Lords Sitting of 14 January 1999

Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Wakefield.

Royal Assent
The Lord Chancellor (Lord Irvine of Lairg): My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Act, passed in accordance with the provisions of the Parliament Acts 1911 and 1949:
European Parliamentary Elections Act.

Equine Dentistry
Lord Soulsby of Swaffham Prior Lord Soulsby of Swaffham Prior asked Her Majesty's Government:
What action they are taking to regulate the qualification of people practising equine dentistry.
The Parliamentary Secretary, Ministry of Agriculture, Fisheries and Food (Lord Donoughue): My Lords, those equine dental procedures that are considered to be acts of veterinary surgery may be undertaken only by a registered veterinary surgeon or by a registered dentist at the request of a veterinary surgeon.
Lord Soulsby of Swaffham Prior: My Lords, I thank the Minister for that reply. However, does he agree that there is some urgent need for a revision of Schedule 3 of the Veterinary Surgeons Act 1966, which would regulate not only veterinary dentists but also all other paraprofessionals who operate on horses in one way or another?
Lord Donoughue: My Lords, I confess that I always tremble a little when the noble Lord rises to speak on these major issues of policy strategy because his great knowledge dwarfs anything that I can ever hope to achieve. However, I am very relieved—I think—to say that I agree with everything he said and is going to say. Yes, I can confirm that we do feel that there is a need for amendments in this respect. We very much appreciate that the 1966 Act is somewhat clumsy in its operation and, in many ways, inadequate in its definitions. That leads to problems for veterinary surgeons—that is, problems of delegation to, for example, the nurses. Indeed, it can lead also to problems for animal owners because where non-qualified people carry out such acts, they risk causing harm to the animal and a loss of insurance compensation. We are fully appreciative of the situation, but I cannot give the noble Lord any timetable because the department also has a number of other priorities, especially as regards legislation. Nevertheless, I can tell the noble Lord that I
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thought the letter from the Royal College of Veterinary Surgeons of 2nd December, which set out the case very clearly, was excellent. I am very sympathetic to it.
Baroness Trumpington: My Lords, despite what the Minister said—in other words, from the horse's mouth—is he aware that many of the horse-owning lay public regard "equine dentists" as qualified individuals and ask them to undertake really complicated bits of work, such as extractions of teeth, which they should never be doing? Indeed, anything above the rasping of teeth or the most basic requirements should be carried out only by fully qualified veterinary surgeons.
Lord Donoughue: My Lords, that issue is set out in the letter and is one of the matters that the department is considering.
Baroness Byford: My Lords, I should like to press the Minister a little further on the matter. I understand that negotiations or discussions have been taking place between the noble Lord's department and the veterinary college. However, can the Minister say when they started, when they will conclude and when we might perhaps see the outcome of such discussions?
Lord Donoughue: My Lords, I can tell the noble Baroness that they started in response to the 1996 report of the Royal College and discussions have continued since that time. However, I cannot say when they will conclude because they will only do so satisfactorily with changes to Schedule 3 to the Act. I really cannot give any guarantee on when the latter might take place.
Baroness Sharples: My Lords, is the Minister aware that insurance companies may refuse to pay when treatments which cause damage to horses are carried out by unregulated vets?
Lord Donoughue: My Lords, we are aware of the situation. Indeed, that is one of the problems associated with using unqualified people in such operations. All owners should be aware of the risks involved, and that could also apply in the area of artificial insemination.
Baroness Gardner of Parkes: My Lords, as regards instances where horses' teeth have to be extracted due to dental decay, would it not be wise to advise owners to consider a change of diet and encourage them to give more carrots to their horses and fewer sugar lumps?
Lord Donoughue: My Lords, as a frequent feeder of sugar lumps to certain horses, I take note of what the noble Baroness has said.
Lord Rowallan: My Lords, this is a serious subject. Are the Government aware that three people in the United Kingdom have practised equine dentistry for over 20 years? They are Bob Livock, Gary Singh, and Steven Holmes. They estimate that they spend more than 25 per cent. of their time rectifying mistakes made by other people, often vets. Should not the Government seriously consider talking to these three gentlemen with

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a view to setting up a training centre because it is now possible for people to go to the United States and after only three weeks obtain a certificate of proficiency in equine dentistry, when they are obviously not proficient in that subject?
Lord Donoughue: My Lords, I am certainly not proficient in that subject. This is a matter of how one regulates the profession and who is qualified to do what. We are in the process of considering that matter but it is quite complex. A whole range of issues have been put to us that require legislation. I assure the noble Lord that I certainly take those issues seriously, but I cannot guarantee rapid action.

Kosovo: UK Monitors
3.14 p.m.
Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
What assessment they have made of the effectiveness of the contribution made by United Kingdom monitors in the international endeavour to preserve the ceasefire in Kosovo.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, British members of the Kosovo Verification Mission (KVM) played a crucial role in securing the release yesterday of eight Yugoslav Army officers captured on 8th January by the Kosovo Liberation Army (KLA). The head of KVM has also paid fulsome tribute to two British verifiers involved in mediating with both sides after fighting around Podujevo over the Christmas period. United Kingdom monitors were first deployed in Kosovo as the UK Kosovo Diplomatic Observer Mission. When the KDOM was folded into the OSCE Kosovo Verification Mission, British monitors based in Prizren played an important role in encouraging displaced people to return to their homes and in building confidence among local communities.
Lord Campbell of Croy: My Lords, I thank the noble Baroness for her comprehensive reply which confirms that these unarmed monitors are successfully playing a vital role, with the additional functions of negotiating about hostages and forestalling local attacks. But who will take the difficult decisions, if nonetheless serious hostilities break out, on when the NATO extraction force will be sent in from Macedonia in order to rescue the monitors?
Baroness Symons of Vernham Dean: My Lords, I thank the noble Lord, Lord Campbell of Croy, for his recognition of the important role being played by the British element in the verification mission. They are, of course, not only negotiating on the hostage issue, but they have also played an important part in ensuring that the hostilities which were engaged in over the Christmas period were put on one side in a period when I think it is
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acknowledged there is heightened tension. Ambassador Walker, the head of the OSCE, should the need arise to use the extradition forces currently in Macedonia—I am sure that all of your Lordships hope that the need does not arise—would make a request to NATO for that to be taken forward. That would involve both the OSCE element and the NATO element.
Lord Wallace of Saltaire: My Lords, is the Minister confident that once the snows melt the monitors will be able to contain what is clearly a potentially threatening conflict? Can she confirm reports that heavier weapons have been coming in from northern Albania for the KLA and that Serbian troops have been involved? Would she care to comment on the remark of Carl Bildt, the former mediator, that NATO and/or the Europeans would have done well to put their forces into northern Albania as well as into Macedonia?
Baroness Symons of Vernham Dean: My Lords, this is a period of heightened tension. The verification mission is being strengthened at the moment. Currently 110 Britons are involved. It is hoped that that number will increase to about 150 by the end of this month and that the full force of the mission will rise to about 1,200 at the end of the month. We must take advice from those on the ground. Major General Drewienkiewicz himself—Major General DZ, as he is commonly known—has indicated that he wants a period of consolidation with regard to the verification mission before talking about any additional people who might be brought in. This is a period when we shall have to watch the situation closely. This matter is being discussed today by the EU political directors. It is considered on a weekly basis by NATO ambassadors, and of course the UN Secretary General is reporting regularly to the Security Council on the issue. Therefore it is not just a matter of what is happening on the ground; we also need to keep in touch with what is happening at a political level internationally.
Baroness Ludford: My Lords, can the Minister also tell us whether there has been any progress in the talks on a political settlement, as that clearly needs to be achieved as rapidly as possible? Can she assure us that those discussions, and any options that are considered, will not foreclose the possibility, whether in the medium to long term, of Kosovan independence?
Baroness Symons of Vernham Dean: My Lords, of course I think that everyone who has kept in touch with the situation in Kosovo must recognise the increasingly urgent need to make real progress on the political track. The United Kingdom is working hard with the United States and of course with the Contact Group partners to increase the momentum of the process engaged in by Ambassador Hill on the political track. It is essential that we continue to send clear messages to both sides, including the KLA, that the situation can be satisfactorily resolved only through negotiation. Her

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Majesty's Government believe that both sides have a clear choice: to fight to a standstill and then negotiate, or to negotiate now. They should negotiate now.
Baroness Rawlings: My Lords, can the Minister explain how it is possible that the statement by the Foreign Secretary in the Financial Times on 28th October last year, that he was determined to keep in place that credible threat of NATO action, is consistent with delaying the dispatch of observers? Does the Minister agree that the simmering crisis in which the unarmed observers—only 745 of the promised 2,000—are increasingly cast as vulnerable peacekeepers proves that the western response is inadequate and disproportionate to its verbal threats?
Baroness Symons of Vernham Dean: My Lords, the noble Baroness and your Lordships can rest assured that we are in touch with the verification mission and listening very carefully to what the head of that mission and his deputy are saying to us about the need to strengthen the verification front. I hope that I have made it clear that there are more verifiers going into Kosovo this month, to the extent of there being 1,200 in the build-up at the end of this month. The noble Baroness spoke of 745; I think she will find that very shortly that number will be very significantly increased.
As to the extraction force, it will become operational tomorrow, 15th January, and we are confident that it will be able to do its job. I stress that that in no way relieves the Government on the ground of the responsibility they have for the safety of the verifiers and their mission.
Lord Campbell of Croy: My Lords, can the noble Baroness confirm that many of the monitors are former British Army officers whose experience and reliability are greatly valued by the international security organisation which she has mentioned?
Baroness Symons of Vernham Dean: My Lords, I am very happy to confirm that. I pay tribute to the courage of those who are prepared to go in to do very difficult work. There are serving and ex-military personnel. There are also human rights experts, non-governmental organisation experts, police officers, lawyers, weapons verifiers, election planners and customs experts. We have been able to draw on a wide range of expertise in putting together this verification force.
Lord Avebury: My Lords, what is the attitude of the Government to this problem of mission creep—the expansion of the role of the monitors into areas such as the rescue of hostages and the stopping of hostilities? Does the Minister think that the terms of reference of the mission should be amended so that the monitors have a formal remit to undertake these duties?
Baroness Symons of Vernham Dean: My Lords, the noble Lord, Lord Avebury, may have misunderstood me. I did not suggest that the verification mission had rescued any hostages. It did not engage in any rescue mission but was able to negotiate with both sides. We
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are on track with this at the moment. Some hostages were released yesterday; we hope and believe that some hostages from the other side will be released in a few days' time. I would not wish the noble Lord to think that the verifiers have somehow become involved in some sort of military action—they certainly have not. What they have done is entirely consistent with their terms of reference, both in regard to what they have done about the hostages and in trying to separate factions, through negotiation, in the sort of incidents that took place over Christmas. They have also been enormously important in ensuring that the humanitarian effort, which is so vital to the ordinary people in Kosovo—if I can use that term—is able to reach those who need it.

Poetry
3.24 p.m.
The Lord Bishop of Oxford The Lord Bishop of Oxford asked Her Majesty's Government:
What action they are taking to encourage the contribution of poetry to national culture.
Lord McIntosh of Haringey: My Lords, the Government are encouraging poetry to flourish in many ways. The Arts Council, which is funded by my department, will this year spend more than £1 million on support for poetry. As part of the national year of reading, a project will enable poets to work with schoolchildren throughout the country. The National Lottery awarded the Poetry Society £450,000 for its poetry placement schemes project. The society employs poets throughout England to encourage the reading and writing of poetry. Last year the Government marked the UK presidency of the European Union through the promotion of poetry.
The Lord Bishop of Oxford: My Lords, I thank the Minister for his reply. In view of the importance of poetry to any national culture—and it is important and not just an adornment; for example, in the Soviet Union this century it has been literally a matter of life and death—I think the Minister will understand that there is very widespread disquiet about the decision by the Oxford University Press to cease publishing its Oxford poets list, the second most significant list in the country. Would it be possible for Her Majesty's Government to make any representations about that?
Lord McIntosh of Haringey: My Lords, I am sure that the right reverend Prelate will appreciate the difficulty that the Government would have in intervening in the decisions of what is, after all, a private company. I was not much encouraged by the response of the company in print last week to the right reverend Prelate's protests about the abandonment of the poetry list. The response was:
"It is a strategic decision. We have to target our core identity".

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I should have thought a literary publisher could avoid that sort of management-speak.
Lord Baker of Dorking: My Lords, I associate myself with the comments of the right reverend Prelate. Since the 16th century, the Oxford University Press has been the custodian of the English language. It is disgraceful that, at this particular time when we are enjoying a renaissance in the writing of English poetry and when it is generally agreed that the one universal genius our country has produced in the last thousand years was a poet, the Oxford University Press should cease publishing contemporary poetry. I appreciate that the Minister can do very little about the Oxford University Press, but the amount of money he has mentioned which is going into the arts is quite small as regards poetry. I can tell him that very little of that will find its way into the pockets of poets. I suggest that he should be rather more imaginative and perhaps bear in mind Shelley's famous phrase that poets are the unacknowledged legislators of the world.
Lord McIntosh of Haringey: My Lords, Shelley said that poets are,
"the trumpets which sing to battle…Poets are the unacknowledged legislators of the world".
I am sure that the Oxford University Press will pay due attention to the words of perhaps the most distinguished anthologist in this House.
The noble Lord is wrong about government expenditure not going to poets. All the money to which I referred in my first Answer is going to poets. The Arts Council of England is supporting the Poetry Society, the Poetry Book Society and a number of the smaller poetry publishers who do not have opportunities to cross-subsidise their publishing of poetry. I am not at all ashamed of what the noble Lord describes as a rather modest contribution from the Government.
Lord Cledwyn of Penrhos: My Lords, is my noble friend aware that there is not a village in Wales without a very good poet in it, probably more than one? Can he say what assistance they are being given? Is he aware that, if ever he wants to see one, they are on Welsh television at least once a week, arguing against each other about a variety of poetry. Does the Minister think that that is an excellent thing in Wales?
Lord McIntosh of Haringey: My Lords, I think that we in England could all learn a great deal from the Welsh example. Perhaps if Welsh poetry could be translated we could have our own Eisteddfod and we would benefit significantly from that. I am pleased to hear what my noble friend has told me.
The Viscount of Falkland: My Lords, does the Minister agree that most people would be behind the general drift of the right reverend Prelate's question? But one has to say that what stands at the core of the British poetic tradition must be the King James Bible and the Book of Common Prayer, also originating from the 17th century. Without wishing to cross swords with
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the right reverend Prelate—he and I shared the same school chapel for a number of our formative years—does not the Anglican Church bear some responsibility for its successive "modernising"—I borrow that word from the Labour Party—of these works, thereby losing a good deal of the poetry?
Lord McIntosh of Haringey: My Lords, I am aware that the noble Viscount is referring to the Established Church. I do not think that gives Ministers who are not members of that Church the right to interfere in its affairs.
Lord Bragg: My Lords, I should like to mention the late Poet Laureate, Ted Hughes, in this context, not only because of the extraordinary quality of his poetry and because his book Birthday Letters outsold every other hardback in the UK in 1998, thus confirming the British public's willingness to engage with fine and complex poetry, but particularly because of his lifelong dedication to the idea that the imagination of all children is nourished and enlarged by learning and writing poetry. Therefore, I should like to ask what measures are being taken, particularly in primary schools, to ensure that our unique poetic inheritance is being passed on consistently to the next generation.
Lord McIntosh of Haringey: My Lords, I am grateful to my noble friend for his tribute to the late Poet Laureate. In fact I have been enjoying Tales from Ovid rather more than Birthday Letters, but that is clearly a matter of taste. A great deal of the effort which I have been describing is going to the encouragement of poetry in schools. That is what part of the poetry placement scheme is for. Much of the money of the Arts Council in England is going for that purpose. My noble friend is right to emphasise this point.
Baroness Strange: My Lords, does the noble Lord agree that,
"Rain enough will fall and sun will shine
And peace will reign in 1999"?
Lord McIntosh of Haringey: My Lords, the noble Baroness makes it clear why I was right to resist the temptation to attempt to give answers to any of these questions in verse. They would have been in doggerel.

Royal Ordnance Factory, Bishopton
3.31 p.m.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish asked Her Majesty's Government:
What help they intend to give to the Renfrewshire economy in the light of the job losses caused by the closure of the ordnance factory at Bishopton.
The Parliamentary Under-Secretary of State, Scottish Office (Lord Sewel): My Lords, job losses of this scale are always unwelcome. Her Majesty's Government are committed to providing help to those individuals affected by the decision. We will also be

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looking at how this closure can be turned into an opportunity for the Renfrewshire economy. The factory occupies a strategic site close to all forms of transport and, at 2,500 acres, offers real scope for development. My department proposes to work closely with Royal Ordnance, the local authority and Renfrewshire Enterprise to ensure that these opportunities are realised.
Lord Mackay of Ardbrecknish: My Lords, I am glad to hear those words from the Minister although I must say that, much as I enjoy his appearances at the Dispatch Box, I would have been more impressed if the Scottish Industry Minister, his noble friend Lord Macdonald, had come to the Dispatch Box to answer this Question. I wonder whether, rather than attempt to find alternative employment, the Scottish Office should be concentrating on seeing how it can persuade its colleagues at the MoD to keep the Royal Ordnance Factory at Bishopton. Has the noble Lord seen the report in today's Glasgow Herald which carries in some detail another report carried out in strict confidence by Martin Mays Associates recommending delaying the planned shut-down of the nitrocellulose production facility which makes the basic gun-cotton ingredient to fire every type of bullet, missile and shell used by the UK's Armed Forces? Should we not be using this confidential report, which seems to have come into the hands of the Glasgow Herald, as a means of persuading the Government that it is foolish to rely on foreign sources for such an important material for our Armed Forces as the propellants of shells and bullets? Should we not be concentrating on attempting to keep these facilities in the United Kingdom and at Bishopton?
Lord Sewel: My Lords, I do not know whether or not to thank the noble Lord for his comments about my appearance at the Dispatch Box, but I should point out that the Scottish Industry Minister is doing his job. He is in Scotland working for the benefit of Scottish industry. I have seen the article in today's Glasgow Herald to which the noble Lord referred. The report was prepared for British Aerospace as its own internal document. It is a matter for it to decide how to proceed with any possible run-down and the timing of any possible run-down or eventual closure at Bishopton. I have to point out that the Royal Ordnance's proposals were beaten both on cost and on technical grounds. Indeed the technical specification was not met so that Royal Ordnance was not even in a position to complete the evaluation trials. So it is perhaps not a matter of getting the desired outcome as easily as the noble Lord envisages.
Lord Rowallan: My Lords, now that the Armed Forces' small munitions are supplied by Holland and the heavy and tank munitions are to be supplied by South Africa, is the Minister confident that we have a reliably independent system of keeping our Armed Forces fully armed? Was not John Reid, now the transport Minister, correct 10 years ago when he said that Bishopton was a bonus necessary for good defence?
Lord Sewel: My Lords, the important point is that the armaments used by the British Army are of a
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technically high quality. That is the main requirement. The second requirement is that they are resourced and obtained in a way which represents value for money. The third requirement is that we must have proper regard for security of supply. I am absolutely convinced that my colleagues in the Ministry of Defence have made this decision on the basis of all three criteria.
Earl Russell: My Lords, while the whole House might agree in regretting the loss of jobs to the Scottish economy, would the Minister agree that one might question the concept of a "Renfrewshire economy" for just the same reasons as one questions the concept of a Hertfordshire economy?
Lord Sewel: My Lords, it is perfectly reasonable in economic terms to talk about local economies. That does not mean that they are somehow hermetically sealed, but it is a recognition that there are local travel-to-work areas which function as small-scale economies.
Lord Sempill: My Lords, is the noble Lord aware that Bishopton is the sole supplier of a little-known life-saving side of warfare; namely, a special propellant for ejector seats in all of our military aircraft? Is this not the type of specialised industry that Scotland should be maintaining and developing in an increasingly competitive global market?
Lord Sewel: My Lords, if that specialised activity can continue effectively and economically, I see no reason why it should not continue.
Lord Trefgarne: My Lords, does the noble Lord recall that when Royal Ordnance was moved into the private sector some 10 years or so ago noble Lords opposite and their right honourable friends then in opposition attacked vehemently what was being done on the grounds that we were preparing Bishopton for closure? Is it not ironic that closure, when it eventually came 10 years later, was the result of the defence policy of this Government?
Lord Sewel: My Lords, the defence policy of this Government is to ensure that our troops and our Armed Forces' personnel generally have ammunition which is technically of a high quality and has been resourced in terms of effective and proper value for money. That is a sound way to proceed.
Lord Mackay of Ardbrecknish: My Lords, if the noble Lord's noble friend Lord Macdonald has a moment to spare from his work perhaps he might consult his right honourable friend Henry McLeish, the Minister of State at the Scottish Office, and ask him about the comments he made a decade ago which were referred to by my noble friend Lord Trefgarne a moment ago. When it was just a theoretical and rumoured closure, Mr. McLeish said that closure at Bishopton was against the interests of the nation, the public purse and employment in Britain. What, my Lords, has changed?
Lord Sewel: My Lords, the obvious comment is that the Government have changed. The second obvious

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comment is that the whole nature of resourcing the armed services is continually in a process of evolution. One rightly has to consider what the advantages and disadvantages are of continuing production at Bishopton. At one moment in time, given the nature of any contract, it would be right and proper to continue production there. If Bishopton and its proposals become technically deficient and do not represent value for money, there is no case for continuing production at that site.

Social Security Contributions (Transfer of Functions, etc.) Bill [H.L.]
3.39 p.m.
Baroness Hollis of Heigham: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Baroness Hollis of Heigham.)
On Question, Motion agreed to.
House in Committee accordingly.
[The CHAIRMAN OF COMMITTEES in the Chair.]
Clause 1 [Transfer to Board of certain functions relating to contributions, etc.]:
On Question, Whether Clause 1 shall stand part of the Bill?
Lord Higgins: It is unlikely that our debates on the Bill in Committee will turn out to be remarkably exciting or passionate. At Second Reading we on this side made it clear that in a number of respects we had doubts about the Bill. It is nonetheless right that today we should examine it in considerable detail, although I hope that that does not necessarily mean the debate will be prolonged. Perhaps I may make one or two preliminary remarks.
First, I declare an interest as the chairman of an occupational pensions scheme. Secondly, I wish to pay tribute to the way in which the noble Baroness, Lady Hollis of Heigham, prepared previous discussions on the Bill and our discussion today. For the first time a set of explanatory notes has been provided with the Bill. They have been very helpful on what is a complex and technical measure. In addition, following Second Reading, the noble Baroness wrote to me and a number of my colleagues dealing with some of the technical points raised in the debate. She was also kind enough earlier to arrange a briefing meeting, which was very helpful. I must apologise for the fact that I was prevented from attending the second such meeting. The invitation was nonetheless appreciated. In relation to legislation of this type, that kind of preparation is of considerable advantage.
To some extent the Bill institutionalises the move of the social security contributions system into the area controlled by the Chancellor of the Exchequer, in particular the Inland Revenue; and the distinction between contributions paid into the national insurance
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scheme, which in turn give the right to obtain certain benefits, is eroded if it becomes more and more the case that this is simply a tax. We debated this point at some length at Second Reading and I do not wish to burden the House with greater detail now. We remain of the view that the contributory principle is of great importance and should be preserved. We had some doubts as to whether, in terms of costs and savings, the arguments in favour of the Bill were justified. I pointed out that the Minister responsible for these matters in the previous government reached the conclusion that that was not so.
The drafting of the Bill is of great complexity and gives some cause for concern. To an enormous extent it deals with reference to other legislation, and on occasions even two or three tiers of legislation. That makes the statute book very confused.
I am not clear to what extent some of the clauses in the Bill mean that the rights of this House to debate the legislation or secondary legislation will be changed at all because it comes under the Chancellor and the Treasury rather than the umbrella of the Department of Social Security. I therefore hope that the Minister can give a clear assurance on that point.
I wish to raise a further point in relation to this clause. The matter is done by reference to Schedule 1 from Clause 1 and there are separate points for debate on that. The explanatory notes, the overall summary, points out that the transfer will take place from the Department of Social Security of its operational functions and goes on to state that,
"policy responsibility for NICs would transfer to the Inland Revenue once decisions had been reached on a new benefit entitlement test".
We did not go into the matter in great detail at Second Reading. It is of considerable importance, as will emerge in subsequent debates. Is the Minister in a position to say whether any progress has been made?
We have tabled a number of amendments, some seeking to leave out clauses while some are more specific. That may help to give greater focus to the discussion, and is why the Marshalled List looks rather more elaborate than it might otherwise do. I hope that the Minister will reply on those two points. After we have dealt with the government amendments that have been tabled, perhaps we may then deal with Schedule 1 and the question of the schedule itself. That is probably a better point at which to raise the substantive issues.
3.45 p.m.
Lord Skelmersdale: My noble friend Lord Higgins has, with his customary zeal, laid out suggested rules of engagement for the debate. I found them extremely helpful. So far as concerns the grouping of my amendments, perhaps I may suggest gently to the noble Baroness that, since my Amendment No. 3 and her Amendment No. 4 cover the same matter, it would be sensible to group them together. Then I shall be happy to move my group of amendments en bloc. Since they

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cover exactly the same order and the same line in the Bill, perhaps the Minister will take a few seconds to consider that suggestion.
Lord Goodhart: I, like the noble Lord, Lord Higgins, apologise for my absence from the meeting arranged by the noble Baroness last week. Unfortunately, it clashed with another meeting arranged by the noble and learned Lord the Lord Chancellor to discuss the Access to Justice Bill. I hope that the noble Baroness will forgive me for having chosen to attend that meeting rather than the one which she arranged.
In order to save time later in the debate, I wish to make it clear at this point, as we did at Second Reading, that we strongly support the principle behind the Bill. We believe that, whether or not the contributory principle is in itself important, transfer of the functions of collecting and managing contributions should be to the Inland Revenue. The contributions have been for many years past, and arguably always have been, a tax rather than part of a genuinely contributory system, given that the amount of benefits to which anyone is entitled is—with the sole exception now of SERFS—independent of the amount that they have contributed, although in a number of cases the number of contributions made may be relevant. On that basis therefore we feel that the Bill makes the right move. As the noble Lord, Lord Higgins, said, the Bill is complex. However, it is not my intention on behalf of my party to intervene in the debate to any greater extent than is necessary.
As can be seen, we have tabled only one amendment. It is therefore unlikely that I shall wish to contribute to any great extent on more than a few of the others. In remaining silent I broadly indicate consent to the principle of the Bill.
Baroness Hollis of Heigham: I thank the noble Lords, Lord Higgins and Lord Goodhart, for their welcome, with varying degrees of enthusiasm, in general and their welcome in particular for the degree of briefing. I wish to pay tribute to the officials for the work they put in through offering facilities and access. I appreciate that the meeting was inevitably called at short notice because of the intervention of the Christmas vacation. It had to be held at the beginning of the week in which the Bill arrived. I am sorry that neither of the two Front-Benchers was able to attend, which we fully understand. However, it will not prevent us trying to respond to any points, if not from the Dispatch Box then through letters or subsequent meetings.
Both noble Lords and the noble Lord, Lord Skelmersdale, said that it is a technical Bill. Therefore, I may well suggest to the Committee, on various occasions, that I wish to follow up in correspondence points which are made. I know that certain points may be important for tax lawyers and others to follow and I shall do that rather than trying to rely on the more formal words in Hansard. I hope that the Committee will forgive me if I go down that route more than is usual. I too do not wish to engage in repeating our Second Reading debate.
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First, I wish to address the points raised by the noble Lord, Lord Higgins, who asked whether the Bill would affect the powers of scrutiny of the House of Lords by virtue of transferring it to another body and potentially an Order in Council. No, I am assured from the Box that there is nothing in the Bill that will affect the proper House of Lords' scrutiny of changes to NICs structures.
Secondly, I emphasise that the Bill in no way erodes the contributory principle. It was part of a major arena of our debate at Second Reading and I do not wish to repeat that ground. As was said at the time, the welfare benefits system is based on three different structures of benefit: means-tested or income-related benefits, contributory benefits based on the national insurance principle and also what I call universal category or contingency benefits which are by virtue of the group of people to whom you belong—for example, an entitlement to disability living allowance or an entitlement to child benefit.
It is true that means-tested benefits have grown at the expense of contributory benefits, not in the past 18 months but in the past 15 or 20 years. That is primarily because the previous administration reduced unemployment benefit as a contributory benefit paid for two years to a six months only contributory JSA. More positively, the previous administration, with the support of Members of the House, developed the growth of in-work benefits which have been classically income-related and therefore means-tested.
It is precisely because of the problems of means-testing that the Chancellor announced, and will bring to the House reasonably shortly, a Bill to replace the main in-work benefit, family credit, with a working family tax credit system. That is to overcome the problems that have been identified by noble Lords about means-tested benefits.
Nothing in the Bill will affect the contributory principle. There is much else in what the Government are doing, including, for example, changes to incapacity benefit and widows' benefit and the like which will extend the role of the contributory principle. We wish to ensure that people see a proper return for being in the labour market. We recognise that there is no single structure of benefit which will fit all forms of need. I am sure we shall continue to have a mixed economy, with that effect.
Finally, I remind the Committee that Clause 1 is one of the keystones of the Bill. It introduces Schedules 1 and 2. Schedule 1 transfers to the Inland Revenue the day-to-day operational functions currently discharged by the Contributions Agency on behalf of the Secretary of State. Those functions, in relation to NICs, statutory sick pay, statutory maternity pay and contracting out matters will be exercised by the Inland Revenue from the day appointed for the operational transfer.
Schedule 1 amends the provisions of Acts which confer such functions on the Secretary of State and also other provisions which make consequential references to his exercise of those functions. Functions conferred on the Secretary of State by the subordinate legislation listed in Schedule 2 are also transferred to the Inland Revenue.

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We intend that the day appointed for the transfer of operational functions under Clause 27 should be 1st April, the start of the new financial year. Clause 27 also allows regulations concerned with operational functions transferred under Clause 1 to be made from Royal Assent so that they too can be in force by 1st April.
With my efforts to answer the main points raised by the noble Lord, Lord Higgins, and appreciating the welcome given by the noble Lord, Lord Goodhart, I hope that the noble Lord, Lord Higgins, will feel able to withdraw his objections to Clause 1.
Lord Higgins: In the light of what the Minister said and since we shall be able to pursue matters further on Schedule 1, I withdraw my objection to Clause 1.
Clause 1 agreed to.
Schedule 1 [Transfer of Contributions Agency functions and associated functions]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 1:
Page 16, line 29, at end insert—
("2A. In section 638 of the Income and Corporation Taxes Act 1988 (other restrictions on approval of personal pension schemes), in subsection (6)(c) for "Secretary of State" there is substituted "Board".").
The noble Baroness said: We start with a very sexy and exciting amendment or, as my brief says, a technical, consequential amendment. Section 638(6)(c) of the Income and Corporation Taxes Act 1988 refers to minimum contributions paid by the Secretary of State under Section 43 of the Pension Schemes Act 1993. Once Clause 1 of the Bill is in force, those minimum contributions will be paid by the Inland Revenue. I beg to move.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 2:
Page 17, line 22, after ("substituted") insert (""Commissioners of").
The noble Baroness said: This too is a technical drafting amendment. The term "Inland Revenue" is amplified to "Commissioners of the Inland Revenue", to be consistent with existing references in Part XI of the Contributions and Benefits Act. I beg to move.
On Question, amendment agreed to.
On Question, Whether Schedule 1, as amended, shall stand part of the Bill?
Lord Higgins: As I have indicated, a number of points arise on the schedule which is introduced by Clause 1 which we have already agreed. Therefore, this will be a reasonably orderly debate, if we continue the debate on Clause 1.
Earlier in her remarks on Clause 1, the noble Baroness pointed out that there may be a number of technical points on which she would wish to write to people rather than to respond on the Floor of the House. We can well understand, given the nature of the Bill, why that might be so.
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However, having said that, there is a point which should be made. The noble Baroness referred to the way in which tax lawyers tend to "crawl over"—if that is the right expression—the nitty-gritty of this kind of legislation. If I understand the position correctly, it is not the case that the interpretation of the Act would necessarily turn on the travaux preparatoires. If there has not been a debate on the Floor of the House on the point, the correspondence may never come into public light. Those are matters about which the noble Lord, Lord Goodhart will know infinitely more than I. If that is the case, if some technical point has to be made in correspondence, perhaps we should consider whether it could be read straight into the record, quickly, at some later stage of the Bill.
The reality is that the Bill must be introduced because of the curious fact that it could not be done by regulation because of the status of the Inland Revenue department in our existing law. Therefore, it deals a great deal by reference to existing legislation. I am becoming worried at the extent to which the drafting carries over from one Act to another and then on to yet a third. That point will emerge on later amendments. The noble and learned Lord, Lord Howe of Aberavon, is sitting on a committee which hopes to improve tax legislation generally from the present complex situation. It may be that the area with which we are dealing in the Bill is one at which he could appropriately look.
I now turn to more substantive points, although again they are related to lawyers. In Section 20(3) of Schedule 1, it is suggested that there should be inserted in the Social Security Administration Act 1992 the words:
"any person authorised by the Inland Revenue may conduct any proceedings under section 114 of this Act before a magistrates' court although not a barrister or solicitor."
I am not clear whether that is simply an effort to reduce restrictive practice in this field or whether it is an innovation.
The next point which arises in this context is in relation to the timing of the operational arrangements of the Department of Social Security being transferred to the Inland Revenue. My noble friend Lady Anelay of St. Johns raised at Second Reading the issue of computerisation of the Department and referred to some of the problems that have arisen in that field. We also discussed at that stage whether the Millennium bug would be a problem. We are not experts in this field but in the last few days a particular case has come to my attention, which I have not had time to raise with the Minister's office until this morning.
It raises the question of whether as the Chancellor of the Exchequer suggested in his Budget speech, it is an appropriate moment to transfer the responsibility for these matters from the Department of Social Security to the Chancellor's department. This particular case raises broader issues. It concerns an individual who had deferred drawing his national insurance pension last September and decided to draw it from October. He would have received a larger amount than he would otherwise have received because of the deferment of the pension. By January he had heard nothing at all from the department and, therefore, being concerned about

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the delay, he rang the department and was told that the department's computer had been "down" since last June. It was indicated that the computer was not likely to be working fully until April. No doubt the noble Baroness can say whether or not that was indeed the case.
A number of different issues arise, leaving aside the fact that the individual had been unable to draw his pension on the date requested. He also asked what would happen about the increment, and it was indicated that even by April it might not be possible to decide whether or not it would be paid. That left the individual in a position of not knowing how much to declare on his income tax form under the new system of self assessment. This may be some justification for the Bill.
I thought that it would be helpful at this stage to ask whether or not this is an appropriate moment to transfer the operation from the Department of Social Security to the Inland Revenue. At Second Reading the Minister indicated that this was not a great problem and that it would be switched from one department to the other. However, would that be a sensible move when the computer, which I gather is a massive computer, is not operating effectively? It may well be that the department which has been operating it so far is in a better position to sort out the problem and then to transfer at a later date.
I presume that there is no substantive reason, other than the fact that the Chancellor mentioned it in his Budget speech, why the matter cannot be delayed so that the transfer can take place more efficiently.
I turn now to one matter which puzzles me. The whole thrust of the Bill and in particular this schedule, is to transfer the operation from the Secretary of State to the Inland Revenue. The noble Baroness agrees with me that that is clearly the case. However, I am not clear why it should be transferred from the Secretary of State to the officials of the Commissioners of the Inland Revenue. One would have thought that it was more appropriate to transfer it to the Chancellor of the Exchequer since the Inland Revenue is one of the Chancellor of the Exchequer's departments.
There may be some technical implications which arise in relation to later clauses, but it raises a question about the accountability of Parliament. We are moving the Next Steps Agency operation to the Inland Revenue, which has a very different history and is more independent and has different powers. Can the Minister clarify why it is being done in that way rather than transferring it from one Minister to another?
Baroness Hollis of Heigham: I take the noble Lord's point that technical, but nonetheless significant, issues arise. I recognise that people need access to the Government's view. I am trying to steer a course between providing something solid on which people can rely and providing wider access. If noble Lords wish to raise the matter in the form of a probing amendment on Report, or if they would like to notify me privately that they would like to do so, I will ensure that this matter comes back on Report. To some extent, the "constituency" from which some of those questions may come will depend on access to information and the degree to which it needs to be on the public record.
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The noble Lord raised a question about the general drafting of the Bill. It is complicated because there are many issues associated with contributions into the National Insurance Fund as well as payments out, which are handled by the DSS. The Bill fillets those responsibilities not two ways, but three ways. Some responsibilities will remain with the DSS. particularly those for statutory sick pay and maternity pay; some responsibilities will go to the Inland Revenue and some will go to the Treasury. Therefore there is a three-way split into other departments which use different terminologies and have different understandings. We are trying in this Bill not only to fillet the responsibilities but to standardise terminology throughout the system. That is the reason for what may appear to many Members of the Committee to be an endless array of technical drafting amendments.
The noble Lord referred to paragraph 20(3) on page 19 and asked whether this was a possible "dig" at restrictive practices. Currently, DSS officials have this power and we are transferring the same powers to the Inland Revenue; in other words, it mirrors the existing provisions of Section 116 of the Social Security Administration Act which gives authorised people that right. There is nothing new in this; it simply transfers existing powers.
Lord Higgins: Does it cut both ways? Does it mean that Inland Revenue officials who are not qualified will now be able to appear on Inland Revenue matters?
Baroness Hollis of Heigham: At the moment we are talking solely about the powers of the Contributions Agency and staff being transferred to the Inland Revenue for decision-making. We are referring to DSS officials who will now be employees of the Inland Revenue so to speak. We expect that after proper training in due course there will be an integration of functions, but that is not where we are at the moment.
Lord Higgins: I have not made my point very clear. As I understand it, new provisions are to be sought under which people who are not qualified as either solicitors or barristers will be able to appear in a magistrates' court and fulfil the functions that are normally carried out by solicitors and barristers. If I understood it correctly, the noble Baroness said that there would be no change. I was unclear whether that would give Inland Revenue officials dealing with Inland Revenue matters the same powers.
Baroness Hollis of Heigham: This particular provision of the Bill refers to the Social Security Administration Act 1992. Therefore, it transfers powers that social security staff currently have to be carried with them when they go over to the Inland Revenue. We are not talking here about mirror activities. But as in all these matters, if I receive any further information to the contrary, I shall write to the noble Lord. I believe that the heading to paragraph 20 which refers to the Social Security Administration Act 1992 makes that point clear.
As to timing, the noble Lord asked whether this was the appropriate moment because of concerns about the computer. Not having had advance warning of the

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particular case to which the noble Lord referred, he will understand that I cannot comment upon it. But in so far as it is illustrative of a general problem, I take his point. The problems that we have experienced with the late running of the NIRS 2 contract are undeniable. Although stabilisation plans are under way, I understand that as at 1st January, while a total of £1.4 billion of age-related rebates had been paid, it equates to about 60 per cent. of the figure paid this time last year. I do not seek in any way to diminish the problem associated with NIRS 2, but it does not affect this Bill. The responsibility for its administration—ring-fenced so to speak—simply transfers from one section of the Civil Service to another and has no necessary implications (whatever one wishes) for the better or more efficient, or worse or less efficient, running of the computer. The project and its operation and co-ordination with Andersens simply transfers across. Although we hope that those problems will be addressed quickly, they will be addressed neither more nor less rapidly by virtue of this switch than they would have been if it had remained within the responsibility of DSS.
Lord Higgins: I am grateful to the Minister for that explanation. I do not wish to pursue the individual case. Fortunately, following my move from another place to this House, my preoccupation with individual cases has disappeared. However, it is apparent that the department has not written to the individual concerned to say what is happening. I do not know to what extent that is generally the case. Having said that, is it really appropriate to hand over the matter when it is not working very efficiently? Can the Minister clarify whether the same individuals will deal with the whole operation as at present? Presumably while the noble Baroness will no longer be dealing with any points on this particular issue and it will be for Treasury Ministers to answer any questions with regard to the computer, if we can be assured that at least the same people will deal with it rather than that others will inherit what is clearly a very difficult situation, that would be helpful.
Baroness Hollis of Heigham: My understanding is that the same body of people who run it currently will move across. In that sense, the formal reallocation of day-to-day functions should not make a difference to the NIRS 2 problems, which I do not underestimate in any way. If the noble Lord gives me the name of the individual concerned, I shall try to follow up the case, but not having had advance warning of the example he gives, I am unable to help him any further this afternoon.
Schedule 1, as amended, agreed to.
4.15 p.m.
Schedule 2 [Transfer of functions under subordinate legislation]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 3:
Page 26, line 30, column 3, leave out ("regulations 37 to 39, 41 to 42 and") and insert ("regulation").
The noble Lord said: I said at Second Reading that I found Schedule 2 to be a very strange being. Drawing a bow at a venture, I then asked the noble Baroness to
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explain the transfer of Regulations 23 and 61 of the Occupational Pension Schemes (Contracting-out) Regulations 1996. In her round-robin letter addressed to my noble friend Lord Higgins, she explained that both these regulations related to policy, as indeed they do. But I was confused by the fact that in a separate part of the letter the noble Baroness explained that the policy was to remain with DSS Ministers. I am the first to agree that that is right.
However, the third column in Schedule 2 is headed, "Provisions conferring functions transferred". I find it very difficult to work out how something can be both policy and yet be transferred. I am sure that I am not alone in my confusion. The only conclusion at which I could arrive was that those matters which were not excepted according to this particular amendment were to be transferred.
In brief, the Secretary of State is to hang on to those regulations which are to do with items of policy for the moment, as the Explanatory Notes rather ominously say, and transfer the operational nuts and bolts of the Contributions Agency to the Board of the Inland Revenue. Knowing from previous experience how complicated these matters are, I went through those orders that I could acquire to see whether the nuts and bolts matters were in (that is, in the hands of the Secretary of State) or out (that is, in the realm of the Inland Revenue, or would be following the enactment of this Bill). We would all agree that operational matters should certainly be transferred with the Contributions Agency to the Inland Revenue. Incidentally, the noble Baroness did not respond to my intervention when my noble friend drew up the rules of engagement, but I assumed from her nod that it would be all right to deal with Amendments Nos. 3 and 4 together at this point.
That brings me to the first of my string of amendments which concerns the Social Security (Contributions) Regulations 1979. The entry in the schedule states that the Secretary of State is to hang on to the power in Regulation 37. That regulation is headed,
"Reallocation of contributions for benefit purposes".
If one looks at the regulation it is clear that that is an operational matter. I shall not weary the Committee by quoting it.
I suspect that it was the direction of the Secretary of State that originally caused the draftsman to exclude this regulation from the handover. However, the Secretary of State does not himself give the direction; it is delegated to someone in his department, which these days means the Contributions Agency. It would be logical if that was an official in the Contributions Agency. If that is the case why can it not be transferred? It is clear that the Government agree with me because in Amendment No. 4 tabled by the noble Baroness, Regulation 37 is replaced by Regulation 36. I welcome that.
Regulations 38 and 39—also excepted—are much clearer examples of nuts and bolts operations. They tell the agency how to treat late paid contributions under the Act. Why then is Regulation 40, which covers the

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treatment of voluntary Class 2 contributions not paid within the permitted period, to be transferred and not excepted? I simply cannot see the logic.
Regulation 41 covers late payments through ignorance or error and the Secretary of State is to hang on to that. Regulation 42 covers a different form of treatment, that of contributions paid under an arrangement, and again that is to remain with the Secretary of State.
For the avoidance of doubt, I agree with the Minister about Regulation 40, concerning the application for allocation of a National Insurance number. It is quite logical that it remains with the Secretary of State. However, I believe that all the preceding excepted matters are indeed nuts and bolts and I would be grateful to hear the Minister's response to that. I beg to move.
The Deputy Chairman of Committees (Lord Elton): If Amendment No. 3 is agreed to, I shall be unable to call Amendment No. 4.
Baroness Hollis of Heigham: The noble Lord, Lord Skelmersdale, is something of an expert on delegated legislation as a result of his role on the Joint Committee on Statutory Instruments. Due to his commitments with that committee, he was unable to attend a briefing meeting when we might have been able to clarify some of these matters for him, which was why we offered such a meeting. Alas, to no avail. I understand his interest in the detail of Schedule 2, to which all these amendments relate.
I believe that the noble Lord is, quite rightly, seeking to check that we have done our job properly. Let me make clear at the outset that I do not think that there is any difference between the Government and the noble Lord on what we intend to do. However, the noble Lord does not have confidence that we are doing what we think we ought to be doing and, therefore, he believes that we should go along his route. I would like to suggest some problems in going down his route and suggest why I prefer our route.
Our strategic intention behind the Bill is to transfer the operational functions of the Contributions Agency to the Inland Revenue, together with policy responsibility for national insurance contributions. The way we have done this is to go through the relevant primary and secondary legislation to identify those provisions which confer specific functions on the Secretary of State for Social Security and to decide whether those specific functions should be transferred to the Inland Revenue or the Treasury as necessary. The functions conferred in primary legislation are amended as necessary in Schedules 1 and 3. Clause 1(2) transfers to the Inland Revenue functions conferred on the Secretary of State by provisions of subordinate legislation specified in Schedule 2.
The noble Lord's amendments fall into two categories. The first seeks to specify in Schedule 2 whole sets of regulations rather than individual provisions. The explanation as to why these amendments are unnecessary is somewhat technical and I hope he will bear with me as I set out how I am advised Schedule 2 works.
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The first point is that we need to specify only provisions which actually confer a function on the Secretary of State. The noble Lord will have noticed that the heading for column three of Schedule 2 is "provisions conferring functions transferred". Where a provision of regulations simply deals with how a function conferred elsewhere is to be exercised, there is no need to specify it in Schedule 2. So, in order to ensure the regulations work when they have been transferred, there is no need to transfer regulations which deal with how a function is to be exercised if the regulations do not themselves identify the function holder. Any stray references to the Secretary of State which do not themselves confer functions are converted into references to the Inland Revenue or Treasury, as necessary—as a sweep-up, if you like—by paragraph 1(4) of Schedule 7.
That deals with the first category of the noble Lord's amendments. The remainder would actually change the boundary of operational functions between the Secretary of State and the Inland Revenue. Perhaps I may give two examples of how these would work, and if the noble Lord would like a fuller explanation I shall be happy to write to him with more details of why we have drawn the Bill as we have.
First, take his Amendment No. 4, to the reference to the Social Security (Contributions) Regulations 1979. This would have the effect of transferring responsibility to the Inland Revenue for deciding how to treat certain contributions—for example, those paid late—for the purposes of contributory benefits. This is a function relating to the administration of contributory benefits and therefore we think it should remain with the Secretary of State.
Secondly, Amendment No. 7, to delete the reference to the Statutory Sick Pay (General) Regulations 1982, would retain with the Secretary of State certain administrative functions relating to the operation of statutory sick pay. We have already discussed in the context of Schedule 1 that the administration of, but not policy on, statutory sick pay will transfer to the Inland Revenue. The noble Lord's amendment would leave with the Secretary of State the functions of: arrangements for making payment of statutory sick pay where an employer is insolvent or refuses to make payments when an officer of the board has determined that it is payable; appointing someone to act on behalf of a person who is, or claims to be, entitled to statutory sick pay but who is unable to act for himself or herself (for example, where that person is in a coma); and requiring information from an employer or employee where the board determines whether there is entitlement to statutory sick pay but needs further information in order to resolve a particular question.
That would mean that employers and employees would need to deal with two government departments in respect of statutory sick pay—the Inland Revenue when a question arises whether a person is entitled to the benefit, and the Benefits Agency when a person is not being paid the benefit because the employer is insolvent, or refuses to pay, or where someone needs to act on behalf of someone who is unable to do so. Furthermore, the amendment would mean that, where an officer of

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the board requires further information to determine whether a person is entitled to statutory sick pay, he would need to ask the Secretary of State to require the information from the employer or employee involved. That would be rather bureaucratic and hardly the sort of service we would want to provide.
The reason we have transferred these provisions to the board is because decisions on entitlement to statutory sick pay normally involve questions of employment status—for example, whether a person is an employee or not, and what are his or her average earnings. They are obviously not medical questions. It makes sense, therefore, for other functions, such as those connected with the payment of statutory sick pay where an employer is insolvent or refuses to pay, also to be undertaken by the board.
I hope that reassures the noble Lord. Perhaps if he has any further concerns we can deal with them in correspondence. I do not believe that the thrust of the noble Lords' amendments would deliver what he wishes. I hope he will withdraw his amendment.
Lord Skelmersdale: I asked for it, did I not? However, it obviously not only confused me, but, by virtue of Amendment No. 4, tabled by the noble Baroness, it has also confused the draftsman, which is why she is amending her own Bill.
That said, I shall read extremely carefully what the noble Baroness has said and I may want to follow it up in correspondence. In her exhaustive explanation, she said that in a case of a bankrupt employer owing statutory sick pay, under my amendment two departments would have to be consulted on how to deal with the matter. That is the position now. I do not see why there is a change. I will happily follow up that matter in correspondence or perhaps consultation at a later stage. I do not think that it is right, or indeed proper, to go into it now.
It also occurs to me that in some places in Schedule 2, the Bill transfers all the regulations. "All the regulations" does not necessarily mean the functions of the Secretary of State. In some cases, as I read it, it means functions which are already carried out by the Contributions Agency. I regard these as nuts and bolts and the matters that I have listed in my critique on Amendment No. 3 are also what I regard as nuts and bolts. I suspect that the argument—the noble Baroness is quite correct—is not about what should be done but whether it is being done properly. I still do not know the answer. However, when I have read the explanation in Hansard, I hope I shall. For the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.30 p.m.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 4:
Page 26, line 30, column 3, leave out ("37") and insert ("36").
The noble Baroness said: I accept the noble Lord's correction about timing and my manuscript note not having been adopted accordingly.
In moving Amendment No. 4, I speak to Amendments Nos. 11, 13 and 64. These are technical amendments to Schedule 2 which specifies provisions of secondary legislation conferring functions on the Secretary of State which are transferred to the Inland Revenue. Column 3 of the schedule expressly excludes provisions conferring functions on the Secretary of State which are not being transferred.
Amendment No. 4 excepts regulation 36 of the Contributions Regulations, as the noble Lord, Lord Skelmersdale, noted, as this relates to functions concerning credits which are not being transferred to the Inland Revenue.
Amendments Nos. 11 and 64 relate to the Employer's Contributions Reimbursement Regulations 1996 (S.I. 1996/145). These are made principally under Section 27 of the Jobseekers Act 1995, to which amendments are made by the Bill (paragraph 64 of Schedule 1: page 25, lines 34–35) to transfer functions from the Secretary of State to the Inland Revenue. Regulations 7, 8 and 9 each confer functions on the Secretary of State, all of which need to be conferred instead on the Inland Revenue. Hence their inclusion in Schedule 2.
Regulation 1(4) contains a definition which becomes redundant as a result of this transfer, and it is therefore revoked.
Section 150 of the Pensions Act 1995 (which extensively amended the Pensions Schemes Act 1993) dissolved the Occupational Pensions Board and conferred power to provide, in the relevant commencement order, for the exercise by other persons or bodies of any outstanding functions of the Board.
Articles 4 and 13 of the Pensions Act 1995 (Commencement No. 10) Order 1997 (S.I. 1997/664 (C.23)) conferred on the Secretary of State the functions of the Board under several provisions of the 1993 Act or regulations which were temporarily preserved.
To the extent that such functions still need to be discharged, they are exercised by officers of the Contributions Agency, and therefore need to be transferred to the Inland Revenue. Amendment No. 13 effects this transfer. I beg to move.
Lord Skelmersdale: As the noble Baroness said, regulation 36 of the Social Security (Contributions) Regulations 1979, deals with crediting class 3 contributions. However, it is an item which the Contributions Agency has to take into account in the operation of its duties. In other words, it has to know whether the money is owing, or whatever. I find it difficult to understand why this matter is excepted—in other words, why the Secretary of State is hanging on to the power.
Baroness Hollis of Heigham: The noble Lord refers to regulation 36, which relates to functions concerning credits. We included it in the schedule to make clear that credit functions are to stay with the Secretary of State.
Lord Skelmersdale: I ask: why?
Baroness Hollis of Heigham: Credit functions, which can involve home responsibility payments

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through to proposals in the new pensions legislation for carers and the like, remain essentially a function of social security legislation, and therefore remain with the Secretary of State.
Lord Skelmersdale: But why? They affect total contributions when eventually they are assessed for the purposes of pension or whatever other contributory benefit one is about to receive.
Baroness Hollis of Heigham: Those are policy issues. As the noble Lord will understand, some of those credits do not go through the traditional route, with the employer responsible for noting them. By definition they are home based. It is not therefore an obvious function for an employer and therefore the Inland Revenue (vis-à-vis the employer) to collect that information. It is appropriately a matter for the Department of Social Security because it is analogous with information that the DSS would collect about income support or other income-related benefits.
I do not know whether that helps the noble Lord. It seems to me that the matter is in a different category from the employer-based NICs or contributory-based conditions when one needs to see what has been paid in order to determine eligibility for retirement pension. This is not an employment focused credit. In that sense it seems properly to remain with the Secretary of State. In other words, I am puzzled that the noble Lord is puzzled.
Lord Skelmersdale: For the moment we shall have to agree to disagree.
On Question, amendment agreed to.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 5:
Page 26, leave out lines 32 to 34.
The noble Lord said: Since the noble Baroness gave a comprehensive answer to Amendment No. 3, and because of the curious rules which we try to obey in this House, I have to move the amendment in order to withdraw it without the noble Baroness saying anything. I therefore beg to move.
Baroness Hollis of Heigham: It was a consequence of the grouping. Had the noble Lord wished the amendments to be discussed separately, he would have taken them out of the grouping. That is why they were spoken to collectively.
Lord Skelmersdale: I readily understand that. I give notice that I do not intend at this stage of the Bill to move any of my other amendments. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 6 to 10 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 11:
Page 27, line 24, at end insert—

("S.I. 1996/195.

The Employer's Contributions Reimbursement Regulations 1996.

Regulations 7, 8 and 9.")

On Question, amendment agreed to.
[Amendment No. 12 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 13:
Page 27, line 51, at end insert—

("S.I. 1997/664 (C.23)

The Pensions Act 1995 (Commencement No. 10) Order 1997.

Articles 4 and 13.")

On Question, amendment agreed to.
[Amendment No. 14 not moved.]
Schedule 2, as amended, agreed to.
On Question, Whether Clause 2 shall stand part of the Bill?
Lord Higgins: I thought that discretion was the better part of valour during the previous debates. I am lost in admiration for my noble friend Lord Skelmersdale and the noble Baroness for her replies. They certainly seemed to be caviare for the general—although I have never understood what that meant.
I make a simple point on Clause 2. It reverts to an issue I raised earlier but may appropriately be responded to on this Question. I am still not clear why the matter is transferred from a Minister to an official. The issue may have some implications for parliamentary accountability. The institutional position of what were called the Next Step agencies, such as the DSS Contributions Agency, is not the same as that of the Inland Revenue. I simply do not understand why it has not been transferred to the Chancellor rather than to the Inland Revenue and its commissioners, who are not accountable in the same way.
Baroness Hollis of Heigham: Instead of the long answer perhaps I can offer the noble Lord a short one. Parliamentary accountability will not be diluted. The person responsible to Parliament for this activity is the Paymaster General. That will continue. However, the operational day-to-day functions will be exercised by the Board of Commissioners of the Inland Revenue. Of course, all high-level policy issues will be determined by the Chancellor, as the noble Lord, Lord Higgins, will know.
I am finding it a little difficult to put my finger on what is precisely worrying the noble Lord. It may be better for him to table a more open amendment at Report stage when we can then tease out some of his concerns. Nothing else is happening here that does not already exist; for example the Child Support Agency, the Next Steps Agency and so forth. I do not understand the noble Lord's concern about the dilution of parliamentary responsibility.
Lord Skelmersdale: Perhaps I can put a slightly explanatory complexion on this matter. My noble

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friend's question is perfectly valid. In the event of a catastrophe in the Contributions Agency, given these transfer powers and functions which move from the authority of the Secretary of State to civil servants who will eventually be part of the Inland Revenue though for the moment within the Contributions Agency inside the Inland Revenue, who will be answerable to Parliament? Will it be the Secretary of State for Social Security, the Chancellor of the Exchequer, the Financial Secretary or the Paymaster General? Who will Parliament be able to question on that matter?
Baroness Hollis of Heigham: My understanding is that, should there be such a disaster—heaven forbid!—and questions are raised in the House on the day-to-day running of the Contributions Agency as an operation, it would ultimately be the responsibility of the Paymaster General and, if it raised high level issues, the Chancellor. As and when policy for NICs is handed over, it would be the responsibility of the Paymaster General through to the Chancellor. That is on the collections side. The disbursement of those revenues in terms of social security spend will remain the responsibility of the Secretary of State for Social Security.
Lord Skelmersdale: Does that mean that if the millennium bug interferes with the computer—this Bill will be an Act of Parliament; it will be law—Parliament will question the Chancellor of the Exchequer or will Parliament question someone else?
Baroness Hollis of Heigham: If it was a case of the millennium bug affecting the accurate and reliable collection of information from employers—analogous to the similar problems we are having with NIRS—it will ultimately be the parliamentary responsibility of the Paymaster General as and when the day-to-day running has been transferred. If I receive any different information in relation to the millennium bug problem I shall write to the noble Lord. I add that qualification because I suspect that there is also a parallel responsibility with the Cabinet Office—the overall responsibility for the millennium bug and computers. The direct line will be through the Paymaster General.
Clause 2 agreed to.
Schedule 3 [Transfer of other functions to Treasury or Board]:
Lord Higgins Lord Higgins moved Amendment No. 15:
Page 28, leave out line 20.
The noble Lord said: On reflection it may not be necessary to pursue Amendments Nos. 15 and 16. They are linked with Amendment No. 17.
This section refers to the earnings limit for Class 1 contributions. The Minister will not be surprised therefore to hear that my concern is in relation to the situation with regard to contributions which we debated on a number of occasions on the Social Security Bill; namely, the fact that the level has been raised for employers but not yet for employees. The noble Baroness will recall that we debated this last year at some length.
I am not clear whether or not it will be possible for that limit to be changed under this part of the Bill simply by regulation rather than in a way in which it could be amended. Perhaps I can spell out my worry. The noble Baroness will recall that, last year on the Social Security Bill, the Chancellor of the Exchequer announced that he was raising the contributions level for employers and said that subsequently he would raise it for employees. That was debated quite controversially at considerable length. Is it possible under this part of the Bill to do that by regulation rather than primary legislation? I beg to move.
4.45 p.m.
Lord Renton: Before the noble Baroness replies, I wish to add a slightly different point to that made by my noble friend Lord Higgins. In these three amendments there is an intention to make the Government think again about whether the Treasury rather than the Secretary of State or any other individual Minister should be made responsible for this secondary legislation. When we look at lines 26 and 27 on page 28 of Schedule 3, we find that the Government wish to insert the words,
"Regulations under subsection (2)(a) above shall be made by the Treasury with the concurrence of the Secretary of State".
That expression occurs again in lines 34 and 35. What is the difference between regulations made by the Treasury without the concurrence of the Secretary of State and regulations made by the Treasury with the concurrence of the Secretary of State? In any event, is not the Chancellor of the Exchequer the Minister responsible when the Treasury makes regulations even on a Social Security Contributions (Transfer of Functions, etc.) Bill?
This is a matter of constitutional importance which we need to consider now that the Bill is before us. I believe that there are precedents. I have not turned them up but at the back of my mind I seem to remember that, though they are not frequent, precedents do exist for these expressions. Surely our main object in our parliamentary democracy must be to have a Minister rather than officials responsible to Parliament for every piece of legislation delegated to a Minister. Therefore, in the course of the proceedings on this Bill through your Lordships' Chamber, we should try to get the matter right.
Baroness Hollis of Heigham: Though the noble Lord, Lord Higgins, was particularly interested in Amendment No. 17, he moved Amendment No. 15 and therefore it is important that I seek to reply to that.
The noble Lord, Lord Higgins, was among those who welcomed the Explanatory Notes published with this Bill, and I surmise that those notes helped him to devise amendments targeted at the principle of the policy transfer.
Paragraph 66 of the Explanatory Notes states:
"Paragraph 1 transfers to the Treasury powers in section 1 to make regulations relating to the basic structure of the NICs regime, the rates of different categories of contributions and who is liable to pay them".

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Taken together, the first two amendments of this group would gut this first paragraph of Schedule 3. The first seeks to maintain the annual re-rating of contributions levels as a DSS rather than a Treasury function. The second would retain with DSS the power to regulate residence requirements for NICs, and the power to allow people to pay NICs even though they are not liable to pay them; and the third would leave with DSS the annual adjustment of the lower and upper earnings limits for primary Class 1 NICs and the earnings threshold for secondary Class 1 NICs. In those circumstances, I suspect that the noble Lord will regard these as probing amendments.
As I am sure the noble Lord is aware, these amendments would not of themselves produce coherent results even as far as these functions are concerned. Amendments later in this schedule—paragraphs 44 to 50—transfer to the Treasury the current DSS responsibilities for laying orders on contribution rate changes to keep the NIF in balance. The responsibility for keeping the NIF in balance would, under the Bill, still pass to the Treasury—even the amendments seek to keep with DSS the tools controlling NIF income and expenditure.
One of the Government's main drivers is our welfare-to-work agenda. We think this means that responsibility for contributions rates as well as tax rates should pass to the Chancellor of the Exchequer, to put both those determinants of work incentives into the same hands. The amendments would block that high-level strategy.
Some employers and tax practitioners are keen that we should address differences between the tax and NICs rates for residence, as well as how these rates are operated within the Inland Revenue and the Contributions Agency. We would be happy to discuss that with them. But, whichever officials and Ministers lead on any discussions, they would need to be alive to the benefit entitlement implications as well as the convenience of employers. Accordingly, I do not see the case for separating the residence tests from other issues affecting contributions liability.
I turn to the point about the lower earnings limit. In his last Budget, the Chancellor of the Exchequer made clear his aim of aligning the lower earnings limit with the single person's tax allowance - although of course he had no proposals about alignment with income tax of the upper earnings limit. Noble Lords will recall the amendments to the Social Security Bill to achieve this as far as employers are concerned. As far as employees are concerned, this, rightly, needs to wait for the Chancellor's proposals on increasing the lower earnings limit without depriving people of benefit entitlements—that is, those who currently receive benefit while the LEL is at £64 but who might otherwise be vulnerable if it moved up to align with the single person's tax allowance.
Nevertheless, Parliament has already agreed the principle of alignment. As noble Lords will know, decisions on the single person's tax allowance are of considerable budgetary significance. Accordingly, this
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hardly seems the time to separate decisions on the lower earnings limit and the earnings threshold from other matters to transfer to the Treasury.
Given the Government's strategy of alignment, it is inevitable that the Treasury will have an even closer involvement in determining the LEL and earnings threshold than hitherto. Separate decision-making will not give employers the reassurance they reasonably seek that alignment will be maintained.
The noble Lord, Lord Higgins, also asked a specific question about the relative responsibilities and regulations and what needs to have parliamentary approval. We can make full alignment only by primary legislation. Once that is passed, as is customary in all such financial matters, regulations will give the power to increase or decrease the figures. That is a fairly standard procedure.
The noble Lord, Lord Renton, was concerned about some of the constitutional issues involved. Existing social security legislation already requires some powers of the Secretary of State to make regulations to be exercised with Treasury consent; for example, Section 189(8) of the Social Security Administration Act 1992. I do not think that this is a constitutional novelty. It seems to us to be a sensible way to proceed. In the light of those remarks, I hope that the noble Lord, Lord Higgins, will feel able to withdraw his amendment.
Lord Higgins: I shall want to read carefully in Hansard what the Minister has just said and to consider whether we should return to this point. I was not entirely clear about the point that she made; namely, that the alignment would have to be achieved by primary legislation, but that the level could then be altered once the two had been aligned. I was not clear whether without primary legislation the rate of one could be altered to achieve the alignment. Perhaps I may consider that point. Subject to that, I beg leave to withdraw the amendment—
Lord Renton: Before my noble friend does so, I wonder whether the Minister will be so good as to answer my point about the desirability of Ministers being responsible for secondary legislation. That is important. If the Inland Revenue or the Treasury performs that function—that is provided for later in the schedule—that means that officials are doing it. It could be said, I suppose, that Ministers are responsible for officials, but if the Ministers are ultimately responsible, surely it is better for it to be written into Acts of Parliament that they have the responsibility for making the regulations.
Lord Skelmersdale: Before the Minister answers that point, I wonder whether she can help us further. She said—I paraphrase—that the statute book has many examples of a Secretary of State being allowed to do something, with the consent of the Treasury. Here, surely, my noble friend Lord Renton is quite right: the

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boot is on the other foot. We are looking for a precedent where the Treasury is allowed to do something, with the consent of a Secretary of State.
Lord Higgins: Perhaps I may intervene. My noble friend Lord Renton echoes the point I made earlier, to which, in the light of the Minister's remarks, I thought that we might return on Report; namely, the curiosity throughout this Bill that matters which have previously been the responsibility of a Minister are transferred to officials. I am not clear about why the provisions do not simply state that the responsibility is transferred from the Secretary of State for Social Security to the Chancellor of the Exchequer.
Baroness Hollis of Heigham: We are simply mirroring existing provisions. It was not my understanding—and certainly not in my briefing—that this provision raises any constitutional issues whatsoever. I do not believe that there is any such dilution of parliamentary accountability. However, it is clear that the noble Lord, Lord Renton, supported by other Members of the Committee, fears that without this being more explicit, there could be some misunderstanding. I shall take back this point to the department to consider whether we need to clarify the drafting to allay the fears expressed by the noble Lord.
Lord Higgins: On that basis, I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 16 and 17 not moved.]
On Question, Whether Schedule 3 shall be agreed to?
Lord Higgins: I thought it probably more convenient to raise this matter on Schedule 3 rather than earlier, on Clause 2, which is linked with it. I believe that the proposal that the determination of the level and scope of NICs should shift across from the Department of Social Security to the Treasury gives cause for concern. That is another example of the move away from contributions, which give an entitlement to benefits, to a tax pure and simple.
I understand all the points made earlier by the noble Lord, Lord Goodhart. National insurance contributions are already commonly understood to be a tax. Nevertheless, now that the Chancellor rather than the Secretary of State is to determine the level—yet another example of the "salami-slicing" movement—this is becoming less and less a contributory matter and moving more and more towards being a straight tax. We are therefore concerned that responsibility for this matter is introduced in this clause and that the Chancellor of the Exchequer or perhaps, very oddly, the Inland Revenue will be dealing with it.
There are other aspects which concern us. In the course of extensive correspondence, the comprehensive nature of which has astonished me, the noble Baroness spelt out over some three pages the workings of the National Insurance Fund. On an earlier occasion the noble Lord, Lord Goodhart, described the National
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Insurance Fund as a pipeline. I think it is not so much a pipeline as a tank, with the level going up and down depending on how it is adjusted. There are some strange arbitrary rules, such as that at the end of the financial year it should cover at least a sixth of the expenditure of the fund, and so on. We are not clear why that rule should apply. More particularly, we are concerned that responsibility for the matter is being transferred more towards the Treasury and that there is less concern with the policy aspects of, for example, pensions. In that context, is it envisaged that the proposals which the Government have put forward for reform of pensions into three tiers will be operated in the case of the first two tiers through the National Insurance Fund?
5 p.m.
Lord Goodhart: I do not agree with the noble Lord, Lord Higgins, on this issue. It seems to me inevitable that there will be consultation between the Chancellor of the Exchequer and the Secretary of State in deciding at what level national insurance contributions should be fixed. As is well known, national insurance contributions have an important fiscal role and it would be impossible to fix the annual budget without an agreement between the Chancellor of the Exchequer and the Secretary of State as to the level of national insurance contributions.
On occasions in the past we have seen specific increases in national insurance contributions for fiscal purposes. At certain times we have also seen regular subsidies to the National Insurance Fund from the Treasury. It seems to me that national insurance contributions and the direct taxes are so closely related that it makes obvious common sense that the level should be fixed by the Chancellor of the Exchequer.
Lord Renton: I wish to make some general comments about the third schedule. It consists of nine pages of amendments, which is very unusual. On each of those pages there are never fewer than six and sometimes as many as 10 amendments. We can therefore be sure that in this schedule there are 60 or 70 amendments proposed to fairly recent legislation of the previous government.
I do not object to the involvement of the Treasury; it has always had to be involved. I hesitate to repeat myself, but, if amendments of this kind have to be made, it must be made clear that it is individual Ministers who are being made responsible as a result. That is the point I made before, on which the noble Baroness raised my hopes in her previous reply. With that in mind, I hope that at Report stage we shall find that the Government have reconsidered the way in which in the schedule they are making amendments to the previous legislation.
Baroness Hollis of Heigham: The comments of the noble Lord on Schedule 3 invite us to reopen the Second Reading debate, which would not be sensible. We could have achieved the results of Schedule 3 through a negative resolution Order in Council under the Ministers of the Crown Act 1975, but that procedure is not available for transfers to the Inland Revenue, which is why it is being done this way.

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I am grateful for the support of the noble Lord. Lord Goodhart, on this matter. Achieving the policy transfer by order would have left this primary legislation concerned only with operational functions and with changes such as the new appeals system. Secondary legislation, considered separately, would be needed to complete the picture. We thought it better and more transparent to put both parts of the proposals simultaneously before Parliament. Secondly, including in the Bill material on the policy transfer allows the opportunity for debate on specific functions we propose to transfer, and the noble Lord has quite properly taken advantage of both Second Reading and the debate today.
The particular point which the noble Lord raised beyond the mutual responsibilities of the Chancellor of the Exchequer and the Secretary of State for these broader policy issues was the responsibility for the National Insurance Fund. The Bill transfers functions, for the reasons I explained in my speech on Amendment No. 17. It makes no changes in the level and scope of NICs, nor to the existence of the National Insurance Fund. The Chancellor, as always, is responsible for determining the adequacy of the level of the National Insurance Fund. He usually seeks the involvement of other government officials. But the DSS will continue to handle legislation on broader policy.
In response to the noble Lord, Lord Renton, the Inland Revenue already has powers in relation to tax. This provision makes the position consistent.
I emphasise that the powers that will go to officials are, for the most part, low-level, mechanical powers that are currently exercised by officials within the DSS. There is no dilution of the responsibility of the Treasury or specific Ministers within the Treasury. I repeat my assurance that, if we need to make this clear, we shall he happy to look at the drafting of the Bill.
Schedule 3 agreed to.
Clause 3 [General functions of Board]:
Lord Higgins moved Amendment No. 18:
Page 2, line 8, leave out subsection (2).
The noble Lord said: I shall not detain the Committee long on this amendment to delete subsection (2), which provides that, with some exceptions which are listed in the latter part of the clause, in future "inland revenue" will be taken to include contributions. That merely underlines the point I have been making throughout. I do not ask the Minister to respond since we clearly disagree on the matter. I beg to move.
Baroness Hollis of Heigham: I do not think we should treat the noble Lord's amendment in quite such a perfunctory way. If it were passed, it would fundamentally undermine the Bill's purpose of transferring the Contributions Agency's functions to the Inland Revenue. Let me explain why.
Other provisions of the Bill, particularly Clause 1 and Schedules 1 and 2, allow the integration of the Contributions Agency into the Inland Revenue by transferring its functions from the Department of Social Security to the Inland Revenue. This amendment, as I am sure the noble Lord is aware, would mean that the
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Inland Revenue's responsibilities—that is, what it is entitled to do as a statutory board—were not explicitly extended to cover national insurance contributions.
If NICs were a tax, subsection (1) on its own would be sufficient to complete the transfer of functions to the Inland Revenue that is effected by the Bill. But NICs are not a tax, which is precisely why subsection (2) is needed. It adds NICs to the statutory provisions covering the exercise by the Inland Revenue of its tax functions. Without it, some other means would be needed to fulfil a key purpose of the Bill, to enable the Inland Revenue further to integrate the arrangements for the collection of NICs into those for the collection of tax.
I can assure the Committee that subsection (2) does not merge tax and NICs but merely brings their administration together in one body. In deleting subsection (2), this amendment would omit a key step in the transfer of functions to the Inland Revenue that is to be effected by this Bill, and, incidentally, could put at risk the collection of some £2 billion of NICs money, which I am sure the noble Lord would not wish to be a party to. In those circumstances, I hope that the noble Lord will withdraw his amendment.
Lord Higgins: Indeed, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment No. 19.
Page 2, line 29, leave out (", whether made before or") and insert ("made").
The noble Lord said: This amendment refers to a substantive point. I find the wording of this part of the clause rather doubtful. For example, in subsection (5) it says:
"In any declaration for the purposes of section 6 of the Taxes Management Act 1970 (declarations on taking office), whether made before or after the commencement of this section, the reference to an offence relating to inland revenue shall be taken to include a reference to",
various offences, and so on. Can the Minister say whether I am wrong in thinking that this provision will in fact make it retrospective? In other words, does the fact that the subsection refers to a declaration being made before or after the commencement of the section mean that it will be possible for someone to be found guilty of an offence, which would not otherwise be the case? Of course, the Government's policy generally does, to some extent, change some offences which are criminal into those which are civil. However, on the face of it, I am not quite sure to which of those categories this particular section of the Bill refers. Can the Minister say whether it would indeed create a situation where someone might be found retrospectively, in the absence of this particular section, to have committed an offence and thereby be guilty of either a criminal or a civil offence? I beg to move.
Lord Renton: My noble friend has raised a fundamental question of principle. I say that because in criminal cases we never convict anyone under a law which has not yet come into force. We expect the law to be clear before the alleged offence is committed and,

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indeed, we expect it to be brought into force before the commission of that offence. It is rather strange that this provision could lead to a different result.
Baroness Hollis of Heigham: I very much hope that I can allay the noble Lord's fears. It seems to me that his amendment would have much more dire consequences than he has foreseen. This part of Clause 3 is intended to ensure that the undertaking given by civil servants and tax appeal commissioners to keep taxpayers' affairs confidential is adapted to include the Inland Revenue's new responsibilities for NICs, statutory sick pay, statutory maternity pay and contracting-out matters. Staff and tax appeal commissioners need to be able to disclose otherwise confidential information for the purposes of prosecutions. The wording of Clause 3(5) enables contributions offences to be handled in the same way as tax ones are now.
The amendment proposed would mean that this extension would apply only to Inland Revenue civil servants and tax appeal commissioners appointed after Clause 3 comes into force, which I believe was the concern of the noble Lord, Lord Renton. Staff and commissioners appointed before the passage of the Bill—obviously the very great majority—would not be able to disclose information for the purposes of prosecution about NICs, and so on. The effect would be to place varying confidentiality requirements on staff and appeal commissioners depending on when they were appointed. As all Inland Revenue staff and tax appeal commissioners will potentially deal with both tax and contributions, this would produce an odd and undesirable result. Indeed, it would hardly be helpful to this Government's drive against fraud of all kinds.
I hope that the noble Lord, Lord Renton, will be reassured to know that the provision in Clause 3(5) follows the precedent used in the past, especially by the previous government, when it has been necessary to extend the scope of the declaration of secrecy to cover new matters. For example, when corporation tax was introduced, the existing declaration was extended to cover the new tax. It is a sensible measure, which I do not believe raises serious constitutional issues. It is a well established precedent for the smooth and effective transfer of contribution matters to the Inland Revenue. Therefore, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Higgins: I should like to consider, as no doubt my noble friend and others will, exactly what the Minister said in her response. I was reasonably happy with her reply until she referred to the question of the Government's drive against fraud. Of course, we are all in favour of that drive. However, in the light of what the Minister said, we are not clear as to whether it would be possible for someone to be convicted of fraud in the circumstances outlined by my noble friend Lord Renton. As Members of the Committee know, I am not a lawyer. Therefore, I should like to consider, with others, exactly what the Minister said. Subject to that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.15 p.m.
On Question, Whether Clause 3 shall stand part of the Bill?
Lord Skelmersdale: I am not sure whether my noble friend intends to speak in this respect, but if he does I am afraid that I am pre-emoting him because my question relates to subsection (3) and relates specifically to paragraph (e). Subsection (2) says:
"Subject to subsection (3) below, for the purposes of the Inland Revenue Regulation Act 1890 ("the 1890 Act") the definition of "inland revenue" in section 39 of that Act shall be taken to include contributions".
That is fair enough, but miscellaneous exceptions are then set out in subsection (3) one of which, surprisingly, is the "expenses of prosecutions". I rather wonder why that is. Can the Minister enlighten me?
Baroness Hollis of Heigham: Given the fact that the noble Lord is opposing the Question that Clause 3 should stand part of the Bill, it is perhaps worth emphasising—
Lord Skelmersdale: With the greatest respect to the Minister, I am not doing so. I am using the debate to raise a question on the clause, which is a rather different matter.
Baroness Hollis of Heigham: I am advised that several sections of the Inland Revenue Regulation Act 1890, as set out in Clause 3(3), do not need to apply to contributions. In some cases comparable legislation already exists in relation to contributions, while in other cases the section no longer applies to income tax and would not be suitable in relation to contributions. Hence the inclusion of the list of exceptions.
Lord Skelmersdale: I thank the Minister for that explanation.
Clause 3 agreed to.
Clause 4 [Powers relating to enforcement]:
On Question, Whether Clause 4 shall stand part of the Bill?
Lord Higgins: This clause relates to the issue of enforcement. Again, it was raised on Second Reading and is a matter upon which the noble Baroness has written at some length, as far as concerns the actual hours involved. Schedule 4 is in fact related to the clause and I believe that we have tabled some specific amendments in that respect. Therefore, it may be more appropriate to raise these matters while dealing with the schedule rather than the clause. As Members of the Committee will see, Clause 4 merely consists of three lines so it would be easier to discuss such matters when dealing with the related schedule. In the circumstances, I do not wish to oppose the clause at this point.
Clause 4 agreed to.
Schedule 4 [Enforcement]:
Lord Higgins Lord Higgins moved Amendment No. 20.
Page 37, line 18, leave out ("or any other enactment").
The noble Lord said: In some ways, this amendment is not dissimilar to the matter that we debated a few moments ago. Under paragraph 2 of the schedule it seems that premises may be inspected,
"by an officer of the Inland Revenue under section 110ZA below or any other enactment".
It seems possible that that provision might confer powers which are not at the moment enjoyed by the Department of Social Security. The purpose of the amendment is to establish whether that is likely to be the case. Perhaps the Minister can reassure us on that point. I beg to move.
Baroness Hollis of Heigham: Section 110 of the Social Security Administration Act permits the Secretary of State to enter into arrangements with any other government department. Under those arrangements the officers of the latter may act on behalf of the DSS, using DSS powers to enter premises, inspect them and obtain information there for DSS purposes. The only condition is that the premises in question must either be subject to inspection by officers of the other department under their own powers, or be under the control of that other department.
Currently officers in the Contributions Agency may be asked by their colleagues in the Benefits Agency to visit employers to check on the earnings of employees who have made income-related benefits claims. No special power is needed to permit co-operation of this nature as both agencies are part of the same department.
After the staff of the Contributions Agency move to the Revenue, co-operation of this kind remains as desirable as ever to counter potential fraud. But once the staff involved belong to different departments, special provisions are needed to enable those of one department to gather information for the purposes of the other. The purpose of this measure (paragraph 2 of Schedule 4) is to enable that co-operation to continue.
However, I can see why some Members of the Committee, particularly the noble Lord, Lord Higgins, might be concerned that paragraph 2 goes beyond what is needed for the purposes I have just described. For example, officers of the Inland Revenue expert in the valuation of property have for many years had the power to inspect premises for the limited purpose of making valuations needed in connection with those taxes for which the Revenue is responsible, for business rates or for council tax. I accept that an argument could be constructed whereby all such premises could be regarded as liable to inspection by any Revenue official on behalf of the DSS. This is not our intention. I am therefore happy to accept Amendment No. 20, as Inland Revenue officers will still be able to inspect premises on behalf of the DSS where the Inland Revenue controls those premises, or where its officers have reason to inspect them for the purposes of NICs or other transferred functions, which fulfils our intentions. As I said, we are therefore happy to accept Amendment No. 20.
I now turn to Amendment No. 21 which is grouped with Amendment No. 20. The proposed new subsection (5)(a)(ii) in Section 110 simply
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reformulates powers which have been on the statute book for some 50 years. These allow the Secretary of State for the DSS to enter into arrangements with another government department. Under those arrangements the officers of the other department may enter premises, inspect them and obtain information for DSS purposes, so long as the premises in question are subject to inspection by those officers under their own department's powers.
The Committee may be concerned that the new subsection (5) would mean that Inland Revenue officers could be authorised to inspect premises on behalf of the DSS to which Revenue staff had no rights of access, but others, such as safety inspectors did. If so, I can assure the Committee that this is not our intention; nor do we think it is the proper construction of this provision.
The proposed wording of Section 110(5) would provide for two types of arrangement: first, with Inland Revenue staff authorised to inspect premises for contributions purposes; and, secondly, with non-Revenue staff authorised under non-tax and non-contributions legislation. The amendment would remove that second link. Even if that were right as a policy, it is not obviously something to be done in a Bill merely transferring contributions functions. Furthermore, I suggest seriously to the noble Lord that tying the hands of the DSS like this goes against the concept of joined-up government and could damage the fight against benefit fraud. I am sure that that is not his intention. As I say, we have taken his amendments seriously and we are happy to accept Amendment No. 20. However, we do not think it is appropriate to accept Amendment No. 21. I hope therefore that the noble Lord will withdraw that amendment.
Lord Higgins: Christmas presents, however late, are always welcome! As I understand it, the effect of what the noble Baroness has just said also encompasses Amendment No. 22 which stands in the name of my noble friend Lady Anelay of St. Johns and myself. Therefore the amendment will not be moved at the appropriate moment.
On Question, amendment agreed to.
[Amendment No. 21 not moved.]
The Deputy Chairman of Committees (Lord Elton): Before I call Amendment No. 22, I must inform the Committee that, if it is agreed to, I shall not be able to call Amendments Nos. 23 to 27. However, I gather that that is superfluous information.
[Amendment No. 22 not moved.]
Lord Higgins Lord Higgins moved Amendment No. 23:
Page 37, line 47, leave out from ("examine,") to ("in") in line 48.
The noble Lord said: There is a rather curious provision in the Bill as regards the powers exercisable by officers of the Inland Revenue. The Bill states that an officer can conduct an examination,
"alone or in the presence of any other person, as he thinks fit".

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It appears that the Revenue may make what I believe the noble Baroness, Lady Hollis, at Second Reading insisted was a visit rather than anything else. On that occasion I referred to a raid, which may have been a little over the top. In the correspondence—which has been referred to on a number of occasions—I believe she specified how many such controversial visits (if I may put it that way) had been made by the Department of Social Security in any given year. It was certainly a small number. However, on the other hand, I imagine that the number of visits made by the Inland Revenue would be considerably greater. One is concerned that the tendency of the Inland Revenue to make such visits—as compared with the small number of visits by the DSS—might encourage more visits of a controversial nature to be made in the future. Be that as it may. However, to return to the amendment, I am still not clear why the Inland Revenue may wish to be accompanied by "any other person" and whether that is appropriate if the individual in the premises concerned does not wish to see the "other person". I beg to move.
Earl Russell: I hope the Committee will pay some attention to this point because it requires a little thought. We should never legislate on the assumption that "it cannot happen here". Some 999 times out of a thousand it cannot. However, in this of all years one should not think of that as an absolute bar on it ever happening. One must construe vires strictly. As I understand the position, in this case it would be possible for an inspector to inspect a business in the presence of the leading competitor of that business. Would it perhaps be better to state instead of,
"any other person, as he thinks fit"
something like,
"any other appropriate person"?
That would give the court the power to review whether the person was appropriate. It may be that this power—like the power of this House to throw out Acts to prolong the life of a parliament—may not be necessary in many hundred years. One could perhaps argue that it is not necessary because it is there. This is a small change and I hope that the Minister may consider it.
Lord Higgins: Perhaps I might add just one postscript to the point the noble Earl has just made. There have been occasions in the past—I shall not go into them now as they were extremely controversial—when sometimes visits by the Inland Revenue have been accompanied by the media. I presume it is certainly not the intention of the Government to include that kind of provision at this stage.
Baroness Hollis of Heigham: I am slightly baffled by this concern because it is not the same concern as I believe the noble Lord expressed at Second Reading. However, I shall try to develop this point because we are trying to protect the situation of employees, not to add extra people to accompany the inspector. I wonder whether there is some fundamental misunderstanding between us as regards what the clause and its addendums seek to achieve. I shall spell out what it
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seeks to achieve and we can pursue the matter to see whether the misunderstanding still exists. As to the concern that has been expressed, that is certainly not my understanding of the intention of the clause.
I remind the Committee that the powers in new Section 110ZA are merely copying inspection powers which have existed unchallenged for 50 years. They attack the careful attempt made in the Bill to preserve the current balance between inspectors' powers and citizens' rights. The exercise of those powers—I take account of everything the noble Earl has said on that point—has been almost wholly uncontentious. We have no reason to expect that to change as a result of the transfer. In other words, experience would suggest that this is not a problem.
Turning to Amendment No. 23, inspectors have the power to question persons that they find on an employer's premises, or others reasonably believed to be liable to pay contributions. When doing so, inspectors can choose whether to question a person alone or with others. Amendment No. 23 would remove that power.
This power is extremely useful in finding the facts where an employer is suspected of defrauding the National Insurance Fund—for example, by paying employees in cash, which does not go through the books of the business. Such employers, particularly if they were present when the employee was being interviewed, would be in a position to put pressure on employees not to reveal the facts to the inspectors visiting the employer's premises—for example, by threatening to dismiss the employee if he tells the truth or asks the inspector for a private word. Giving the inspector the power to require the interview to be carried on in private overcomes that inhibition. I can assure the Committee that it is not the intention that the power should ever be used to deny a suspect employer the right to have his lawyer or other professional adviser present at an interview. On the one hand we obviously want the employer to have any additional support he may need; on the other hand, we do not wish to have the employee feeling that, because he may have the employer present he must do so, and therefore there is the possibility that intimidation may result.
Amendment No. 24 attacks the right of inspectors to visit any employer's premises to check that NIC rules are being applied properly. Such checks are much more effectively carried out on the spot where records are kept rather than remotely. They can also be concluded much more quickly, and that is to the advantage of the employer. Paradoxically, the power to visit the premises of employment agencies and the offices where pension schemes are administered has been left intact by this amendment. I am not sure of the logic behind the distinction. I cannot believe that it has anything to do with the noble Lord's declared financial interest.
Amendment No. 25 seeks to reposition the borderline between those premises which can be visited to check on the operation of the NIC rules by an employer or self-employed person and those which cannot. At present premises, a house or flat, used wholly as a private residence are not subject to inspection visits; premises used partly for that purpose and partly for trade

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or business can be visited. That is a sensible place to draw the line. The existence of a business and the employment of staff or self-employment go hand in hand. An inspection is best and most conveniently done where the business is run and where its records are kept.
As a result of the amendment, there will be no explicit right to make an inspection visit to the office accommodation of a person carrying on a perhaps substantial business if the office is a room at his home. But if that person takes office accommodation elsewhere, an inspection becomes possible. There is no sense in that distinction.
I surmise that the thinking behind this amendment is that the present rule could lead to an unreasonable encroachment into a person's privacy as, once domestic accommodation is used for a trade or business, theoretically the whole premises become subject to an inspection visit even though only a small part is used commercially. But inspectors have no interest in the parts of a house which are used for purely private purposes.
I turn now to Amendments Nos. 26 and 27. At present, Contributions Agency inspectors make 60,000 visits to employers a year, in almost all cases with co-operation, without the need to threaten use of legal powers. The need to obtain a magistrate's warrant for each visit would be quite inappropriate and a major burden on the courts. I am not aware of any evidence that NIC inspectors have ever abused their powers by visiting premises where there were no reasonable grounds for supposing that people were employed. If the noble Lord has any evidence, of course I shall take it seriously.
Perhaps I may sketch in some background about these visits. The fact that an employer has been chosen for an inspection visit carries no implication that irregularities are suspected. The great number of visits—60,000 of them a year—illustrates that they are largely of a routine nature. Furthermore, inspectors have no right to force entry if their way is barred. In practice, of course, the timing of visits is agreed with an employer beforehand in order that they are as convenient as possible. As the noble Lord said when ironically quoting himself, we are not talking about dawn raids.
If these amendments were accepted, what would a magistrate have to consider when deciding whether or not to grant warrants for up to 60,000 visits? He would have to consider only whether there were reasonable grounds for supposing that somebody was employed, or that there was an employment agency or pension scheme run from the premises. That is not a sensible use of magistrate's time.
It may be that the amendment is intended to require a magistrate to impose a tougher test before granting a warrant; for example, that there must be reasonable grounds for suspecting irregularities. Such a test would be consistent only with a much reduced inspection programme and, inevitably, a far less effective one. Incidentally, such an inspection programme would alter the whole basis of the current inspection programme, rather than the dipstick-like regime that we have at the moment.
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The Committee will be aware that it is not generally true that Customs officials need a magistrate's warrant for entering a premises. For example, a routine visit to check on a trader's compliance with VAT rules requires no search warrant. Such visits are analogous to the routine visits that NIC inspectors make. A magistrate's warrant is required in cases where the power to enter by force is sought. In that case—perfectly reasonably—the magistrate must be satisfied that there are reasonable grounds for suspecting serious fraud.
If it were to be suggested that the Inland Revenue should be entitled to enter premises by force, I would fully agree that at least a warrant from a magistrate, if not a county court, should be required. While I see some attractions in such a suggestion, I do not think that such an extension of powers would be appropriate to this Bill. I do not think that the noble Lord is proposing that any more than a reduction in the existing powers. On all these grounds, I would ask your Lordships to withdraw these amendments.
5.30 p.m.
Earl Russell: Before we leave this matter, perhaps I may ask for some further clarification about Amendment No. 23. The Minister and I appear to have been at complete cross purposes about the meaning of line 48, especially the words "as he thinks fit". The Minister is arguing that those words refer to the inspector's choice of whether he thinks fit to bring another person or to do it alone. I would have no objection at all to that understanding. My understanding had been that he had the option of bringing in any other person he thought fit. Would it not be a good idea to clarify this matter before a court gets hung up on the same misunderstanding that we have had?
Lord Higgins: I entirely agree with the noble Earl. In reality, it is arguable that the clause is ambiguous in that crucial respect. Perhaps the Minister will undertake to look at it again. The noble Baroness has given a very comprehensive reply to the other points and I am inclined to accept the view she expresses with regard to warrants and magistrates' courts and so forth.
One other point arises—certainly not, I hope, in relation to my own interests. As regards premises, would it perhaps tighten the definition a little by saying "a dwelling house not used for a related trade or purpose" rather than carrying out any trade in the home. In the light of the earlier discussion in the House, it may be a poet or whatever. That perhaps would be a little tighter than saying that if any trade is carried out in the house, then they can go into what used to be called an Englishman's castle.
Baroness Hollis of Heigham: Obviously I shall take away both of those points for consideration. This is why I was baffled. When I started, it seemed to me that the criticisms or concerns of the two noble Lords were coming from an almost diametrically opposite position from my understanding of what the clause and the schedule are designed to do, which is to protect the position of employees in the eyes of inspectors so that they are not vulnerable to intimidation. Now that it has

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been pointed out, I shall obviously check that, so that there can be no misunderstanding on the part of the lawyers as regards the meaning of those words. If there is any ambiguity and the words can bear the construction which the noble Earl, Lord Russell, placed on them, then we are obviously very grateful to him for pointing it out. We shall obviously seek to clarify it.
The noble Lord asked about the dwelling house and the poet. I am happy to check whether the wording is as explicit as it ought to be or is too loosely drawn. If we believe that there are any concerns on this point we shall come back with a government amendment. I have no reason to believe that that is the case but it is the job of the House of Lords to scrutinise Bills for ambiguities or misunderstandings. I am happy that we should do so.
Lord Higgins: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 24 to 27 not moved.]
Clause 5 [Disclosure of information]:
Lord Higgins: I had intended to oppose the Question that Clause 5 stand part of the Bill but it may be more appropriate to raise my concerns on the Question that Schedule 5 be the fifth schedule to the Bill.
Clause 5 agreed to.
Schedule 5 [Information]:
Lord Higgins Lord Higgins had given notice of his intention to move Amendment No. 28:
Page 41, line 40, after ("information") insert (", other than information on the identification of persons,").
The noble Lord said: I shall not move the amendment at this stage because I suspect there has been a misdrafting.
[Amendment No. 28 not moved.]
[Amendments Nos. 29 to 31 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 32:
Page 43, line 20, after ("1993") insert ("or Part III of the Pension Schemes (Northern Ireland) Act 1993").
The noble Baroness said: We are back to another of the Government's technical amendments. Paragraph 9(3) of Schedule 5 to the Bill inserts a new subsection (2A) into Section 182 of the Finance Act 1989 to define the expression "social security functions" for the purposes of that section, which prohibits the unauthorised disclosure of information held in the exercise of official functions.
Section 182 has effect throughout the United Kingdom, as will the amendments made by paragraph 9 of Schedule 5. References to "contributions" in the new subsection (2A) are already specifically defined to apply in Northern Ireland and references to statutory sick pay and statutory maternity pay have a currency throughout the UK. However, as it stands, new subsection (2A)(b) will work only for contracting-out legislation in Great Britain. This amendment inserts a reference to corresponding Northern Ireland legislation. I beg to move.
On Question, amendment agreed to.
On Question, Whether Schedule 5, as amended, shall be agreed to?
Lord Higgins: I wish to pursue one or two points. Schedule 5 is concerned with what one might call Chinese walls and the extent to which information may pass from one government department to another. Over the years that has in some respects been tightened by statute and in other respects has been weakened. One point worries me. Paragraph 9(2) of the schedule states:
"No obligation as to secrecy imposed by statute or otherwise on persons employed in relation to the Inland Revenue shall prevent information … from being disclosed … to the Secretary of State".
My understanding is that on matters of the kind that are being dealt with in the schedule such information would not normally be conveyed to the Secretary of State as such.
Perhaps I may give another example regarding the Treasury. It has always been the case that an individual's tax affairs shall not be disclosed to Treasury Ministers. There is always a Chinese wall between the Inland Revenue and Treasury Ministers. That is an important safeguard. I am not clear whether, quite accidentally I am sure, the paragraph to which I have referred would not enable private information about individuals' contributions being transferred without their permission to the Secretary of State.
My other point is one of drafting. Paragraph 8 of the schedule refers to Section 158A of the Pension Schemes Act 1993. When I came to look at the relevant section of the Pension Schemes Act 1993 I was unable to find Section 158A. I am not sure where it is. The Library has provided me with the Pension Schemes Act 1993, which I shall treasure. It may be that the Act has been amended subsequently but, if so, the Library appears to be unaware of it. Perhaps we can return to this point at a later stage. I simply ask whether there is any substance in my first point and no doubt we can consider whether the drafting is correct with regard to my second point.
Baroness Hollis of Heigham: I may receive a note from the Box on that point, but I do not know whether Section 158A of the Pension Schemes Act 1993 has gone astray or whether there has been some misunderstanding between the noble Lord and his source of information. We shall try to let him have an answer.
The noble Lord asked about the interface of information. This schedule introduces provisions on the exchange of information between government departments which are needed to allow the Inland Revenue, the Department of Social Security and other bodies to carry out their functions following the merger of the Contributions Agency with the Inland Revenue as a consequence of our Bill. In many cases the provisions do no more than revise existing legislation on such exchanges of information to reflect the fact that the Inland Revenue rather than the Secretary of State is now responsible for contributions, statutory maternity pay, sick pay and contracted out pensions.

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In other cases the provisions reflect the fact that the way in which the Inland Revenue's duty of confidentiality has developed over the years means that it can disclose confidential information only where there is a specific legislative provision allowing it to do so. So a specific provision is needed in this schedule to enable the Inland Revenue rather than the Secretary of State to provide contributions-related information to the Office of National Statistics.
Section 158 allows Inland Revenue officials to speak directly to either DSS policy officials or Benefits Agency staff about the pension position of individuals or schemes. Without that facility, the Inland Revenue might not be able successfully to resolve an individual's query. As I understand it, there is nothing within the Bill that involves the passing of information to the Secretary of State.
It may be worth stressing at this stage that the changes which I describe do no more than allow the Inland Revenue, the Department of Social Security and other public bodies such as the Office for National Statistics continued access to the information that is essential for the carrying out of their functions. In effect, the boundaries across which information can be supplied need to be redrawn to reflect the fact that the Contributions Agency will become part of the Inland Revenue but will be formally separated from the remaining operations of the Secretary of State in relation to social security.
What these provisions do not do—I hope I am able to allay the noble Lord's concerns—is allow any new general pooling of tax and social security information. Such provisions have no place in a Bill which is designed to do no more than transfer specific responsibilities from the Secretary of State to the Inland Revenue.
If the noble Lord thinks it helpful, I am happy to enlarge on what information about the citizen may be passed between government departments. I shall develop that point if the noble Lord wishes. It appears from his nod that he wishes me to do so; therefore I shall say a little more about the detail of the schedule.
Paragraph 1 introduces new Sections 121E and 121F into the Social Security Administration Act 1992. Section 121E provides for information held by the Inland Revenue relating to contributions, statutory sick pay and statutory maternity pay to be supplied to the Secretary of State for Social Security or the Department of Health and Social Services in Northern Ireland for functions relating to social security, child support or pensions. The information in question is, for example, the National Insurance contributions record of an employed person which may be essential for the Secretary of State to determine whether the claimant is entitled to a social security benefit.
Section 121F is the companion provision covering in similar terms the reverse flow from the Secretary of State to the Inland Revenue of social security information which may be required for the purposes of the Inland Revenue's functions relating to contributions, statutory sick pay or statutory maternity pay.
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In practice the great bulk of the information that the departments require from one another will automatically be available to them through their joint access to the National Insurance record system computer. I say that to reassure noble Lords that the merger will not lead to a paper chase with the Inland Revenue and the DSS passing information backwards and forwards to one another.
Paragraph 3 of Schedule 5 introduces a new section, Section 122AA, into the Social Security Administration Act 1992. This provides the explicit statutory gateway for the IR to disclose the information it now holds in relation to contributions, statutory sick pay or statutory maternity pay to certain public bodies. Those bodies are the Health and Safety Executive, the Government Actuary's Department, the Office for National Statistics and the Occupational Pensions Regulatory Authority.
In each case the Secretary of State already provides the relevant information in relation to contributions, etc., to enable those bodies to carry out their functions. This new section allows the IR to continue to provide such information, for the same purposes, after the merger.
Paragraph 4 of Schedule 5 removes the existing Section 122A of the Social Security Administration Act 1992. As Section 122A relates only to the supply of information by the Inland Revenue to the Secretary of State for purposes relating to contributions, it will become redundant once the Secretary of State ceases to have responsibility for contributions.
Paragraph 5 of Schedule 5 is another tidying up provision, again reflecting the fact that the Secretary of State no longer needs information (in this case from government departments other than the IR) relating to contributions.
Paragraph 10 again recognises that the Secretary of State will no longer need, or be in a position, to pass information about contributions to the Inland Revenue, which has assumed responsibility for them. It also makes clear that these existing provisions for passing information to the Inland Revenue are unchanged by the separate specific provision introduced concerning exchange of information on contributions, etc. That draws a clear line between the new disclosures of information concerning contributions, etc., and the existing ones concerning disclosure of tax information. The latter continue unchanged.
Noble Lords will note that this schedule does not extend to the Inland Revenue the extensive powers of information exchange, for example with local authorities, that the previous administration gave the DSS in 1997. On balance, we were not convinced that such an extension was an essential part of a Bill we intend as a transfer of present information flows.
In the light of those explanations, I hope that the noble Lord is able to withdraw his objection to the schedule and that the Committee will accept it.
Lord Higgins: The Committee will be grateful for that reassuring statement by the Minister on a matter on which we are rightly concerned.

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Perhaps I may express gratitude to my noble friend Lord Skelmersdale, who has been more assiduous than I in reading the helpful Explanatory Notes. They point out that,
"Section 158A was inserted by Schedule 6, paragraph 9, Pensions Act 1995",
and that that is its origin. My noble friend is both assiduous and more up to date than I am and the Minister need not bother to pursue the matter. On the important broad issue, we are grateful for her reply.
Schedule 5 agreed to.
Clause 6 [Use of information by Board]:
Lord Higgins Lord Higgins moved Amendment No. 33:
Page 3, leave out lines 10 and 11.
The noble Lord said: The effect of this amendment is to raise the question of how much confidential information may go to outsiders. The clause states that the information,
"may be supplied to any person providing services to the Board for [the purposes specified]".
One was worried about the extent to which information held by the board or by a person providing services to the board could effectively be passed to third parties even though they were undertaking work for the Government. There was some concern that the provision might lead to some leakage of otherwise confidential information to people who might misuse it. It is not clear to me from the words of the subsection whether that might apply to Inland Revenue information as well as to information obtained by the DSS at present. Perhaps the Minister would clarify that point.
Baroness Hollis of Heigham: I understand the noble Lord's concern. It is one that I shared in relation to previous social security Bills driven through by his government. I pursued almost identical amendments. Whether I shall persuade him more satisfactorily than his predecessor the noble Lord, Lord Mackay, managed to persuade me, we shall have to wait and see. However, he had a larger number of troops. Who needs arguments when you have bullets?
The overall intention of Clause 6 is to enable the board to make appropriate use of the information which is available to it for carrying out its various functions. The noble Lord identified that. It includes being able to pass information freely to the contractors who provide the board with services, with the proviso always, of course, that the information can be used by those contractors only for the purpose of providing services to the board. Those service providers are contractually bound to keep data confidential. I absolutely understand the noble Lord's concern; he was worried about leakage and therefore whether there would be a risk of or temptation to impropriety.
The provision mirrors and in fact is based on that in Section 3 of the Social Security Act 1998. That section allows the pooling of information held by the Secretary of State for Social Security in respect of social security, child support and war pensions. It also specifically allows the Secretary of State to supply any such
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information to a person providing services for use in connection with the exercise of functions for social security, child support or war pensions.
The provision in Clause 6 does no more than repeat a provision which noble Lords have already recently endorsed in relation to social security, and under the previous administration, in other fields of social policy. It is as essential for the proper operation of the board of Inland Revenue as it is for the proper operation of the Department of Social Security that such a provision be in place. The Committee will note that the contracting out of computer services which requires this provision was the policy of an earlier administration. That is where the concerns were first raised.
I should stress that, as with the existing Section 3 of the Social Security Act 1998, there is no question or should be no question of confidential information being passed to contractors for indiscriminate use. The sole use which can be made of such information is in relation to the services provided to the Inland Revenue by the contractor. The contractor in those circumstances is doing no more than acting on behalf of the Inland Revenue.
I therefore urge your Lordships to reject the amendment which would significantly interfere with the computer services currently provided to the Contributions Agency, essentially by private operators. If the noble Lord has any further worries about what controls we have in place then I should be happy for him to see any appropriate standard conditions of contract, in so far as they are not commercially sensitive, in order to reassure him. I have regularly expressed those concerns and they have also come from the Lib Dem Benches in the past. I hope that with those assurances and any extra information that the noble Lord might desire, he will feel able to withdraw his amendment.
6 p.m.
Lord Skelmersdale: Before my noble friend does that, I am not sure what the clause is getting at. What kind of contractors are we talking about? Can the noble Baroness give an example? I am sure it would make it much easer for me to understand.
Baroness Hollis of Heigham: The obvious example and the one which I have been discussing with my officials is providers of computer services.
Lord Higgins: We need to consider this, given the fact that the Minister previously shared our qualms about the issue and that she will examine it again. In those circumstances I would not wish to pursue the matter further at this stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 agreed to.
Clause 7 [Decisions by officers of Board]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 34:
Page 4, line 4, leave out from beginning to first ("to") in line 5.
The noble Baroness said: In moving this amendment, I wish to speak to Amendment No. 36 with which it is grouped.
These two linked amendments deal with a drafting matter only. They move words which constrain the ambit of an appeal, rather than a decision about directors' liabilities, from Clause 7 which relates to decisions by officers of the board to Clause 10 which relates to appeals against such decisions. I beg to move.
Lord Goodhart: I wish to raise a drafting point. On page 4, if all the words in line 4 to the first "to" in line 5 are removed, the reference at the end of line 6 to "that Act" must become a reference to the Social Security Contributions and Benefits Act 1992. That was the last Act previously mentioned. I believe that that cannot be right. A further amendment is needed so that at the end of line 6 the reference to "that Act" must become a reference to the Social Security Administration Act 1992.
Baroness Hollis of Heigham: I am not sure whether that is so. It would be better if I take the issue away and consider whether the noble Lord's comment is correct. If it is and he is right, we shall have to bring forward a further amending amendment.
On Question, amendment agreed to.
Clause 7, as amended, agreed to.
Clause 8 [Regulations with respect to decisions]:
Baroness Anelay of St. Johns Baroness Anelay of St. Johns moved Amendment No. 35:
Page 5, line 11, leave out ("may") and insert ("shall").
The noble Baroness said: In moving this amendment, with the permission of the Committee I shall also speak to Amendment No. 51 which is in my name.
First, I wish to add my thanks to those expressed by my noble friend to the Minister for the full explanation she gave before the debate today with regard to questions raised at Second Reading. I also thank her for the offer of the meeting on Tuesday. I regret that because of the late change in timing of that meeting this week, I could not attend. However, I was grateful to have the opportunity to speak to her office yesterday and give details of the objectives behind my amendments.
Before I turn to the substance of the amendment, perhaps I may explain that the purpose of all three amendments to which I shall speak this evening is to attempt to get a picture of what the new appeals procedures will be like for those taking part, whether they be the appellants or those sitting on the tribunals. I am trying to look at it in a pragmatic manner so that there is an explanation on the record of the Committee as to the Government's expectations with regard to the new appeals procedures.
Therefore, as the Committee will realise, this is a probing amendment, phrased with the assistance of the Public Bill Office. I appreciate that the questions I ask may go wider than the amendment, but I was trying to save the Government's time and to hang quite a few questions on this one amendment.
The Minister has already answered some of my points from Second Reading in her letter of 17th December. In particular, I am grateful to her for explaining the role of the Lord Advocate about which I had serious concerns. The letter is in the Library of the House for public reference.
On this issue I am concerned about the uncertain role of medical experts. At present the Bill states, referring to the board, not to the UAT, that:
"Where it appears to an officer of the Board that a matter before him [or her] involves a question of fact requiring special expertise, he may direct that in dealing with that matter he shall have the assistance of one or more experts".
My amendment states that the officer "shall" direct that he should have such expert help. My questions revolve around the issue of what the regulations will state on the occasions when the officer of the board should seek advice. What are the Government's expectations about when an officer of the board shall seek advice? If officers seek advice and the expert—perhaps a medical expert—comes along, the board listens and may decide not to accept the advice. Having been given advice, the appellant hears that the officer of the board decided to disregard it. Two questions follow from that. What is the position with regard to the appellants? Are they able to take further measures to appeal against the fact that the officer ignored the advice? Are they able to adduce their own evidence which may be taken by the board on that or another occasion, in contradiction of the advice that was ignored or in support of it? Either scenario might transpire.
I ask the question because I am familiar with the procedure within the unified appeals tribunals system as to what further redress may be available to the appellant. However, I am not aware of what further redress will be available to the appellant in the new system of appeals. It is new, of course, only because of the transfer of functions. I am aware that there is an appeals procedure in existence but it is a question of how it will impact on these new client groups. That is an appalling definition, but one that is customarily used.
One of the problems is that so much of this is to be subject to regulation. I do not blame the Government for not printing the regulations at this stage. I am aware that that is customary practice but it would be most helpful if the Minister could give an indication of the expectations of the Government.
Amendment No. 51 proposes leaving out paragraphs 24 and 25 which remove the current ability of the DSS or an appeal tribunal to require statutory sick pay and statutory maternity pay claimants to take a medical. It is a probing amendment, to give the Government the opportunity to put on record why that change is required. I beg to move.
Lord Skelmersdale: I support my noble friend in her remarks in relation to Amendment No. 35 which predicates that the officer of the Board does not have that special expertise himself and therefore needs to obtain it elsewhere. I hope that the Minister can tell us

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that this is one occasion when "may" means "shall". If not, I have no doubt that my noble friend and I will have further questions to ask.
Baroness Hollis of Heigham: I am so relieved that the noble Lord will only have further questions to ask without commitment to further amendments before hearing the reply.
These two amendments deal with expert advice, particularly medical advice, available to officers of the Board. Before I deal with the amendments, and the points raised by the noble Baroness, I should first explain the background and why the clause is needed. Clause 8 is based, and indeed largely lifted straight from, Section 11 of the Social Security Act 1998. It provides the framework for Inland Revenue decisions on the issues that are set out in Clause 7. It provides for regulations to be made by the Board of Inland Revenue covering these decisions.
Turning now to Amendment No. 35, this would mean that if it appeared to an officer that any decision they were making involved a question of fact that required special expertise, then they would have to obtain the assistance of an expert in making that decision. This would mean that every such decision would require expert assistance. Public money would have to be spent even if the sums at stake on the decision were trivial.
In practice the Board will write guidance for their officers to follow in making decisions. We do not think it likely that there will be many cases in which officers will need expert guidance of the kind not currently available from current CA or Inland Revenue experts. If a particular matter looks likely to arise more than occasionally, then the Board's guidance to its officers will include appropriate guidance, Where appropriate that guidance would be written with expert assistance. Where such a question arose sufficiently frequently then the Board would consider whether it was appropriate to employ experts. Certainly, the Board would not expect staff untrained in such matters to make judgments on, for example, medical matters. We intend that the Inland Revenue will have access to medical advice from SEMA doctors, who currently provide such advice to the Benefits Agency.
By making the assistance of experts mandatory, the amendment does not take account of whether such additional assistance is necessary in the light of what is available in terms of internal guidance, or in relation to the significance of the decision. By requiring the Inland Revenue to seek expert help, even when written guidance was available, this amendment could impose an unjustified administrative and financial burden on the Board without any objective improvement in the decision-making process.
Similarly, Amendment No. 51 seeks to retain the Social Security Act 1998 provisions which allow the Secretary of State, when making decisions on entitlement to statutory sick pay, statutory maternity pay or an appeal tribunal, when determining an appeal against such decisions to those benefits, to refer the person concerned to a medical practitioner for examination and report.
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If accepted, the amendment would leave in place a provision which could never be used. That is because the Bill provides that decisions about entitlement to statutory sick pay or statutory maternity pay will in future be determined by officers of the Board, and appeals will be heard by tax appeal commissioners. Neither the Secretary of State nor tribunals constituted under the Social Security Act will determine entitlement to these benefits.
6.15 p.m.
The noble Baroness asked what would happen if medical advice were not taken, or taken into account; and what redress would be available. It may be helpful if I explain how decision-making on statutory sick pay works. The first point is that questions relating to entitlement to these benefits are normally made by the employer concerned. They are referred for a formal decision only where agreement cannot be reached between the employer and the employee. Such referrals mostly concern questions of whether the person making the claim is an employee or what are their average earnings. Very few cases referred for a decision, and even fewer appeals, raise the issue of the employee's medical condition, even with SMP and SSP. The noble Baroness's question concerns only a very small minority of cases. I asked for the statistics this morning, and of 500 cases a year concerning SSP or SMP, perhaps only 50 involve a medical issue. The rest are likely to be related to linking rules or employment rules and therefore do not require expert medical advice at all.
If medical evidence is required, it will almost invariably be because an employer is disputing that an employee is or was incapable of work at a certain time. In the first place, it will be for the employee to produce medical evidence in support of his claim. This will normally be a medical certificate. Where this does not satisfy the employer, he may well seek a more developed written report from the employee's GP or consultant, which will be available both to the officer of the Board of the Revenue and the employee.
The officer of the Board will consider the medical evidence provided. Clause 8 enables him or her to seek the assistance of an expert where it appears that a matter involves a question of fact requiring special expertise. In the light of the fact that very few medical disputes are anticipated it is likely that the officer will call upon such assistance in most cases—the likely exceptions being where the sums at stake do not justify the cost of expert advice.
Indeed, if the officer did not seek advice, or failed to take proper account of it, he or she would have a thin case to put before the appeal commissioners. The appellant can put his or her evidence directly to the commissioners. The likely result would be that the commissioners, looking as they do at the balance of evidence before them, would find for the appellant.
Accordingly, the first route of redress in these few cases would be to seek a hearing before the appeal commissioners. Then, in the process of seeking to settle an appeal by agreement rather than by formal hearing,

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the official could reconsider the need for specialist advice in the circumstances, as happens already for tax issues.
Ultimately, and I hope such cases never materialise, revised codes of practice on official error, the adjudicator and the ombudsman, offer other routes of redress.
I believe this to be a practical and fair approach to the small number of disputes that will arise on SSP/SMP entitlement issues. I hope the noble Baroness is content with my explanations of how the arrangements for statutory sick pay would work and is content to withdraw the amendment.
Baroness Anelay of St. Johns: I am grateful to the Minister for that information, particularly with regard to the further redress available to appellants within the new system of appearing before this Board rather than before the UAT. The noble Baroness stated that it is anticipated that there will be approximately 500 cases a year of SSP and SMP, of which only 50 would require medical advice.
Baroness Hollis of Heigham: That is the current situation. I have no reason to think that it will change, but I would not like there to be any misunderstanding.
Baroness Anelay of St. Johns: I am grateful to the noble Baroness for that clarification. Even on the basis of only 50 individuals, whether medical advice is not only sought but taken seriously and accepted can be a very important matter for them. I raise these issues in the context of concerns at UATs where medical experts are in a somewhat invidious situation. Do they offer advice independently or must they wait to be asked? However, on the basis of the explanation given by the noble Baroness about regulations relating to the use of medical experts, their role may be clearer at the board than it is currently at the UAT. In those circumstances, I beg leave to withdraw the amendment
Lord Skelmersdale: Before my noble friend seeks to withdraw her amendment, I threatened the Minister with a further question if I was unhappy with her answer. I am afraid that I am unhappy with her answer in relation to Amendment No. 35. In the introduction to her response to my noble friend she made two points. First, she said that guidance would be given to officers of the board. Secondly, she said that were my noble friend's amendment accepted on every occasion, special expertise or the advice of experts would be required. Surely, that is not true because the ball is very firmly in the court of the officer of the board. Subsection (2) provides:
"Where it appears to an officer of the Board that a matter before him involves a question of fact requiring special expertise …"
If the special expertise is already there in guidance notes it will not appear to him, will it? Therefore, we are considering the absence of expertise available to the officer. In those circumstances, surely it is only right that he should obtain it. It does not particularly matter whether the wording is "he may direct that in dealing
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with that matter he shall have the assistance of one or more experts". It will be his decision whether or not he needs it.
Baroness Hollis of Heigham: I wonder whether we are chopping words here. Clearly, if the advice that the officer needs to draw upon is available by written guidance, the question is whether that is "expert" or "expertise". That appears to be the difference between the two. I am not sure what point the noble Lord seeks to make. Where there is a frequently occurring problem, we expect it to be covered in the normal guidance and that will provide the expertise required. I suspect that that will relate largely to employment law. There may be many more individualised cases that are medically or disability-based where that expertise is not available to the officer of the board because he has not had medical training. He will be expected to seek such advice as is appropriate.
But we do not seek to lay down expert advice, in the sense that a person must always be required to come in, where it can be covered either by written material or the costs are disproportionate to the money in dispute. I am not sure that there is any difference. The noble Lord may want to read the answer carefully. If he is still concerned perhaps he will write to me. If he still feels he has not had a response to his question, he has at least two further opportunities to move amendments in order to deal with this issue.
Baroness Anelay of St.Johns: Obviously, my noble friend is a little more combative than I but I defer to his experience. He has served as a Minister in the Department of Social Security and I have not. The Minister is worried that I may encourage my noble friend. I must inform the Minister that I shall be delighted to defer further to my noble friend but on this occasion, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 agreed to.
Clause 9 agreed to.
Clause 10 [Appeals against decision of Board]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 36:
Page 5, line 37, at end insert—
("( ) This section has effect subject to section 121D of the Social Security Administration Act 1992 (appeals in relation to personal liability notices).").
On Question, amendment agreed to.
Clause 10, as amended, agreed to.
Clauses 11 to 14 agreed to.
Clause 15 [Decisions under Pension Schemes Act 1993]:
The Deputy Chairman of Committees (Lord Murton of Lindisfarne): If Amendment No. 37 is agreed I shall be unable to call Amendment No.38 because of pre-emption.
Lord Goodhart Lord Goodhart moved Amendment No. 37:
Page 7, line 43, leave out from beginning to end of line 24 on page 8 and insert—
("(4) Provision may be made by the Inland Revenue by regulations as to the making by their officers of any decision under or in connection with this Act which falls to be made by such an officer.
(5) Subsections (2) and (3) of section 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and sections 9 to 12 of that Act shall apply to relevant decisions as they apply to decisions under section 7 of that Act."").
The noble Lord said: My great moment has arrived and I now have an amendment to move. Having looked through the Marshalled List I find that the noble Lord, Lord Higgins, and the noble Baroness, Lady Anelay, have together tabled some 25 amendments plus 10 objections to stand apart. That makes me feel like an ordinary worker in a soviet factory faced by a couple of Stakhanovite champions who have greatly exceeded their norm.
The effect of Amendment No. 37 is to transfer from social security tribunals (if I may be forgiven for using that expression because I am aware that technically that is no longer their name) to the Commissioners of Income Tax appeals from certain decisions which under this Bill are to be taken by officers of the Inland Revenue. The background to this particular amendment has involved me in a lengthy paper chase. It is an example of the extreme complexity of legislation in this field. I agree with the earlier comments of the noble Lord, Lord Higgins, about the remarkable and excessive complexity of this matter.
One begins with Section 17 of the Social Security Administration Act 1992 which provides that contribution questions are to be decided by the Secretary of State. Those questions include matters such as whether a person is an earner and, if so, the category to which he belongs. It also includes a large number of other contribution questions. Section 170 of the Pension Schemes Act 1993 adds certain other questions to those which fall to be decided under Section 17 of the 1992 Act by the Secretary of State for Social Security. Those questions relate to contracting-out; for example, the amount of guaranteed minimum pension to which the member of a pension scheme is entitled. But the question whether employment is contracted-out employment, which is a particularly important matter here, and some other questions are to be decided not by the Secretary of State but the Occupational Pensions Board. Section 170 was amended by the Pensions Act 1995. That abolished the Occupational Pensions Board whose functions in determining these questions were transferred to the Secretary of State for Social Security. That became effective on 1st April 1997. Therefore, questions relating to contracting-out have been decided by the Secretary of State for less than two years.
The next step was that Section 170 of the 1993 Act was replaced entirely by paragraph 131 of Schedule 7 of the Social Security Act 1998, which this House debated late in the previous Session. That provided for the review of decisions on contribution questions to be dealt with under that Act and for appeals to social
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security appeal tribunals under Section 12 in terms that are more or less identical to Clause 15(6) of the present Bill.
I turn to the present Bill. Clause 15(1) transfers to the Inland Revenue decisions on questions arising under Section 170 of the 1993 Act in its original form—as it relates to contracting-out—and Clause 15(2) transfers to Inland Revenue officers decisions on all questions, with an insignificant exception, under Part III of the Pension Schemes Act 1993. Part III concerns decisions on certification of schemes as contracted-out, the consequences of contracting-out on contributions and rights to benefit and the consequences of termination of contracted-out status.
Under Clause 15(4),reviews of those decisions are to be made by officers of the Inland Revenue. Under Clause 15(6) an appeal lies to the social security appeal tribunal. The purpose of our amendment is to treat decisions under Clause 15 in exactly the same way as all other powers of decision transferred by the Bill to the Inland Revenue, both for the purposes of variation and for the purposes of appeal. It seems logical and obvious that if the primary decision is to be taken by an officer of the Inland Revenue, an appeal should lie with the commissioners of income tax through the appeal procedure of the same department. So, why is it that appeal to the social security appeal tribunal is being preserved?
On Second Reading the noble Baroness, Lady Hollis of Heigham, said that it was not appropriate to refer those appeals to the general commissioners of income tax, with which I agree. She also said that it was not appropriate to refer the appeals to the special commissioners because they do not necessarily have pension expertise. However, in a letter to the noble Lord, Lord Higgins, which has been copied to me, the noble Baroness has given a different reason. Perhaps I may just explain what that is. The noble Baroness said:
"Such disputes as there are in contracting-out matters generally arise in connection with an individual's SERPS entitlement. SERPS is administered by the Benefits Agency and appeals on SERPS matters will go to UATs"
—what I call the social security appeal tribunal—
"The issue at stake in such appeals is very much to be whether someone was in contracted-out employment and, if so, what amount of Guaranteed Minimum Pension should be deducted from the amount of that individual's SERPS entitlement. It is extremely rare for a dispute to center on, for example, the refusal to issue a contracting-out certificate or to be about the terms of such a certificate. So on balance we felt that any such appeals about certificates should also go to a tribunal with SERPS experience, rather than the tax appeal Commissioners".
I do not find that argument any more convincing than the first argument. I suspect that there will be very few appeals on rights to SERPS. The amount of SERPS is conditional only on the number and amount of payments. Those are ascertainable facts and matters of record. They are quite different, for example, from the question of whether a claimant is entitled to a disability benefit. It is extremely unlikely that there will be more than a handful of SERPS appeals and it seems to me doubtful that any social security appeal tribunal will be able to build up any degree of expertise in that subject.
In my view, it is awkward and illogical to have most decisions of Inland Revenue officers on contribution issues subject to appeal to the commissioners of income tax, but a small category subject to the social security appeal tribunal. I believe that can be justified only if the appeal tribunal is plainly a more appropriate body. I suggest that the special commissioners of income tax are at least as capable of deciding questions under Part III of the Pension Schemes Act as the social security appeal tribunal, and probably more capable. They have wide experience of deciding the course of the appeals that they hear with exceedingly technical questions on a wide variety of subjects. I would regard the issues under this clause as wholly within their capacity and, therefore, I believe that that is a much more appropriate body than the social security appeal tribunal.
6.30 p.m.
Baroness Anelay of St. Johns: It may be convenient if I speak to Amendment No.38 which is grouped with Amendment No. 37. As the Chairman of Committees has pointed out, if the amendment of the noble Lord, Lord Goodhart, were accepted, mine would not be called. I begin the New Year in the extraordinary position of having to agree with virtually every word that the noble Lord, Lord Goodhart, has uttered so far and I support what he has argued with regard to his amendment.
Amendment No.38 was tabled as a probing amendment on the advice of the Public Bills Office and as a peg on which to hang some questions about the composition of the tribunal which will hear the appeals, regardless of the argument of the noble Lord, Lord Goodhart, that it may not be the appropriate tribunal in this case.
On Second Reading, I referred to the fact that appeals on contracted-out issues had been left with the UATs and I sought clarification about the implications of that for the appellants. I was interested particularly in the Government's view about the number who would sit on the UATs to hear appeals. I thank the Minister for her letter of 17th December, to which the noble Lord has already referred. Further on in that letter, the noble Baroness gives an explanation, to some extent, about the way in which the UAT will function in regard to appeals.
I asked questions on Second Reading with regard to waiting times that appellants may anticipate. However, I was concerned also about the number of people who will sit on the tribunal. In the letter, the Minister refers to the fact that:
"The current statutory requirement for three person tribunals makes hearings difficult to arrange and contributes to delays. So appeals to the current social security tribunals take, on average, seven months to be heard".
I appreciate that that is nothing new; it is a matter of fact. It is difficult to empanel three member tribunals. On the other hand, three member tribunals have a valuable part to play. During discussions on the Social Security Act last year, several noble Lords, of whom I was one, were concerned that we might be drifting or
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being pushed by the Government to end up with UATs—as they are now—routinely sitting with fewer than three people.
The reason for speaking to Amendment No.38 today is to elicit from the Government an explanation of whether they expect the appeals which are left with the UAT under this Bill to be heard routinely by three person tribunals or by tribunals of fewer than three people. The Minister's answer to that would give me some guidance as to whether I raise further matters at a later stage.
Lord Skelmersdale: Having made the decision to transfer the Contributions Agency and most of its attendant pieces to the Inland Revenue,it seems that, yet again, the Government are drawing back from that conclusion. We have had several examples during the course of the day, either in amendments or in responses to amendments, showing that the Government clearly do not believe 100 per cent. in what they are doing. They are keeping matters back when, in my judgment, they should not be kept back and they should go lock, stock and barrel to the Inland Revenue.
Baroness Hollis of Heigham: I shall deal with that last point first. It is not that we do not believe in what we are doing and, therefore, we are keeping things back. Clearly, there is a whole series of issues on which we are trying to make a pragmatic decision, given the number of appeals and existing arrangements in organisations elsewhere. Rather than set up special machinery, it may be preferable to use existing machinery, integrated in that way. That is our response.
I shall stand back a moment and try to set the context for the issues that the noble Lord, Lord Goodhart, has raised today and which he also raised on Second Reading. As I am sure your Lordships are aware, Clause 15 amends Section 170 of the Pension Schemes Act 1993 which is concerned with the decision-making and appeals process for the contracting-out of SERPS.
Contracting-out of SERPS is administered by the Contracted-out Employments Group of the Contributions Agency, known as COEG. COEG will transfer to the Inland Revenue with the rest of the Contributions Agency. Responsibility for policy and legislation on contracting-out will remain with Social Security Ministers.
The Inland Revenue will be responsible for making decisions and managing disputes on those decisions. Clause 15 makes the necessary amendments to Section 170 of the Pensions Schemes Act 1993 to enable Inland Revenue officers to make decisions on these matters.
However, as the Committee identified, any appeal on contracting out will be to a DSS unified appeal tribunal, and thereafter to social security commissioners in accordance with the provisions of the Social Security Act 1998 and supporting regulations rather than to tax appeal commissioners. That deals with the point about whether or not we believe in what we are doing.
I am aware that there are some concerns about the decision we have taken. At Second Reading, the noble Lord, Lord Goodhart, questioned our reasoning for

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retaining the social security appeal route, noting that at least the special commissioners are experienced in dealing with pension matters in the context of approval of tax relief. As she did today, the noble Baroness, Lady Anelay, spoke on this issue.
Amendment No. 37, tabled by the noble Lord, Lord Goodhart, places contracting-out decisions and appeals under the remit of the tax commissioners, demonstrating that the noble Lord considers that the new DSS unified appeal tribunal to be the wrong body to deal with contracting-out matters. I can see the ground for that argument: that contracting-out matters should follow the tax appeal route. However, those arguments fail to recognise the practical interaction between the state scheme and contracting out. The reality is that when disputes arise—and I stress that that is rarely—they arise not in the context of employers and whether or not they satisfy the conditions to be awarded to a contracting-out certificate but rather in the context of the amount of contracted-out pension due. Therefore, we need a decision and appeal-making system which ensures that when appeals arise they are dealt with by the body which can best respond to the needs of the appellant.
UATs will handle SERPS appeals; and experience has shown that questions about the contracted out pension—for example, the guaranteed minimum pension—often arise as subsidiary points to the main SERPS appeal. Therefore, if an appeal is raised specifically on the contracted-out pension the right body to hear it is a DSS unified appeal tribunal given that it will be dealing with SERPS appeals more generally. We do not think that it would be right to send those appeals to tax commissioners who have no expertise in that area and do not deal with benefits.
The only appeals which could readily be referred to tax commissioners would be those relating to contracting-out certificate, as it could be argued that there are some parallels with appeals concerning tax approval for pension schemes. But again the reality is that appeals are extremely rare in this area. The unit, COEG, has a good working relationship with employers and scheme administrators and a history of resolving disputes quickly, effectively and to the satisfaction of all concerned.
I understand that since contracting out was introduced in 1978 there has been only one dispute related to certification which needed to be escalated for resolution to the then occupational pensions board. At that time the occupational pensions board was the equivalent of a tribunal for contracted-out pension matters. We have no reason to think that matters will be different in the future. Rather than making alternative provision for such exceedingly rare cases, we suggest that it makes sense for any such appeals to go to the same body as SERPS appeals.
Where an appeal contains a technical point relating to private pensions, we have provided for the tribunal to seek the assistance of an expert witness such as an actuary or pensions lawyer. Appellants can also take expert advice and present it to the tribunal in support of their appeal. Although I accept that the system is not perfect—it is one of those areas where there is a genuine
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overlapping of mutual responsibility—it provides a pragmatic solution, given the number and type of disputes that occur on contracting out; and for the extremely rare case which might arise every now and then it seems a price worth paying if it means a unified, coherent and transparent appeal system for contracting out.
Amendment No.38, tabled by the noble Baroness, Lady Anelay, concerns contracting-out matters. The amendment puzzled us. However, our reading of it was not the same as the noble Baroness's explanation of what the amendment intended to convey. Our reading of it suggested that the amendment removed the appeal route for contracting-out decisions and offered no alternative. I know that the noble Baroness did not intend to take away such a fundamental right, but that was the effect technically of the amendment. However, the noble Baroness made it clear that she was using the amendment in order to probe what we had in mind as regards the constitution of the tribunal and membership.
Some of those issues were raised when we discussed the social security decision-making appeals legislation. We expect that 75 per cent. or thereabouts of all appeals will continue to be heard by tribunals consisting of two or three members. I do not expect that these matters will be heard by a tribunal of three members, although the president of tribunals could so certify if he thought that that was in the best interests of decision-making. We would expect, for example, that there might be one legally qualified person, plus one expert. That would give more expertise at a UAT than at a special commissioner's tribunal if one of the members were legally qualified. Alternatively, it could be two tribunals together and one expert. Although there may not be three members, we think that the members will have the relevant expertise—expertise possibly greater than that which the special tax commissioners may enjoy. Given the rare number of cases, it is more pragmatically sensible to integrate those into the appeal structure of the UAT.
We think that the system should work well. However—hence the wrap-around clauses—our judgment could be wrong. Future pensions legislation may open up areas of concern which we have not yet envisaged. We shall soon discuss Clause 22. The current debate on the appropriate appeal route is an excellent example of why Clause 22 is desirable. Clause 22(1)(d) provides for switches by Order in Council of appeals between the tax appeal commissioners and the unified appeal tribunals. I can assure the Committee that if the system is not working, and if the worries of the noble Lord, Lord Goodhart, are confirmed, when the show is on the road we have the necessary mechanism to reverse the situation. We all want it to be a satisfactory, expeditious, appropriate and fair appeal system. If the route that we propose, which we believe to be best given the rarity of the cases, turns out not to be so, we have a fairly straightforward way of ensuring that we can alter the position to ensure that we achieve our objectives.
6.45 p.m.
Lord Goodhart: I shall read with great care what the noble Baroness said. I am not sure that I shall be

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persuaded that my view is wrong. However, I take some comfort from Clause 22(1)(d) which enables the jurisdiction to be transferred if it turns out that I am right. However, for today I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.38 not moved.]
Clause 15 agreed to.
Clauses 16 and 17 agreed to.
Schedule 6 [Decisions and appeals]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 39:
Page 45, line 6, at end insert—
("10A. In paragraph 8 of Schedule 2 to the Social Security Contributions and Benefits Act 1992 (application of Part V of Taxes Management Act 1970 in relation to Class 4 contributions), for the words from "but nothing" to "arising—" there is substituted "but nothing in this Schedule affects the extent to which the Income Tax Acts apply with respect to any decision falling to be made—".").
The noble Baroness said: In moving Amendment No.39, I shall speak also to Amendments Nos.40 and 65 with which it is grouped.
The purpose of these three technical amendments is to bring provisions of existing legislation—as to the application of tax legislation to Class 4 contributions—into line with changes made elsewhere by this Bill.
Paragraph 8 of Schedule 2 to the Social Security Contributions and Benefits Act 1992 at present excludes from the application of the taxes Acts the categories of Class 4 contributions which it is not currently the function of the Inland Revenue to collect. As a result of the Bill, those categories of Class 4 contributions will fall to be collected by the Inland Revenue, with decisions about liability being taken by their officers. Appeals from such decisions will be determined by the tax appeal commissioners and will need to be governed by provisions of the Taxes Management Act 1970. Paragraph 8 of Schedule 2 therefore needs amendment to recognise that tax legislation is to apply to these Class 4 contributions to that extent. The first of these amendments includes that change in Schedule 6 to the Bill.
Schedule 2 to the Social Security Contributions and Benefits Act also applies in Northern Ireland and is set out word for word as Schedule 2 to the Social Security Contributions and Benefits (Northern Ireland) Act 1992. So the second of these amendments makes an equivalent change in that schedule to that Act.
Finally, the amendments to paragraph 8 of Schedule 2 in both the Great Britain Act and the Northern Ireland Act need to be reflected in Clause 27 which lists those provisions of the Bill which are to extend to Northern Ireland. This change is made by the last of these three amendments. I beg to move.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 40:
Page 46, line 28, at end insert—
("15A. In paragraph 8 of Schedule 2 to the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (application of Part V of Taxes Management Act 1970 in relation to Class 4
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contributions), for the words from "but nothing" to "arising—" there is substituted "but nothing in this Schedule affects the extent to which the Income Tax Acts apply with respect to any decision falling to be made—".").
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 41:
Page 46, leave out lines 34 to 37 and insert—
("(3) Subsection (3) is omitted.").
The noble Baroness said: In moving Amendment No. 41, I shall speak also to Amendment No. 59. These are technical amendments. Once the provisions of the Bill come into force, decisions about entitlement to statutory sick pay or maternity pay will be made by officers of the Board of the Inland Revenue. Appeals against such decisions will be heard by tax appeal commissioners. The amendments therefore ensure that any references to those benefits in those parts of the Social Security Act 1998 which deal with decisions by the Secretary of State and appeals to tribunals are removed as they are no longer required. I beg to move.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 42 and 43:
Page 47, line 22, leave out ("In").
Page 47, line 23, after ("State)") insert ("is amended as follows.
(2) In subsection (1)—

(a) at the end of paragraph (b) there is inserted "and", And

(b) paragraph (c) and the word "and" immediately preceding it are omitted.

(3)").
The noble Baroness said: With the leave of the Committee, I shall move Amendments Nos. 42 and 43 en bloc. These amendments have already been spoken to. I beg to move.
On Question, amendments agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 44:
Page 47, line 33, leave out ("question") and insert ("other matter").
The noble Baroness said: In moving Amendment No. 44 I shall speak also to Amendments Nos. 45, 46 and 53. These are technical amendments to remove from new Sections 10A and 24A of the Social Security Act 1998 references to "questions" to be consistent with the new focus introduced by that Act on "outcome decisions".
At present a claim for benefit involves a bundle of subsidiary questions, some of which may give rise to separate decisions and rights of appeal to different appellate bodies. Under the 1998 Act the only decision which is generally to be given is an outcome decision. That is the one which is the bottom line from the customer's point of view and will be appealable to the new unified appeal tribunal. Therefore concepts of subsidiary questions are not to be found in the 1998 Act and we need to make sure that new Sections 10A and 24A reflect that. I beg to move.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 45 and 46:
Page 47, line 48, leave out ("question") and insert ("other matter").
Page 48, line 2, leave out ("question") and insert ("other matter").
On Question, amendments agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 47 to 50:
Page 48, line 6, leave out ("In").
Page 48, line 6, after ("tribunal)") insert ("is amended as follows.
(2) In subsection (1)—

(a) at the end of paragraph (a) there is inserted "or", and

(b) paragraph (c) and the word "or" immediately preceding it are omitted.

(3)").
Page 48, line 12, at end insert—
("22A. In section 13 of the Social Security Act 1998 (redetermination etc. of appeals by tribunal), for subsection (4) there is substituted—
"(4) In this section and section 14 below "the principal parties" means—

(a) the persons mentioned in subsection (3)(a) and (b) of that section, and

(b) where applicable, the person mentioned in subsection (3)(d) and such a person as is first mentioned in subsection (4) of that section."

22B. In section 14 of the Social Security Act 1998 (appeal from tribunal to Commissioner), the following provisions are omitted—

(a) subsection (2),and

(b) in subsection (3), the words "In any other case".").

Page 48, line 14, at end insert—
("23A. In section 18 of the Social Security Act 1998 (matters arising as respects decisions), in subsection (1)(a)—

(a) at the end of each of sub-paragraphs (i) and (ii) there is inserted "or", and

(b) sub-paragraphs (iii) and (iv) are omitted.").

The noble Baroness said: These amendments have already been spoken to. I beg to move.
On Question, amendments agreed to.
[Amendment No. 51 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 52 and 53:
Page 48, line 20, at end insert—
("25A. In section 21 of the Social Security Act 1998 (suspension in prescribed circumstances), subsection (4) shall cease to have effect.").
Page 48, line 36, leave out ("consideration of any claim or question") and insert ("the appeal").
The noble Baroness said: With the leave of the Committee, I shall move these amendments en bloc. The amendments have already been spoken to. I beg to move.
On Question, amendments agreed to.
Schedule 6, as amended, agreed to.
Clauses 18 and 19 agreed to.
Clause 20 [Property, rights and liabilities]:
Lord Higgins Lord Higgins moved Amendment No.54:
Page 10, line 15, leave out subsection (3).
The noble Lord said: Amendment No. 54 concerns a minor point. I was puzzled by the fact that, if assets are to be transferred, it appears to be the recipient rather than the donor who is going to certify that the transaction has been completed. It seems more appropriate, if a certificate is to be issued, that it should be issued by the Department of Social Security rather than by the Inland Revenue or the Treasury which are coming into the assets.
The other point is a hierarchical one. If a certificate is to be issued, it should be issued by a Minister rather than by an official. I beg to move.
Baroness Hollis of Heigham: I hope I can deal with this amendment fairly swiftly.
I have mentioned from time to time during our debates on this Bill that machinery of government transfers of functions are usually achieved by orders under the Ministers of the Crown Act 1975. However, I have explained that, because the Inland Revenue is not a ministerial department for the purposes of that Act, we need a separate Bill to transfer functions. But this Bill has needed to cover much the same ground as an order and in a number of places we have imported much the same wording as one would find in either that Act or an order made under it. Clause 20 is one such example.
Like any organisation, the Contributions Agency owns property, receives goods and services under contracts and has liabilities. As an agency of my department it does so on behalf of the Secretary of State for Social Security. Our underlying objective is to ensure that the Contributions Agency can transfer property rights and liabilities over to the Inland Revenue so that it has all the necessary goods and services to enable it to continue its work. So Clause 20 provides that the property, rights and liabilities of the Secretary of State are transferred to the Inland Revenue or Treasury when their related functions are transferred. Subsection (3), which would be deleted by this amendment, simply provides that, should it be necessary to establish the ownership of any property to which Clause 20 applies, a certificate issued by the Inland Revenue or the Treasury shall be conclusive evidence that the property has been transferred to them.
Let me explain how this provision might be used by way of an example. Let us say that in five years' time a company wishes to buy a piece of land from the Inland Revenue which was formerly Contributions Agency property. The company would wish to satisfy itself that the Inland Revenue was the legal owner of that land. In order to do so, its solicitors would need to check through the provisions of the Bill to link the land with functions transferred to the Inland Revenue. That would be a complex and expensive task. The certification procedure cuts through that and provides a simpler mechanism for verifying the ownership of the land; the Inland Revenue would simply supply the company with such a certificate and that would make clear that the new owner had good title to the land.

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This is based on a standard wording used in provisions transferring functions. Members of the Committee may be familiar with the National Health Service and Community Care Act 1990. This permitted transfers of functions to set up new health authorities and Section 8(8) of that Act included a similar certification procedure.
In the light of that explanation I hope that the noble Lord will feel able to withdraw the amendment.
Lord Higgins: I understand the case for a certificate. I am not clear why it should be issued by the person whose ownership might be in dispute rather than the person whose ownership of the asset is not in dispute and who is transferring it to someone else. It seems to be the wrong way round. If the asset is owned by the Department of Social Security and the certificate is saying that it has been transferred to someone else, surely the certificate should come from the Department of Social Security.
Baroness Hollis of Heigham: Again, it may be that I am missing some point. I understand what the noble Lord is saying. However, it seems to me that as some of those transfers could have been done a considerable time previously—not just five years, but perhaps 15 or 20 years earlier—it does not make sense to go back to a body or agency which no longer exists as opposed to the current body which now holds the land. I understand what the noble Lord is saying but I do not believe it to be a substantive point.
7 p.m.
Lord Higgins: I do not want further to delay the Committee, but I am interested in the fact that apparently the Department of Social Security is less likely than the Treasury to exist in 50 years' time.
Baroness Hollis of Heigham: Given the experience of the past 400 years, I fear that the noble Lord may well be right!
Lord Higgins: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20 agreed to.
Clause 21 [Special provision for certain contracts]:
On Question, Whether Clause 21 shall stand part of the Bill?
Baroness Hollis of Heigham: With the indulgence of the Committee, it may be helpful if I speak to Clause 21.
Clause 21 is the second clause dealing with the transfer of property, rights and liabilities. It recognises and provides for some of the complex contractual relationships involved.
As we have already discussed, Clause 20 transfers to the Inland Revenue any contracts under which the Contributions Agency receives goods or services. However, the Contributions Agency also receives goods and services under contracts which provide for the
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supply of goods or services to other parts of the Department of Social Security. So these contracts relate partly to functions transferred to the Inland Revenue and partly to functions retained by the DSS. For example, the Benefits Agency and Contributions Agency often share accommodation, and office services are supplied under the same contract to both agencies. Also, like the other DSS agencies, the Contributions Agency orders computer hardware and software through contracts managed by the Information Technology Services Agency on behalf of the department.
Clause 21 deals with these contracts. As with Clause 20, our underlying intention is to ensure that patterns of supply are maintained to enable the Contributions Agency—and the Benefits Agency and other DSS agencies—to continue to receive the goods and services they do now to enable them to carry out their work.
Clause 21 does this by providing two options for treating these contracts. Subsection (3) provides that in these cases the contract will continue to be with the Department of Social Security but that the Contributions Agency can continue to receive goods and services under that contract once it is part of the Inland Revenue. It does not allow the Inland Revenue to gain wholesale access to DSS contracts.
However, we accept that in some cases the contract may relate sufficiently largely to transferred functions, as opposed to retained functions, that it would be appropriate for the Inland Revenue to take over management of that contract. So subsections (4) and (5) provide an alternative option. Certain contracts, specified by order, can be treated as exceptions to the rule and transferred to the Inland Revenue, while allowing the Department of Social Security to continue to receive benefits under that contract.
There are two main contracts we intend to specify in such an order. The first is the contract for the new National Insurance Recording System—NIRS2. Noble Lords will be aware of the difficulties that there have been. The Contributions Agency has been managing the contract with Andersen Consulting to develop and run the NIRS2 system on behalf of the department. We have concluded that NIRS2 is so integral to the work of the Contributions Agency that, while it provides information to the other DSS agencies, it would be most appropriate to transfer the contract for its development and maintenance to the Inland Revenue with the Contributions Agency.
The other main contract is that with the Newcastle Estates Partnership for the redevelopment of the Longbenton estate in Newcastle. Although the other DSS agencies occupy parts of the Longbenton estate, the Contributions Agency is the principal occupier and has been managing the contract on behalf of the other agencies. So we intend that this contract will also transfer to the Inland Revenue.
I have gone into this is some detail, which I would not normally do, because I think that noble Lords are entitled to an explanation. The Contributions Agency is, of course, as part of good contract management, discussing with its suppliers the implications of the

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transfer. Given that both matters are sensitive, I thought that it was useful, at least in Committee, to put our thinking on the record of Hansard. I support Clause 21 standing part of the Bill.
Clause 21 agreed to.
Clause 22 [Power to transfer functions by Order in Council]:
Lord Higgins Lord Higgins moved Amendment No. 55:
Page 10, leave out lines 43 to 45.
The noble Lord said: There are three amendments in this group. In the light of some of the earlier exchanges with the noble Lord, Lord Goodhart, it may be that they have more significance than I had realised. The power to transfer functions in both directions seems an extraordinarily wide power. That is why I tabled Amendment No. 55.
With regard to Amendment No. 56, Clause 22(1)(b) provides that functions can be transferred in one direction only, with the concurrence of the board, but that transfers in the other direction do not require the concurrence of the department.
Amendment No. 57 seeks to leave out subparagraph (ii).
My first amendment relates to three lines which seem to cover every possible contingency. As I said, as this point was referred to earlier, it may be more significant than I had realised. I beg to move.
Baroness Hollis of Heigham: The three amendments before us now seek an explanation of how we intend to use Clause 22. This clause is not an essential part of the Bill but I think it is a valuable provision. I therefore want to spend a few moments explaining what it does and why we have included it in the Bill. Indeed, given the noble Lord's amendments, I think that I am required to give that explanation.
As I hoped that I had explained at Second Reading, the normal process for machinery of government transfers is an Order in Council under the Ministers of the Crown Act 1975. The Inland Revenue is not, however, a ministerial department for the purposes of that Act, so transferring functions to or from it requires a Bill. Hence, we need a Bill to transfer the Contributions Agency to the Inland Revenue.
As I hope I made clear in our earlier discussions, identifying and stripping out the NICs functions of the Secretary of State for Social Security is no easy task. Although in some cases the function is clearly related to NICs and therefore should be transferred, in other cases, particularly around the periphery of NICs, the distinction is much more difficult to draw. Further, whether a particular job is done in the Contributions Agency rather than the Benefits Agency is sometimes as much a matter of history as of current preferences. We have had to make a judgment about whether the function should stay with DSS or be transferred to the Inland Revenue.
I hope that we have made the right judgment on these issues. But there is no right and wrong answer and, weighing the probabilities, it is possible that, in the light
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of operational experience, we may conclude that we have drawn the boundary in a slightly awkward place and that further adjustments are desirable to ensure the better operation of the legislation and delivery of services by the Government.
As the noble Lord, Lord Higgins, rightly identified, one example, which the noble Lord, Lord Goodhart, has already raised, is the appropriate tribunal for hearing appeals on contracted-out matters. We have made a judgment on that. If the fears of the noble Lord, Lord Goodhart, are realised, this provision allows us to rectify the position.
Clause 22 provides a mechanism for making these adjustments. It does so by providing a power similar to that in the Ministers of the Crown Act 1975, but tightly limited to the subject of this Bill. As with the Ministers of the Crown Act 1975, this power is to be exercised by way of an Order in Council. That will mean that the adjustments can be made without needing to return to Parliament with a whole Bill.
An order under this clause can transfer functions between the Secretary of State and the Inland Revenue and vice versa. It can set up new requirements for concurrence in the exercise of those functions; it can transfer responsibility for making decisions on various matters between the Secretary of State and the board and vice versa, and switch the route for appealing against such decisions between the unified appeal tribunals under the Social Security Act 1998 and the tax appeal commissioners. The three amendments remove in turn the first three of these powers.
I should point out that Clause 22 does not allow orders to transfer functions between the Secretary of State and the Treasury—only the Secretary of State, or the DHSS(NI), and the Inland Revenue. As I explained earlier, functions can already be transferred between the Secretary of State for Social Security and the Treasury by order under the Ministers of the Crown Act 1975. Only the Inland Revenue does not have such a power. So we need no separate provision here to permit that.
I can well understand that noble Lords would seek constraints on what can be achieved by an order under this clause. These are set out in subsection (2) as functions relating to contributions and the National Insurance Fund, other than core activities such as the receipt of contributions and the control and management of the National Insurance Fund, together with functions relating to statutory sick pay, statutory maternity pay and contracting-out. So I hope noble Lords will recognise that Clause 22 does not provide a general power to transfer functions between the Secretary of State and the Inland Revenue. Indeed, we would anticipate that any exercise of this power would be very much at the edges of those functions. I am therefore pleased that the Select Committee on Delegated Powers and Deregulation was content that the negative resolution procedure provided by the Bill is appropriate.

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We cannot be sure that we have the detail right at the boundaries and there may need to be some fine-tuning. I can well understand that Members of the Committee are anxious to ensure that powers in Clause 22 have appropriate safeguards. The amendments as drafted go too far, but, if the noble Lord continues to have concerns and wishes to write to me, we shall consider the matter to see whether there is any further issue which we should address. I hope that the noble Lord will be content with the answer that I have given him tonight.
Lord Higgins: In the light of that invitation, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments No.56 and 57 not moved.]
Clause 22 agreed to.
Clause 23 agreed to.
Clause 24 [Orders and regulations]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.58:
Page 13, line 43, at end insert—
("( ) A power conferred by this Act to make regulations includes power to provide for a person to exercise a discretion in dealing with any matter.").
The noble Baroness said: This is a technical amendment to copy into Clause 24 a standard provision found in Section 189(6) of the Social Security Administration Act 1992 and elsewhere in social security legislation. It enables regulations to provide for a person to exercise a discretion in dealing with any matter—for instance, where provision needs to be made for the extension of time limits. I beg to move.
Lord Higgins: That was a remarkably brief and cogent explanation and I am sure that the Committee would wish to express its thanks to the Minister for the extremely lucid way in which she has dealt with the proceedings and to congratulate her on her stamina.
On Question, amendment agreed to.
Clause 24, as amended, agreed to.
Clause 25 agreed to.
Schedules 7 and 8 agreed to.
Schedule 9 [Repeals and revocations]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 59:
Page 53, line 14, at end insert—

("1993 c. 48.

The Pension Schemes Act 1993.

Section 167(3)."

On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 60 to 63:
Page 53, line 28, column 3, at beginning insert—

("In section 8(1), paragraph (d) and the word "and" immediately preceding it.")

Page 53, line 28, column 3, at end insert—

("In section 12(1), paragraph (c) and the word "or" immediately preceding it. In section 14, subsection (2) and in subsection (3) the words "In any other case".")

Page 53, line 29, column 3, at end insert—

("Section 18(1)(a)(iii) and (iv).")

Page 53, line 33, column 3, at end insert—

("Section 21(4).")

On Question, amendments agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 64:
Page 54, line 8, at end insert—

("S.I 1996/195.

The Employer's Contributions Reimbursement Regulations 1996.

Regulation 1(4).")

On Question, amendment agreed to.
Schedule 9, as amended, agreed to.
Clause 26 agreed to.
Clause 27 [Short title, commencement and extent]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 65:
Page 14, leave out lines 40 and 41 and insert—
("(c) section 4 and Schedule 4, so far as they amend the Taxes Management Act 1970,
(cc) section 17 and Schedule 6, so far as they amend the Taxes Management Act 1970, Schedule 2 to the Social Security Contributions and Benefits Act 1992, or Schedule 2 to the Social Security Contributions and Benefits (Northern Ireland) Act 1992").
On Question, amendment agreed to.
Clause 27, as amended, agreed to.
House resumed: Bill reported with amendments.

Financing of Maintained Schools Regulations 1998
7.14 p.m.
Lord Hunt of Kings Heath Lord Hunt of Kings Heath rose to move, That the draft regulations laid before the House on 3rd December be approved [2nd Report from the Joint Committee].
The noble Lord said: My Lords, these draft regulations were considered by the Joint Committee on Statutory Instruments on 8th December and by Standing Committee in the other place on 15th December. They cover England and Wales, with variations which have seemed appropriate in the light of differing national circumstances.
The enabling powers are contained largely in Sections 46 to 48 of the School Standards and Framework Act 1998. As enacted, these sections relate to the new school categories—community, foundation and voluntary—which do not take effect until 1st September. However, the sections have been modified so as to apply, between 1st April and 31st August, to the existing categories of school—county, voluntary and grant-maintained. This modification was achieved by the School Standards and Framework Act (Modification) Regulations, made on 30th October under Section 144 of the Act.
The regulations give effect to our aim of establishing a single, equitable funding regime for all state schools in place of the divisive dual system which has existed since introduction of grant-maintained status. Our proposals were originally set out in the consultation paper Fair Funding. This was published in England at the end of last May, shortly before the relevant clauses of the SSAF Bill were considered in Committee by this House, and it was often referred to during the debates in Committee and at later stages. A similar consultation paper was issued in Wales in June.
The House looked in some detail at the clauses, and the ground will therefore be fairly familiar. But it may be helpful to recall our key objectives before turning in slightly more detail to the content of the regulations. There are three main points.
First, we want to put in place a framework which aligns funding with the respective responsibilities of schools and LEAs and promotes greater transparency in funding arrangements. Secondly, we want to give all schools the fullest scope for self-management by requiring significantly higher levels of financial delegation than have been normal up till now in LEA schools; but we want to do this without forcing schools to take on responsibilities before they think they are ready. Thirdly, we want to ensure equitable treatment as between community, voluntary and foundation schools; and at the same time we want to give grant-maintained schools a smooth transition to the new funding framework.
The regulations are the outcome of an extensive, two-stage consultation. There were about 3,000 responses to the consultation paper in England and over 500 in Wales. In the light of these responses, decisions on the main issues were announced by the Government on 23rd September, both in England and in Wales. In England those decisions will mean that around £1 billion more can fall within the total of funds going directly into the classroom; but this shift will be achieved in a way that allows schools to feel comfortable with their extra responsibilities.
Since then, detailed consultation with LEAs and national organisations has led us to modify the regulations in ways which provide valuable local flexibility without losing the essential features. The consultation has been most constructive and I know that my right honourable and honourable friends are grateful to those who contributed to it.
I shall now review briefly the main features of the regulations. They deal with three important matters. The first is the balance between funding retained centrally by LEAs and funding distributed by them to schools. These matters are dealt with in Part II and in Schedules 1 and 2 which relate respectively to England and Wales. The second is the methods to be used by LEAs to allocate the funding which they are required to distribute to schools. These are regulated by Part III and by Schedules 3 and 4.
Finally, the regulations deal in Part IV and Schedule 5 with the content of the "schemes" which will regulate the financial relationship between LEAs and the schools they maintain and ensure that governing bodies and heads can run their schools without unnecessary LEA intervention.
Part II, made under Section 46 of the Act, has attracted most attention during the consultative process. This is not surprising. It is through this part of the regulations that we have to get the balance right between pushing forward the frontiers of self-management and ensuring that schools have access to essential services. In the event, the two-stage consultation process has led us to make certain changes in the proposals originally published in the summer. Thus we have revised the delegation timetable to give LEAs more time to work out suitable arrangements in consultation with schools.
We have also reconsidered the range of items which may be centrally funded. For example, LEAs will not now have to delegate funding for meals and milk to all primary and special schools, although they will be able to do so if they wish and our intention is that LEAs in England will be required, from April 2000, to delegate funding to individual primary or special schools where they request it. LEAs will be able to continue funding outdoor education centrally if they wish, and we have also made some other marginal adjustments to our proposals on such matters as support for the arts and the funding of supply cover. But this still means much higher delegation for schools currently maintained by LEAs. For example, funding for a wide range of financial, personnel and other administrative support must be delegated by April 2000. Schools will take responsibility for all non-capital building repairs and maintenance from April 1999 in England and April 2000 in Wales. Funding for secondary school meals must be delegated by April 2000, or April 1999 in England if there are no contractual problems.
The process for the approval of education development plans will require LEAs to refocus their expenditure for school improvement. In doing so, they will need to consider very carefully the role, and the cost, of inspection and advisory services. Funding for such services will, in general, have to be delegated from April 1999 in England and April 2000 in Wales if it cannot be justified by reference to LEAs' approved educational development plans.
I need only add that we shall be keeping a close eye not only on school improvement expenditure but also on central expenditure more generally. Addressing the North of England Education Conference last week, my right honourable friend the Secretary of State for Education and Employment made it clear that he will be publishing tables early in the summer to enable the

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performance of individual LEAs to be compared. He also made it clear that he will not hesitate to use the power, conferred by Section 46, to set limits to the amounts which LEAs may retain for particular purposes, if this appears necessary. I ought to add at once that, if he uses these powers, my right honourable friend's target will be wasteful bureaucracy, and he will not be seeking to restrict essential central expenditure on special educational needs and other vital support services.
Part II contains special provisions for GM schools. Our aim all along has been as far as possible to level LEA schools up, in terms of delegation, rather than levelling GM schools down. So we have made it our general principle that, where funding for a particular service must be delegated eventually, LEAs must delegate it to GM schools from April 1999. This is reflected at various points in Schedule 1 for England and Regulation 5 for Wales. I shall have more to say about GM schools in a moment.
Finally, there is one specific outcome of our consultation which might have been noticed by noble Lords opposite. The English consultation paper suggested that schools might be invited to determine the future funding arrangements for some services by majority vote. However, in the light of consultation, we have decided not to proceed with the majority voting proposal.
Part III and Schedule 3 deal with the way in which the individual schools budget is distributed to schools through LEAs' funding formulae. Here, we attach a good deal of importance to continuity. LEAs have a good deal of flexibility to reflect local circumstances and priorities in their formulae, and we do not want to force them to make major changes if they themselves see no good reason to do so. So Schedule 3 to the regulations offers LEAs an extensive à la carte menu of factors from which they can select to meet local requirements. However, 80 per cent. of primary and secondary school funding must be allocated on a pupil-led basis, essentially as at present. The rule has been the subject of some debate, but at the end of the day we believe that 80 per cent. is right.
It is important that formulae are fair to all categories of schools and take full account of the schools' views. The regulations accordingly prevent LEAs from discriminating between different school categories, unless there is an acknowledged difference in the functions of their governing bodies. They also require LEAs to consult all schools, including those which are currently grant-maintained, about their formulae; and to do so in time for responses to be taken properly into account when the LEA takes its final decisions. That requirement includes consultation on certain matters—for example, the age-weightings used in the formula—on which LEAs have not been statutorily required to consult in the past.
We do not wish GM schools to experience unmanageable changes in their budgets on entry to the new framework. The "levelling-up" principle which I mentioned earlier should go a long way towards achieving this. But we intend also to protect the amount
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of funding per pupil received by GM schools in England at its 1998–99 level, in cash terms, for 1999–2000. In Wales, the number of GM schools is much smaller and the funding system has differed in certain respects from the English GM funding regime. The upshot is that the difference between GM and LEA school budgets has been less marked in Wales than in England. Having considered the position, my honourable friend the Minister for Education in Wales has decided not to introduce transitional arrangements for GM schools in Wales.
I think it fair to note that these arrangements for managing the transition of GM schools' budget arrangements continue a process of aligning their budgets with other schools which was begun by the previous government, who had set in hand a phased removal of the unfair cash protection which had applied, in England, to the so-called "central" element of the annual maintenance grant.
It may be convenient to take this opportunity to comment on certain concerns expressed in a note which I received yesterday from the Grant Maintained Joint Monitoring Group. It is fair to say that that note registers general satisfaction with the regulations as they have turned out. The concerns which have been put to me both relate to certain responsibilities which will rest by law with the governing bodies of foundation schools but with the LEA in the case of community and voluntary controlled schools, just as they rest with the LEA in the case of county and controlled schools now.
On the one hand, there are certain responsibilities which derive from the fact that staff in foundation schools will be employed by the governors and not the LEA. This has implications for the governors' responsibilities in certain fields such as health and safety. As I understand it, the concern of the Grant Maintained Joint Monitoring Group is that LEAs will retain expenditure centrally in respect of these responsibilities, even in relation to schools for which the relevant responsibilities lie with the governing body. It does not seem to me that paragraph 25 of Schedule 1 permits this. It deals with expenditure in relation to the LEA's functions, not anyone else's. Moreover, in the particular case of health and safety, the regulations are designed to ensure that funding is delegated as far as is practicable even in the case of schools where the LEA is the employer.
As regards compliance, particulars of an LEA's central expenditure will be included in the statements which LEAs will be required to produce under Section 52 of the School Standards and Framework Act 1998 which we audited under Section 53. More generally, the performance tables that I mentioned will show which LEAs are retaining excessive amounts for administration. But if schools see continuing grounds for concern once the new system is in place, I am sure that they will make these known to us and we will consider what further action may be required.
The other matter arises from the position of foundation schools as admission authorities. The suggestion is that these schools should receive additional delegated funding in respect of this

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responsibility, which rests with the LEA in the case of community and controlled schools. We have considered this with care, but it has to be borne in mind that the position of foundation schools as admissions authorities is no different from the long-standing position of voluntary-aided schools. As far as we know, the latter have not received additional, delegated funding from their LEAs for their admissions functions, although we understand that many LEAs have provided various forms of admin support for the admissions process in voluntary-aided schools. Of course, that can be done without infringing the prerogative of voluntary-aided governing bodies on matters of policy.
It is clear that we have to treat foundation and voluntary-aided schools on the same basis under the new framework. To insist that all foundation and voluntary aided schools should carry out all their own admission arrangements with delegated funding would have the effect of disturbing existing local arrangements which have worked well. Accordingly, our aim in the regulations is to allow for appropriate arrangements to be negotiated locally.
Paragraph 17(c) of Schedule 1 contains a flexible definition of the admissions-related expenditure which LEAs may choose to retain. If, in the event, LEAs decide to retain funding centrally in respect of admissions administration at some kinds of school but not others, Regulation 13 will require them to reflect this in their formulae. Paragraph 5 of Schedule 3 specifically allows LEAs to include factors in their formulae which reflect the extent to which admissions costs are being centrally funded.
This, as I say, provides a framework within which suitable arrangements can be worked out locally by LEAs, taking account of the views of both foundation and voluntary aided schools. The implication is that foundation schools seeking to persuade LEAs to change established arrangements will need to work closely with voluntary aided schools to get them on their side. However, as I have said, any other approach could mean upsetting existing local arrangements even where they are regarded as satisfactory by most of the schools affected.
Part IV and Schedule 5 deal with the contents of the schemes for the financing of schools which LEAs will have to draw up in accordance with Section 48 of the Act and Schedule 14. Each scheme will define the financial relationship between an LEA and the schools which it maintains, and will require approval by the Secretary of State.
The purpose of the regulations is simply to identify the topics which must be covered. Statutory guidance to be issued by the Secretary of State under Schedule 14 will indicate in more detail how we expect LEAs to cover them. A draft of that guidance has already been issued in the form of an "outline scheme", to help LEAs undertake consultation in good time.
I think I need make only two more general points. First, the outline scheme—and the schemes which LEAs themselves will submit—cover ground already covered in greater or lesser detail in existing schemes for the
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local management of schools. The arrival of the new school funding regime provided a timely opportunity to review LEAs' financial provisions after nine years of LMS.
Secondly, an LEA's scheme is as binding on the LEA as it is on the schools. It is the means of securing crucial rights for schools—for example, in the right to a bank account, and, even more fundamentally, the right to determine spending priorities. We will also expect schemes to define carefully the circumstances in which LEAs may charge particular costs against a school's budget. Part IV sets out publication requirements to ensure that schemes will be available for reference by parents and others interested.
In conclusion, these regulations are the outcome of a consultation process which has been thorough, even though it has undoubtedly been rapid. There is still work to be done to set the new system in place for 1st April, but the efforts made by all concerned in the past few months have shown that we were not asking for the impossible. The regulations strike a fair balance between the legitimate requirements of LEAs and schools, and I commend them to the House.
Moved, That the draft regulations laid before the House on 3rd December be approved [2nd Report from the Joint Committee].—(Lord Hunt of Kings Heath.)
Baroness Blotch: My Lords, I thank the Minister for setting out the details of the regulations. Delegation to schools and scope for autonomy at school level has proved successful over the past decade or so. I must tell the Minister that LMS is considerably older than nine years. In Cambridgeshire it goes back some 19 years. Indeed my own local authority in Cambridgeshire, together with Conservative controlled Solihull, were the first LEAs to delegate financial control to their schools in the face of vociferous opposition from Labour Party members. Therefore it is to be welcomed that such a change of heart and policy has taken place.
When the fair funding paper was produced last year much was made of 100 per cent. delegation. We asked then—I ask this again now—100 per cent. of what? My reading of the regulations is that it is 100 per cent. of what is left after LEAs have subtracted significant items of expenditure. Schedule 1 contains no fewer than 89 areas where the LEA can hold back expenditure, including such areas as the preparation of the endless plans for approval by the Secretary of State and the incredible level of bureaucracy that will be required to fulfil the additional obligations set out in the School Standards and Framework Act. Organisational committees and adjudicator provisions will have to be funded by LEAs, as will many other matters.
I have worked in local authorities and I know of the constant pressure to hold back resources at the centre, and just how determined one has to be to contain central expenditure. What penalty will be incurred by a local authority that holds back more than the Secretary of State considers necessary? Given that LEAs will have legitimate reasons for increasing central expenditure because of the additional burdens set out in the School

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Standards and Framework Act, it will be difficult for the Secretary of State to take issue with local education authorities on this front.
I have read carefully all that the Minister, Estelle Morris, said about these regulations in another place. I was particularly struck by the number of times the Minister sympathised with points of concern that were made by both my colleagues in another place and indeed by the Liberals, and yet she responded by saying that the Government would have to monitor such areas carefully. There appeared to be a great deal of uncertainty about much of the detail and how it would work. For example, paragraph 23 of Schedule 1 states,
"Expenditure which enables pupils to enhance their experience of the visual and performing arts other than music".
That appears to me to be a licence to local education authorities to retain yet more resources from schools. In addition, the bureaucracy involved in negotiating the financial implications of every school production and every cultural lecture etc., will be considerable. Can the Minister explain how local education authorities must interpret paragraph 23 of Schedule 1?
I also wish to pose the same question in relation to library and museum expenditure, especially as such expenditure in many LEAs comes under another budget head altogether. Also in Schedule 1 at paragraph 32 local education authorities can hold back,
"Expenditure on establishing and maintaining electronic computer systems … in so far as they link, or facilitate the linkage of, the authority to schools which they maintain, such schools to each other or such schools to other persons or institutions".
This is yet another area of reduced autonomy for schools. I also wish to ask the Minister what the impact of the parental leave directive will be. For example, will paragraphs 34 and 35 of Schedule 1 need to be adjusted to take account of the directive?
Regulation 14 sets out that local education authorities may not discriminate between schools by reference to category. Why then should we have different categories? That was a point made by the Liberals in another place. Mr. Don Foster argued for no differentiation between categories of schools. I heartily disagree with that but, if there are to be different categories, those will comprise different schools with different needs. The needs and levels of responsibilities as between schools will be different. For example, ex-GM schools will enjoy in the early years of the new proposals greater levels of responsibility. Therefore funding will need to reflect that. What will happen with regard to education action zones with perhaps one or more governing bodies? Education action zone schools are in a very different category from the other mainstream schools. How do these regulations relate to action zones? The Minister has said little about that.
The Minister in another place, when replying to a question on the use of cheque books by schools, gave a highly unsatisfactory answer. On what basis will interest forgone be charged to any school wishing to have its own cheque book? For example, will the assumption be made on the basis of interest gained on the whole LEA account which will clearly be much greater than the relatively smaller amount relating to a single school account? Why charge interest anyway?
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Regulation 22 needs clarification. The 80 per cent. of funds to be allocated—the figure is not now 100 per cent., but 80 per cent.—is said to be allocated,
"in one or more of the following manners".
It does not appear to be allocated solely on pupil numbers. For example, reference is made to the reservation of places for reception, nursery and special school pupils. If this is to be included in the 80 per cent. delegation, it would certainly mean that some schools would receive sums greater than the 80 per cent. figure and others less. Is that the case?
The Minister has made much during recent debates about the dual funding system. However, funding for grant maintained schools reflected their additional responsibilities. Can I ask the Minister where a school takes on additional responsibilities ahead of other schools, will that be recognised in the funding? If so, what is the difference between that and the present system? If not, then what will be the incentive for any school to accept additional responsibilities?
A moment ago the Minister referred to grant maintained schools which will receive funding on a cash basis as of this year for 1999–2000. If grant maintained schools are to be sustained in cash terms, then funding will be different from non-grant maintained schools. Is that so? That is another example of differential funding. If this level is to be sustained for 1999–2000, what plans do the Government have for the years beyond 2000, especially where some schools accept different levels of autonomy? I understand from what the Minister has said that it is conceivable that different schools will have different levels of responsibility. If they do, will funding reflect that?
Will the Minister explain Regulation 23, which states that the Secretary of State, where it appears to him to be expedient, can authorise a local authority to determine or redetermine budget shares to such an extent as he may specify. What can the Minister give as an example of a situation where the Secretary of State would wish to use this power?
I suspect that delegation will be no more, and may be even less, than at present when this scheme is up and running. It is clear that it is a far cry from the 100 per cent. delegation promised in the publicity blurb. Certainly the bureaucracy will be difficult to control given the considerable extra burdens laid upon local education authorities.
As I have said, even the Minister has had many doubts about how this system will work in all its detail. What matters to schools is that they receive the maximum amount possible from the local education authorities, that bureaucracy is held to a minimum and that the promised transparency claimed by the Minister will be evident. We shall watch the introduction of these new arrangements with interest.
7.42 p.m.
Lord Tope: My Lords, I too should like to thank the Minister for his very full explanation of the regulations. I also thank the noble Baroness, Lady Blatch, for her several references to the many concerns and comments made by my honourable friends in another place. Your

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Lordships will be relieved to know that I do not intend to repeat tonight all that was said in another place, but merely to note that those concerns and comments were expressed.
I start by giving a broad welcome to these regulations. I have a few points to make, but we certainly welcome the thrust of the regulations. On these Benches we have always supported the concept of delegating both financial and operational control from LEAs to schools. I will say very carefully in the presence of the noble Baroness, Lady Blatch, that the Liberal Democrats were among the earliest pioneers of local management of schools.
Baroness Blatch: No, you were not.
Lord Tope: My Lords, one day I shall make a comment on this with which the noble Baroness, Lady Blatch, can agree.
We believe we were among the first pioneers of local management of schools and have certainly always supported it.
It is good to note that arrangements under Part III will enable LEAs to target funding at schools with particular needs or problems. We are pleased to note that at a time of crisis in teacher recruitment and retention, a wider range of supply cover may be funded centrally where such flexibility might be helpful. It is also good to see flexibility in the funding arrangements for "low-incidence" SEN units in mainstream schools and in the delegated funding for meals and milk. Your Lordships are aware that we greatly favour local determination and professional independence. Any small changes in that direction are certainly to be welcomed.
I turn now to the first of my concerns. I remain uneasy about the Government's attitude to the role of the LEAs in monitoring the quality of education provided in their areas. I have long believed that the use of high quality advisers for subject areas, advisers who can evaluate, support, assist and train teachers in their schools, is more likely to raise standards than the Ofsted "name and shame" strategy. On these Benches we prefer "praise and raise".
I looked hard and unsuccessfully to find in the regulations where it is prescribed that LEAs can include the salaries of such advisers in the budget that they retain at the centre. I understand from the Minister's speech this evening that they cannot retain it at the centre and that it must be delegated. Perhaps the Minister will clarify that when he responds. If that is the case, it causes me some concern. I know that already in some areas advisory service and in-service training are bought back. But experience has already shown that this pseudo-market actually puts advisory services at risk. Schools often dare not spend funds on what is really optional when they can barely afford what is compulsory. I hope that the Minister in his response will indicate whether the Government still support the concept of LEA quality control for their schools.
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I have one or two other more detailed queries. It is splendid to find a requirement in Regulation 10(2) of Part III that LEAs should determine a funding formula which is,
"simple, objective, measurable and predictable in effect, and clearly expressed".
I hope very much that that is the practice. I shall be interested to know from the Minister how the DfEE will monitor this. I urge him that when he finds a funding formula that is simple, objective and clearly expressed, he gives it great publicity and wide circulation as a model of good practice. It is certainly a desirable aim, even though, with a little experience, I have some doubt about its achievement.
Quite a lot of space is very properly taken up with funding arrangements for pupils who are either permanently excluded or being reintroduced into other schools. Can the Minister say if the Government are considering, or will consider, making schools financially responsible for the on-going education of pupils who they permanently exclude, at least until they are formally admitted to the roll of another school? We feel that that might be a powerful factor in controlling the rise in expulsions.
Your Lordships will know the importance which we on these Benches attach to proper provision for children with special educational needs. May I say how pleased we are to see acknowledged in Regulation 22(d) the needs of those pupils who have problems with their learning but do not have statements. Many schools have felt that the only way to get money for these people was to statement them. It will be good if we can avoid that bureaucratic nightmare wherever possible.
I should be grateful for an explanation of the effects of paragraph 18(2) of Schedule 1 on the school meals service provided by schools which were formerly grant maintained.
I have expressed our pleasure at the Government's recognition that music, drama and visual arts provision needs to be made at LEA level, or indeed by a consortia of LEAs, and that this is guaranteed by the provisions in paragraphs 22 and 23 of Schedule 1.
Can the Minister explain why there are significant discrepancies between the arrangements for England and Wales? I note that in paragraph 42 of Schedule 2, Welsh authorities can retain money at the centre for the repair, maintenance and cleaning of schools. Similarly, in paragraph 43, Welsh LEAs can retain the money to organise library and museum services throughout their areas. For some reason this desirable situation is not possible in England. Perhaps England should be pressing for its own national assembly? I should be grateful for some explanation of that.
Finally, a word about the arbitrary division between the maintenance of school buildings and plant—mostly revenue expenditure, I know—and capital replacement. It seems to me to be a recipe for schools to say "If we do not spend our money on maintaining our outdated central heating boiler it will blow up and then the LEA will have to pay for a new one". I have to say that this does not seem an altogether sensible way of doing things.

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I end where I began by saying that we give a broad welcome to the measures which are set out in these regulations.
Lord Hunt of Kings Heath: My Lords, I thank the noble Baroness, Lady Blatch, and the noble Lord, Lord Tope, for their comments and for their broad welcome for these proposals. Perhaps I may also take this opportunity to commend the noble Baroness, Lady Blatch, on what I can only describe as the extraordinary athletic prowess she showed in running down the principal corridor during the recent television programme about your Lordships' House. It was a very good example to us all.
The noble Baroness raised the question of 100 per cent. delegation and expressed a little scepticism about the ability of local education authorities to push as much money downwards towards the schools. The 100 per cent. delegation was put forward as an attempt to achieve a major increase in delegation on the basis of a sharper distinction between those functions and services for which central funding is essential and those for which it is not. It is on that basis that the 100 per cent. delegation model was described. Taken as a whole, with the transparency that is being brought into the system, with the ability of individual schools to be closely involved in consultation with the LEA about how the individual school budget is to be allocated and with the reserve of the potential intervention by the Secretary of State, this will be enough to ensure that local education authorities act in accordance with the broad principles that we wish to see introduced. We wish to see as much resource as possible delegated to school level. I am convinced that this will enable all schools to give the kind of leadership and take the kind of responsibility which is so essential to improving what they do. I am also convinced that, by giving a much sharper focus to the strategic responsibility of the LEA, we will he able to enhance the LEA's performance. It must be in the best interests of individual LEAs to adopt not just the rules but the actual broad principles which we wish to see take place.
The noble Baroness referred to the response of the Minister in another place. Concerns were expressed in the debate in another place and what one might describe as worst case scenarios were presented. The reality is that many LEAs have shown the ability to operate the LMS scheme well. They are on their mettle to show that they can handle the new delegated powers. However, we will keep these matters under review and they can be addressed in the future if concerns arise. The LEAs' funding formula will be subject to year-on-year review by the schools within their districts.
The noble Baroness referred to the parental leave directive. I cannot say much at this stage, but we will keep under review what needs to happen when the time comes. The noble Baroness asked about the transitional funding for grant-maintained schools and asked in particular whether this transitional funding would continue after next year. At this stage we have taken no such decision. We wish to see how the arrangements for next year bed down before any such decisions are made.
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The noble Baroness asked whether some schools would receive more than the 80 per cent. on pupil numbers and some would receive less. The answer is yes. The requirement is that 80 per cent. of the total primary and secondary funding is allocated on pupil numbers, including the categories listed in regulation 22. That means 80 per cent. across the LEA, but it could mean different levels in individual schools. For instance, large secondary schools could attract higher levels of pupil-led funding and small primary schools less than that.
The noble Baroness asked about library and museum services. The regulations allow hold-back by LEAs in 1999–2000 for centrally funded services. From 2000, the regulations will change to make them devolve funding on an earmarked basis. Such funding must include expenditure on services applicable to school pupils—
Baroness Blatch: My Lords, I am grateful to the Minister for giving way. I wish to ask a question about 80 per cent. funding. As I read the regulations, it is conceivable that of two schools with exactly the same number of pupils one could receive greater than 80 per cent. delegation and the other less than its share of 80 per cent. simply because the LEA deemed a number of places for nursery, special and another category of schools. It is possible that schools with exactly the same number—not just a large secondary school versus a small primary school—could be treated differently.
Lord Hunt of Kings Heath: My Lords, because of the way in which pupil numbers are weighted, there could be differences between schools with the same number of pupils. However, if it is argued that this is a point of concern, we shall need to review these matters when we see what comes out of the first allocation to schools.
The noble Baroness asked about the role of LEAs regarding computers. It covers the network infrastructure but not the computers in individual schools which are plugged into it. There are good reasons for the central infrastructure to be funded centrally, but we shall be alive to any suggestions that LEAs are using central funding to fund items which ought to be left at school level.
The noble Lord, Lord Tope, asked about supply cover. As he will know, supply cover for circumstances such as trade union duties, jury service, staff undertaking public duties as councillors and magistrates, and Territorial Army service, is at present funded centrally by most LEAs. In many cases a statutory right to time off is involved. Total expenditure is modest but its distribution as between schools is often uneven and unpredictable. There may be ways of delegating funding while protecting individual schools from excessively large bills, but we consider that those arrangements could be very artificial. In the light of the consultation, we thought it best to let LEAs retain the funding if they wished.

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The noble Lord, Lord Tope, asked about advisory and inspection services, particularly in relation to school improvement, the whole area of educational development plans and the role of the LEA. The position is that LEAs will undoubtedly need to retain money for some advisory and inspection services in order to promote school improvement. However, I am clear that education development plans are not a licence for expanding centrally funded services. We shall be scrutinising those plans carefully to ensure that LEAs hold back only sufficient funds to support activities which are clearly needed to raise standards in their area. Any advisory services which are not covered by the educational development plan and are not required to enable LEAs to carry out essential functions, such as in relation to special educational needs, should be funded from school budgets on a buy-back basis and not by top slicing.
The noble Baroness, Lady Blatch, raised the issue of Regulation 23, dealing with additional arrangements approved by the Secretary of State. That power is intended to allow a local education authority to meet an emergency situation where the authority may not have sufficient time to produce an allocation formula in accordance with the regulations; for example, if a group of schools in one area needed special treatment due to, let us say, abrupt population loss.
The noble Lord, Lord Tope, referred to the words, "simple, measurable and clear". I thought that they must have caused amusement to parliamentary draftsmen at the time. However, we should remember that these regulations are replacing very detailed matters. I have seen a number of documents produced by LEAs in an attempt to explain the implications of the regulations to individual schools in their areas which are then used in the consultation process. I have been impressed by the way in which they have been able to do that. I hope that, despite the occasional difficulties of understanding parliamentary language, we shall, at LEA and school level, produce a document that is clear to those who must operate the provisions. My experience in the health service in terms of funding formulae is that, while we all started with the aim of simple, easily understandable formulae, we then completely destroyed them by producing arguments for slight changes in sensitivities. It is very difficult to arrive at an exact balance.
The noble Lord, Lord Tope, raised an interesting point about the funding of permanent exclusions. He suggested that a school that undertakes the permanent exclusion of a pupil should have to pay the costs. I am not in a position to respond directly to that point now. It is a matter to which we should wish to give some thought.
Having thanked noble Lords for their general support for the proposals, I commend the regulations to the House.
On Question, Motion agreed to.

Industrial Training Levy (Engineering Construction Board) Order 1999
8.2 p.m.
Lord Hunt of Kings Heath Lord Hunt of Kings Heath rose to move, That the draft order laid before the House on 1st December be approved [3rd Report from the Joint Committee].
The noble Lord said: My Lords, it may be for the convenience of the House if I speak to this order and the following order together.
The proposals before your Lordships this evening seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on the employers in their industries to finance their training activities, including grants schemes, and to fund the operating costs of the boards. Provision for this is contained in the Industrial Training Act 1982 and the orders before your Lordships would give effect to proposals submitted by the two boards.
The proposals from each board include provision to raise a levy in excess of 1 per cent. of an employer's payroll. The Industrial Training Act 1982 requires that in such cases the proposals must be approved by affirmative resolution of both Houses. In each case the proposals are based on employers' payrolls and their use of sub-contract labour.
As required by the Industrial Training Act, both boards have provided for the exemption of small firms from the levy. The level at which this exemption takes effect is unchanged from last year and aims to strike the right balance between helping small firms to grow and giving them unfair commercial advantage. However, the boards are committed to supporting the training efforts of small firms, whether or not they pay levy. All companies need a skilled, competent workforce if they are to be competitive and small firms in these sectors are encouraged to take advantage of the services offered by the boards and to provide opportunities for trainees and apprentices.
In the case of the Engineering Construction Industry Training Board, the proposals are different from those approved by your Lordships last year in that the higher rate on net payments made by employers for labour-only services has been removed. That is because the rationale for the different rates was questioned in the last independent review of the board and the board was recommended to move to a single rate. Additionally, the rate for off-site establishments is reduced.
The Engineering Construction Industry Training Board treats off-site establishments and construction sites separately and proposes to raise a two-part levy. For off-site employers the rate is reduced from 0.4 per cent. to 0.18 per cent. of the total of payroll and net expenditure on labour-only sub-contracting. Those off-site employers employing 40 or fewer employees are exempt from paying the levy. The rate for site employers is 1.5 per cent. of the total of payroll and net expenditure on labour-only sub-contracting. There is exemption for site employers with combined payroll and net labour-only payments of £75,000 or less.
The CITB proposes to raise a two-part levy: 0.38 per cent. of payroll and 2.28 per cent. of net expenditure by employers on labour-only sub-contracting; employers with combined payroll and labour-only payments of less than £61,000 are exempt from paying the levy.
These rates represent an increase for directly employed labour—the previous rate was 0.29 per cent. The board states that the increase is necessary for two reasons. First, there are continuing changes in employment practices in the industry which significantly affect levy arrangements. Employers are still moving from labour-only sub-contracting towards direct employment and, because the levy on labour-only sub-contracting is at a higher rate, this has led to a reduction in the board's income.
At the same time, the greater numbers of direct employees is expected to lead to an increase in the amount of training being carried out and a corresponding increase in grant and other support provided by the board.
The last independent review of the board also questioned the rationale for the different rates and the board was recommended to move towards a single rate. Subject to further consultation with the industry it is planned that this will be phased in over the next four years.
For both boards the proposals involve levy rates in excess of 0.2 per cent. with no provision for exempting employers who make their own training arrangements. In such cases the Industrial Training Act 1982 requires boards to demonstrate that the proposals have the support of the employers in the industry. I am satisfied that each board has obtained that support.
These proposals are expected to raise nearly £61 million for the CITB and around £10 million for the ECITB. Both boards will use the money to fund a range of training activities including grant and initiative schemes, new entrant training and operating costs.
Your Lordships will know from previous debates that the CITB and the ECITB are the only two statutory industry training boards. The last review of the boards looked at the need for their continuance and included a survey of the views of employers in each sector. The reviews concluded that both boards were widely supported by employers and sectoral interest groups and that, without them, there would be a deterioration in training in their sectors.
Each board has now developed detailed action plans which address the specific objectives and recommendations of the review. These are already starting to increase their effectiveness and further develop their capabilities, especially at the strategic level.
I am also pleased to tell your Lordships that each of the boards has successfully completed its first year as a government recognised national training organisation for its sector. It is an important development for them because it places them very firmly within the national
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network of sector-level training organisations, which is now largely complete, and puts a new emphasis on strategic activities and partnerships.
This is helping the boards to contribute even further to the National Skills Strategy. For example, both boards have developed nationally recognised labour market assessment systems, which will contribute to the important work of the Regional Development Agencies and the National Skills Task Force. Each has also set up New Deal initiatives.
The draft orders before the House will enable the two boards to carry out their training responsibilities in 1999, and I believe it is right that the House should agree to approve them. I commend them to the House. I beg to move.
Moved, That the draft order laid before the House on 1st December be approved [3rd Report from the Joint Committee].—(Lord Hunt of Kings Heath.)
8.8 p.m.
Baroness Seccombe: My Lords, I apologise for my voice, which is disappearing fast, but I hope to be audible. I am grateful to the Minister for the clear explanation of the orders. The two training boards referred to in the orders operate with the general support of firms in the construction and engineering construction industries. With that in mind, we see no reason to object to the raising of the levy in principle.
We on this side of the House, however, have a number of legitimate concerns which arise out of the arrangements. There are three areas which I wish to question. First, there is the question of the effects of the rebalancing of the rates. I recognise that there are valid arguments for the board's decision to increase the payroll rate on labour-only sub-contracting from 0.29 per cent. to 0.38 per cent. It seems a small increase, but in practice it could seriously affect some of the larger firms in the industry. To give but one example, an employer with 1,000 employees and a payroll of £20 million a year currently pays a levy to the CITB of around £58,000. Under the new arrangements, this contribution would increase to nearly £77,000. With the construction industry facing a recession, it seems a most inopportune moment to introduce the changes which effectively will put yet more burdens on industry. What estimate has the noble Lord made of the effects on employment in the industry of these rate changes?
We on these Benches recognise the contribution made to the economy by small firms. We are anxious to ensure that any arrangements will not hamper their development. But, while I recognise that there is a need for fairness and clarity, the question arises of how the Government intend to handle the problem of the status of smaller firms. The call for the lowering of the threshold for entry to the scheme is a result of the reduced income of the board, which in turn is the result of developments in the industry which are beyond the Government's control. There are a number of smaller firms which would rather not pay any levy but would still hope to gain the benefits of a better-trained workforce. Are the Government considering mandatory

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registration of firms? If the Government decide to introduce mandatory registration, will it be done next year under the order or will it be done under the interim period?
There are also questions about the way in which the Government's New Deal programmes interact with the existing grants systems. How will the orders relate to training for 18 to 24 year-olds under the New Deal? Will there be separate funding arrangements? If that is the case, will employers be able to draw on both sources of funding to finance training for 18 to 24 year-olds?
With those questions, which I hope the noble Lord will address this evening, I return to where I began. We accept that many firms in the industry welcome the scheme. We do not, therefore, object in principle to their continuation.
8.14 p.m.
Lord Hunt of Kings Heath: My Lords, first I thank the noble Baroness, Lady Seccombe, for her warm support for the proposals. She raised a number of points to which I shall endeavour to respond. The issue of the effect of the additional levy on large construction companies depends on the individual circumstances of an individual employer, particularly the mix of directly-employed and sub-contract labour that it has. The Construction Federation, the largest grouping of employers' organisations in the industry, has said that the movement towards a single unified rate of 0.87 per cent. in 2003 would have a fairly marginal effect for its members, who currently pay an average rate of 0.79 per cent. It is an average; some companies will be affected more than others. But it is important that we recognise that this is a phased introduction of change. Looking at the first year or two, we believe the relative change is modest, to allow companies to adapt to new circumstances.
In answer to the noble Baroness's point about the impact of this on the economy generally, it might be worth me saying that overall construction activities continue to grow in the sector, although there are signs of a slow-down. Contract prices appear to be rising faster than inflation, although the export of building
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materials continues to slow down. Experience of the economy over many years suggests that, even in a situation where the economy may be tight, the need for training is ever more essential. For that reason alone, we wish to support the activities of the two boards.
The noble Baroness asked why small firms are excluded when most employers' federations believe that all firms within the industry should pay. There is no doubt that in the last review there are views within the industry both for and against. But the Industrial Training Act 1982 states that a levy order should not be approved unless it provides for the exclusion of small firms. It is important to note that, if small firms were brought into the levy system, the possibility is that a great bureaucracy would come into operation without bringing any substantial increase in income.
The noble Baroness raised the issue of mandatory registration. It is not the intention of the primary legislation that the onus would be on the employer to register with the boards, but the training board raised the issue. It has been told that a change to primary legislation would be considered if a convincing case could be made, taking full account of the costs and the resulting benefits of such a change, as well as giving full consideration to the administrative and bureaucratic implications.
The work of these boards is important and deserves our support. I commend the orders.
On Question, Motion agreed to.

Industrial Training Levy (Construction Board) Order 1999
8.15 p.m.
Lord Hunt of Kings Heath: My Lords, I beg to move formally.
Moved, That the draft order laid before the House on 1st December be approved [2nd Report from the Joint Committee].—(Lord Hunt of Kings Heath.)
On Question, Motion agreed to.
House adjourned at sixteen minutes past eight o'clock.