Statutory Sick Pay Bill

HL Deb 11 January 1994 vol 551 cc79-112

3.24 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Viscount Astor)

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

Unlike much of the social security legislation which comes before this House, this is a very short Bill. It contains only four clauses, and the Bill's substantive provisions are all contained in Clause 1. The main purpose of the Bill is to remove the right of employers to recover, from their remittances of national insurance contributions, 80 per cent. of the statutory sick pay (SSP) they pay to their employees.

Clause 1 also makes consequential changes to Section 81(2) of the Social Security Administration Act 1992, and to paragraph 2 of Schedule 11 to the Social Security Contributions and Benefits Act 1992. It may be helpful to your Lordships if I give a brief explanation of the statutory sick pay scheme.

The scheme was first introduced in April 1983, more than 10 years ago. Its aims were, and still are, to provide a prescribed minimum amount of sick pay to employees unable to work because of short-term illness; to cut out duplication of cover between the state and industry by building on employers' occupational sick pay schemes; and to provide as simple a scheme as possible for employers to administer while at the same time protecting the interests of employees.

There was much opposition to the SSP scheme from the outset, but it has been a success. Employers quickly assimilated the scheme into their normal payroll arrangements and most employers now operate SSP successfully. Employees also prefer to receive their sick pay in their wage packet rather than to have to claim it from their local social security office.

There have been a number of changes to the structure of the scheme since 1983 but two changes in particular stand out. The first took place in April 1986 when employers' liability to pay SSP was extended from eight weeks of sickness in a tax year to 28 weeks.

The second of those changes—and one which some noble Lords may recall—was contained in the Statutory Sick Pay Act 1991. That was the reduction in the SSP reimbursement rate from 100 per cent. to 80 per cent. from April 1991. Concern was expressed during the passage of the Bill that it would affect smaller employers harshly.

That was the main reason why the Government, on your Lordships' advice, provided additional help for small employers—hence the introduction of the small employers' relief provisions—in addition to the broadly offsetting reductions in national insurance (NI) contributions.

That is the history of the SSP scheme. I now turn to the main provision in this Bill: the abolition of the 80 per cent. reimbursement arrangements.

I wish to make it clear at the outset that abolition of the 80 per cent. reimbursement in no way affects the rights of individual employees to SSP. They will continue to be entitled to a prescribed amount of sick pay for any absences from work lasting for at least four days in a row. In fact, the majority of employees will have their SSP entitlement topped up—to full pay in many cases—by occupational sick pay.

Abolishing 80 per cent. reimbursement will give employers an incentive to improve sick absence rates through better monitoring and control, and by taking more interest in the well-being of their employees. We have one of the worst rates of absenteeism in the EC. It is estimated that industry loses anything between £9 billion and £13 billion annually in days lost through sickness. Government cannot solve the problem alone. What we do want to do is to prompt business to do better. Reimbursing 80 per cent. of their SSP costs provides little incentive for employers to improve matters.

The Government believe that an improvement in sick absence rates is a matter which employers themselves can do something about. Recent research suggests that above average absenteeism rates are often a result of poor staff motivation, stressful staff relationships, poor working conditions and poor monitoring and control of sick absence by managers. This research has also shown that when employers take a keener interest in the health, attendance and well-being of their staff, they can and do substantially improve sick absence rates.

The Government believe that reimbursement of 80 per cent. of their SSP costs acts as a disincentive to employers to take positive action to improve the health, well-being and attendance records of their employees. It sends the wrong signal to employers that improving sick absence rates is not their responsibility nor within their control. But it is their responsibility and an improvement is within their grasp.

Large companies have a greater incentive to do so since their sick absence levels tend to be much higher than that of smaller companies. For example, a recent study showed that firms with over 5,000 employees have almost double the level of sick absence of companies with fewer than 100 employees. Abolishing reimbursement will give all employers an incentive to monitor and control sickness absence and to seek ways of improving the motivation and well-being of their employees.

At the same time the Government intend to reduce employers' national insurance contributions by more than their SSP costs. We propose to reduce the highest rate of employers' national insurance contributions by 0.2 per cent., from 10.4 per cent. to 10.2 per cent. But the lower national insurance contribution rates will be reduced by a full 1 per cent. These reductions will reduce the employers' share of their national insurance bills by about £800 million next year, rising to almost £1 billion by 1996–97.

Ending the 80 per cent. reimbursement arrangements will cost employers some £670 million in 1994–95. Employers as a whole, therefore, will be well over £100 million better off next year as a result of the SSP national insurance contributions changes. Indeed, employers with above average sickness levels will be better off still provided they improve their absence rates.

The national insurance contributions reductions are weighted towards employers of the less highly paid so that they will gain more. For example, a company employing staff earning £170 per week stands to gain over £88 a year for each employee from the national insurance contributions reduction. If that company has an average sick absence rate, the extra SSP costs will average around £43 a year, leaving the employer about £45 a year better off per employee. A company with the same wage structure but with double the national sick absence rate will break even as a result of the changes.

I turn now to small employers. Small employers tend to have below average sickness levels. Over a third of employers with fewer than 11 employees had no sick absences long enough to qualify for SSP during 1991–92. But the Government recognise that smaller employers may be hit harder by the prolonged absence of an employee. That is why we propose to improve the arrangements under which small employers can revert to 100 per cent. of the SSP paid out to a sick employee.

At present employers with national insurance contributions bills of £16,000 a year or less recover 100 per cent. of their SSP costs after six weeks. From next April, the help will be extended to firms with national insurance contributions bills of up to £20,000 and 100 per cent. reimbursement will be available after four weeks. This will enable an extra 50,000 to qualify for this additional help —about 750,000 employers in total, representing almost two-thirds of all employers. In addition, as I mentioned earlier, small employers will also benefit more from the full 1 per cent. reduction in national insurance contributions since they tend to employ proportionally more lower paid workers.

Employers and their representative organisations are concerned about the administrative burden placed on them by the SSP scheme. I am happy to say that abolition of the 80 per cent. reimbursement will help to reduce that burden. Employers, with the exception of small employers, will no longer have to calculate how much SSP to recover from their remittances of national insurance contributions. From April 1995, the Government propose further to reduce the administrative burden on employers by abolishing the lower rate of SSP, thus moving to a single rate equivalent to the existing higher rate. This will ease their calculations.

Overall the SSP/NICs changes will ensure that British companies continue to retain their relative advantage over their foreign counterparts since employers as a whole are being over-compensated for their extra SSP costs. Employers in other EC countries tend to bear a much greater share of the costs of sickness among their workforce. For example, in Germany employers have to pay full wages for the first six weeks of sickness with no reimbursement. And yet they pay higher social security contributions. Dutch employers pay 70 per cent. of average pay but have to bear five-sixths of the cost. Before remedial action was taken, three out of 10 workers in Sweden were absent from work on sick pay at any one time. Subsequent changes have reduced that figure to less than one in 10.

Clause 1 of the Bill contains two further measures arising from abolition of the SSP reimbursement rate. First, it extends the scope of the SSP scheme to working women who become sick and incapable of work before reaching their 65th birthday. This is necessary because abolishing reimbursement makes SSP a form of pay, rather than a social security benefit. It thus falls outside the scope of the pension age derogation provision—which allows different pension ages for men and women—of the EC Equal Treatment Directive.

Secondly, the Bill also repeals the existing provision under which the department recovers 80 per cent. of any SSP paid from damages awards or compensation payments exceeding £2,500 so as to prevent double payment from public funds. Now that the state will no longer be reimbursing 80 per cent. of the SSP costs, it will not be appropriate to recover any of the SSP due to be paid from 6th April this year.

The statutory sick pay scheme has been very successful in meeting its aims: to deliver a minimum amount of sick pay through the wage packet, to cut out wasteful duplication of work between employers and the state and it has produced a reduction in Civil Service manpower of around 3,700 staff. It has also ended the anomaly whereby certain employees received more money when sick than when at work. Hardly an incentive to return to employment.

But, as I have already explained, sick absence rates in this country are far too high and the Government need to act now to try to reduce these levels. Abolition of SSP reimbursement provides an incentive for employers to do so, while, at the same time, the reductions in national insurance contributions ensure that employers will gain overall from the SSP national insurance package.

I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Viscount Astor.)

3.37 p.m.

Baroness Turner of Camden

My Lords, this is another Bill which has been rushed through the other place without the usual scrutiny procedures. Again, that aroused considerable opposition because it was rightly felt that, although short, the Bill deserved detailed consideration.

It is interesting to look at the history of statutory sick pay and, in introducing the Bill this afternoon, the Minister has already covered the ground to some extent. I can well remember when SSP was first introduced in 1983. I was then a member of the Trades Union Congress General Council and a number of us felt rather apprehensive because until that time, of course, contributory sick pay had been paid through the then DHSS. But we were eventually reassured, to some extent. We recognised that there had been a growth in occupational sick pay schemes often introduced via trade union agreements. Some of those were generous, offering sometimes three months' full and three months' half pay and sometimes as much as six months' pay. The Government, however, persuaded employers to take on the responsibility by assuring them that they would be fully reimbursed their SSP costs. Later on, the duration of SSP was increased from eight to 28 weeks and employers were also reimbursed the cost of their national insurance contributions on SSP.

Then came the Statutory Sick Pay Act 1991. I can well recall the debate that we had in this House, because I participated in it, along with my noble friend Lord Carter who at that time led for the Opposition on the issue. The Act reduced the amount of SSP which employers could recover from 100 per cent. to 80 per cent. and also ended the arrangement whereby employers could recover national insurance contributions paid on SSP, although employers' NI contributions were reduced.

There were strong objections to that Bill, most notably because of the effect on small businesses. The then Secretary of State for Social Security claimed that the effect would be cost-neutral for employers. That was not, however, the view of a number of noble Lords in this House. It was felt very strange that a government who prided themselves on removing burdens from business should come along with a proposition which added very considerably to the burdens on small businesses in particular.

We had some success at that time. I well remember the contributions made then by the noble Lords, Lord Jenkin and Lord Boyd-Carpenter and the noble Earl, Lord Russell, all of whom I am glad to see are to speak in the debate this afternoon. We managed then to persuade the Government that something had to be done for small businesses. And it was done—although it was not enough. The Minister has explained this afternoon exactly what was involved in those amendments. I shall explain why on this side we did not think that what was done at that time went far enough. Much sickness anyway occurs in a period of less than six weeks, and therefore under the arrangements that were then made it would not rate for reimbursement. Moreover, we were impressed by the evidence that we then had from the National Association of Citizens Advice Bureaux (NACAB), which indicated that even then employees often had difficulty in getting sick pay to which they were entitled, and that these problems were more likely to afflict employees working for small employers than those working for large institutions and companies.

Now we have this Bill, which seeks to put the entire responsibility for the payment of SSP on employers with no entitlement to reimbursement. It is true that small employers' protection is retained, and as we have heard this afternoon the Government claim that it is being improved. But the Federation of Small Businesses still finds the proposition unacceptable.

Why are we so concerned about the Bill? First, the Government have completely reneged on their original commitment. Back in 1983 employers were persuaded to take on the responsibility for statutory sick pay on the basis that there was a reimbursement guarantee. I believe that that guarantee played some part in ensuring that opposition from trade unions would be muted, since, if there were arrangements to reimburse, it was logical to assume that sick employees would get the money anyway. That guarantee was first eroded with the 1991 Act and has now gone altogether.

Secondly, the Government claimed, with some justification, that occupational sick pay schemes were now widely operative; so from the employees' point of view there would be no change. It is true that there has been a welcome growth in such schemes. But simply to look at the number of schemes can be misleading. Not everyone in companies where there are schemes is covered by the schemes. There have been extensive changes in employment patterns, some of which have been actively encouraged by the Government. There is more flexibility, which in practice means many more people working on short-term contracts, more casualisation and more part-time employment. That means a smaller core employment force; and often it is only the "core" employee who is covered by occupational sick pay schemes. The others must rely on statutory sick pay.

When we look at the small employers' protection promised by the Government, even with the new improved arrangements, there still remain four weeks for which there will be no reimbursement. As I said earlier, the majority of sickness claims are for short periods.

The Government seem to think that the proposals in this Bill will save money. After all, that is an element in the package which we were led to expect as part of the Government's review of social security spending. The sum of £750 million has been referred to as a possible saving. But if that is the case, the money has to come from somewhere. It will come either from the private firms, which will no longer be reimbursed, or from employees who may be entitled to sick pay which they do not get.

The Government also believe that the proposal will give employers the incentive to "manage" their sickness rates better than at present. Britain allegedly has a bad sickness record compared with other countries, and the Minister has said so this afternoon. It is difficult to produce anything other than anecdotal evidence, but I wonder just how much sickness absence is due to the changed industrial relations climate for which this Government are largely responsible.

I was talking quite recently to a personnel manager of my acquaintance who is not particularly happy. He acknowledges that the sickness record of his company is a matter for concern. But he also says that there is an increased level of workplace stress. There have been many redundancies. As a result, the pressure is on the remaining people to do additional work at a faster pace. The redundancies have resulted in less company loyalty: years of commitment have entailed no greater employment security, so if people feel under the weather they are more likely to take the odd day off here and there. A higher sickness rate could well be a symptom of a far deeper malaise which will not be remedied by the kind of medicine envisaged in this Bill.

Finally, so far as concerns the effect on employees, in 1991 we drew attention to the evidence provided by NACAB to the effect that even then there were employees who were not getting the sick pay to which they were entitled.

The new measure will be a positive incentive to employers not to employ people with a poor sickness record. That could well adversely affect disabled people, despite the Government's encouragement to give them work, and despite the disability working allowance scheme, the access to work scheme, and so on, that we have discussed in this House. Older workers who have been displaced may find it that much harder to find employment, since employers could well believe that they are more likely to take time off because of sickness. Employees with poor sickness records could well be dismissed, finding it difficult to be re-engaged elsewhere, and that will add to social security expenditure.

Meanwhile, the Federation of Small Businesses has been telling the Government to drop their proposals altogether. It is not impressed by the national insurance contributions "offset", believing that on past showing the Government could well drop that and leave employers in the future with the new liability and without even that compensation. It stresses, as we have, that there is no compensation for small employers for the first four weeks; and that is when most of the claims will be made. It stresses that businesses will be left with the administrative record-keeping despite the loss of reimbursement. It is also concerned with cash flow implications for small employers. The TUC and NACAB have both urged the Government not to proceed down this path. Even the Government's traditional supporters at the CBI and the Institute of Directors have not given the measure much of a welcome. Indeed, both have voiced some considerable doubts about it.

I have a briefing from the CBI in front of me today in which it seeks assurances that the transfer of sick pay to employers does not establish a precedent for moving other social benefits to companies. While employers can police sickness absence, they cannot, for example, control maternity leave. It is quite clear that they are concerned lest that responsibility is ultimately passed on to employers as well. They also ask for assurances that the reductions in employers' national insurance contributions which compensate employers for taking responsibility for sick pay will not be reversed in the future. It is quite clear from that that employers are generally concerned about the fact that previous assurances that they have had in this area have not been complied with by the Government. I do not suppose that there is much chance that the Government will take the advice that is being offered.

All that we on this side can say is that we are opposed to the Bill. We think that it is hastily cobbled together, and that the Government would do best to forget all about it. We did not like the 1991 Act all that much, even though we did manage to get some improvements for small businesses. In our view this Bill is very much worse than that one.

3.48 p.m.

Earl Russell

My Lords, I am afraid that I cannot welcome this Bill, and I am therefore very glad that it is before us. Your Lordships may think that that savours of a level of paradox appropriate only to a 21st birthday. But some noble Lords may remember that the 1991 vehicle included a Henry VIII clause which allowed the Government to vary the rate of reimbursement of statutory sick pay without limit by regulation. Had this House not thrown that clause out, and had another place not acquiesced in that vote, we would have had no need of a Bill at all to introduce these changes. In that context, I should like to offer thanks to the noble and learned Lord, Lord Simon of Glaisdale, and to the noble Lord, Lord Rippon of Hexham, for the work that they have done to educate this House in the danger of the Henry VIII clause, for it is clear enough that this Bill introduces a far more important change than most of us would think proper to introduce by regulation. In fact, had this measure been introduced by regulation, as one cannot help suspecting might have been contemplated in 1991, it would have been a threat not only to statutory sick pay but also to parliamentary government.

We have heard that the Bill has caused a certain amount of dispute about the timetable. I understand that the proceedings of another place are entirely their own affair and we have no authority over them. However, we are concerned to make sure that we shall not be in that position again. Therefore, it is worth giving some thought to the timetable arising from the unified Budget. On 1st December I said that I considered that the new procedure of the unified Budget had on the whole been a success. I do not withdraw that remark, but I am glad that I put in the qualification because I feel that this will not be the last time that the unified Budget will create a need for legislation to come into force before the beginning of the financial year.

That is a very tight timetable. I appreciate that we had a late Queen's Speech this year for reasons for which the Government cannot be held to blame. But in future I hope, subject of course to Her Majesty's convenience, that we shall try to bring the Queen's Speech a little forward and shorten the overspill in order to avoid that kind of pressure on our timetable in the future. That might save us all a great deal of heat.

As we heard, the Bill takes away from employers statutory sick pay reimbursement and gives them instead national insurance concessions. In fact it puts on employers a permanent liability in return for an impermanent concession. I hasten to say that I make no charge whatever of bad faith. But the noble Viscount said yesterday that national insurance rates cannot be set in stone. My noble friend Lord Jenkins of Hillhead recently said in this House that chancellors leave footprints in the sand. That is inevitably true. It only needs a treble-dip recession for all the concession on national insurance to disappear. Even leaving that aside, we know well that no Parliament can bind its successors. So employers are taking a temporary financial concession in return for a liability which will go on. That might be regarded as selling one's birthright for a mess of pottage.

The Secretary of State said on 1st December—the noble Viscount repeated it today—that employers "as a whole" will be no worse off. In the first place that is bookies' odds. We do not know the level of future sickness any more than we know the level of future national insurance rates. Bookies' odds can sometimes he right but every bookie knows that that is not always the case. Most employers—one might say all employers—are not employers as a whole. There is always the possibility of exceptional levels of sickness. That is not entirely confined to small businesses. For example, in the case of Camelford after the Lowermoor disaster there were very high levels of sickness everywhere. I know that Seveso and Bhopal are not in this country. But it is not unimaginable that such a thing could happen here. A firm in that position would be in a bad enough state already without having an enormous extra load of statutory sick pay on top.

In the case of small businesses such a situation is very much more likely because one is dealing here with the statistically insignificant sample. Those who follow the opinion polls know that a statistically insignificant sample may do anything. I remember when we were dealing with the last Bill that we were told that 92 per cent. of first-class letters were delivered the next day. My noble kinsman Lord Henley, when tabling a new government amendment, very kindly sent notifications to me by first-class post to three different places in order to make sure that I received them. I am grateful for the courtesy. However, not a single one of them arrived the next day. That was a statistically insignificant sample.

Just the same thing can happen to a small business if all of its employees have been caught in a crash in one minibus. That not only means a very large extra payment; it means an acute cash flow problem because all the payment comes at once. The national insurance reimbursement is spread over a considerable period. When money has to be borrowed and when the attitude of banks to small businesses is, shall I say, not always predictable, a sudden cash flow problem may create the risk of bankruptcy where no bankruptcy needs to be. Surely that is not in the public interest.

The four weeks' limit is surely mistaken. The vast majority of sickness is less than four weeks. So the small business itself will carry all the costs. Whether it will be able to do very much about it is a question on which there is room for a good deal more doubt than the noble Viscount thought.

Throughout the noble Viscount confused reducing sickness absence rates with reducing sickness. They are not the same. I query whether it is always sensible to try to reduce sickness absence rates. I should like to declare an interest in that view because twice last term I went down with flu which I caught from a pupil who had come in when he ought to have been in bed. There is also the case of people who have suffered an injury. Particularly with back injuries, immediate rest may be vital to recovery. Those people go in to work, exacerbate the injury and remain unfit for much longer than they otherwise need have done. I believe that the incentive to reduce sickness absence rates is a very blunt instrument indeed. It probably will not catch the real malingerers, who may be quite skilled people, but it will catch the genuinely sick. In fact it may have the long-term effect of increasing the national level of sickness. I am sure that we do not want to see that.

The intention to reduce the level of sick leave is clear enough. I do not think it is sensible. I accept that there is a problem about motivation as well as genuine illness. Like the noble Baroness, I ask the Government whether they recognise no responsibility for this situation in themselves. The Secretary of State in another place, when looking for his prime example of absence due to lack of motivation, selected employees of the London boroughs. It may have escaped the Government's notice, but they have done a great deal to create turmoil, dismay, extra workloads and, by standard spending assessments, reduce staffing in London boroughs. If there is lack of motivation in London boroughs, the Government might wonder whether they have done anything to create it. I say the same about the high level of absence because of sickness among teachers.

So deploying the argument about motivation is rather dangerous. We are now waiting for the report on the impact of the 1991 changes from the Centre for Social Policy Research. I do not understand why the Government could not have waited until that report was available before putting the Bill before us.

Let us consider the effect of the Bill on employees. I heard the noble Viscount say that they continue to be entitled to statutory sick pay. I recognise that and I am grateful to him for saying it. I should like to ask him to consider finding ways of making that entitlement more effective than it is at present. I should like to ask him to consider a number of cases offered by the citizens advice bureaux.

One CAB in South Wales reported that a local boss of a large retail group told employees that he did not pay statutory sick pay. Another had a client off sick for two weeks because of an accident. The employer would pay only for the first week. The CAB noted: She cannot get benefits". The national insurance concession is a contractual concession. It is in return for paying statutory sick pay. Is it technically feasible to introduce an amendment whereby a firm which does not pay statutory sick pay does not get its national insurance concessions? That would be a perfectly fair bargain.

The Secretary of State tells us that he has not heard of any cases of employees being dismissed or threatened with dismissal because of sickness. I do not know exactly where the Secretary of State has been. I remember quoting a great many of those cases in 1991. It is not quite as bad as the time when I gave 130 examples of something to a Minister, whom I shall not name because I gave him no notice of it. He said two weeks later that he had never seen any such examples. I do not claim to have given the Secretary of State 130 but I think I have given him at least 13. I shall give him a few more examples of where there is a threat of dismissal.

A CAB in the West Midlands reports of a client whose employer's policy is to issue written warnings for certified absence due to sickness. Another report is of a client off work for two weeks. His employer told him that he would be dismissed if he took any more time off. The CAB reported: He has no choice. He either works, and exacerbates his injury, or he loses his job". Another client was six months on a hospital waiting list waiting for a major operation. He was dismissed, although the doctors were confident that he could return to work after the operation. There may be more concealed costs in the growth of hospital waiting lists than we are aware of.

The Secretary of State is not aware that he is increasing the risk that people may be sacked. But how do he and the noble Viscount square this with their patent desire to reduce sickness rates? The noble Viscount said that the Bill was intended to prompt business to do better. They are using a blunt instrument here. The people against whom discipline is used may be the genuinely sick; and when they could have recovered and resumed work and been useful citizens and taxpayers, now they risk being thrust down into unemployment, from which, especially if they are over 50, they may never emerge. That is not in their interests; it is not in the employer's interests; and once it has counted the cost, I do not think it is in the state's interest.

The other two Front Benches may have noticed that I have not yet this year talked about dismantling the welfare state. There has been a great struggle in the Cabinet between the supporters and the opponents of the welfare state, a struggle which I think so far the supporters are winning on points. I heard what the Chancellor said in the Budget, repeated, I am glad to say, by the noble Lord the Lord Privy Seal in this House on 1st December, and I welcomed it. But this Bill is one place where the welfare state is being dismantled. I remember it being said—I think by the noble Lord, Lord Boyd-Carpenter, and since he is about to speak he will correct me if I have misremembered —that the central principle of insurance is spreading the risk. Therefore, there can be no better system of insurance than a system of national insurance. But what this is doing is concentrating the risk, and that is why I think it is going to do a great deal more harm than the Government perceive.

4.5 p.m.

Lord Jenkin of Roding

My Lords, perhaps it will not be altogether surprising to the House if I take a somewhat different view on the Bill from that of the noble Baroness, Lady Turner, and the noble Earl, Lord Russell. I unhesitatingly support the Bill. I do so because it is one more stage in the welcome process of putting responsibility onto employers and reducing their fiscal contributions. That process is to be welcomed and should be encouraged.

I accept the point made by the noble Earl that it is possible to exaggerate the motivational aspect of putting responsibility in this way on employers. But I think one has also to recognise how management both in the public sector and the private sector—I speak as a chairman of an NHS trust—is now devolving responsibility for budgets to managers down the line who are responsible for the labour costs of the people they employ. If they are able to save labour costs by reducing avoidable absence, they then have more resources to devote to the prime purpose which in the case of the NHS is the health and cure of patients. That can work, and I am seeing it working in my own trust. While no one is going to pretend that shifting the burden to employers in that way is the only motivation for reducing sickness benefit—on the contrary, there are many other budgetary and competitive pressures which would encourage employers to reduce avoidable absence—it is quite wrong to say that it is irrelevant.

British industry does not have a very good record, a point to which my noble friend referred. A joint study, carried out recently by the CBI and the consultancy Percom, concluded that industry loses some £13 billion a year through illness. An average of 3.5 per cent. working time, which is eight days a year, was lost through sickness in 1992. My noble friend made the point that large employers tend to have a much worse record of absence through illness among their employees than very small employers. The study found that management commitment and improved monitoring were important elements in reducing absence. The study concluded: A high level of absenteeism … is a problem which employers should monitor and control". I totally endorse that conclusion. Good employers do it and do it very successfully, and there are a number of excellent examples. I have referred previously in the House to the Japanese companies which invest in Britain. Absenteeism among Japanese-owned firms in Britain is 2.3 per cent. against a national average of 4 per cent. That is another example of management which many of these firms, with British managers of course, do better.

The noble Earl took my right honourable friend in another place to task for mentioning the London boroughs. I entirely understood the point that he made. Perhaps, as president of the London Boroughs Association, I can reassure him. My right honourable friend was saying that this was a group which had a rather dismal record of absence through sickness. The Audit Commission study in 1993 discovered that since 1990, however, absenteeism had been reduced by a third, saving almost £11 million. It concluded that five principles are important: commitment by senior management, clear responsibilities, appropriate information, suitably trained managers and attention to staff welfare. Therefore, so far from being an example to support the noble Earl's case, the London boroughs have shown, by applying these principles, that they can significantly reduce sickness to the advantage of charge payers in London. I believe that the noble Earl missed the target on that matter.

I also welcome in the Bill the end, in 1995, of the two tiers of reimbursement. From April 1995 the statutory sick pay will be at one rate. I welcome that.

But the Bill still leaves a two-tier system in the sense that there are the statutory sick pay system and the employers' occupational sick pay schemes. I hope that my noble friend will be able, at some stage during the passage of the Bill, to give some indication whether the Government will be prepared to consider—perhaps it is not suitable for an amendment at this stage in this Bill—an opting-out system in the same way that pensions schemes can opt out of the earnings related part of the state scheme. If one can satisfy people that there is a decent occupational scheme which meets certain criteria, one can then opt out of the SSP altogether. I believe that many employers would welcome that. It is one of the points made by the CBI.

I find the anxiety expressed by the noble Baroness, Lady Turner, about employers, slightly strange coming from a party which introduced the national income surcharge and the selective employment tax. It also imposed substantial new income and profits taxes on companies. It falls a little strange from them; but I know from the noble Baroness that that concern is seriously intended. She made a great song and dance about the CBI's doubts about the Bill. I wish to quote one sentence from the brief which it sent me: In the context of the overall Budget package and the reassurance provided by the welcome proposals to reduce NI contributions to offset the cost of transferring SSP, the CBI does not wish to oppose the SSP Bill. One could read the noble Baroness's speech with some care and not actually derive that important proposition from it, which is perhaps the central proposition of the CBI's brief.

Earl Russell

My Lords, will the noble Lord quote the next sentence from the brief?

Lord Jenkin of Roding

I shall be happy to do so because the noble Baroness also made reference to it: There are real concerns that some employers will not be adequately compensated". In a few moments I shall address that point because I am not here to give universal adulation to the Bill or to my noble friend, fond though I am of him. If possible, I wish to improve the Bill.

Perhaps I may take up one other point made by the noble Baroness. She said that the Bill was going to discourage employers from employing disabled people. It is now well established—there have been many studies to prove it—that disabled employees are, on average, substantially more reliable than average employees. One can understand why. I see that the noble Lord, Lord Ennals, is nodding. It is something which successive Secretaries of State have said to employers over and over again. Because disabled employees realise that they are perhaps more at risk because of their disabilities, they actually apply themselves with much greater assiduity and attention to their jobs. They are almost universally regarded as first-class employees.

Lord Ennals

My Lords, the noble Lord noticed me nodding. I am grateful to him for giving way. Does he recognise that there are now situations in which employers have made it quite clear that they are going to pay sick pay for a certain number of weeks only, take it or leave it? Does the noble Lord agree that for those people who are disabled and who may need sickness benefit, and sometimes more frequently, but not always, then that is a considerable deterrent for disabled people in getting employment with a firm which has taken up such a position?

Lord Jenkin of Roding

My Lords, I am not sure that I go along with the noble Lord on that. The question of the employment of disabled people is a complicated one. I take comfort from the fact that it is now widely regarded in employers' circles, and certainly in government circles, that disabled employees are, on average, more reliable in terms of attendance and assiduity than the average.

I have made it clear that I am not 100 per cent. happy that the Bill has the question of reimbursement absolutely right. My anxiety lies with the system for protecting small firms. My noble friend described the present system; namely, 80 per cent. reimbursement after the waiting days and 100 per cent. reimbursement after six weeks, with a threshold of £16,000 annual liability for national insurance contributions. He has quite rightly said that the Government have improved that in the Bill by raising the threshold to £20,000 and reducing the six weeks to four weeks before the 100 per cent. reimbursement comes in.

My concern (and there is some experience of this) is that the provision aims at the wrong target. The purpose must be not to protect small firms as such. After all, they are getting the benefit of the 1 per cent. reduction of the national insurance contribution in the same way as everybody else. The target is to protect companies of whatever size against abnormal sickness levels. That should be the target.

If one has relief which is based on arbitrary thresholds, whether it is £16,000 or £20,000 a year, that will always give rise to inequity at the margin. One can play around with tapering, and so on; but it makes the scheme a good deal more complex to administer. Any arbitrary threshold is going to give rise to inequity. In some cases, the way in which this relief works gives relief to firms which do not really need it. They end up with getting double relief. They get 100 per cent. and they also have the reduction in national insurance contributions. Even with the improvements which my noble friend talked about, I question whether that relief hits the target.

In my view, SSP relief should aim at three objectives. These have been referred to already in the debate. The primary aim should be to protect all employers against abnormal levels of sickness. Of course, it is much more likely to be the smaller firms which will be more affected. If a firm employs six people, it is not at all unusual that three of them may be off sick at the same time. But with a firm employing 6,000 people, it is inconceivable that 3,000 of them would be off work at the same time. Bhopal, or whatever, is a very unlikely exception.

Therefore any relief will tend to concentrate on the smaller firms because the larger ones, even if there is a period of flu, are likely to be able to cope and not to find themselves in financial difficulty. Second, arbitrary thresholds should be avoided. And third, as the noble Earl, Lord Russell, said, the aim should be to protect the firm's cash flow.

I believe that a better solution has been discussed at some length with my noble friend's officials. It has been put forward by the Forum for Private Business which is led by the redoubtable Stan Mendham. Any of us who have been involved in that department over the years have had experience of his acumen and determination. I have already advised my noble friend that I shall seek to table an amendment in Committee to reflect its view. That is this: the proposed small firms relief should actually be replaced by a different scheme that meets those three objectives—that is to say, protection for employers with abnormal levels of sickness; the avoidance of arbitrary thresholds; and protection for the cash flow.

Its proposal is that where the SSP payments in a particular month exceed a certain percentage of the monthly NIC payments—it suggests that perhaps a figure of 5 per cent. might be appropriate—then full reimbursement of all payments in excess of that level be made. The cost of the scheme depends on the percentage that is fixed for it. Obviously, the higher the percentage, the lower the cost because of the higher starting point. Today I have tabled a series of Questions for Written Answers which I am seeking from my noble friend's department. I seek the information which will enable me to quantify what the appropriate figure would be. But the aim is to produce disaster relief without presenting an unreasonable drain on public finances. We shall provide that the actual figure for the percentage contribution will be set by order so that the Minister will retain control of that.

There may well be some difficulties with that proposal which will need to be addressed. I agree with the noble Earl on the point about haste. As I have said to a number of people, the Autumn Budget was a bit too late. It did not leave enough time to allow for adequate consideration of legislation between Budget day and the beginning of the new financial year.

I hope that there will be an opportunity to discuss the details of the forum's proposals with officials and perhaps with my noble friend before Committee stage. I believe that the alternative system for giving relief hits what should be the real target—that is, firms which find themselves in difficulties because of abnormal sickness levels and not just because they happen to be small firms with national insurance contributions of less than £20,000 per year. Every employer is more than compensated for losing the 80 per cent. reimbursement. That is very welcome. Employers with abnormal sickness benefits under the Government's proposals could still be significantly out of pocket while others may well get the NIC reduction and the 100 per cent. reimbursement. I think that to link the two in the way in which the Forum of Private Business has suggested may be a better solution, but perhaps we can return to that at a later stage in our consideration of the Bill.

I should like to make it clear that I think that the main thrust of the Bill is absolutely right. The Bill moves in the right direction and certainly has my support.

4.21 p.m.

Lord Boyd-Carpenter

My Lords, I very much agree with what my noble friend Lord Jenkin of Roding has just said. The Bill undoubtedly moves in the right direction, but whether it moves quite far enough or rapidly enough is an open question which your Lordships may wish to discuss at some length in Committee. In particular, I share my noble friend's doubts as to whether we have rushed into the Bill rather too quickly without having proper opportunity to consider, among other things, the views which the Confederation of British Industry has quite reasonably expressed. I have read the CBI's formal proposals and recommendations and there seems to be a certain amount in them.

Therefore, I hope that my noble friend Lord Astor will not think that I am being unhelpful when I say that although I hope that the Bill will go forward, I have some doubts as to whether it takes full advantage of the possibilities of legislation in this area. In particular, I am very sorry indeed that it does not include provision for opting out. Where a company has an adequate, good and proper scheme, I see no reason why, just as with other social benefits, it should not be able to seek the views and the permission of my right honourable friend to opt out and to substitute its own scheme for government intervention. Opting out is a matter that requires exploring. For my part, I do not see that there is any need to defer that, as has been suggested, until another opportunity for legislation arises. One knows only too well from experience in this area that one does not often have an opportunity for legislation. If one does not take the opportunity when a Bill is before us, one may be deferring for a good many years improvements that could be made.

Therefore, as I have said, I hope that we will go forward with this Bill, but without excessive speed and that we shall have an opportunity of considering not only the doubts which the noble Earl, Lord Russell, has put to us—I always listen to the noble Earl with great interest although not always with agreement—but also the points which my noble friend Lord Jenkin of Roding has put forward so that we shall be able to thrash this out properly because this is a matter of great importance to a very large number of our fellow countrymen. It is very important that we should get it right. I think that the general view which has been expressed in your Lordships' House this afternoon is the view of the country which is that we have not got it quite right yet and that further improvement is needed.

I have only one other point to make. It is a question for my noble friend Lord Astor. I notice that the Explanatory and Financial Memorandum states: The Bill is expected to have no effect on public sector manpower". I find that very surprising. We are shifting from a system under which very large sums of public money were transferred towards the payment of benefits. We are talking of something in the nature of £700 million per year. Proper supervision of financial transactions of that kind surely demands considerable manpower. Therefore, when one goes forward, as we are doing, with removing that kind of payment altogether and cancelling it out, I should have thought that if the department made an effort there could be quite substantial reductions in manpower. I hope, therefore, that not only will my noble friend say something about that this afternoon, but that we shall pursue that aspect of the matter in Committee. I know only too well, as do those of us who have served in these departments, how easily they accumulate numbers and how they tend to over-elaborate various aspects and to recruit more and more staff for very detailed work. It is up to Ministers to stop them doing that. It seems to me that it is most unfortunate that the Bill states that there will be, no effect on public sector manpower". That is giving the wrong signal to the department and it is certainly giving the wrong signal to the House.

4.26 p.m.

Lord Ennals

My Lords, I had the privilege of following the noble Lord, Lord Boyd-Carpenter, in our debate yesterday. I said that it was the first time that I had done so on this subject for many years, but here we are again and I am following him once more. I do not want to get into the habit of doing so. However, since I am following the noble Lord, I should like to say how very much I agree with almost everything that he said. I agree particularly that we have not yet got the Bill right. I am expressing my view now and the noble Lord does not have to agree. The other place was not given an opportunity for effective consultation. I believe that much more consultation is needed. That view was reflected in the speech of the noble Lord, Lord Jenkin of Roding.

Before I get into that argument, as I very much want to, I should like to follow-up an argument that we had yesterday when my noble friends said that this Bill and in particular yesterday's Bill, the Social Security (Contributions) Bill, are parts of the taxation package, although technically this Bill relates to national insurance. I should have looked up yesterday—I did so overnight—the speech that was made by the Leader of the House of Commons, Mr. Tony Newton, on 14th December when he put forward the proposal, to which I strongly object, for guillotining Bills even before the Second Reading has taken place. Mr. Newton said: the two Bills represent two important elements in my right hon. and learned Friend's Budget, involving on the one hand significant amounts of revenue and, on the other, significant amounts of expenditure. They are therefore important elements in a policy—which is overwhelmingly supported, I think, by Conservative Members, if not by the Opposition—to improve public finances and to ensure that the recovery now taking place continues and is sustained".—[Official Report. Commons, 14/12/93; col. 845.] In his view this is all part of the Budget strategy and it does not matter whether it is called taxation or national insurance. I do not suppose that I shall be able to persuade the noble Lord, Lord Boyd-Carpenter of that—and I did not when we exchanged views on this yesterday—but the Minister in another place clearly takes the same view.

During our debate mention was made of the opposition to and the history of the Bill. I wish to remind the House of the opposition put forward to the 1990 Bill and to do so more extensively than did my noble friend Lady Turner. When changes to the legislation were made in 1990 there was opposition from a wide range of organisations representing employers and claimants. The CBI described the measure as a: fundamental breach of the partnership agreement between the State and employers delivering a vital social security benefit". It called on the Government to withdraw the Bill which preceded this Bill. The National Federation of Self-Employed and Small Businesses, now known as the Federation of Small Businesses, was strongly opposed to what it saw as a break in the agreement with the Government that employers would not be asked to foot the Bill for SSP. It argued that the reduction in national insurance contributions for a small business could be rendered meaningless for a small employer faced with an employee suffering a prolonged bout of sickness. The National Farmers' Union argued that: the imposition of significant new costs on businesses struggling at this time of high inflation and interest rates, and a deepening recession, is most inappropriate (not to say politically surprising)". The National Association of Citizens Advice Bureaux was also anxious and I shall deal with that in more detail than did the noble Earl, Lord Russell. The Low Pay Unit pointed to difficulties which it said low-paid workers had in getting their SSP paid and pointed to cases where people had been refused SSP by their employers or had been dismissed. The Disability Alliance drew attention to similar cases and questioned the Government's confidence that greater discrimination by employers would not result from the changes.

Following a considerable amount of such pressure from those and other organisations two significant changes were introduced in this House. The first, which will be widely recalled, was the removal of the so-called "Henry VIII" clause, which would have allowed the new 80 per cent. rate of compensation for employers to be altered by order. Tribute has been paid to the noble Lords, Lord Boyd-Carpenter and Lord Jenkin of Roding, and to the noble Earl, Lord Russell. They played a part in that, but I cannot claim to have done so.

I suggest that the Bill before us owes something to the criticisms which were made public, first, by the Comptroller and Auditor General in January 1993. He complained about the inaccuracies in payment and about insufficient monitoring by the Department of Social Security. The National Audit Office also reported on the issue of employers refusing to pay employees the SSP to which they were entitled. The Low Pay Unit and the NACAB stated that employers were undermining the rights of employees.

Thus, it is not surprising that your Lordships believe that we must get it right this time. I was glad to hear that sentiment expressed by my noble friend Lady Turner and repeated by noble Lords opposite. Your Lordships will not be surprised to hear that I should prefer the Bill to be dropped at this stage or that there should be a considerable period of time before its Committee and Report stages so as to enable a great deal of consultation in order to get it right, as was said by the noble Lord, Lord Boyd-Carpenter.

I wish to add to the comments made by the noble Earl, Lord Russell, about the anxieties of the citizens advice bureaux. The noble Earl gave several examples and I believe that it may be useful to have some others. The CAB view with considerable concern the proposals in the Bill and state: We are concerned that by abolishing the right of employers to recover 80 per cent. of statutory sick pay paid to employees, the proposals will provide employers with a positive incentive to dismiss workers who become sick". I shall repeat that sentence because it lies at the nub of the debate: the proposals will provide employers with a positive incentive to dismiss workers who become sick". The CAB continue: CAB experience already shows that some employees are dismissed when they are off sick". The noble Earl gave some examples and it is worthwhile giving one or two more. A citizens advice bureau in Cumbria was consulted by a client who had been given a contract of employment stating that she would be paid 80 per cent. of statutory sick pay for the first six weeks of illness as that was all the employer could claim from the Department of Social Security. A citizens advice bureau in south Wales reported a local boss of a large retail group who told his employees that he did not pay statutory sick pay. Another CAB in south Wales reported a client who due to an accident at work was off sick for two weeks. Her employer would pay her only for the first week. The CAB noted: She cannot get benefits". I could continue with such examples and in quoting them I wish to pay tribute to the work carried out by the CAB in large cities and towns throughout the country. They enable the victims of inadequate legislation which is passed by this House to find their way through the morass of Acts which are passed; they help individually with the difficulties of those whom they advise; and they carry out research in briefing Members of your Lordships' House for debates such as this. They comprise a magnificent organisation and deserve congratulations and as much money as we can afford.

I wish to take up the point made by the noble Earl, Lord Russell, and the noble Lord, Lord Jenkin of Roding. They referred to the document issued by the Forum of Private Businesses, which expressed concern about the impact of the statutory sick pay changes announced in the Budget and now contained in the Bill. It went so far as to urge Members in another place to vote against the Bill. Members in another place did so, but what difference did it make? They had only a few hours to debate the Bill on Second Reading, Report and Third Reading. I was glad to see in the note, which was confirmed by the noble Lord, Lord Jenkin, that an amendment to the Bill will be tabled. It remains to be seen whether the amendment is one that we can support, but it is healthy that the noble Lord is prepared to table it.

The Federation of Small Businesses totally rejects the Bill. It stated: The FSB is concerned that this far reaching measure is being taken under a time order leaving Members of Parliament with inadequate time to consider its full implication on employers and their employees. We urge Members of Parliament to oppose this restrictive procedure". The noble Lord, Lord Jenkin, expressed surprise that Members on this side of the House should have any interest in small businesses. As a result of the way in which his party has run the economy there are more small businesses because there are fewer big businesses. We are told that the basis for the present growth in our economy—thank heavens that there is any growth at all—is the small businesses. Of course we are interested in the same way as we are interested in the attitude of the TUC. It has expressed its views most strongly. One is not surprised that the TUC's attitude to the Statutory Sick Pay Bill is that it is the first step towards the Right-wing Tories' objective of a two-tier welfare state. That is a fear that I share. The workers and employers are being forced into paying for sickness while others will be left in means-tested poverty. I share the anxieties of the TUC, small businesses and the CAB.

We have heard also some of the depth of the opposition of the CBI. It says that it is not opposing the Bill, but it has expressed its anxieties about it and this House would be extremely foolish not to take seriously the advice of the CBI. Therefore, although we must give the Bill a Second Reading today, I hope that the Government will take seriously the wide representations that have been made. I hope that they will either drop the Bill or give proper time for consultation so that your Lordships' House can deal properly with the legislation. We shall then be able to improve the Bill to the benefit of those who have expressed anxieties about it.

4.40 p.m.

Lord Reay

My Lords, I support the broad thrust of the Bill. As other noble Lords have mentioned, days lost through sickness have been estimated to cost the national economy directly £13 billion per year and the percentage of days lost is currently the second highest in the Community, after the Netherlands. I believe that it is as much as 50 per cent. higher than it is in the United States.

As the Minister for Social Security said in another place on Second Reading, it is a problem which thrives in conditions of managerial neglect and diminishes with managerial attention. This Bill is designed to stimulate managerial attention. There is little doubt that employers have a great influence on many of the factors determining sick leave rates.

A survey of absence from work published in May of last year by the CBI, which was quoted by my noble friend Lord Jenkin of Roding, found that poor motivation was found to be the principal cause of absence from work in the case of manual workers and the second major cause after work-related stress in the case of non-manual workers. The same survey concluded that management commitment, improved monitoring and the provision of absence statistics to line management —all of those being managerial tasks—are the main factors helping to reduce absenteeism. The survey revealed that there had been a recent improvement in sickness absence trends among full-time manual workers starting in 1989 and among all employees since 1991. Nevertheless, despite that development, I believe that the Government are justified in seeking to obtain further improvements by transferring onto industry the cost of statutory sick pay—fully for large companies and substantially in the case of small companies.

At the same time, I applaud the Government's wise decision to reduce employers' national insurance contributions to an extent which more than compensates in aggregate for the cost of transferring the responsibility for statutory sick pay. The Government have thus shown that they are not seeking to burden industry with additional costs and have also thereby secured a muted resistance from industry.

There is a wide acknowledgement that the Government's case has merit. The CBI has advised me—and I declare an interest in that I hold a brief on behalf of the CBI—as it has advised other noble Lords, that it does not wish to oppose the Bill. At the same time, it has expressed reasonable anxieties about some aspects of the Bill, and I should like to follow other noble Lords in mentioning them.

First, it is worth making the point that the compensation is somewhat rough and ready in nature and some industries will benefit more from or be hit harder by the changes than others. Some industries where sickness rates are abnormally high and where arguably the employer cannot do much to remedy the situation—construction and heavy engineering may be examples—will be affected adversely by the changes. That may be the case also as regards small companies which find themselves deprived for several days or weeks of key personnel during, for example, a flu epidemic. I hope that the Government will monitor the, effect of the legislation on such cases. Meanwhile, I shall be interested to see the amendments to be tabled by my noble friend Lord Jenkin of Roding.

There is also considerable anxiety lest the changes relating directly to statutory sick pay prove more permanent than the compensating reduction in national insurance contributions. No government can or should give binding long-term commitments on rates of tax, but I emphasise to the Government the importance of their continuing to be seen as the party which exacts relatively low national insurance contributions from industry. The employer's national insurance contribution for a low-paid worker today is 3.6 per cent. compared with 13.5 per cent. in 1979. The Government have now also made an implicit bargain which it will be important from the point of view of government-industry relations to keep.

A most legitimate anxiety and fear of industry is that what the Government now propose to do as regards statutory sick pay will set a precedent for the transfer onto the back of industry of other social costs which should be borne properly by government alone. I have in mind in particular statutory maternity pay, the provisions of which are due to be expanded later this year so that we can comply with the terms of the pregnant worker's directive. Under the terms of a consultative document circulated by the Government, they are obviously thinking of passing some of the additional costs onto industry by reducing industry's entitlement to reimbursement.

Those are social costs. There is no scope for involving industry in order to reduce their incidence as there is with sick pay. I submit that those costs should be met in full by the Government. I hope that they will announce soon that they have decided to withdraw that consultative document. I suggest that to do otherwise would be to fly wholly in the face of the campaign which they have waged to keep industry competitive by protecting it fully from the effects of social legislation emanating from Brussels.

I am grateful to the Government for the announcement by the Minister for Social Security in the winding-up of the Second Reading debate in another place that they are prepared to mount a fundamental review of the SSP scheme's compliance burden on business, and in particular to consider whether firms offering generous occupational sick pay schemes could opt out of the SSP scheme. After this legislation, that scheme will still represent quite an onerous bureaucratic imposition on industry to little obvious benefit if sick pay is no longer to be reimbursed. I hope that the Government will conclude that they can go further along the road of cutting the red tape in that case and, if possible, in time to include their conclusions in this Bill if necessary.

If the Bill helps to improve sickness leave rates in this country it will have been worth-while. Industry would benefit from such an effect. Therefore, the Bill could be said to be setting out to help industry to help itself and the taxpayer at the same time. I am willing to look at it in that way. When Sweden passed the costs of the first two weeks' sick pay onto employers, as the Minister told another place, that country's supply of flu vaccine ran out as employers rushed to protect their interests and their workforce. In Japanese companies in this country sickness leave rates are typically half the national average, as my noble friend Lord Jenkin of Roding pointed out. Other firms have also done as well. The Bill has considerable scope for continuing those recent improvements, and subject to the anxieties which I have expressed I welcome its introduction this afternoon.

4.48 p.m.

Lord Dean of Harptree

My Lords, the background to the Bill, as I see it, is the ever-increasing cost of social security benefits which have to be paid for by the working population and taxpayers. Consequently, it is right to look for savings when they can be made without hardship or where alternative arrangements are available. I believe that it is reasonable to ask larger employers to meet the full costs of statutory sick pay in return for reduced contributions. I agree with my noble friend Lord Astor, who introduced the Bill, that that should help to focus attention on our poor record of working days lost through sickness. We appear to lose more days than almost any other comparable country in the European Community. We cannot say that we are less healthy than they are. I agree with the noble Earl, Lord Russell, that one has to be somewhat careful when interpreting such figures. Nonetheless, there can be no doubt that there is a big drain on our resources and one which is very much bigger than that of most other comparable industrial countries.

The relationship between the statutory sick pay scheme and occupational sick pay schemes was mentioned especially by the noble Baroness, Lady Turner. I wonder increasingly whether there is now a duplication between the two schemes and, therefore, unnecessary administrative expense. I notice that the Minister of State for Social Security in another place on 2nd November 1988 gave information about occupational sick pay schemes which was taken from a survey carried out in February of the same year. The survey found that 91 per cent. of the workforce is covered by occupational schemes, which often give a higher level of payment and for a longer period than statutory sick pay. I wonder whether my noble friend the Minister will be able to update those figures and tell us what progress, if any, has been made since that survey was conducted in 1988.

I very much concur with my noble friends Lord Jenkin of Roding and Lord Boyd-Carpenter in the disappointment they expressed that there is no provision for opting out. Now that we are getting rid of the reimbursement for the larger employers, it seems to me that it should be possible for them to contract out of the statutory sick pay scheme completely, so long as they can show that they are providing benefits through their own arrangements which are at least as good as those provided by the statutory scheme. After all, there are highly respectable precedents for that in the contracting-out of occupational pension schemes which achieve a satisfactory level of benefit.

So far as concerns small employers, I welcome the additional help which is offered by the Bill, especially the increase of the small employers' relief to those paying less than £20,000 in national insurance contributions and the full reimbursement after four instead of six weeks. That, together with the measures announced in the Budget, should give a real boost to small employers. But, as has already been mentioned in the debate, there are serious disadvantages with cut-off points and thresholds. They can cause difficulty and resentment for those who are on the wrong side of the line. For example, a firm paying, say, £22,000 in national insurance contributions may be competing for markets with a firm paying, say, £18,000. The former has to pay the lot, while the latter obtains full reimbursement. That is bound to lead to feelings of unfairness and unfair competition.

When you have a cut-off point at whatever level, there must always be the temptation for an employer who is just above the threshold to lay off labour so that he can reduce his liability. There are difficulties inevitably inherent in thresholds or cut-offs. I wonder whether it would be possible to have a taper rather than an all-or-nothing situation, so that firms paying between, say, £20,000 and £30,000 would obtain relief on a declining scale. It is possible that my noble friend will tell me that that is far too complicated and that there is already enough bureaucracy in the scheme. However, there are precedents for relief or benefit on a declining scale in the national insurance scheme.

My final point with regard to small employers is to ask why there should be a period of four weeks. Of course, it is an improvement on six weeks and is very much to be welcomed. But I should like to see a period of two weeks for small employers. When he replies, perhaps my noble friend can tell the House what the additional cost would be of starting the reimbursement after two weeks' sickness rather than four. With those reservations, I support the Bill as a sensible and reasonable measure.

4.55 p.m.

Lord Rea

My Lords, I believe that noble Lords from all sides of the House will accept that governments have to take unpopular measures from time to time for the greater good in the long term. However, for whose greater good will, of course, be debatable, with—to be simplistic—Conservative governments tending to back measures protecting employers and property owners (but always in the name of the economy as a whole) and with Labour governments tending to introduce measures to protect the employee and to decrease differentials between the richest and the poorest members of society.

However, the Bill seems calculated to please no one. Even the noble Lord, Lord Boyd-Carpenter, that eloquent and doughty defender of the Government through thick and thin, has some doubts. Moreover, even his noble friends Lord Jenkin, my namesake, the noble Lord, Lord Reay, and the noble Lord, Lord Dean of Harptree, have some caveats and, in the case of the noble Lord, Lord Jenkin, are even thinking of introducing some amendments.

The Bill is heavily criticised by business, especially small businesses, as has been mentioned by all speakers. It is also criticised by employees and those who act as their advocates, such as the TUC and the National Association of Citizens Advice Bureaux. According to the noble Viscount, and the briefing from Conservative Central Office, the main justification for the Bill is: to encourage such companies"— that is, those with higher than average sickness levels— to ensure that staff are motivated better, health is promoted better and absences monitored better". The Bill seems a tortuous and complex way to do that. According to the CBI in its much-quoted brief: Incentives to reduce the costs of sickness absence are not necessary in the private sector where lost productivity provides sufficient incentive". Bang goes the main point of the Bill. The CBI goes on to say: Better controls are needed in the public services where sickness absence rates are a quarter higher than the private sector sector average". In my view, it is very questionable whether the proposals in the Bill will have any such effect on public services or, for that matter, on other large employers. The reduced employer national insurance contributions will, as the noble Viscount said, more than compensate for the ending of statutory sick pay reimbursement. For a large organisation, it is a mere accounting exercise to make the adjustment. There will not even be much reduction in clerical and paperwork, as in both small and large companies medical certificates for sickness will still have to be produced by employees and processed so as to entitle them to SSP, even if that is not going to be reimbursed to them.

I have been impressed—as have other noble Lords—by the comments on the Bill by organisations representing small business, all of which are highly critical of the Bill. As the noble Earl, Lord Russell, pointed out in an eloquent description of the working of statistics, there is a great variation in the amount of sickness related to different types of work. Some work, for example construction, necessarily has a higher injury and wear and tear rate than a sedentary job, however much care is taken. I agree there is tremendous scope for safety measures to be observed properly. Minor impairments of physical health have a much greater impact when a job is physically demanding. As I believe noble Lords opposite have all said, the system should be more flexible to allow for this sort of variation.

Variation in levels of sickness due to flu epidemics, as has been pointed out by a number of speakers, can have much greater impact on firms with small numbers of employees. Apart from difficulties keeping the business going at all due to lack of staff, there may be serious short-term cash flow problems. With many businesses just keeping their heads above water in the present economic situation, lack of reimbursement of SSP could be the straw that breaks the camel's back. If this Bill goes through as it is now, we are likely to see more firms going into receivership.

The Federation of Small Businesses totally rejects the Bill. The Forum of Private Business, in a well argued brief, puts forward suggestions to amend the Bill quite drastically to protect small businesses. The noble Lord, Lord Jenkin, has described the principles behind some amendments which he will put forward. The poverty trap where a business loses its right to reimbursement when its national insurance annual liability is over £20,000 has been referred to by the noble Lord, Lord Dean of Harptree. Clearly this is an anomaly which should have been anticipated. As we are sadly lumbered with the Bill, we will have to amend it here, as well as in other aspects, to introduce—as the noble Lord said—some form of sliding scale or taper.

However, having touched on the opposition to the Bill by employers, my main concern is the effect it will have on employees. We have heard about the reaction to the Bill from responsible employer organisations who represent on the whole good employers, many of whom operate occupational sick pay schemes. However, there are a sizeable number of unscrupulous employers who already avoid their obligations as employers to pay SSP, and avoid other regulations whenever they can. There is no doubt that this type of penny pinching employer often is the employer of part-time, low paid, non-unionised workers who have few people to back them. This type of employer will try every trick to avoid paying statutory sick pay when he cannot claim it back.

When I work as a GP I come across cases of many small employers who have failed to operate the SSP scheme properly. Sometimes this has been because they had no clerical back-up—the firm being too small—and sometimes it has been due to simple ignorance. Sometimes, less commonly, they have failed to operate the scheme properly for less worthy reasons. The noble Earl, Lord Russell, referred to the National Association of Citizens Advice Bureaux, as did my noble friend Lord Ennals who mentioned it several times. That body can give evidence of many examples of this type of behaviour by firms and of firms who even now make workers redundant when the latter are off sick for quite genuine reasons, sometimes after having worked loyally for the firm for years. There can be little doubt that, when small firms have to foot the entire bill for the first four weeks of each episode of sickness, more workers will get the sack if they are ill, usually through no fault of their own.

As my noble friend Lord Ennals said, prospective employers will be less ready to take on workers who have a chronic or recurrent health problem. I take the point that disabled people are good workers—I do not deny that—but some people have an unfortunate tendency for a condition to recur and afflict them from time to time and make them temporarily unable to work. An example is asthmatics, who, when they are not having an asthma attack, may be extremely good workers. It was to prevent this kind of problem, among other hardships, where sick people are more likely to lose their job and where it will be more difficult for them to obtain jobs, that William Beveridge drew up the basic principles of our welfare system to abolish the evils of squalor, want, ignorance, and idleness. This mean and unnecessary little Bill seems to have few friends. It is part of a package of measures which this Government are pushing through which are gradually undermining the system of social protection which makes this country a tolerable place in which ordinary people can live and work.

5.6 p.m.

Viscount Astor

My Lords, the noble Baroness, Lady Turner of Camden, claimed, as she did yesterday, that this Bill was rushed through another place without proper debate. We have an opportunity in this House to have proper debate and that is what we have had today. After listening to the noble Baroness I must say that I have detected nothing from the Labour Party other than that it is against the Bill. The party fails to explain adequately the reasons why it is against the Bill, let alone offer an alternative policy.

The noble Earl, Lord Russell, once described a Minister, during the passage of the previous statutory sick pay Bill, as standing at the burning Dispatch Box from whence all but he had fled. I hope he noticed today that there was genuine support from this side of the House for the principles of the Bill. Of course I recognise the concerns that have been raised, in particular those that relate to small business. The noble Lord, Lord Ennals, said we had been urged to drop the Bill. I do not believe that is the case. Neither the CBI, as my noble friend Lord Reay said, nor the Forum of Private Business have suggested that. They have highlighted reasonable concerns and I shall seek to address those.

The noble Earl, Lord Russell, also suggested that this measure was dismantling the welfare state. That is absolutely untrue. I only have to remind the noble Earl of the uprating statement that he and I discussed. There have been increases in benefits in line with inflation and some benefits have been increased over and above inflation. The noble Earl was also concerned about the Government's future plans. He fears that we may increase employers' national insurance contribution rates in future years. While no government can give guarantees about the future levels of those rates, we can point to an impressive record from which employers can draw great consolation.

Baroness Turner of Camden

Really!

Viscount Astor

Yes, my Lords. The noble Baroness might take note that in 1979 contribution rates were 13.5 per cent. They now range from 4.6 per cent. to 10.4 per cent. and these will be reduced to 3.6 per cent. and 10.2 per cent. respectively from next April. Part of those reductions were made in 1991 when the SSP reimbursement rate was reduced to 80 per cent. That reduction has held and the process of reduction will continue next April.

Baroness Turner of Camden

My Lords, the noble Viscount surely recollects that when SSP was first introduced it was against the background that we should guarantee employers full reimbursement. That is what I meant when I said that the Government had reneged on their previous promises.

Viscount Astor

My Lords, we are reducing national insurance contribution rates. Therefore, business overall will be better off. It will be more than £100 million better off. When the party of the noble Baroness was in power all it did was to clobber business.

It has been claimed that ending the SSP reimbursement will result in the sacking of sick workers. Reference has also been made to the anxieties expressed recently by the National Association of Citizens Advice Bureaux that the removal of SSP reimbursement will affect the rights of employees. I should stress that the abolition of the 80 per cent. reimbursement in no way affects the rights of individual employees to SSP. They will continue to be entitled to a prescribed minimum amount of sick pay provided they are sick, absent from work for at least four days in a row and satisfy other qualifying conditions. In fact, the vast majority of employees will have their SSP topped up—to full pay in many cases—by occupational sick pay.

Lord Ennals

My Lords, can the Minister say whether in preparing the Bill there has been consultation with the National Association of Citizens Advice Bureaux?

Viscount Astor

My Lords, we are certainly aware of its anxieties. I am about to turn to that matter, if the noble Lord will allow me.

Similar charges were made when the SSP scheme was first introduced more than 10 years ago and on subsequent occasions when changes were made. The most recent charge was made three years ago when the reimbursement rate was reduced from 100 per cent. to 80 per cent. They were and remain largely unfounded.

The CAB has recently highlighted some instances where employers have failed to pay SSP when it appears to have been due or have threatened to sack sick employees. The noble Lord, Lord Ennals, gave some examples. Those cases need to be viewed in perspective.

The CAB has identified a handful of cases in which it appears that the SSP scheme has not been implemented as intended. There are some 1.2 million employers in this country who are potentially liable to pay SSP and some 330,000 employees receive SSP at any given time during the year. It is hardly surprising, I am afraid, that there may be a few renegade employers who will try to avoid their legal responsibilities. Of course, I deprecate those practices, but we believe that safeguards are built into the legislation to protect employees' rights. They specifically prevent an employer from ending an employee's contract of service solely or mainly to avoid SSP liability. I would urge the CAB—and indeed the noble Lord, Lord Ennals and the noble Earl, Lord Russell, or any organisation to which malpractices are reported—to let my department know immediately of any such instances.

Lord Ennals

My Lords, I am most grateful to the Minister for what he said. Having confirmed that he did not consult with the National Association of Citizens Advice Bureaux will he say what other organisations the department consulted before bringing the Bill before the House?

Viscount Astor

My Lords, we consult many organisations about government policy. However, we do not necessarily go to any particular organisation with what we propose in a Bill. That would not be normal practice. However, we are in close touch with organisations and are well aware of their anxieties.

Where an employer fails to comply with an adjudication officer's decision that SSP is due within the prescribed time, responsibility for payment passes to the department. The employee's SSP rights are therefore fully protected if the matter is brought to our attention.

The noble Baroness, Lady Turner, the noble Lord, Lord Ennals, and my noble friend Lord Jenkin were concerned about sick and disabled employees and the effect that abolishing reimbursement might have on the existing jobs of disabled people and the prospective employment prospects of those who are seeking work. They have claimed that it will lead employers to sack employees, particularly the disabled and those less healthy employees who are more prone to absence due to sickness. As I have already mentioned, that charge has been levelled ever since the SSP scheme was first introduced more then 10 years ago, but no evidence has ever been proffered to justify that charge.

We do not expect there to be any changes in the pattern of employment of people with disabilities as a result of the abolition of SSP reimbursement. People with the right attitude, the necessary skills, and with the right kind of help will always be able to find work because those attributes are more important than their past health record.

Lord Jenkin of Roding

My Lords, I am most grateful to my noble friend for being kind enough to give way. He inadvertently associated me with the criticisms that have been made by parties opposite. I should like to make it absolutely clear that I am 100 per cent. in agreement with what he has just said.

Viscount Astor

My Lords, I am very grateful for my noble friend's support. I meant to say that my noble friend mentioned in his speech that there was some anxiety.

I was going to say, as my noble friend reminded the House, that the sick absence record of workers with disabilities is no worse, and is often better, than that of their able-bodied counterparts.

Lord Rea

My Lords, since the matter has arisen on a number of occasions, I believe that the Government, and many large employers, are fully aware of the fact that disabled people often have a very good work record. Unfortunately, that is not fully appreciated and understood by a large number of employers in the country.

Viscount Astor

My Lords, the noble Lord mentioned large employers. Employees of small employers have much better sickness records.

Research carried out by the Centre for Research in Social Policy shows that the reduction in SSP reimbursement from 100 per cent. to 80 per cent. in April 1991 had no impact whatsoever on the willingness of employers to recruit workers with disabilities. It confirmed our earlier research findings that employees with disabilities tend to take less time off sick than able-bodied colleagues. The conclusion is that there is no evidence to back up the scaremongering that the job prospects of those with disabilities have been affected by the introduction of and subsequent changes to the SSP scheme. In the Government's view, there are many other factors of far greater importance in determining job opportunities for people with disabilities. The Government will continue to promote job opportunities for such people.

Your Lordships may recall that my right honourable friend, in his social security up-rating Statement, said that disability working allowance is to be made more attractive. From April 1995, DWA beneficiaries will be entitled to free prescriptions, free dental treatment and other National Health Service benefits. That will help to make finding a job more attractive.

I should remind the House that nine out of 10 employees work for employers with occupational sick pay schemes which usually pay more than the SSP due. Occupational sick pay costs are far greater than SSP costs. Therefore, if financial costs were a factor, employers would already have let those employees go.

The recent CBI/Percom survey on absence from work reports that over 90 per cent. of organisations had either made no changes to their occupational sick pay arrangements or had improved the benefits for their employees in the past five years despite the recession and the reduction to 80 per cent. SSP reimbursement.

Anxiety has been expressed by many noble Lords, including my noble friend Lord Jenkin of Roding and my noble friend Lord Dean of Harptree, about small employers. They mentioned the position of small businesses unexpectedly hit by illness among a large proportion of their workforce. Such an event, while rare, would undoubtedly be a severe blow. However, the real problem in such cases is the loss of production allied to the difficulty and expense of finding a temporary replacement for sick workers. The extra costs of SSP—nothing for the first three days arid about £10 a day per employee thereafter—will be marginal. Businesses need to plan for such an eventuality and do so, for example, by taking out insurance. Firms with low sick absence rates—and many small companies fit into that category—will have extra cash in future years to meet the cost of that insurance because of the reduction in their national insurance contributions liability.

As I mentioned earlier, small companies tend to have a lower instance of sickness absence than larger firms and therefore are likely to benefit more from the overall SSP national insurance contributions reductions package. Indeed the national insurance contributions reductions are slanted towards smaller employers who tend to employ the less highly paid worker.

Nevertheless, the Government accept that small employers faced with a large number of lengthy sick absences—those stretching beyond four weeks—are more in need of special help. That is why we intend to make generous improvements in the existing small employers' relief provisions by increasing the number of employers who will be eligible to benefit from that concession. We shall also be reducing the period after which full reimbursement is available from the present six weeks to four weeks.

We believe that those enhancements to small employers' relief provisions, allied to the reductions in national insurance contributions, will ensure that no business with average sickness levels will lose financially as a result of the abolition of the 80 per cent. rate.

My noble friend Lord Dean asked how much it would cost to give help for small employers after two weeks' sickness instead of four. Allowing for full reimbursement to small employers after two weeks instead of four would cost about £20 million extra. We believe that four weeks is a better point at which to offer 100 per cent. reimbursement. If full reimbursement were offered at too early a stage there would be less incentive for employers to tackle poor attendance records.

My noble friend also asked about introducing a taper. A tapered system of help for small employers would be difficult to operate and to police by the Contributions Agency. Different small employers would be due different levels of help. We are anxious to simplify the scheme, not to complicate it.

My noble friend Lord Jenkin and others spoke about the proposals of the Forum of Private Business. I have listened carefully to the proposals of the forum. They have been clearly expressed today by my noble friend. However, I have to say that they have serious drawbacks.

For example, the proposals would replace rather than augment the existing help for small employers, which, as your Lordships know, the Government intend to improve in the way already described. Some employers would be worse off as a result of their proposed change. Such a change would increase the scope for abuse in that unscrupulous employers could increase the amount of SSP due for payment in any particular month by deliberately delaying payments due for an earlier period so as to qualify for full reimbursement. This would inevitably lead to the keeping of more complicated records and more intense policing of the scheme by the Contributions Agency's inspectors. We do not wish to place an increased administrative burden on either employers or the Contributions Agency.

Furthermore, finding the right level at which to pitch the threshold for reimbursement is not an easy task. Considerable analysis and possibly consultation with industry would be necessary before a fair level could be found which offered the protection sought by the Forum of Private Business while safeguarding the scheme against excessive compensation payments. While it is perhaps unlikely that a large employer would have sick absence levels high enough to qualify, there is nothing in the proposal to prevent large or medium-sized companies from benefiting. That would seriously inhibit the incentive of industry to tackle high sickness absence rates.

We believe that the simplest and fairest method of fully reimbursing small employers for the SSP costs of lengthy absences is to stick by the tried and tested existing provisions, with the enhancements which I have already described. However, no doubt we shall have further opportunity to discuss those points in detail in Committee. I shall, of course, be happy to meet my noble friend and representatives of the Forum of Private Business to discuss their proposals.

My noble friends Lord Reay, Lord Dean and Lord Boyd-Carpenter were concerned about opting out and the administrative burden placed on employers by the scheme. I have already explained why the Government believe that the abolition of the rate will help to reduce the burden. The Government are concerned to reduce and, wherever possible, remove unnecessary burdens on employers. That is precisely why we have announced in another place during the debate on the Bill that we shall be conducting a fundamental review of the compliance burden on business of the SSP scheme.

I am glad to say that a working group consisting of officials, employers and employers' organisations has already been considering how administrative burdens of the scheme might be removed or eased without it affecting employees' rights. However, the proposed abolition of the 80 per cent. reimbursement rate provides further scope for reviewing the provisions of the scheme. The working group will also be considering whether firms with occupational sick pay schemes which pay at least the equivalent of SSP entitlement could stop paying SSP. That is a considerable task which inevitably will take some time and may involve changes in primary legislation. If that is so, your Lordships will have the opportunity to debate any such changes arising from the working group's deliberations.

My noble friend Lord Boyd-Carpenter referred to Civil Service manpower. We are always concerned that manpower should be kept under control and that the Government should operate an efficient service. We shall be reviewing the effects of the Bill on Civil Service manpower once the changes are made to see whether there is scope for saving. However, during the first year we expect that the Contributions Agency will have to make additional efforts to ensure that all employers are aware of the new rules and implement them properly. Therefore, we do not envisage any reductions in that first year.

Lord Boyd-Carpenter

My Lords, when we come to the next stage of the Bill, will my noble friend modify the blunt statement on the face of the memorandum that there will be no saving in public service manpower? I understand that he now says that there may well be a saving after the first year. That is quite a different matter.

Viscount Astor

My Lords, there may well be a saving, but I should not like to guarantee it. Obviously the proposal is a quite radical change. It will take some time to be fully implemented. It is important that we use the manpower that we have to ensure that all employers realise not only their responsibilities to their employees but also how to carry out the new system to ensure that their employees are treated in a proper way.

My noble friend Lord Reay asked whether the Government will monitor the effects of the Bill. We shall be considering the effects. We shall consider whether research should be mounted to augment our normal sources of information on SSP.

My noble friend was also concerned about the cost of improving maternity pay. We hope to announce our final decisions on implementing the maternity pay aspect of the Pregnant Workers Directive. I am sure your Lordships will understand if I do not anticipate those decisions today. However, I can give an assurance that there will be an opportunity to debate the proposals when they come before your Lordships.

My noble friend Lord Dean asked about the research on the 1988 sick pay report. The recent research by the Centre for Research in Social Policy which we intend to publish shortly indicates that occupational sick pay coverage is now broadly in line with the findings of the 1988 IFF study. The 1991 reduction in the SSP reimbursement rate has had little or no effect on employers' sick pay schemes.

We have had an interesting debate. The Government's proposals on SSP and employers' national insurance contributions will help industry and job creation. I should remind your Lordships that, in addition to the very helpful reductions in employers' national insurance contributions which will more than compensate employers as a whole for their extra SSP costs, the Chancellor's Budget included other measures to help business. Those have been widely welcomed.

The CBI accepts that the Budget proposals overall are good for business. In particular, it has welcomed the reductions in employers' national insurance contributions and has made it clear that it does not oppose the Bill. The Institute of Directors has also given an overall welcome to the SSP/employers' national insurance contributions package. That surely is a good indication that the fears expressed by some noble Lords are not shared by the representatives of industry. It is a good Bill. I commend it to the House.

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

House adjourned at twenty-eight minutes past five o'clock.