion of people's earnings, were generally paid on an irregular or infrequent basis and often consisted of goods which were difficult, if not impossible, to value. But today the situation is very different. It is necessary only to glance through the appointments page in any daily newspaper to see how widespread a practice it is for employers to offer remuneration packages which include substantial non-cash items. Of those, by far the commonest is the company car. There are now more than 2 million and the numbers have doubled in the past six years. In financial terms, they represent some three-quarters of all the benefits paid by employers. Because of the way our national insurance rules operate, employers have a financial incentive to pay their employees in cars rather than cash. That cannot be right. In our view, the time has come to extend the scope of our national insurance rules to include cars and fuel provided by employers.

Before describing the Bill's provisions, I should explain that in devising the new arrangements we have stuck very closely to Inland Revenue rules for income tax with which employers are already familiar. We have done so in order to make it as easy as possible for employers to understand and operate the new scheme. We are constantly asked by employers to reduce the differences that exist between the tax and national insurance systems and we have taken great care to do precisely that as far as the new contributions are concerned. Further, we have told employers that we will not settle the final details of the collection arrangements until they have had a chance to comment on our proposals. We shall listen carefully to their views and do our best to meet any particular concerns they may have. We have already had one round of consultation with the department's employers' panel and some helpful ideas have been put forward. As the DSS Minister responsible for deregulation I can assure the House that we are doing everything we can to see that the new arrangements do not place any unnecessary burden on employers.

Under Inland Revenue rules, employers are already required to report the details of company cars and free fuel that they provide to those of their staff who will pay tax on the basis of a scale charge. Broadly speaking, those are directors and employees whose earnings including benefits are more than £8,500 per annum. In order to match the Inland Revenue approach, the Bill is drafted so as to impose an employers' contribution in respect of those people only. Thus, contributions will be payable only where the employee or director concerned is subject to a scale charge.

The reporting of details about company cars takes place annually at the end of each tax year. We see no reason why employers should face any particular difficulty in combining that reporting process with the assessment of contribution liability. The Bill introduces the new contributions with effect from the beginning of the current tax year and they will be collected for the first time in 1992–93. We propose that, in order to follow Inland Revenue practice on the reporting of company cars, the new contributions will be due for payment in June of each year in respect of the immediately preceding tax year.

We have decided that employees will not be required to pay the new contributions. We have done so for a number of practical reasons. First, more than half of all employees who have a company car are above the upper earnings limit for contributions. Secondly, employees are already required to pay income tax on the value of company cars so that, for them, the imbalance in the tax and contributions rules is not so manifest. Finally, the rules for assessing primary contributions make it difficult to integrate the new system with the existing NIC arrangements so as to produce a workable system for collecting the new contributions for employees. We believe that the additional complications for employers would be out of all proportion to the extra revenue raised and we therefore intend that employees should be excluded from liability.

We intend to use the Inland Revenue scale charge system to assess the value of cars and free fuel and thereby arrive at the figure on which employers' national insurance contributions must be paid. There will be no scale charge if there is no private use but, where the employee derives a benefit from using the car for private purposes, the value will be calculated according to the age, original cost or engine capacity of the car and business mileage. Reductions will be allowed if the car is unavailable for a continuous period of more than 30 days or if the employee makes a contribution towards the cost of the car. The scales distinguish clearly between new cars of high market value or engine capacity and older vehicles with smaller engines. This year, for example, a new car costing more than £29,000 has a scale value of £8,900, whereas a five year-old car with an engine capacity of 1300 cc is assessed at only £1,400. The rules on business mileage work as follows: "perk cars", or those which are used for fewer than 2,500 business miles a year, have their scale charge increased by 50 per cent. "Tool of the trade cars", or those which are used for more than 18,000 business miles in any year, have the scale charge reduced by 50 per cent. Thus, in the example I gave earlier, the brand new car used for only 2,000 business miles a year has a scale charge of £13,350. Where it is used for 20,000 business miles the scale value falls to only £4,450.

Having explained the circumstances in which the new liability will arise and the way in which it will be calculated, I turn now to the individual provisions of the Bill. I know that the Bill itself —despite its commendable brevity —is rather difficult to follow. That is because its purpose is to amend the Social Security Act 1975 and, in consequence, many of the subsections do little more than add a few words to the sections of that Act. I hope, therefore, that your Lordships will find the following description of the Bill to be helpful in understanding how its individual provisions will work.

Clause 1 amends the 1975 Act to specify the circumstances in which the new contributions are payable and who will be liable to pay them. It also defines the amount on which the contributions will be calculated —those are the scale charge rules to which I referred earlier —and also the percentage rate at which they will be paid.

Subsections (1) to (4) introduce the new contribution which is to be called Class 1A. The purpose of subsection (5) is to insert an entirely new section into the 1975 Act. It may be helpful if, in describing the rest of Clause 1, I merely use the numbering of this new section. Thus subsection (1) of the new section ensures that Class 1A contributions will arise only where an amount is chargeable under tax rules for the employment in question; and where that employment is employment for which national insurance contributions would be due. Subsection (2) identifies the person who is to pay the new contributions. Subsection (3) is merely definitional. Subsection (4) provides for the value of company cars and free fuel to be assessed using Inland Revenue's scale charges. Subsection (5) of the new section makes provision for the Class 1A contribution rate to be the same as the rate for the highest secondary earnings bracket —or put more simply the employers' main rate. As your Lordships will know, that is currently 10.4 per cent.

Subsection (6) contains further detailed rules about the calculation of liability. Paragraph (a) deals with reductions in liability allowed when a car is unavailable for periods of more than 30 days. Paragraph (b) provides that, unless the employer has information to the contrary, the cash equivalent on which contributions are due are set at the highest relevant level. Paragraph (c) deals with circumstances in which an employee is provided with more than one car.

Subsection (7) allows for this section of the legislation to be amended by regulation following any alteration to the main provisions of the Income and Corporation Taxes Act 1988. That power will enable us to ensure that our legislation remains consistent with the income tax rules for company cars and fuel; it is limited to such amendment as is necessary or expedient for this purpose. Subsection (8) is included for the avoidance of any doubt, to ensure that a person shall be liable to pay the new contributions in respect of different earners, different cars and different tax years.

Finally, subsection (9) includes a regulation-making power to except persons from liability in prescribed circumstances or to reduce the Class 1A contributions due. That power will be exercised only in limited circumstances. Its purpose is to make special provision for the employers of those taxpayers who benefit from extra statutory concessions operated by Inland Revenue.

I turn now to Clause 2. The clause extends the current arrangements for the collection of NICs to the new Class 1A contributions. It includes provision for deciding who should pay the charge when employers share the cost of a car; allows for refunds in cases where the contribution has been overpaid; and provides a regulation-making power in respect of record keeping. That parallels existing provisions for Class 1 contributions and will include, for example, the need for a record of the contributions to be kept on deduction working sheets. The penalty provisions which exist in respect of other Class 1 contributions have been extended to Class 1A contributions and Clause 2 also provides that previous non-payment of contributions can be declared before a court in cases where legal proceedings are necessary to recover Class 1A contributions.

The remaining four clauses require only a brief explanation. Clause 3 extends the existing adjudicative system so that where there is a dispute over Class 1A contributions employers will be able to apply to the Secretary of State for resolution of the question. Clause 4 provides that, as for all other contributions, a specified percentage of the new contributions shall be allocated to the NHS. The effect of that will be to make over an estimated £50 million to the NHS from the new contributions. Clause 5 contains provision for Northern Ireland. Finally, Clause 6 contains consequential provisions and provides for the Act to have effect from 6th April 1991.

As I said at the outset, the purpose of the Bill is to fill a gap in the national insurance contribution system. It will ensure that employers no longer have a financial incentive to pay their employees in cars rather than cash. I know that employers are unlikely to welcome the Bill, but I have to say that that change in the contribution rules is long overdue. We estimate that some 300,000 employers —about one quarter of all employers —will be affected and that about 75 per cent. of them employ more than 25 employees. It must be right that, where employers are providing such a significant benefit on such a widespread basis, a liability to pay contributions should arise just as if the employees had been paid in cash. The National Insurance Fund will receive additional revenue of just over £600 million in 1992–93 but this represents less than one-fifth of 1 per cent. of employers' overall manpower costs. The Bill should he seen in the context of a budget which was good for business with measures worth some £750 million in 1991–92 and more to come in 1992–93.

I commend the Bill to the House.

Moved, That the Bill be now read a second time. —(Lord Henley.)

11.50 a.m.

Baroness Turner of Camden

My Lords, I thank the Minister for his usual lucid explanation of what is a quite complex, small Bill. As your Lordships will know, the Bill before us today was not opposed by the Opposition in another place; and it is not my intention to offer obvious opposition today. However, I cannot give it entirely unqualified support. There are a number of points that I should like to raise with the Minister.

As I understand it, one of the objectives appears to be to increase revenue to the National Insurance Fund. Of course with such an objective I am in total agreement. But I cannot help recalling that the present condition of the fund is largely due to activities undertaken by the Government in the past. It will be recalled that at one time there was an input from the Treasury to the fund. In 1979 I believe that it was of the order of 18 per cent. The concept originally was that the fund should be built up by contributions from employers, employees and the Government. As a result of successive pieces of legislation, there is, as I understand it, now no Treasury input.

We then had the "bribe" to people to come out of SERPS and to join personal private pension schemes. I understand the figures vary but I believe that the correct figure is that it has cost of the order of £6.75 billion; and we have yet to see the real cost when, some years hence, people realise that they would be better off with SERPS and seek to opt back again.

Therefore it is not surprising that the Government should be looking around for ways in which to boost the fund and should have decided that it would be appropriate to treat the company car as if it were a cash benefit, and that employers should pay what amounts to another tax upon it.

However, there are some problems. First, it may be difficult —the CBI has already made the point —to distinguish the genuine tool of the trade from the perk. I should declare an interest. For many years I was assistant general secretary of a union which had within its ranks large numbers of those who were once called commercial travellers but who are now, of course, sales representatives. They once had their own organisation —the United Commercial Travellers Association. UCTA merged with my own union some 10 years ago. Those people are most vehement that the car is for them a tool of the trade and decidedly not a perk. Indeed, they tell me that the pressure to sell is now so great that they have little time or inclination for private use. As the Minister explained, the employee is already taxed in regard to private use. But the Government appear to think that 18,000 miles a year constitutes a dividing line beyond which a car is obviously used for work but that is not necessarily so if the mileage is below that figure. Reference to any sales representative who works, say, in London will produce a very different impression. It is possible to use one's car almost solely for work but still to undertake mileage substantially below that figure.

The recession is now hitting many people who hitherto have escaped. Smaller firms may find in this Government proposal a reason to cut down on sales staff, although one hopes that that will not be the case. There is a case for arguing that during a recession one should try to sell even harder than before. But I am seriously concerned about a possible knock-on effect as regards people employed in such capacities.

There is then the reference to the figure of £8,500 below which there will be an exemption for low paid personnel. I need hardly say that that is not a very high figure. It is about two-thirds of average earnings. Will the Government be prepared to look again at that issue?

There is also a possible effect upon the motor industry. Most large firms buying car fleets tend to buy British cars. The motor industry in this country is a substantial employer of labour. In a situation in which manufacturing industry in this country has been in decline, it is important that the motor industry should be maintained. Of course I understand that it is a question of balance. Environmentalists will argue that the Government are right to attempt to restrict the number of cars on the roads; and I would agree with that if only we had a better public transport system. However, the fact remains that at present we have not.

On this side of the House we do not disagree with the Government's intention of endeavouring to ensure that payment in cars rather than cash should be discontinued or, where it is not, that a contribution should be paid by the employer to the National Insurance Fund. However, we urge that a real attempt be made to distinguish between those for whom it is a real "perk" and those for whom the use of a car is as necessary for them as the word-processor for a secretary and without which they would not be able to make a living.

Finally, what do the Government intend to do with the extra money? Will there be improved benefits, or at least will some of the restrictions placed on access to benefits that we have seen in the past few Social Security Bills now be reviewed? I believe that it is necessary to have an answer to some of those questions. We shall of course be able to pursue the matter further in Committee if we are not satisfied with the answers.

11.56 a.m.

Lord Banks

My Lords, I was impressed by the Minister's statement when introducing the Bill in another place. He said: The purpose of the Bill is to fill what I believe to be an important gap in the national insurance contributions system, as a result of which employers do not pay contributions to the national insurance fund if they pay their employees in cars rather than in cash". —[Official Report, Commons, 9/5/91; col. 849.] The noble Lord, Lord Henley, said something similar this morning. I agree with him and I support the Second Reading of the Bill.

We on these Benches support the Bill for the following reasons. First, Britain's roads are already crowded and the forecasts of future road use are frightening. In 1987 road traffic churned out into the air that we breathe the following: 98 million tonnes of carbon dioxide; 1.03 million tonnes of nitrogen oxides; 4.47 million tonnes of carbon monoxide; and 0.66 million tonnes of hydrocarbons. The most toxic of those emissions is carbon monoxide, a colourless gas which combines with haemoglobin in the bloodstream and makes the blood less efficient at carrying oxygen.

Secondly, we must do all that we can to encourage a move to the use of public transport; yet even after this Bill we shall have, as I understand it, the most favourable tax regime for company cars in the world. We do not even have a neutral system between cars and public transport —cars are actually encouraged.

Thirdly, it is not only in order to allow everyone to travel at a reasonable speed that we need to encourage public transport. It is also environmental suicide not to tackle our transport problems.

Fourthly, the National Economic Development Council estimates that 90 per cent. of cars entering London between 7 a.m. and 1 p.m. are subsidised by companies.

As the Minister explained, under the Bill it is only employers who will pay national insurance. Therefore, there is still a tax advantage to having a company car. We believe that employees should also pay national insurance so that they pay 34 per cent. on both car and income rather than 25 per cent. on the car and 34 per cent. on the income.

The Minister in another place and the noble Lord, Lord Henley, have explained that the Government are not introducing the measure for employees because of the complications. They say that it would be impracticable. That may be so under present arrangements but it would not be impracticable if the income tax and national insurance systems were integrated. That is of course our policy. Perhaps it is a reform for the future.

The integration would mean that people would pay 34 per cent. —that is 25 plus 9 —up to a taxable income of approximately £23,000 and 40 per cent. thereafter.At present income tax works out at 34 per cent. up to £20,000; 25 per cent. between £20,000 and a taxable income of £23,000; and 40 per cent. thereafter. That occurs because national insurance is currently paid only up to £20,000, which is below the higher rate tax band. We would raise the level of contributions in the higher rate band thus eliminating the present position.

In addition, there is room for improvement of the structure of the scale. For example, the mileage that one needs to cover to qualify as driving a works car as opposed to a perk car is 18,000 miles per annum. That is a high figure for someone working in London but not for someone working in a rural area. That point was made by the noble Baroness, Lady Turner. Therefore the formula must be flexible. Public employees such as district nurses should no longer have contracts which oblige them to have company cars and thus sell their own cars. When left to themselves they would simply use their own cars for work. As an immediate step they could be exempt from car tax as the Royal College of Nursing has asked. I understand that at present a district nurse makes a contribution to the local health authority to cover the private use of the car. Therefore any tax that those nurses pay relates to the working use of the car.

I approve the Second Reading of this Bill.

12.2 p.m.

Lord Boyd-Carpenter

My Lords, I agree with my noble friend on one issue: this is a complicated Bill. For a short Bill which has only one particular objective it is about as complex and difficult to understand as one can imagine. We are not particularly indebted to the draftsmen; the Bill could have been drafted more clearly and plainly.

Furthermore, it is misdescribed as a Social Security (Contributions) Bill. It has nothing to do with social security; it is an attempt by the Government to raise an additional net sum of about £410 million per annum. That is a perfectly respectable objective. However, it is a misnomer to describe the Bill as a social security Bill when no corresponding benefit is given as a result to the contributors and when no additional benefit to the beneficiaries of national insurance are provided by it. It would have been more frank to insert the provisions in the Finance Bill as a straightforward tax measure because that is their purpose. In his usual elegant style my noble friend had to wrap that up a little, but it is plainly the purpose of the Bill.

In that respect the Bill bears a considerable resemblance to the previous measure to emerge from the same department; that is, the Statutory Sick Pay Act. It has a similar effect in two ways: it contains two provisions which enable the Bill to be amended by statutory instrument if the Government so wish. That is the effect of Clause 1(7) and Clause 2(2). Your Lordships will remember that we had a considerable discussion about whether such a provision was acceptable in respect of the Statutory Sick Pay Act. Your Lordships decided to take that provision out of the Bill and that decision was accepted by another place. Therefore, I find it difficult to understand why we are now presented with a similar provision which my noble and learned friend Lord Simon of Glaisdale describes as a Henry VIII clause. I have never understood why his late majesty should be given the discredit of that particular provision; he has suffered enough discredit for his matrimonial activities.

It is in principle difficult to justify asking Parliament to give the Government powers to amend whenever they think fit —and up to a certain extent this is work that they wish us to do —a statute that we are asked to put on the statute book. I shall be interested to hear my noble friend deal with that matter in reply. When one looks at the precedent of the attempt by the Department of Social Security to do that in the Statutory Sick Pay Act it appears as though the department is trying to slip a similar provision into this Bill. I hope that in Committee your Lordships will feel that the issue merits full discussion.

I do not share the obsession of the noble Lord, Lord Banks, with company cars. Of course some use of some company cars is a perk and is probably acceptable. Companies provide cars largely in order to facilitate efficient working. If one is a senior executive of a company one does not want to have to rush out to find a taxi in London or to struggle onto a train in the country when one is working through a highly complicated day. When I was chairman of a large cement-making company the use of the car was absolutely essential to enable me to do the job that I was set to do.

That leads one to the difficult question which the Bill will pose; what is private use? If one is a senior executive of a big company one will have all kinds of activities which can be looked upon as private use or as being part of one's duty according to one's point of view. So much depends upon personal contacts. For example, if one goes to what appears to be a lunch party with the purpose of meeting the operators of another company with whom one hopes to establish dealings, is that private use or is it use as part of one's work? I warn my noble friend that in practice it will be enormously difficult to determine what is private use. A company executive, for example, may have to visit one or two establishments, competitors and sales organisations outside his company and at the end of a full day's work his car will take him home. Is the latter private use or is it, as common sense suggests, a proper and sensible use of the car? It would be silly if he should suddenly have to abandon the car at his last business meeting and then seek with considerable delay, and possibly additional physical strain, to work his way home. I suggest to my noble friend that the provisions will create enormous difficulties.

As the noble Baroness said, this is taxation. I do not know whether she has observed that, moreover, it is retrospective taxation. If your Lordships look at Clause 6(5) you will see that the charge is to run during the current financial year which began at the beginning of April. We are now more than two months past that time and the Bill is far from being law. And yet, the liability of companies to pay this money is already accumulating in the current financial year as a result of that provision. Therefore, to the charge that this is taxation, I add the more damning charge that it is also retrospective taxation. That seems to me highly undesirable both in itself and as a precedent.

I ask your Lordships to consider whether the cost to companies, which is fairly admitted at the beginning of the Bill will amount to £410 million per year net, is sensibly imposed at this moment. We are in a state —and I shall not use the word "recession" —of trade difficulties. Companies are being quite rightly adjured by the Government to keep down their costs. They are advised to remain as competitive as possible by having reduced costs. Yet this Bill proposes to impose upon companies a net excess of payment of £410 million per year. As the matter is arguable one may take a different view of this matter if we were in a time of high prosperity and boom, when this measure could be imposed without causing companies too much difficulty. However, to make this provision with effect from the current financial year seems to me a matter which calls for a great deal of explanation.

Finally, there is the effect on the motor car industry. The noble Lord, Lord Banks, did not worry about that. He would rather like to see fewer cars. In fact, the motor car industry in this country is an extremely important industrial activity giving a good deal of employment at very good remuneration. It produces excellent products.

The motor car industry is very much down. If one refers to The Times this morning one can see that the sale of new cars in this country last month was only two thirds of the figure for May 1990. Alas, it needs no emphasis from me for it to be seen that the motor car industry is going through a very bad time. If one takes the attitude of the noble Lord, Lord Banks, one does not worry about that. It is good that cars should be restricted because they pollute the atmosphere. However, I take a different view. I take the view that the motor car industry is extremely important and has been so for a great many years. I remember, as a boy, when my father was a Member of another place for Coventry, which then as now was a great centre of the motor industry, one was convinced of the great economic importance of the motor car industry as an exporter in this country. There is no doubt that this provision would have adverse effects on that industry.

Therefore, there are two reasons which make the timing of this measure particularly inappropriate and surprising from a Government who appear in general to understand well and clearly the economic necessities of the time. I repeat that it is a mistake to add £400 million to the costs of industry just like that. Surely it is a mistake to add increasing discouragement to the purchase of cars by industry and business generally which is a very important element in the market of cars.

Therefore, with regret I believe that this Bill is misconceived. It should receive the same careful examination as that received by the Statutory Sick Pay Bill with similar satisfactory results by way of improving it. It seems a pity that at this moment the Government —a Government which in general I fully support and for which I have the greatest respect and regard —should produce a measure which in a modest degree, for I do not wish to exaggerate, is damaging to the economic objectives which Government policy seeks to support.

12.15 p.m.

Lord Henley

My Lords, I welcome the partial support which I have received for this measure from the Benches opposite. I take note of my noble friend's points. I hope that I shall be able to answer some of them in the course of my speech.

First, I turn to the allegations made by my noble friend that this Bill contains what may be termed a Henry VIII clause. I do not accept that it is such a clause. Also, in my view, there is no need for anxiety on this score. I am referring to subsection (7). First, the regulatory powers can be exercised only following an amendment to the Income and Corporation Taxes Act; that is, following primary legislation.

Secondly, the content of such regulations is limited to matters which are necessary or expedient in consequence of any alteration to that legislation. Thus, the powers can be used only to amend the new section following the introduction of the primary legislation which makes necessary such a change.

Lord Boyd-Carpenter

My Lords, if that is right why are not those amendments, if they are necessary, made in the forthcoming legislation? Why is the thoroughly bad precedent being used of amending primary legislation by regulation?

Lord Henley

My Lords, my noble friend alleges that this provision should be contained in a finance Bill and not in a social security Bill. It is not possible to use the Finance Bill to amend the national insurance system. I do not accept that the new contributions are a tax. It has been a long established principle that employers should contribute to the balance of the National Insurance Fund. Therefore, necessary amendments should be made in this social security Bill.

If we take out the clause to which my noble friend objects, we shall not be able to amend this legislation to keep it in line with the Income and Corporation Taxes Act. Therefore, any budget changes would necessitate a social security Bill every year or the two systems would fall out of line. That would not be in the interests of employers operating this system.

Also, I do not believe that we have breached any principle as regards retrospection, as my noble friend alleged. As I said in introducing the Bill, this is a budget measure. Budget measures are normally introduced from the beginning of the tax year and before the necessary legislation has been passed.

Lord Boyd-Carpenter

My Lords, surely the difference is that budget measures are introduced before the beginning of the financial year. The Budget is before the beginning of the financial year.

Lord Henley

My Lords, yes. I have explained to my noble friend that this is a budget measure. The announcement to introduce this provision was made in the Budget. My right honourable friend the Chancellor of the Exchequer announced these measures in the Budget. The Bill followed later. Liability will not arise until next year.

I turn to some of the points made by the noble Baroness, Lady Turner of Camden. She asked about the state of the fund and whether this Bill is merely designed to prop up the fund. The measures in the Bill are not .solely aimed at revenue gathering. I have made it clear in opening this debate that we are principally adjusting an anomaly which has grown up by virtue of the now widespread practice of employers providing what is essentially remuneration by means of cars and free fuel for their employees' personal use. We believe that that should attract liability for national insurance contributions.

With regard to the balance of the fund mentioned by the noble Baroness, as she will be aware it is in a healthy state. The balance will be £11.2 billion at the end of 1991–92, which is equal to 33 per cent. of annual benefit expenditure. As the noble Baroness is aware also, the Government Actuary recommends a minimum balance of two months' benefit expenditure, which is 16.7 per cent. However, it is expected that the expenditure from the fund will exceed income over the next few years and the balance is therefore projected to fall to around the minimum recommended by the Government Actuary.

In fixing any future rates of national insurance contribution my right honourable friend the Secretary of State, as he is obliged to do by law, will take into account the balance in the National Insurance Fund including any additional revenue raised by the Bill. The benefit rates are fixed in the light of all the relevant Factors at the time of the uprating. My noble friend alleged that it should not be a social security Bill in that there is no benefit to the contributor. As I said, my right honourable friend will take into account the balance of the fund in fixing future contribution rates. To that extent there may be some benefit. If my noble friend had listened to me he would also have noted that the clause allows some of the money to be paid to the National Health Service, as happens with contributions from the National Insurance Fund.

The noble Baroness was worried that there was insufficient distinction between those cars used as essential tools of the trade and those given purely as perks. The scale charge rules recognise that distinction. As the noble Baroness is aware, within each of the five bands of types of car —decided on either price or engine capacity —there will be a standard charge for those used between 2,500 and 18,000 miles. Those that are purely perk cars that is, used for less than 2,500 business miles and therefore mainly for private use —will pay an extra 50 per cent.; the scale will be 50 per cent. higher.

Those who use the cars over 18,000 miles will pay 50 per cent. less in that they are largely cars used as tools of the trade. However, I must emphasise that a large amount of private use takes place even for those cars that do more than 18,000 business miles. If there is private use it should be treated as a perk and therefore there should be some contribution liability. If they are not available for private use there is no liability at all. These rules are exactly the same as those operated by the Inland Revenue. I accept that there may be concern in deciding what is and what is not business use —a point raised by my noble friend —when calculating the number of miles done over the year on business use. That is why, when opening the debate, I stressed that we intend to consult with business interests and welcome their comments on the best way of operating the system.

I turn to the effect on employment. The noble Baroness suggested that firms will cut down on their sales staff. I simply do not accept that. It is ridiculous to believe that firms will cut down on the one way that they can survive in difficult times by getting rid of their sales staff. I do not accept that this measure will have a deleterious effect on the manufacturing industry. We recognise that the car industry is currently experiencing a difficult time. My noble friend quite rightly mentioned the figures for last month. We know that demand is falling and that the recession has proved to be much deeper than expected. However, the industry has prospered under the Government's economic policies and will continue to do so in the future. The reduction in inflation and falling interest rates will have a beneficial impact on United Kingdom car sales. Recent budgets have seen a steep rise in scale charges without reducing the growth of new car sales.

Baroness Turner of Camden

My Lords, does the Minister accept that when employers or firms buy fleets of cars they tend to buy British cars rather than cars from overseas? That was the point I was making. I was referring to the effect on the British industry of reductions in the size of fleets.

Lord Henley

My Lords, I note what the noble Baroness says. I do not believe that it is always the case that firms tend to buy British. I can certainly think of a great many perk cars that are foreign imports. I do not accept that it is a valid point that we should artificially support a company car system so as to artificially support the car industry. What will support the car industry best is producing the best cars that people will wish to buy. I am sure that the car industry in this country will eventually achieve that. These measures should be seen in the context of the Budget as a whole. That was good for business as a whole, including the car industry.

The noble Baroness asked about the figure of £8,500 and why we chose it. Again, we deliberately chose that figure to have exactly the same threshold as that used by the Inland Revenue. That will keep the system as simple as possible for those who operate it and enable them to understand it. I confirm that there are no plans to increase that threshold.

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. The scale charge is designed to reduce the contribution made by the employee to the cost of private motoring.

The noble Lord felt also that employees should pay. I do not accept that. As I said in opening the debate, I do not see that it would serve any practical purpose and it would be difficult to operate. Over half of the employees who are provided with company cars are above the upper earnings limit and would not be affected. We would have to introduce a very complicated scheme to bring in relatively small amounts of money.

My noble friend Lord Boyd-Carpenter said that this was the wrong time to impose an extra burden on employers and the industry, and I know that some employers will resent the imposition of this new contribution charge even though it will represent only a tiny fraction of industry's overall labour costs of some £300 billion a year. However, the Bill must be seen in the context of the Budget as a whole. It is a way of correcting an imbalance in the contribution system. The Budget itself was good for business with changes in corporation tax and VAT worth £750 million with yet more to come in 1992–3.

As part of the Budget judgment the measures before the House today are a matter of fairness producing a less distorted choice between paying in cars or in cash. It is right that employers who choose to pay their employees in cars and fuel should face the same obligation as those who feel that they have to pay with cash or have no alternative but to pay with cash. I commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.