Welfare Reform and Pensions Bill

HL Deb 20 July 1999 vol 604 cc902-64

8.39 p.m.

House again in Committee.

Clause 68 [New threshold for primary Class 1 contributions]:

On Question, whether Clause 68 shall stand part of the Bill?

Lord Higgins

We now turn to a different section of the Bill from the more emotional areas that we were dealing with a moment or two before the Committee broke for the previous proceedings. I understand that we are to have a change of cast for the Government response to this particular clause, which in a sense is rather sad because it has history going back to the Social Security Bill of last year.

It would be convenient for us to debate Clause 69 with Clause 68, which effectively does for Northern Ireland the same, if I understand it correctly, as Clause 68. Related to this is the enormous Schedule 9, which effectively provides that there should be a new threshold for primary Class 1 contributions.

When this matter first arose in the Government's Budget of last year, the Chancellor of the Exchequer was wrong in saying, in the course of his Budget speech, that further changes would be made of the kind that we are now debating. Apparently he intended to say "future changes", and indeed these have now arrived, although strangely the figures for this measure, which he announced in last year's Budget, did not appear in the Red Book last year. A considerable controversy arose as a result and the matter was discussed by your Lordships and an amendment was passed which went to the other place in effect seeking to implement what the Chancellor of the Exchequer had then said.

Effectively, this particular set of clauses brings the structure with regard to national insurance contributions in line with the changes to the situation with regard to employers that the Chancellor announced last year.

One of the crucial points—and this is really what I want to concentrate upon this evening—which arose in the course of the debates last year was not only the one I have just mentioned but also what was to happen in the case of individuals who would no longer be paying national insurance contributions. Indeed, this was referred to, for example, in the debates which took place in your Lordships' House on 18th May (at col. 1285 of Hansard).

Crucially, the Government were not prepared to implement immediately what the Chancellor had proposed because they had not yet thought how to protect the position of those with incomes between £64 and £81 a week. The Chancellor mentioned this particularly in his Budget speech. If I can put it in rather more simple terms, the situation was that particular individuals falling between those two amounts—I will not go into the technicalities of how it actually appears in the drafting—were no longer going to be contributing and, as a result, they would not be entitled to contributory benefits. Therefore, the matter was put on ice for a year.

We imagined, given that they were delaying these matters, that the Government would come up with some splendid method whereby the position of those individuals would be protected. In the event, that is not at all what has happened or, more accurately, their position has certainly been protected but the Government have achieved this, not by some sophisticated method which might have given rise to considerable thought on their part, but by the simple process of saying that people who are not now contributing should get the contributory benefits and effectively deeming that these people, in the words of the Bill, should get contributory benefits, even though they have not contributed.

This does seem to us a serious development because we debated at great length—the noble Lord, Lord Goodhart, and I particularly—the whole question of the contributory principle. We are all agreed that it is not an insurance principle. Effectively, it is an understanding that you do a deal with the Government and it is only if you have met the contribution conditions that you will actually get the whole series of benefits which are subject to that requirement. The Government now say that the individuals between these groups of income which I have mentioned, although they have not contributed, get the contributory benefit, and that seems to us a serious undermining of the contributory principle.

It also raises two other related issues: one is, what about the people far below the first threshold? Are they not to gain any advantage? More particularly, what is the position going to be of the people who have a deficient contributory record?

I am sure the noble Lord who is in the Chair at the moment will remember long debates on this particular subject, and one knows only too well from one's former constituency experience that many people thought they were going to get, for example, a national insurance pension and then found that they were getting less than the full amount because they had not met the contribution requirements. If we are to go along the road which the Government now suggest and people are to get, for example, if I understand it correctly, a national insurance pension even though they have not contributed to it, or at any rate not contributed the full amount, and be placed in a privileged position compared with those who perhaps have contributed for many years but not sufficient years to give them the full entitlement to the national insurance pension, that is not a satisfactory arrangement. Certainly the Government have failed totally to come up with any solution, as they suggested last year they were going to do, to meet this particular problem. I would appreciate the Minister's comments on that issue.

Lord Goodhart

We are quite unable to go along with the noble Lord, Lord Higgins, on this issue. For a long time our party policy on these Benches has been that the contributory principle is a sham and that it is time that that sham was exposed to public view and it was made clear that national insurance contributions are in reality a tax and not contributions towards the pension right. That has certainly been the case, at the very least, since the time when there was de-linking of the amount of the contributions from the amount of the pensions, contributions being earnings linked while the pensions were flat rate. We have no objection to this in so far as it represents a move towards treating national insurance contributions as being a tax. Indeed, it is obviously logical to make the starting point for national insurance contributions the same as that for income tax and also to protect the position of those whose earnings are somewhat less than that threshold in respect of their rights to pension. Certainly the fact that they do not pay contributions or tax is no reason why they should not get a state pension if they have contributed through their work in the economy.

I should also say that it would be wholly illogical not to recognise that, for a very long time now, it has been accepted that contributions can be credited to people who have not actually paid them. For instance, those who are unemployed or those who have caring responsibilities. It certainly seems to us to make no difference whatever in principle that that right to be credited with contributions that you have not in fact paid should be extended to those whose earnings are below the lower earnings limit.

Lord McIntosh of Haringey

I shall not follow the noble Lord, Lord Higgins, in his historical foray; I am not capable of doing so anyway. I think the Committee would prefer me to deal with the situation as it is. I am a little surprised that Clauses 68 and 69, which were grouped with the schedules which actually contain the meat, have been taken out of this group because Clauses 68 and 69 contain nothing in themselves, they are simply paving clauses for the schedules. However, we shall be discussing the amendments to Schedule 9 in due course. It may be as well if, in advance of that, I set out what we are trying to do here.

The measures are the next step in our reforms of national insurance contributions, which were, as the noble Lord said, announced by the Chancellor of the Exchequer in his Budget last year. Changes were introduced last year—welcome changes. For employers, the level at which contributions were first paid was raised from April 1999 to the level of the single person's tax allowance. We did away with the complicated tax structure they faced. There is now a simple single rate. That has saved employers some half a billion pounds. For employees, the unfair entry charge of 2 per cent on all earnings below the lower limit for contributions was removed, so that they pay £69 a year less—a reform that will particularly help the lower paid. I do not see my noble friend Lord Morris of Manchester present to hear that. We promised then that we would seek to raise the level at which employees started to pay their contributions, but without any loss of benefit entitlement.

The measures in the Bill deliver on that commitment. They raise the starting point for employee contributions from the lower earnings limit—currently £66 a week—to a new primary threshold: the primary threshold for primary contributions, which are paid by employees This will be set by regulations at £76 in 2000/2001 and, in 2001/2002, raised to the level of the single person's tax allowance, which is expected to be around £87 a week. That will bring the starting points for employee and employer NICs into line.

More important is that, as a result of this change—a rise of more than 25 per cent in the point for starting to pay NICs—nearly 1 million employees will no longer have to pay contributions. The majority of all earners—16 million people—will pay less, by around £90 a year. Even the minority who pay more will be paying a maximum in 2001/2002 of £3.70 a week. Combined with the introduction of the working families' tax credit, this is a key further step in our policy of making sure that work pays.

But, if this reform were introduced alone, people who earn at low levels would lose their entitlement to benefit. That concern was particularly highlighted by Martin Taylor in his report on the tax and benefit system. Such a move would deprive these vulnerable people of their ability to contribute and would undermine our determination to make work pay. For that reason, the Government made a commitment that we would protect their rights while maintaining the link between work and entitlement to benefit. Schedule 9 therefore introduces a new Section 6A, which provides the protection necessary. That is the section on which Members have focused. Indeed, they are proposing a series of amendments which would virtually take it out, apart from a few words that are spared. New Section 6A ensures that earners who would have paid contributions on their income between the lower earnings limit and the new primary threshold maintain their contributions record and their ability to build up benefit entitlement. It does so by providing that the earnings within this band will be treated as though the employee had actually paid them. As the noble Lord, Lord Goodhart, made clear, that has always been the case. There has always been protection by the award of credits when people are unable to pay contributions due to circumstances beyond their control, such as when they are unemployed or when they are carers. It is right that their contribution record should be kept, even though they no longer actually contribute.

I really do resist the noble Lord's argument that this is a wicked departure from the contributory principle. The important principle which is maintained is the relationship between work and benefits. That is not changed in any way in what is proposed here. Credits are not sufficient by themselves to give total entitlement to social security contributory benefits. It is necessary for some contributions to have been paid during the relevant tax years on which a benefit claim is based. That was the case before and that is the case now. So I find the noble Lord's objections to the policy wholly misconceived.

The noble Lord has not referred to this, but I do want to refer to an important point which arises from the later amendments. If I get it off my chest now, I shall not have to repeat it. We are maintaining the link between the level at which people start to pay contributions and the level at which they stop. The current level of contributions is set each year by regulation at a level that must be between 6½ and 7½ times the retirement pension rate. This year it is set at £500 a week, which is slightly less than 7½ times the rate of the basic pension. The retirement pension rate also sets the lower earnings limit. The two limits are therefore held in line with each other. We are now increasing the lower earnings limit to the primary threshold by £10 a week in the first instance and far more than the standard re-rating would have achieved and we are setting the upper limit at 6½ to 7 times the new primary threshold to keep the relationship as it was.

Lord Higgins

The noble Lord is reading extremely quickly. It was very difficult indeed to follow the last two paragraphs. I do not know whether he would care to read them again. I had a great deal of trouble in following the relationship between the contributions and the national insurance pension.

Lord McIntosh of Haringey

I am sorry about that. We will do a words per minute count. I did not think that I was reading particularly fast. My noble friend Lord Dormand understood it perfectly well. I was very content with the way I described it and Hansard will no doubt record it. If the noble Lord has any problems, when we come to the amendments, I shall certainly deal with any points raised.

I want to go on to the point he raised about people below the lower earnings limit. It is right to recognise an earnings level for contributory benefits. If the lower earnings limit were to be reduced or abolished, it would be possible for people who paid very small amounts of national insurance contributions to gain entitlement to pensions greater than their normal earnings from work. The cost of those pensions would be additional administrative and non-wage costs for employers. We are not changing the current position for those people, which is exactly the same principle as that which was adopted by the previous government. I hope that the noble Lord will be reassured on that basis.

Our reforms simplify the structure of national insurance. They help to bring it into line with the tax system. They reduce the contributions burden paid by three quarters of the workforce—around 16 million people. They give particular help to low earners who are currently liable for national insurance contributions. We are ensuring that no one will lose benefit rights while we are still maintaining the clear link between work and entitlement. I hope that the noble Lord will not persist in his opposition to Clause 68.

Lord Higgins

These are complex issues. I was seeking to follow what the noble Lord said. It would have been helpful if he had repeated what he said in his own form of words. When one has Treasury briefs on these subjects, it is frequently the case that they are over-concentrated. I am inclined to agree with the noble Lord that, on reflection, it would have been as well to have taken the clauses and the schedule together. Perhaps I may ask him one simple question and then we can come back to the other points on the next set of amendments. Why could not the Chancellor say last year when he made his Budget speech and when the noble Baroness was discussing the matter at great length on the Floor of the House during proceedings on the Social Security Bill that he was going to protect the position of the people between the two bands by a simple process of providing that there would be a notional payment?

9 p.m.

Baroness Hollis of Heigham

At the time I anticipated that this might be proposed but it had not yet been finally determined. Therefore, it would have been imprudent of me to suggest to the House that that was intended. Until the Chancellor of the Exchequer had clearly determined his policy on this matter, to indicate my own views on how the situation might be resolved would have misled the House.

Lord Higgins

That comment brings out two points which have run throughout our debates: first, that the department is being taken over by the Treasury; and, secondly, that it is extremely difficult to get decisions out of the Government—this may also be true in respect of other matters—because the department cannot say what the position is until the Chancellor has expressed a view. That is not unusual. Surely, at the time that we debated this matter last year the Chancellor should have known that he did not have a sophisticated solution—which was the impression given at the time—and we would simply end up with what is now in the schedule; namely, notional payments of contributions. It would have saved a great deal of time last year if, instead of constantly saying that there was no need to worry because there would be a splendid solution to sort out the problem, the Government had simply said that there was no solution but they would ensure that people got the benefits anyway.

Lord McIntosh of Haringey

It would save a lot of time this year if we concentrated on the legislation before us rather than delved into past history.

Clause 68 agreed to.

Clause 69 agreed to.

Schedule 9 [New threshold for primary Class 1 contributions]:

The Deputy Chairman of Committees (Lord Dean of Harptree)

If Amendment No. 129 is agreed to I cannot call Amendments Nos. 130 to 136.

Lord Higgins moved Amendment No. 129: Page 128, line 43, leave out paragraph 3

The noble Lord said: We have tabled a number of specific amendments. However, as the noble Lord pointed out in the previous debate, effectively this amendment knocks out the crucial point in the schedule. Therefore, it is appropriate to debate it in that way. This part of the schedule proposes that there should be notional payments of primary Class 1 contributions where earnings are less than the lower earnings limit. Perhaps we may return to the point made by the noble Lord a moment or two ago about the relationship between that level of contribution and, if I heard him correctly, the national insurance pension. I was not aware that there was such a relationship. It would assist if he could spell out that point.

The noble Lord has said that a contributions record will be kept for those who have not contributed. That is a situation which has not existed before. Effectively, people will receive contributory benefits even though they have made only a notional payment of contributions. How does that square with the basic problems which arise in regard to national insurance pensions as far as concern those people with deficient records? There are people who over the years have made contributions to the national insurance system and have some entitlement, for example to a national insurance pension, but none the less do not receive the full amount. I am not clear why they should) not receive the full amount whereas in future people who do not contribute, but who are deemed to have made, a payment, should get that benefit. It seems that there is unfairness between the two groups of people. Many people are deeply concerned that they do not have a full pension because they have not contributed, but it is now said that others are to get it. I beg to move.

Lord McIntosh of Haringey

I am grateful that the noble Lord has not sought to defend his amendments. If one considers them together, they take away the benefit entitlement of nearly 1 million vulnerable people on low incomes. They remove all elements of the new Section 6A which protects the benefit entitlement of low earners. Amendment No. 129 would take out the entire section, whereas Amendments Nos. 130 to 136 would remove different provisions within it.

To remove Section 6A as suggested by Amendment No. 129 would penalise nearly 1 million people who currently pay contributions but who earn below the level of the new threshold that we are to introduce. I am sure the Committee agrees that it would be wrong to increase the take-home pay of those lower paid employees while excluding them from contributory benefits. That would reduce the incentive for people to take up work at all. On the basis of what has been said perhaps I can be forgiven for not going into the detail of the effects of Amendments Nos. 130 to 136.

I find it extremely difficult to understand the argument of the noble Lord. He referred more than once to "national insurance pension" which is not a phrase with which I am familiar. If he means the state contributory pension I understand that, but "national insurance pension" is not a phrase that means anything to me. What we are doing is incredibly simple. I find it difficult to know where to start with the amendment moved by the noble Lord. To encourage people to go into work we propose that the lower level of national insurance contributions should be the same as the lower level of income tax. That is to be done over two years because it is an expensive proposal, and it is also complicated. However, it can be done, and we are doing it. As a result, 1 million people on low incomes will be substantially better off in their take-home pay, and a very considerable number of people who are not now in work will no longer suffer the tax and national insurance contribution disbenefits of going into work. Everything that we do is with that in mind.

The Government also say, simply, that if that happens they do not want people to lose out on contributory benefits. Therefore, we are doing what we have done with the stakeholder pension; namely, if people have not paid in, as would be the case if they were unemployed or were carers, they are deemed to have paid in. I do not understand the difficulty of the noble Lord. Where is the unfairness? Everybody is better off under that proposal.

Lord Higgins

The noble Lord apparently says that people who are not contributing will now receive what were previously contributory pensions. At that point the concept of contributory pensions seems to fail. These people will receive what I referred to as the national insurance pension—I think that it is clear I meant the basic state pension—even though they have not contributed. I ask him again: how is that fair on the people who did not contribute previously and are now told that they have a deficient contributory record?

In the noble Lord's earlier remarks he seemed to indicate that there was some relationship between the level of contribution and the national insurance pension—or state pension. I was not clear what he was saying at that point.

Lord McIntosh of Haringey

Is the noble Lord suggesting the issue of a relationship between the lower earnings level and the pension?

The point I seek to make is that we are maintaining the link between the level at which people start to pay contributions and the level at which they stop. The lower earnings level has always been linked to the level of the basic retirement pension on the principle that someone who contributes at the lower earnings level should have their income maintained at the same level in retirement. Surely that is fair.

I wish to correct something I said a moment ago. I talked about the stakeholder pension with reference to the £9,000 when I meant the state second pension. I did not mean the stakeholder pension.

The noble Lord and I will have to thrash out this issue in private between now and Report stage. I am sure that it is my fault but I do not think that there is a meeting of minds here.

Lord Higgins

I am by no means sure that it is the noble Lord's fault. It may equally be mine. I agree with him. The right course to adopt is to read carefully what he said, if necessary seek further clarification, and return to the matter on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 130 to 136 not moved.]

Schedule 9 agreed to.

Schedule 10 agreed to.

Clause 70 [Earnings of workers supplied by service companies etc.]:

Lord Higgins moved Amendment No. 137: Page 74, line 36, leave out from ("worker")") to ("and") in line 40 and insert ("would have been an employed earner of a business carried on by another person to which he provides services ("the client") had he contracted direct with the client,")

The noble Lord said: At Second Reading, I pointed out that the Bill was four or five Bills included under a single piece of legislation. Consequently it was difficult to deal in any depth at Second Reading with the component parts. One of the component parts now appears as Clause 70. I think that it would be appropriate, and probably easier at this stage rather than later to cover some of the points which one would normally have raised had their been a proper Second Reading opportunity as regards this clause.

Clause 70 appears as a result of a statement made by the Chancellor in the Budget. A press release on 9th March 1999 is headed, Countering avoidance in the provision of personal services".

It states: The Chancellor today announced that changes are to be introduced to counter avoidance in the area of personal service provision. This move underlines the Government's commitment to achieving a tax system under which everyone pays his fair share".

We are entirely in favour of everyone paying their fair share. It would be wrong to suppose for one moment that we are in favour of unjustified tax avoidance. That is not the situation. However, it has become very clear that the way in which the Government propose to introduce the proposals has widespread repercussions. Clause 70 is included in this Bill whereas in our view there is a strong case for it to be in the Finance Bill.

In that context, one is bound to refer to what happened at Report stage in another place. Because the Government sought to time proceedings on amendments, which we discussed earlier, where there was likely to be a government Back-Bench rebellion, this clause appears to have been slotted in at that stage for that purpose. In the event, the move was completely unsuccessful and the rebellion achieved the appropriate publicity. It is also the case—one of the following amendments points it out—that the clause seems to have been inserted at an inappropriate point in the Bill. We have suggested changes in the order of clauses in that respect.

One can debate this issue at several different levels. The first is the straightforward, party-political level including the operation of spin doctors and the Whips, to which I referred earlier. The more important issue is whether the measure will receive adequate scrutiny. I pose a simple question to the Minister. Why were these clauses introduced at Report stage in another place and not in Committee? One of the problems with this House being a revising Chamber is that we could knock out this clause, but the Bill would go back to the other place where it would be debated on the Floor of the House under a tight time schedule. Indeed, the original Bill was guillotined in the other place and there was no adequate opportunity to table a series of amendments that would have improved the Bill, as could have been done if the measures were being considered in Committee upstairs in the other place.

Secondly, there is a series of issues in relation to the effects that these measures will have on the economy. Widespread representations have been made by many outside bodies that suggest that the effect on the economy is likely to be bad and may affect our competitive position. Alternatively, those affected by the clauses will go abroad to be able to operate efficiently.

Thirdly, there is the question of the relationship between the Treasury, especially the Inland Revenue department, and the Department of Social Security. As I suggested earlier, there is a strong case for these clauses to appear not in this Bill but in a Finance Bill. Of course, it can be argued that traditionally national insurance matters are a matter for the DSS, but we have only recently moved the whole of the Contributions Agency front the DSS to the Treasury. So that argument seems very thin, to put it mildly. Now that the Contributions Agency has been taken over by the Treasury there is no reason why the legislation should not follow. There are related issues as to where the proceeds should go—to the Consolidated Fund or to the National Insurance Fund—but those are not difficult to deal with.

The next set of issues arises from the process of consultation. The other place was not able to consider a full regulatory assessment—certainly not in Committee, for the reasons that I have mentioned—before the Bill left there. We now have in front of us a regulatory assessment that deals with some of the points, but the reality is that there have been inadequate consultations on these proposals. The clauses were rushed through at the last minute in the other place and I have been inundated with complaints about their adverse effects on a range of British interests.

Finally, there are many arguments to be made about the effects that the clause will have on the definition of who is an employee. I understand that there is considerable case law on that point. The Bill may make much of that case law obsolete and much of the uncertainty that was removed by the evolution of that case law may be resuscitated.

I understand that the Government propose to introduce a so-called control test to determine whether a person is an employee or a genuine limited company. That test will turn on whether the client has a right of supervision, direction or control over the tasks that are being undertaken by the person. That test sounds nice and simple, but in reality it will be very difficult to administer. In contrast, the existing law—the leading case is Market Investigation Limited v. Ministry of Social Security, 1969—suggests that the more accurate definition of "employee" should be used.

The amendment seeks to make the previous definition applicable, in particular that of an employed earner. Perhaps I may spend a moment on a simple-minded example. The problem with the idea of control, supervision and so forth is not realistic. Let us suppose that I employ a plumber who is a limited company. I may give him clear instructions as to what he should do. I want to supervise his work as regards ensuring that he does not wreck the furniture, the extent to which he should continue and the extent to which I can control him. The fact that I do so does not make him my employee. I am employing a limited company and to that extent the definition which the Revenue seeks to use is inadequate and dangerous.

A more relevant point is that the Chancellor of the Exchequer complained that an individual could work for, say, a bank on a Friday and suddenly reappear on a Monday as a limited company consultant, thereby hoping to benefit by avoiding national insurance, contributions and so forth. The crucial issue is how many clients the individual has. If in those circumstances he has only one client, one may reasonably say that we should not approve of such, a device. However, many of the representations we have received have suggested that when changing to a limited company the benefits in tax and national insurance contributions are a great deal less than the Chancellor appears to suppose.

More generally, one has received complaints from the London Chamber of Commerce and Industry, the British Chamber of Commerce, the CBI, the Institute of Directors, the National Association of Pension Funds Ltd, the Law Society and, on technicalities, from the tax faculty of the Institute of Chartered Accountants. All those bodies have provided strong arguments against the Government's proposals. None of them is concerned to promote tax avoidance, but they are extremely worried about the effect that the measure will have. Therefore, we hope that the Government will rethink the issue and put forward a more sensible solution. Their present proposal is likely to be damaging to the economy. The amendment seems to us to solve some of the problems identified by the bodies I have mentioned. I beg to move.

Lord Jenkin of Roding

I added my name to the amendment almost with a sense of déjà vu. Twenty years ago, when I was Secretary of State for Health and Social Services, my officials came to me with a proposal that there should be imposed a new control test to determine whether an independent contractor was an employee. The institutions they chose in order to test that out were the major London orchestras and professional choirs. That caused a good deal of disquiet in the arts establishment.

The matter was brought to my attention by a relation of mine, who is one such musician—I declare an interest, if such interest has to be declared—and I was warned that there might be serious problems. When my officials arrived, they sought to justify the argument that the musicians, who were instrumentalists or singers, were engaged in a contracted service with the organisation for which they were performing, because, they said, the musician has to obey every wave of the baton of the conductor.

I promise that this is true. They said, therefore, that, by the normal test of whether someone is an independent contractor or an employee, such singers, violinists, trumpeters and bassoon players were all employees, in which case the orchestra should pay employers' national insurance contributions and the employees should pay Class I contributions.

I said that that was totally unrealistic and that it was to fail to recognise the nature of that kind of professional occupation. After all, such a musician may be playing at a session of a recording company in the morning, may be singing at a memorial service in St Margaret's Church at lunch time, may be rehearsing for a concert all afternoon and performing that concert in the Barbican or the Albert Hall in the evening. In the course of the day, that musician would be working certainly for three and maybe for four different conductors. Is it to be argued that in the course of one day such a musician should have four separate employments?

I asked, "Do you really expect me to go to the House of Commons and advance such an argument? I shall not because I know that it is totally unrealistic as a member of my family is one such musician". They said, "We shall have to report this to the Chancellor of the Exchequer", who at that time was my noble and learned friend Lord Howe of Aberavon. I answered, "I don't think that will get you very far because he too has a daughter who does exactly the same thing".

That was almost the last I heard of the matter. The final word came from my private secretary, who, having ushered the posse of officials out of my room, returned to me and said, "Well, Secretary of State, that was the unacceptable face of bureaucracy"!

I am not surprised that this matter has surfaced again in a slightly different guise, but with the same fallacious argument about control. My anxiety about the clause centres on the fact that it takes this test of control as the guideline as to whether or not, when the contract is made through an intermediary, the client controls the work. To my mind, that is wholly misconceived.

A great many people, such as the musicians I have described, will meticulously obey the requirements of the client because that is the nature of the work that is being performed, but that does not change the status of the worker from being a self-employed professional person who has contracts with a range of people. Some contracts may be arranged directly and some may be arranged through intermediaries. There is a profession known as fixing. Fixers are firms that undertake to find musicians to perform particular pieces of work for conductors.

I understand that later amendments refer to information technology, but there are many other walks of life where this kind of relationship has built up because it is the most convenient and effective way of conducting business. It provides complete flexibility for the client—I shall continue to call him that because it is what the Inland Revenue calls him—to call up the particular services that he needs for as long as he needs them. He can them terminate the arrangement in accordance with the contract. The individuals who do the work then work for other clients. That, as it were, is the hallmark of the individual who is self-employed.

It has been the policy of successive governments to help people into precisely that kind of activity. The present Government are no exception. They have introduced measures to encourage unemployed people to become independent and, in many cases, to set up in business. Out of small acorns great oaks can grow. There are examples in recent years.

I find the clause totally misconceived. By saying that the relationship was one which, if there were no intermediary, would create the status of employed worker, the Government's purpose would be met. Like my noble friend Lord Higgins, I am not seeking to defend tax avoidance. What I am very concerned about is that the method that the Government have chosen is sweeping into their net tens of thousands, or perhaps even hundreds of thousands, of individuals who by no stretch of the imagination are engaged in tax avoidance. They are conducting their affairs in a thoroughly efficient, commercial and effective way in a modern, flexible economy. Whether it is the unacceptable face of bureaucracy or a misconceived zeal to try to find tax avoidance where there is none, I find the clause very unsatisfactory.

The Inland Revenue has been kind enough to provide a number of examples of cases that might be within and outside the clause. There are several pages of them. Perhaps I may read just one. I hope that it will perhaps illustrate the folly that I have been trying to describe. It is the Inland Revenue discussion document, 18th May, page 6. It states: A vet in partnership spends every Monday working at the local zoo attending various animals as required by their keepers, and undertaking other duties (e.g. performing post-mortems, preparing animals for transit, supervising inseminations and providing training on various animals health matters) as directed by the head keeper. The zoo pays the partnership an annual fee for the vets attendance each Monday. This engagement should be caught by the new rules. However, members of the partnership are sometimes requested to attend animals at other times, for example, when one injures itself in the middle of the night. Such visits are outside the terms of the annual contract and a fee is charged appropriate to the work done. On these occasions the zoo has no right of direction or control over what is done or how it is done". Except, I add in parenthesis, to say, "Look, there is a sick animal, go and do something about it." Presumably, the zoo owner does that. The zoo may reject the advice given or refuse the treatment recommended but that would not amount to a right of direction or control. In these cases the new rules would not apply". For a moment let us consider the folly that that would cause. Let us consider the position of a partnership. This case concerns a vet in partnership with others like the firm with which we all became so familiar and learnt to love in the series "All Creatures Great and Small." Let us just imagine Robert Hardy, the actor who played the senior partner, having to treat himself as an employee for half of Monday each week and then being his self-employed professional self for the rest of the week. How on earth does a partnership expect to operate in those terms? Why should he be regarded as an employee, simply because of the way this clause is introduced, through an intermediary?

I find the clause totally unacceptable. As was said in The Times the other day about the Chancellor: Does he really think that it makes sense for a free-lance television producer who may work for a dozen different companies during the course of a year, to have to be treated by each as an employee? Or the IT consultant, who moves from project to project, to be forced to give up his independent status and join the company payroll, no matter how brief his stay with the new employer may be?". I have a sheaf of similar press cuttings but at this hour of the night I shall not weary the Committee with them.

This clause is misconceived in the form in which it comes before us. As my noble friend from the Front Bench said, the Government undertook to consult. But they introduced the clause in the other place before they even started consultation. I dare say that the noble Lord, Lord McIntosh, will have something to tell us about the process of consultation, and perhaps the progress. But I hope that the Government have begun to get the message that the clause cannot be allowed to go through as it stands.

It is not sufficient to say that the consultation will be about the regulations, because the heart of the new system is in this clause. The detail will be in the regulations. It is the new clause itself which is misconceived.

Lord Goodhart

I am all too conscious that it is relatively late at night, and also that I am the third speaker in this debate. Nevertheless, Clause 70 presents problems which are extremely difficult and complex and in order to do justice to it I fear that I shall have to take a little more time than I would wish and no doubt than the Committee would like.

It is essential to understand the background to this matter. The background is a distinction between the status of an employee who works under what lawyers call a "contract of service" and a self-employed, independent contractor who works under what a lawyer would call a "contract for services." For the worker there are some tax advantages in being self-employed. A self-employed person is taxed under Schedule D; an employee under Schedule E. Schedule D presents some advantages in tax flow—you pay tax only twice yearly instead of week by week under PAYE—and some business expenses are deductible under Schedule D which are not deductible under Schedule E. But a much more important difference is national insurance contributions.

A self-employed person receives almost the same benefits as an employee—everything except jobseeker's allowance and SERPS. But the contributions paid by a self-employed person are far smaller than those by or on behalf of an employee. The client of a self-employed worker pays nothing in NICs. An employer of an employee pays 12.2 per cent in NICs on everything above £83 a week. A self-employed person pays in most cases less than the employee by way of NICs, let alone the combined liability of the employee and the employer.

There are, of course, some drawbacks for the self-employed person. They do not receive employment protection rights, statutory sick pay, a right to paid holidays and so forth. But the distinction between self-employment and employment is well established by law. As already pointed out, there is a great deal of case law.

Let us assume that an expert in information technology is hired by a company to do a job, and let us assume that the terms on which he is hired are such as to make the expert under established law, prima facie, an employee of the client. But in this case there is no contract between the expert and the client. Instead, there is a contract between the client and the expert's personal company; all the shares are owned by the expert. The client pays a fee to the expert's company. The company pays part of that to the expert, perhaps a bit to the expert's wife, and the company then pays the rest to the expert as a dividend. But under the present law the expert cannot be treated as an employee of the client because there is no contract between them. This arrangement gives enormous NIC advantages because, if there were a direct contract, the client would have to pay the employer's NICs on the whole of the wages above £83 at, as I said, 12.2 per cent.

Dividends are not liable to NICs. Therefore, the expert and his company can limit their NICs to whatever the company actually pays in wages. That is plain tax avoidance or, more accurately. NIC avoidance. It is worth pointing out—and this has not been concentrated on enough—that the main beneficiary is not the expert, but the client who employs the expert without paying a penny in NICs. That point has been ignored by the very high-pressure lobbying campaign we have had. Indeed, to some extent, I believe that the use of personal service companies is being forced upon workers, especially in the information technology world, by companies which are not prepared to take workers on as employees because the NIC consequences and the consequences for employment rights are something they prefer to avoid. Where that occurs, I believe that workers with personal service companies are the victims, not the beneficiaries, of this arrangement, although I suspect that they do not often realise it themselves.

I do not think that the use of one-person companies for avoidance purposes is acceptable. It is an abuse of the NIC system and should be stopped. So why riot accept Clause 70 as it stands? We have had a very highly organised lobbying campaign on this matter. I do not accept all of the points made by the lobby. It argues that any change in the law would damage entrepreneurship and force many owners of personal service companies to emigrate. I find myself quite sceptical about that argument. I certainly do not accept that IT workers are in a special category. Therefore, I shall not be able to support Amendments Nos. 140ZA or 140A.

The critics of Clause 70, as it stands, include many very reputable organisations who are not part of the lobby. They include the Institute of Chartered Accountants in England and Wales and the Tax Law Review Committee of the Institute for Fiscal Studies, of which I am a member. The real problem is not the Government's objective but their proposed method. As it stands, Clause 70 will add to the complexity and uncertainty of the law because it gives power to the Treasury to decide who is, and who is not, to be treated as an employee of the client. Such power may be used to treat as an employee someone who would not be treated as an employee if he were providing services under a direct contract with the client. That is the Government's intention. The discussion paper says that they intend to apply a control test to determine who is to be treated as an employee. But under the existing law, control is merely one of the tests of the nature of the relationship, not a conclusive test.

There are other factors which can be taken into account. They include whether the worker supplies his own equipment; whether the worker is entitled to substitute others to do the work; and the degree of financial risk assumed by the individual worker. It will therefore follow that we will have two entirely separate tests—one in contracts to which Clause 70 applies and the other in straightforward contracts. I am afraid that the noble Lord, Lord Higgins, was wrong in saying that this will make the existing case law obsolete. It will not. The existing case law will continue to apply whenever there is a contract direct between the client and the expert or the worker. What we will have is a quite separate test in the special cases where there is an intervening company, and there alone. So that will increase the complexity of the law.

In summary, I cannot do better than quote from a letter sent by the Tax Law Review Committee to the Inland Revenue last month. It says: The complexity of the classification issue is increasing as work patterns change and flexible forms of working become more common … the test of supervision, direction and control proposed by the Inland Revenue for use in the context of personal service companies is no longer of primary importance in the case law, having been rejected many years ago as being unsuited to modern economic conditions. It may be one of a number of relevant factors now but will not be applied in isolation. One consequence of using an over-simplistic control test in the proposed personal services company legislation would be, therefore, that a worker who did display what the courts have defined as essential characteristics of self-employment could nevertheless be treated for tax and NI purposes as an employee under the new rules".

9.45 p.m.

Lord Higgins

I hope that I may interrupt the noble Lord for a moment to pursue the point he made a second ago. He is saying—quite rightly, I think—that the existing case law continues but we are going to have a further definition of what constitutes an employee. As far as that group is concerned, the existing case law, as I understand it, becomes obsolete.

Lord Goodhart

The noble Lord, Lord Higgins, is quite right. The point I was making is that we are now to have two quite different and quite distinct tests depending on whether or not there is an intermediate company. I shall read one last sentence of the letter, At the same time a simple direction and control test might be insufficient to catch some of those it is intended to cover". These difficulties could be greatly reduced, if not eliminated, by accepting Amendment No. 137. This amendment was drafted by the tax faculty of the Institute of Chartered Accountants. It means that the use of personal services companies will be ineffective to save NICs where there is disguised employment, and nowhere else. It makes the law much simpler. It applies a test which has long been refined by the existing law. It reduces the power of the Revenue to impose tax by regulations—something which has always been regarded as a highly undesirable power. It hits the intended target and that target alone.

If this amendment is accepted or passed, we shall support Clause 70. Without it, or something like it, we are unable to support Clause 70. I hope that the Government will respond to the pressure coming from well beyond the lobby groups and those who are directly affected.

Lord Campbell of Croy

This clause was added to the Bill at Report stage in another place. It appeared to be an afterthought. That meant that it had little consideration in the other place. There was little time for it. In my opinion it would be more appropriate, or a version of it—because I do not agree with the present wording and intention—in a future Finance Bill.

I must make it clear that any avoidance of national insurance should be investigated and tackled. But this is a clumsy, blanket way of proceeding which would damage many businesses which should not be targets because they are not trying to avoid national insurance or disguise direct employment. It appears that there was no consultation with the sectors of business most concerned before the clause was introduced in the other place. The clause would allow the Inland Revenue to treat self-employed people working on contract as if they were employees of the companies for which they undertake the work. This would be particularly hard in its impact on the information technology industry.

The clause would apparently allow the Inland Revenue to deem any activity to be employment and to tax a company accordingly. The Government have been reported themselves as admitting that about 60,000 small businesses may have to close down. They no doubt announced that on the basis that all those employees would find work elsewhere. However, many will be in the IT sector. The Government have posed as champions and promoters of information technology in Britain to improve efficiency and to excel in competition abroad. Now there is this sudden blow to the IT sector.

I am reminded of the 1960s when I was in another place. The Prime Minister, Mr Harold Wilson, whom I knew well and admired, spoke about the "white heat of the technological revolution." However, about a year and a half later, the government, without any warning, introduced the selective employment tax, SET, which was of course subsequently abolished to general acclamation. Nothing could have been more counter to the spirit of the white heat of the technological revolution.

Now New Labour has given the impression that it understands that the United Kingdom's economic health and success depend upon industry and business thriving—"modernising", to use a favourite word of the Government—and exporting competitively. Over the past 20 years a considerable market has developed for the provision of skilled, temporary workers on contract. This is now common practice throughout the engineering industry. The advantages to the client are flexibility and the ability to find engineers with the right skills and experience for the duration of a project—and for no longer than that. This is particularly important in the IT sector where the work often relates to projects lasting between six and 24 months. Under those circumstances it is not practicable or desirable to take on full-time staff.

If it goes through in its present form, I believe that this proposal would have a devastating effect on small firms and an upsetting upheaval for the present framework and organisation of IT consultancies.

Lord McIntosh of Haringey

This has been really a debate on Clause 70 stand part and I must respond to it in that way. The noble Lord, Lord Campbell of Croy, was speaking specifically to a later amendment which we are not at present debating. Apart from that, before I respond to the specific points that have been made, it is necessary for me to set out our position on Clause 70.

Clause 70 provides an enabling power to make regulations which will prevent significant avoidance of national insurance contributions. The Chancellor announced his intention of doing so in the Budget. More than £200 million a year is being lost to the National Insurance Fund because of this avoidance. It would not be fair to other contributors if we were to allow it to continue.

The problem can be explained quite simply. A worker will normally pay a different amount of tax and national insurance contributions depending on whether he or she is an employee or self-employed. But some people who, if this distinction was applied to their circumstances, would count as employees, manage to avoid many of the consequences of employee status by setting up or acquiring an "off-the-shelf' limited company. That means that the engager, the client, who would otherwise be their employer, contracts instead with the company for the supply of their services. That engager then does not have to operate PAYE or pay employer's national insurance contributions.

The worker is then free to decide how to take the money out of his company. He can take it out in the form of dividends, which are not subject to national insurance contributions. Let me give an example of how this actually works. An individual with an income in the year of around £30,000 to £35,000, paid through a service company, might pay company taxes and running costs and expenses such as travel, subsistence and pension contributions of about £7,000; take out just over £3,000 as salary, just enough to qualify for state benefits; take out dividends of £11,000; and distribute £11,000 of dividends to his wife. By doing so, he would achieve a saving of £6,000 in tax and national insurance contributions when compared to the amount of tax and national insurance contributions he would pay if engaged directly as an employee of the client to whom he is selling his services. It is a very big saving.

In his speech today and at Second Reading, the noble Lord, Lord Goodhart, made it clear that he recognised that there was a problem. He said: I recognise that there is a tax abuse which needs to he stopped. A one-man company, where a shareholder simply hires out his or her own services and takes payment by way of dividend from the company rather than by way of salary is undoubtedly serious tax avoidance. It needs to be blocked".—[Official Report, 10/6/99; col. 1637.] That is an excellent summary of what we heard from many business representatives.

It is not a new form of avoidance. As far hack as 1981, the National Audit Office reported that avoidance and evasion by agency workers operating through service companies was generating a tax loss in the region of £40 million a year. But it is certainly growing. Anyone who looks at the advertisement; in the freesheets will see very clear incitements to that sort of tax avoidance. One sees, for example, Calling all Kiwis! Temping in London? Earning more than £4 per hour? Then we can help you MAXIMISE your EARNINGS by working through your own limited company". That applies also to accountants, secretaries, PAs, doctors, nurses, teachers, IT consultants, and even labourers. They are invited to set up a company for a small quarterly fee of £103 plus VAT.

The issue is older than that. I ran a market research company for 30 years. A market research company employs part-time interviewers to carry out the fieldwork. It is a business that was, and still is, successful. We had 100 to 150 interviewers at any one time. In 1969 a case was brought, Market Investigations Ltd v Minister of Social Security. Market Investigations Limited was a competitor of ours. The judgment ruled that, because of the degree of control exercised by Market Investigations Limited over its interviewers, and because the interviewers could not be said to be performing their services as persons in business on their own account, the interviewers were employed earners. My interviewers were told whom they had to interview, they had to follow an interview schedule, a questionnaire, and if we did not like what they did, we did not pay them. They were definitely controlled.

So, as a result of that case, I set up a system for nearly all of my interviewers whereby we kept a separate payroll for interviewers; we paid national insurance contributions and PAYE. As far as I know, all of my competitors in the market research business did the same. That long pre-dates the attempt, when the noble Lord, Lord Jenkin was Secretary of State, of his officials to persuade him to introduce a control test.

But there was one defect in what happened when I was running that company. A number of my interviewers were already smart. They set up limited companies of their own and I did not pay national insurance contributions for them or deduct PAYE. They were undoubtedly the precursors of the kind of avoidance that we are trying to deal with in this clause.

As a result, I can assure the Committee that I have been familiar with the problem for a very long time indeed. Although I shall answer the particular criticisms that have been made of the clause, fundamentally I am unsympathetic. I am adamant about the need to get rid of phoney service companies intervening, as the noble Lord, Lord Goodhart, said, between the worker and the person who should be described as the employer.

Perhaps I may now turn to the points made by the noble Lord, Lord Higgins, and other noble Lords. First, the noble Lord asked why the matter was not raised in Committee in another place. He suggested that we were trying to avoid debate. The announcement was made by the Chancellor of the Exchequer in his Budget, when Committee stage was already halfway through. The provision was introduced on Report in May, two months after the Budget. There was not a great deal of delay, and certainly we did not avoid debate in this House.

The noble Lord then criticised us for not including the provision in the Finance Bill rather than this legislation. The first effect of including it in the Finance Bill would have been no detailed debate in this House. So again, it cannot be claimed that we are avoiding debate. But in any case, the convention that exists as regards Finance Bills is that they are concerned with moneys that go into the Consolidated Fund, and this is money which goes into the National Insurance Fund. Therefore, whether the Inland Revenue is doing it has nothing to do with the case. The convention in Parliament is that this should not be in the Finance Bill. The noble Lord went on to ask about consultation.

Lord Higgins

If I understand the position correctly, there are to be more clauses about the issue in the next Finance Bill. If this clause goes through, they will have the power to alter anything in Clause 70 which we are debating this evening.

Lord McIntosh of Haringey

If there are clauses which deal with the National Insurance Fund, they will have to be dealt with by other primary legislation than the Finance Bill. It is the convention of Parliament that they should not be in the Finance Bill.

The noble Lord, Lord Higgins, went on to criticise the lack of consultation, but he gave evidence of the degree to which there has been a huge amount of consultation and publicity and, as the noble Lord, Lord Goodhart, said, a huge amount of lobbying. The consultation has been extremely serious. I shall gladly write to the noble Lord about its details and not weary the Committee with it now. I undertake that the consultation will be fully published well in advance of the Report stage. We will report to noble Lords and the public about the issues raised in the consultation process.

Lord Higgins

If the noble Lord will allow me to intervene, we will come to it on a starred amendment concerned with Clause 70(9) on page 77 of the Bill. The subsection states: If, on any modification of the statutory provisions relating to income tax, it appears to the Treasury to be expedient to modify any of the preceding provisions of this section for the purpose of assimilating the law relating to income tax and the law relating to contributions … the Treasury may with the concurrence of the Secretary of State by order make such modifications". It seems that the point the noble Lord was making earlier is not valid. If I understand it correctly, it would be possible in the next Finance Bill to alter the clauses in this Bill.

Lord McIntosh of Haringey

No, there is a distinction between what goes into a Finance Bill and what is dealt with by the Treasury. The matter is being dealt with by the Treasury now in a non-Finance Bill which is being discussed in full by your Lordships' House. The Treasury is involved in all kinds of legislation other than Finance Bills. I can assure the noble Lord that I have not been at the Dispatch Box answering for the Treasury for the past two years only on issues of the taxation which goes into the Consolidated Fund. That is not the distinction. The distinction is whether it goes into the Consolidated Fund or, as in this case, the National Insurance Fund.

The issue of the control test raised by the noble Lord, Lord Higgins, is far more serious. It was also mentioned by the noble Lords, Lord Jenkin and Lord Goodhart, and in a specific case by the noble Lord, Lord Campbell of Croy. In seeking to have a control test, we attempt to do two things first to simplify the complex case law which exists as between Schedule D and Schedule E; and, secondly, to put the responsibility for making a decision on the client, in other words the putative employer rather than on the individual himself or herself. Although the control test worked perfectly well in the market research business, I recognise that there are cases—the noble Lord, Lord Jenkin read out one—where it may not work so well. I shall not attempt to engage with him as to the way in which orchestras work. He and I are both patrons of the New London Orchestra which is a scratch orchestra. It raises exactly the kind of case to which he referred.

Nevertheless, there is no doubt that the issue of whether we can impose this obligation on the client and force the client to make the deductions from the worker is important in the consultation, and it will be taken account of in our response to the consultation.

Then there is the issue in the consultation about the certification system for agencies. The legislation proposes that the certification system should be voluntary; nevertheless, that is an issue which has gained currency in the consultation and we shall have to respond. We shall do so before the Report stage.

Rebadging has also been referred to, with employees leaving on a Friday and coming back as consultants the following Monday. That happens in the public sector as well as in private industry. The issue has been raised in consultation and we shall have to address it in our response. Your Lordships will have to know about it before we come back to the issue on Report.

There are many important issues, particularly those identified by the noble Lord, Lord Goodhart, on which we have a great responsibility to respond to consultation and to report that response to the House before we come back on Report. I am not making any promises, but there may be modifications to Clause 70 as a result. However, we shall not retreat from the position that the intervening service company is an abuse of tax and national insurance legislation. We have to find some way of dealing with that. That is the point of the clause and that is our sticking point.

Lord Jenkin of Roding

Before the Minister sits down, I quoted from an Inland Revenue document on the case about the vets. The document makes it clear that the Government are not going to attempt to ban the intermediate personal services company. How does that square with what the Minister has just said?

Lord McIntosh of Haringey

There have always been personal services companies. The question is whether the company is inviting an abuse of the tax and national insurance system. Reading from a press statement, the noble Lord, Lord Campbell of Croy, said that 60,000 small businesses were at risk. That is not the case. There are many thousands of genuine one-person companies—maybe the plumber of the noble Lord, Lord Higgins, is one of them—that have a large number of clients and need the protection of limited liability status. They will not be threatened. Our target is the intervening company that is set up to avoid tax and national insurance.

Lord Campbell of Croy

I was saying that the press were reporting that the Government had admitted that 60,000 small businesses would go out of business. I am glad that the Minister has said that that was incorrect.

Lord McIntosh of Haringey

It is indeed incorrect.

Lord Higgins

The Minister has suggested that there should be extensive consultation between now and Report stage. We welcome that because we have been inundated with representations from many interested parties. As the noble Lord, Lord Goodhart, rightly stressed, they were from highly reputable bodies with no individual interest in the issue. They are simply concerned about the repercussions of the Government's proposals.

It is all very well to hold consultations at this stage. That should clearly have happened some time ago. In the light of what the Minister said, I shall not press the amendment, although I should like him to clarify his objection to Amendment No. 137, which, as the noble Lord, Lord Goodhart, and I have pointed out, would seem to get over the dangers created by introducing a new and different definition of an employee. Experience and case law suggest that the definition is not adequate. It would be helpful in trying to reach a better conclusion if the Minister could make clear the Government's attitude to the amendment.

Lord McIntosh of Haringey

The noble Lord did not speak to his amendment in his original speech and that is why I did not reply to it. The record will show whether I am right or wrong. If the client controls how the task is to be undertaken or how it is to be completed, he would be considered to be liable to pay national insurance contributions on the worker's earnings; that is the way the clause is drafted. If the worker is engaged for a specific task and has complete freedom as to how it is to be completed, the clause would not be applicable. Our thinking is that a simple one element test would provide certainty and ease of operation for both parties and that is what is now in question as a result of the consultation process.

I heard what the noble Lord said, I have taken into account all of the considerations that have been raised in this debate and it is on that basis, rather than a specific critique of either this amendment or of Amendment No. 141B in the name of the noble Lord, Lord Goodhart, that I invite your Lordships to await the response which I have undertaken to make.

Lord Goodhart

As it is obvious that if there is a direct contract between the client and the worker, the existing test of whether it is self-employment or employment will apply, what is the justification for applying a different test simply because of the existence of the intermediate company? Would it not be simpler just to ignore the intermediate company and apply the same test to both workers?

Lord McIntosh of Haringey

The noble Lord answered that himself in his earlier speech when he said that there is not a single existing test as between Schedule D and Schedule E. The point is that it is a multi-dimensional test. Control is certainly one of the issues but, as he said, others might be whether there is a degree of risk or whether the worker is using his own. tools. I do not welcome the idea of going back to the old Schedule D/Schedule E tests because I prefer simplicity as the officials of the noble Lord, Lord Jenkin, preferred simplicity, but if it cannot be done, then it cannot be done.

Lord Jenkin of Roding

The Minister insists in dealing with this case as between one client and one worker. That is what the whole focus of the clause and indeed of the Minister's speech has been. Can he give us an undertaking that, in the course of his consultations, he will have regard to the nature of the independent contractors' total activity because it is that which makes the person self-employed and, even though he may be working for one client at a time because of the nature of the work that he does, in fact, over a period of a year, he may have several clients. It seems to me that you have to take account of that in determining the relationship between the worker and any particular client.

Lord McIntosh of Haringey

That is certainly one of the many tests in the Schedule D/Schedule E issue. My interviewers were not employed only by: me, they were employed by a number of different market research companies and I still paid national insurance contributions and deducted PAYE for them and I have no doubt their other employers did the same. This is not a new issue, it is one that has been going for a very long time. However, the noble Lord is right, it is of course one of the issues which has to be taken into account.

Lord Higgins

When the noble Lord reads Hansard tomorrow, he will find that, while covering what I said was effectively a Second Reading speech because the issue needed that, I referred specifically to Amendment No. 137, and the noble Lord, Lord Goodhart, did as well. We remain puzzled by exactly what the attitude of the noble Lord is to this amendment. He says that this will be covered in consultation in the course of the following months. None the less, it seems to us that the Government must have some view on whether this amendment meets the case. What they do not appear to have done at the moment is to make any argument in favour of having an additional definition of "employee" other than that which already exists.

Lord McIntosh of Haringey

I thought it was clear from what I was saying that I was acknowledging with reluctance the difficulty of a uni-dimensional test—the test only of control. Everything I have said has acknowledged that difficulty. Amendment No. 137 adds another dimension. Our response to the consultation process is considering not just this additional dimension but the other dimensions referred to in debate. We have to remove the avoidance. But the mechanics of how we remove the avoidance are not set in stone. If there is an alternative approach which business believes is more sympathetic and yet delivers our policy, we will consider it favourably. That is my response to Amendment No. 137 and indeed it is my response to all of the amendments to Clause 70.

Lord Higgins

We shall return to these matters on subsequent amendments and no doubt again at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

10.15 p.m.

Lord Higgins moved Amendment No. 138:

Page 75, line 9, at end insert— ("() Regulations shall not be made under this section until the Secretary of State, following full consultation with all interested parties, has laid before Parliament a regulatory impact assessment which, amongst other matters, assesses the implications of the proposed regulations for economic activity within the United Kingdom.")

The noble Lord said: This amendment suggests that regulations shall not be made until the Secretary of State, in full consultation with all interested parties, has laid before Parliament a regulatory impact assessment, which, among other matters, assesses the implications of the proposed regulations for economic activity with the United Kingdom.

In reply to the previous amendment, the noble Lord said that there will be full consultation. We appreciate that. However, having said that, we turn to the question of the regulatory assessment. While the other place did not have the benefit of that, we have had it. But it is narrowly defined in terms of the impact on individual companies and so on. Many of the representations that we have received from a vast range of interests—interests which have only an abstract concern rather than an individual company financial interest—suggest that the effect on the UK economy may well be serious, not least in areas where the greatest initiative is shown; for example, the IT industry. Therefore, I hope that the Minister can accept the amendment so that we shall have a supplementary regulatory assessment which, in the light of the discussions mentioned by the Minister, will spell out all the concerns expressed by the various outside bodies. In one of the noble Lord's several winding up speeches on the previous debate he said—

Lord McIntosh of Haringey

I had to make more than one winding up speech because more than one noble Lord intervened.

Lord Higgins

At this time of night there is always the danger that it becomes a conversation rather than a debate. I was not criticising the noble Lord for the fact that he made about five winding up speeches, but in one of the earlier ones, if I may put it that way, he made it clear that the Government are determined to deal with the problem of tax avoidance in that area. We can understand that. But he seemed to imply that they had to deal with the problem of service companies. I hope he will accept that many service companies are entirely legitimate, they fulfil an important and useful function and give to the economic market a degree of flexibility which it would not otherwise have. Having said that, we will need to go into the matter in considerable detail later on. I hope that the noble Lord can accept the amendment. I beg to move.

Lord Jenkin of Roding

I shall be extremely brief. At the Report stage in another place on 17th May the Minister, Mr Timms, said: A regulatory impact assessment will be issued in due course, once the details of the practical application of the new rules have been finalised".—[Official Report, Commons, 17/5/99; col. 756.] That is exactly what our amendment says. I look forward to hearing that the Minister will accept it.

Lord McIntosh of Haringey

At least the noble Lord, Lord Higgins, recognised that the regulatory impact assessment had been published. I am sorry that it has not come to the attention of the noble Lord, Lord Jenkin, but I am sure that we can send him a copy.

In direct response to the noble Lord, Lord Higgins, I do not accept his criticisms of appendix 6 of the regulatory impact assessment. It goes into the details of the costs of operating individual service companies and complying with new legislation on a micro-basis, but it also makes assessments of the macro-costs and talks about the estimated extra NICs revenue which arises from a change of this kind. It estimates the number of service companies, some but not all of which may well be genuine service companies, in the past and their growth in recent years. I thought that I had already made it clear in one of my winding-up speeches that the Government recognise that there are genuine service companies.

From what I have said about our response to the consultation and the representations that have been made, it is quite clear that we are considering the possibility—I shall not go further than that—of making changes to the provisions of Clause 70. If that is the case, then clearly a regulatory impact assessment will be a necessary part of our response. Rather than introduce an amendment at this stage, I ask the noble Lord to accept my assurance that any changes will be accompanied by an appropriate regulatory impact assessment.

Lord Higgins

The noble Lord accepts that there are genuine service companies which are not tax avoidance vehicles and fulfil a useful function. Does he also accept that implementation of Clause 70 as it is now may well wipe out some of those perfectly reasonable companies?

Lord McIntosh of Haringey

I am not prepared to say that. I believe that Clause 70 properly addresses those service companies which are designed primarily for tax avoidance purposes. Clearly, there could be difficulties at the margin if the uni-dimensional control criterion did not apply effectively, but it is not right to say that Clause 70 as drafted would affect genuine service companies. Certainly, that is not the intention.

Lord Higgins

One well understands that that is not the intention. I pose the question again: is it the case that Clause 70 as now drafted may well adversely affect, if not eliminate, perfectly legitimate service companies that have no connection with tax avoidance?

Lord McIntosh of Haringey

I have no reason to believe that that is the case. The objections to Clause 70 that have been raised in the consultation have not been concerned with that specific point.

Lord Higgins

I find that response rather extraordinary. The whole of the agitation on the part of individual companies and all the bodies concerned, none of which is in favour of tax avoidance, is that the shotgun approach adopted by the Government in Clause 70 will adversely affect perfectly legitimate companies. Therefore, I find the reply very strange. Nevertheless, I seek leave to withdraw the amendment. No doubt we can return to these matters.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 139:

Page 75, line 9, at end insert— ("() Regulations under this section shall not apply to any circumstances where the worker is entitled to delegate the whole performance of the services to another person. or where the third party is entitled to nominate someone other than the worker to perform the whole of the services.")

The noble Lord said: Amendment No. 139 in my name and those of my noble friends, including my noble friend Lord Jenkin of Roding, proposes that, Regulations under this section shall not apply to any circumstances where the worker"—

that is a term of art in this context— is entitled to delegate the whole performance of the services to another person, or where the third party is entitled to nominate someone other than the worker to perform the whole of the services".

The amendment seeks to ensure that regulations do not affect companies where the individual concerned is clearly a company and not a personal employee of the client, or where the client is entitled to say that someone other than the worker performed the service. We hope that the provision is helpful and that the noble Lord can accept the amendment in seeking to avoid some of the shotgun effect to which we have just referred. I beg to move.

Lord Jenkin of Roding

The amendment has the merit of being already reflected in existing employment law. As long ago as 1978, the Privy Council, in the case of Australian Mutual Provident Society v. Chaplin ruled that, In the present case there appears to be nothing in the written agreement to prevent the respondent from delegating the whole performance of his work to one or more sub-agents. In the opinion of their lordships, this power of unlimited delegation is almost conclusive against the contract being a contract of service". In the much more recent case of Express and Echo Publications v. Tanton, quoted in The Times as recently as 7th April of this year, the agreement provided that, if the individual contractor was unable or unwilling to perform services personally, he should arrange at his own expense for another suitable person to perform the services. In that case the Court of Appeal held that, A contract of employment involve[s] mutual mist and confidence … It [is] established that where a person who worked for another was not required to provide their services personally, it could not be right as a matter of law that the relationship between the worker and the person for whom he works was that a employee and employer. [A clause not requiring the worker to perform any services personally] was a provision wholly inconsistent with the contract being a contract of service". It seems to me that the substitution test is now well regarded and well established by existing law. I hope that the Minister can give an undertaking that that will be one of the matters to be taken into account in the. consultation.

Lord McIntosh of Haringey

I can certainly give that undertaking. In saying that, we are reconsidering the multi-dimensional tests which at present exist through case law in the distinction between Schedule D and Schedule E, I mentioned a number of points, tools, risk and so on, which will be taken into account. The power to delegate clearly is another appropriate consideration. I can give an undertaking that that will be taken into account in our response to the consultation. I would rather do it that way than accept the amendment on the face of the Bill now.

Lord Higgins

If the Government take the view which the Minister has expressed, and it is accepted in another place, it seems better to accept the Minister's undertaking on the point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No 140:

Page 76, leave out lines 13 to 23

The noble Lord said: This amendment suggests that lines 13 to 23 on page 76 should be omitted. This is effectively subsection (5) of Clause 70. It relates to regulations which may be made by reference to, any certification procedure which may be established by the Treasury for the purposes of that provision, or … such certification procedure … as may be specified",

in the regulations, and so on.

The amendment seeks to establish what the Government have in mind so far as concerns certification proceedings. There are other areas of tax law, in particular as regards self employed people in the construction industry, and so on, which provide for a degree of certification. But is it envisaged that the Government will decide whether or not to certify the 60,000 companies involved as not being an anti-avoidance device?

In advance of the consultations, it would be helpful to know what the Government have in mind with regard to the provision which the amendment seeks to eliminate. I beg to move.

Lord Jenkin of Roding

My noble friend Lord Higgins has mentioned the construction industry and has referred to what were originally called the 714 certificates. As the Financial Secretary, I introduced those certificates and the system worked well. I made a speech about self-employed hod carriers as an example of the abuse. If the worker could establish that he had a good relationship with the Revenue, that he paid his taxes and his national insurance, he could get a certificate and the sub-contractor could be paid gross. Without such a certificate, the sub-contractor had to deduct tax. That is a well tried system and I hope that the Minister will indicate that the Government have learned from that experience.

10.30 p.m.

Lord McIntosh of Haringey

I do not need to reply, because the noble Lord, Lord Jenkin of Roding, has already replied for me!

Certification will make a service company or agency liable to pay class 1 NICs, and operate PAYE, on substantially all the money they receive in respect of contracts to which the new rules apply. This will mean that they cannot avoid NICs by paying dividends. As a consequence, clients who engage a worker through a certified agency will not be required to deduct tax and NICs from the payment that they make to the certified agency or service company in respect of the worker.

The provision will enable registered service companies to continue to provide their labour to clients as they do at present but without the scope for tax or NICs avoidance that exists currently.

Amendment No. 140 would remove the legislative power to introduce a certification scheme. As the noble Lord, Lord Jenkin, made clear, we are talking about a voluntary certification scheme that is only adopted when it is to the advantage of one or both sides. Removing the certification provision would remove the ability for clients to make gross payments to service companies, even where those service companies are willing to account for the full amount of tax and NICs themselves.

We have consulted extensively on these proposals. There have been specific representations on the proposed certification scheme. We are looking again at whether we can achieve our aims in a way which is effective against avoidance without the need for such a scheme. We do not want to have all the trouble of a certification scheme if it does nobody any good and does not achieve our objectives. I can assure the noble Lord, Lord Higgins, that we take very seriously the need to minimise burdens on businesses.

We will set out in regulations the detail of how the provision will be developed. Full account will be taken of the feedback we have received, including the debate this evening. I have already undertaken that we will provide a full response before the Report Stage of the Bill, and the certification scheme will be included in that response.

If I may add another point of clarification. I wish to make it clear that the certification scheme will simply enable service companies to register that they take a responsibility for PAYE and NICs. It is not a question of identifying good or bad companies. If any contributor fails to discharge its liability, it will be pursued.

Lord Higgins

I had forgotten that my noble friend Lord Jenkin of Roding had some initiative in the area that he mentioned. Since he dealt with direct taxation and I dealt with indirect taxation, we tended to take a break at the appropriate spot and I might have been out of the Chamber at the time. Be that as it may, I still have some doubts about the certification procedure. I have listened to the Minister's remarks and will wish to return to the subject later. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Jenkin of Roding moved Amendment No. 140ZA:

Page 76, line 48, at end insert— ("() Regulations made under this section shall not apply where a person provides services that relate to the production, storage or communication of information using computers or micro-electronics.")

The noble Lord said: At this hour of the night and in the light of what the Minister has said, I shall be brief. In particular, I can reassure the noble Lord, Lord Goodhart, that I will not be seeking a specific exemption for the IT industry. The amendment was tabled because the IT industry would, if the clause were to be accepted and the regulations made as envisaged when it was introduced, be particularly hard hit by the changes. The industry is special and unique and is expanding at an exponential rate.

There are considerable peaks and troughs in activity. At present there is a high peak with a number of firms dealing with the millennium bug. The industry is essentially project driven. They may be short, lasting a few weeks, or they may last one or even two years. There must be flexibility for both the clients and the experts to be able to deploy their services as effectively and flexibly as possible.

I hope that in discussions the Minister will take particular account of the needs of the IT industry. The other evening I attended a meeting of the Parliamentary and Scientific Committee addressed by the noble Lord, Lord Sainsbury of Turville. He made a most impressive speech about the huge importance to the economy of our knowledge-based industry. No industry is more knowledge based than the IT industry. One's reaction on reading this clause and the original justification for speeches of Mr Timms in another place was that the Government were talking with two voices. On the one hand, the Minister for Science, sometimes supported by the Prime Minister, appears to be saying that they really want everyone to succeed, for small businesses to flourish and to have the flexibility and enthusiasm of a knowledge-based industry; and then along comes the Treasury and the Inland Revenue and say, "We shall clobber them if they do". That cannot be right. The IT industry is a case in point and that is why I tabled the amendment. I beg to move.

Lord Higgins

I support my noble friend's amendment. Indeed, I have tabled a similar amendment. Neither of us wish to enter the process of enumeration of companies which are all right and those which are not. Our experience on the selective employment tax, which together we abolished, suggests that such enumeration is not a good way of tackling the problems.

It is clear from one's enormous mailbag that particular industries will be badly hit by the Government's proposals. To the extent to which the Minister is successful in his search for a solution which does not damage companies which are not tax avoidance companies, but legitimate and no doubt entrepreneurial enterprises, we hope that that matter can be clarified. We must ensure that we remain competitive and that people are not driven overseas in the IT industry, and that people are comparatively mobile.

Time Earl of Kintore

If the amendment is accepted another body of people—that is, the highly-skilled work force searching for oil in the North Sea—would ask for similar treatment. I shall speak about them at some length during the debate on Clause 70. Surely, what is suggested in the amendment is a last gasp solution and we should be trying to resolve the problem.

Lord McIntosh of Haringey

I can give the assurance which the noble Lord, Lord Jenkin, seeks; that we shall pay particular attention to the representations made about the information technology industry. However, I have two qualifications to make. I am not sure that the phrasing of the amendment is an adequate definition of what is meant by "information technology industry". On that basis alone, I could not accept the amendment as being part of the Bill.

Secondly, although I recognise that there are considerable numbers of people who install and service domestic PCs on a one person basis—I have employed such persons, if "employed" is the correct word—much of the talk about the IT industry is about small service companies with several employees. Such companies will need several employees if they are to provide an effective service to business. They will have to pay national insurance contributions and deduct PAYE.

I have a feeling that some of the representations have been somewhat exaggerated or over-played. If the noble Lord is seeking an assurance that we shall pay particular attention to the needs of the IT industry he can certainly have that assurance.

Lord Jenkin of Roding

With that assurance, I seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 140A not moved.]

Lord Higgins moved Amendment No. 140B:

Page 77, leave out lines 3 to 11

The noble Lord said: I apologise for the late arrival of this starred amendment on the Order Paper. I had not spotted subsection (9) on page 77 which gives me some cause for concern. I referred to it in debates on earlier amendments.

The subsection raises the broad issue that we discussed earlier as to the exact relationship in such matters between the Treasury, the Chancellor of the Exchequer and the Inland Revenue on the one hand, and the Department of Social Security on the other. As the noble Lord said, had these matters been put in a Finance Bill the Committee would not have had the opportunity of debating them in detail as we have done this evening.

I would like clarification of whether it is envisaged that there will be a further set of clauses related to these matters in a subsequent Finance Bill. I had received the impression—I know not how—that that is to be the case. If that is not the case, it will remain true that the other place has not had a chance for detailed examination of these proposals. None the less, I believe that it is right that they should have a further opportunity. 'We shall need to take into account the results of the consultation that the noble Lord, Lord McIntosh of Haringey, has mentioned.

Secondly, I seek to clarify the point that the noble Lord has made about whether the proceeds will go into the Consolidated Fund or into the National Insurance Fund. I have already stressed that as the Contributions Agency has moved to the Treasury, it is not clear why the Treasury should not take a lead in such matters rather than the Department of Social Security. Clause 70 says that: the Treasury may with the concurrence of the Secretary of State by order make such modifications of the preceding provisions of this section as the Treasury think appropriate for that purpose". If I understand the matter correctly, the Treasury—the noble Lord rightly distinguished between the Inland Revenue and the Treasury—in the guise of the Chancellor of the Exchequer, can make an order which will alter the provisions in the clause that we He now debating. That seems to me to be a rather extraordinary situation. If that were to be the case, one would have expected there to be a Treasury provision in the first place. Certainly priority is given to the Treasury, with the concurrence of the Secretary of State, rather than the other way around.

In regard to where the money goes, if I understand correctly, the noble Lord is saying that as national insurance contributions are being avoided, the money should end up in the National Insurance Fund. But this is purely a book-keeping operation. The National Insurance Fund does not exist in any particular sense. It is true that some of its revenue comes from national insurance contributions, but a large chunk comes, and has always come, from other sources of revenue. I remain puzzled as to why the noble Lord believes it important that money should go into one fund rather than another. It would be helpful if he could clarify exactly what the division of responsibility is between the Treasury and the Department of Social Security.

10.45 p.m.

Lord Jenkin of Roding

I would like to raise a slightly different point. As stated by the Select Committee on Delegated Powers and Deregulation in its 17th Report in the current Session, at paragraph 9, Subsection (9) of the new Section 4A is a Henry VIII power allowing the modifying of the section to assimilate the law relating to income tax and the law relating to contributions. An order under this subsection is subject to negative procedure". As I read the report of the Select Committee, on balance—the wording is quite significantly gentle, it is not very definite—it considers the negative procedure appropriate. It is right to look at the language. It says, As we understand it, this power can be considered to be consequential on the provisions which Parliament will consider when the Finance Bill is introduced and we understand that that Bill could not be used to bring about this assimilation". Pausing there for a moment, I believe that is the point that the Minister was making in an earlier debate: one cannot put social security legislation into a Finance Bill. Is that not the point? Is the Minister shaking his head?

Lord McIntosh of Haringey

The Finance Bill cannot be concerned with national insurance contributions which go into the National Insurance Fund. It really does not matter whether it is social security or Treasury, the point is whether it is the Consolidated Fund or the National Insurance Fund. I shall respond to that in more detail in a moment.

Lord Jenkin of Roding

The Select Committee goes on to say, Moreover, the power is for a limited purpose and is not capable of being used for a wider purpose". I question whether in these circumstances the negative procedure is right. I normally have the greatest respect for the Select Committee on Delegated Powers and Deregulation, but on this matter it is possible that it has missed a trick. This is quite an important point and it should be properly debated by Parliament. I shall listen with interest to the Minister's reply.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Jenkin, for quoting from the report of the Select Committee on Delegated Powers and Deregulation. But he quoted from it in little chunks with interventions. He used either his own words or those in quotation which did not fully represent the position. The only safe thing for me to do is to quote from paragraph 9 of the report: Subsection 9 of the new section 4A is a Henry VIII power allowing the modifying of the section to assimilate the law relating to income tax and the law relating to contributions. An order under this subsection is subject to negative procedure. As we understand it. this power can be considered to be consequential on the provisions which Parliament will consider when the Finance Bill is introduced and we understand that that Bill could not be used to bring out this assimilation. Moreover, the power is for a limited purpose and is not capable of being used for a wider purpose. The Committee therefore considers the negative procedure appropriate". The noble Lord, Lord Jenkin, used the words "on balance" as though the committee was using them. It does not. It understands the position to the best of its ability and it is satisfied with the powers which are being given. We in government get into terrible trouble if we try to go against that committee. We get torn apart, but here we are agreeing with it and the noble Lord does not like that. He had better get himself nominated to the committee and stiffen up its act if that is what he feels is appropriate. I shall rest on the approval of the committee so ably chaired by the noble Lord, Lord Alexander of Weedon.

Amendment No. 140B would remove subsection (9) of Clause 70 which provides a power to enable the clause to be adapted by order if the parallel tax provisions introduced in next year's Finance Bill differ from what is envisaged by the clause. I can assure the Committee that there is no sinister purpose behind the inclusion of subsection (9) in Clause 70; it is simply a necessary provision to ensure that the powers in the clause operate effectively.

There are two reasons why the subsection is needed. First, NICs are not as flexible as tax about when a provision comes into force. NICs' liability is geared to a worker's pay period, be it weekly or monthly; any NICs legislation must be introduced prior to the start of the tax year. The Welfare Reform and Pensions Bill allows for such a timetable to be met. But the provision for tax in the Finance Bill next year—2000—will not be ready for this timetable. It is therefore important for us to be able to amend the detail of the NICs provisions to take into account any detailed changes in the tax rules. I am sure that Members of the Committee understand the need for business to operate to one set of rules rather than two.

Secondly, the subsection gives flexibility to keep the NICs measures in line with the tax rules. The annual Finance Bill means that changes to the tax legislation can occur every year subject to parliamentary approval, but there is no equivalent annual legislation automatically available for the national insurance legislation. So without the subsection it would be difficult to amend the contributions and benefits Act to mirror any necessary changes in the Finance Bill.

The noble Lord, Lord Higgins, again raised the question as to why NICs legislation cannot be included in Finance Bills. As I said before and can only repeat, it is a convention of Parliament that Finance Bills are restricted to tax provision. Tax revenue is paid into the Consolidated Fund. Contributions are not a tax and are paid into the National Insurance Fund. It seemed to be suggested that somehow this is a polite fiction. The National Insurance Fund is necessary to pay benefits. At the moment it is broadly in balance, but there were a number of years under the noble Lord's government when it was not in balance. There was a deficit in the National Insurance Fund. We have corrected that situation. The National Insurance Fund is now a proper fund which does what it is supposed to do. It is still the position that the tax provisions of Clause 70 will be introduced through the Finance Bill because they are in the Consolidated Fund, but the NICs provisions will not. That is why we have to have this secondary power provided by subsection (9) of Clause 70.

Lord Goodhart

Before the noble Lord sits down, perhaps I can ask him this. Obviously what will happen is that the Finance Bill will be enacted in July 2000 and will take effect retrospectively to 6th April. The modifications to the NIC rules under subsection (9) therefore cannot be made until after 6th April because there will not be anything to align with at that stage. Is the Minister satisfied that subsection (9) gives power to the Treasury to make regulations having retrospective effect?

Lord McIntosh of Haringey

That was my understanding, but if I am wrong I shall write to the noble Lord.

Lord Goodhart

It will be necessary for them to have retrospective effect.

Lord Higgins

I expected the noble Lord, Lord Goodhart, to dispute the point made by the Minister as to whether or not the contributions were a tax since it is a clear policy of the Liberal Democrats to say that they are. However, I am grateful to the Minister for clarifying the situation. As I understand it, there will be a corresponding set of clauses related to the tax aspect of this matter in the Finance Bill next year.

Having said that, the reality is that the Treasury has taken over the Contributions Agency and the provisions the Minister mentioned now seem somewhat anachronistic in this context in as much as the Treasury seems to be taking over more and more of the department. However, in the light of what he said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 70 shall stand part of the Bill?

Lord Higgins

This has been a helpful, if at times rather technical. debate. The Minister has taken a conciliatory attitude. In particular, he has given us an assurance that we will return to the matter on Report in the light of discussions which are taking place with the various interest parties. It is quite difficult to discuss this kind of issue in Committee. The preparatory work which the noble Lord has suggested will certainly be welcomed, albeit it is taking place rather late in the day.

It is clearly the Government's intention that such provisions should not adversely affect legitimate service companies, which are not designed for tax avoidance. Indeed, if that is not so, the danger is that yet another so-called "stealth tax" will be imposed, which will have an adverse effect on business. That will be in addition to the very considerable burdens which administration of such a situation is likely to create if the Government do not succeed in narrowing down the definition of companies which are clearly avoidance vehicles in the way that all of us on all sides of the Committee would wish to see. We welcome the Minister's assurances and look forward to debating the matter further on Report in the light of those discussions.

Lord McIntosh of Haringey

If it would be helpful, I should like to suggest that, as soon as we have our response to the consultation ready and even if it is during the Summer Recess—in other words, before the House returns in October—we could seek a meeting with everyone who has expressed an interest in this subject to see whether we can find a mutually convenient time when we can all sit down together and have a seminar. If noble Lords would find it helpful, I would certainly be willing to return to the House when it is not sitting for that purpose.

Lord Higgins

That seems to me to be an extremely helpful suggestion because the matter is of considerable importance to industry. It is important that we should get it right. We may, of course, be under some time constraints when we return as regards the spill-over. Therefore, if we can be clear in advance about what are the outstanding issues between us, if any, that would be helpful. Speaking for myself, I would be happy to co-operate with what the Minister has suggested.

Clause 70 agreed to.

[Amendments Nos. 141 not moved.]

Clause 71 [Earnings of workers supplied by service companies etc: Northern Ireland]:

[Amendment No. 141A had been withdrawn from the Marshalled List.]

[Amendment No. 141B not moved.]

Lord Higgins moved Amendment No. 142: Transpose Clause 71 to after Clause 73

The noble Lord said: This is the transpose clause. Unfortunately, I was not quick enough a few moments ago. I said "not moved" when Amendment No. 141 was called. Quite clearly, in the light of the speed with which Clauses 70 and 71 were introduced, it seemed to us that they ended up in the wrong place. In fact, Chapter II of Part V of the Bill starts with Clause 68, which deals with new thresholds for primary Class 1 contributions and Clause 69, which deals with the same thing for Northern Ireland. We then have the two clauses that we have just discussed, followed by Clauses 72 and 73 relating to Class 1B contributions both here and in Northern Ireland.

Therefore, it seems to us that Clauses 70 and 71 were put in the wrong place and that they really ought to have been placed at the end of the chapter. However, having said that, I hesitate slightly to move such amendments and press them because Clause 70 is now such a notorious clause that, if we renumbered it, we might cause great confusion outside. So I do not propose to move this amendment—

Lord McIntosh of Haringey

If the noble Lord does not mind, I would prefer him to move the amendment so that I may say a few words in response.

Lord Higgins

I understand that the Minister wishes to respond. In that case, perhaps we may delay the proceedings for a few moments to allow him to do so. I beg to move.

11 p.m.

Lord McIntosh of Haringey

I can be brief. The placing of the clause in the Bill is done on the advice of parliamentary counsel. I certainly never had the courage to question parliamentary counsel's judgment on these matters. No doubt the noble Lord did so constantly when he was in office. Clauses 72 and 73 are minor clauses. It is appropriate that they should come last in this chapter.

Lord Higgins

I fully accept that. My recollection mostly is that parliamentary counsel—we may have had a heavier legislative programme—were paid vastly more than us but had more frequent nervous breakdowns. But be that as it may, I accept the point that the noble Lord has made. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 72 and 73 agreed to.

Clause 74 [Measures to reduce under-occupation by housing benefit claimants]:

Baroness Buscombe moved Amendment No. 143:

Page 80. line 29, at end insert— ("(d) for ensuring that, in relation to a housing benefit claimant who is disabled, due account is taken of his need for additional space, including an extra bedroom for a carer.")

The noble Baroness said: This amendment is intended to protect the interests of those individuals who are in receipt of housing benefit, who are disabled and who require the support of a carer in their home. Clause 74 will enable the Government to make regulations that will establish a pilot scheme under which tenants in the social rented sector who are under-occupying their homes and who receive housing benefit will receive a financial incentive to move to smaller and cheaper accommodation.

The financial incentive will involve those tenants being rewarded with a lump sum payment equivalent to half the difference between their old and new weekly rent, multiplied by 156. While broadly supporting this proposal, in moving this amendment we look to the Government for reassurance that they will take adequate account of individual circumstances, and in particular circumstances whereby a claimant has need of a carer, in which case additional space is assured for that carer, including an extra bedroom for that carer.

A carer's role is recognised through the invalid care allowance. In many situations where claimants are in receipt of that allowance it is necessary for the carer effectively to live in. We believe that it is tremendously important to protect the ability of that carer to be able to live in in a separate room and to be able to rest and recuperate as and when relief from the caring allows. I believe that the wording of the amendment speaks for itself. I beg to move.

Baroness Hollis of Heigham

I recognise that this amendment aims to protect disabled people by ensuring that their needs are taken into account in the under-occupation scheme. I should mention that the same amendment was debated in the other place and my honourable friend Mr Hugh Bayley reassured honourable Members that the amendment was not necessary, whereupon Mr Quentin Davies withdrew his amendment on the grounds that the Minister had given, the clear assurance that we wanted". Therefore I am a little surprised that the amendment was retabled as all I can do is to give the same assurance as has already been given by the Minister in the other place. Therefore I do not think that this amendment is necessary.

However, I am happy to repeat the speech of my honourable friend Mr Hugh Bayley, who said that some disabled people have a requirement for additional space arising from, for example, a carer who resides with them and that the scheme will take that into account, including the needs of other people who may need additional rooms, such as parents with children who come home at weekends. People will gain from the scheme even where they require additional space as long as the overall size of their new home is smaller than their old. For example, a single disabled person living in a four-bedroom house could move to a two or even a three-bedroom house and still be entitled to a payment under the scheme. He or she would not be required to move to a one-bedroom flat.

I hope that in the light of that reply the noble Baroness will appreciate that her amendment is unnecessary. The scheme is also, of course, entirely voluntary. No one will be forced to take part and no one will receive less benefit if they do not move. It is up to them. I hope that the noble Baroness will agree that the amendment is unnecessary and will withdraw it.

Baroness Buscombe

I stress that we have had continuing representations from a number of organisations and individuals in relation to this clause. Therefore we felt it appropriate to bring forward this amendment at this stage. I thank the Minister for her reaffirmation of what was said in the other place. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 143ZA:

Page 80, line 39, leave out subsection (5) and inser— ("() A person aggrieved by a determination of any prescribed description made under regulations under this section may appeal to such court or tribunal as may be prescribed; and the regulations may make provision as to the procedure to be followed in connection with appeals under this subsection.")

The noble Baroness said: I am delighted to move the amendment. It fulfils a commitment made to the Select Committee on Delegated Powers and Deregulation following its very helpful report on the delegated powers in the Bill.

As I mentioned when we discussed the last amendment, Clause 74 enables us to set up a housing under-occupation scheme. The scheme—which, of Course, will be entirely voluntary—will offer people incentives to move to smaller and more suitable accommodation by allowing them to keep part of any saving in HB.

It was always our intention that there should be a right of appeal under the scheme. The current drafting of the clause allows for this appeals mechanism to be established through regulations, as the Explanatory Notes make clear. The Select Committee on Delegated Powers and Deregulation suggested that it would be useful to bring that provision onto the face of the Bill. I am delighted to be able to support that recommendation, which is why we have brought forward the amendment. It confirms that people involved in the under-occupation scheme will have a right of appeal to a court or tribunal.

This is of course a pilot scheme, which we intend to trial in three local authorities. Much of the detail may need to he refined and adapted in the light of developing experience. Therefore the amendment provides for the actual appeals process to be defined in regulations. For example, regulations will identify the appropriate avenue for appeals, the decisions which will be appealable and the time and manner for making appeals. This is consistent with the approach taken for the scheme as a whole, which allows the full workings of the scheme to be set out in regulations, building on the basic framework the clause itself provides. This seemed to us the best balance between the appropriate suggestions of the Select Committee on Delegated Powers and Deregulation—which, as my noble friend said, we take very seriously—and the need to be able to loop in from our experience in the pilot areas. I am confident that noble Lords will welcome the amendment. I urge the Committee to support it.

Earl Russell

The Minister's confidence is well founded. I welcome the amendment and I thank the Minister very warmly for it.

Baroness Buscombe

I, too, welcome the amendment and rise to support it.

On Question, amendment agreed to.

Clause 74, as amended, agreed to.

[Amendment Nos. 143AA to 143AC not moved.]

Clause 75 agreed to.

Schedule 11 [Contributions and pensions administration]:

Baroness Hollis of Heigham moved Amendment No. 143AD:

Page 138. line 32, at end insert— ("10A. In section 172 (Assembly, etc. control of regulations and orders)., in subsection (2)(c) for ", 153(2) or" there is substituted "or 153(2)".")

The noble Baroness said: The group of government amendments before us now is extremely technical and deals mainly with some corrections to legislation passed earlier in the year. It may help the Committee if I explain a little more of the background to Clause 76 and Schedule 11, to which these amendments relate.

A number of noble Lords here today were involved last winter in the debates on the Social Security Contributions (Transfer of Functions, etc.)—I hope that the noble Lord, Lord Higgins, recognises the word "etcetera"—Act 1999. That Act transferred the functions of the Contributions Agency to the Inland Revenue and responsibility for NIC policy to the Treasury and the Revenue.

In the course of the passage of that Act we Identified a small number of technical errors and omissions. I regret that the noble Lord, Lord Goodhart, is not here because normally we rely on him to spot technical errors and omissions. For once his farsightedness has slightly failed us. We normally regard him as the backstop for government slippage. Even so, these were minor matters that were not material to the effect of the Bill hut we decided to take the earliest possible opportunity to clarify them. So the Government brought forward in another place amendments to the Bill to correct the se errors and omissions. They are now set out in Schedule 11.

Schedule 11 is there largely to ensure that the references and numbering are correct, that the transferred functions are treated consistently and that all consequential changes are picked up. None of these corrections affect the exercise of the functions as at 1st April.

As the Committee is well aware, social security legislation generally extends to Great Britain only. So the Social Security Contributions (Transfer of Functions, etc.) Act allowed an Order in Council to make parallel provision in Northern Ireland. That w as the snappily titled Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999. Since that was laid before Parliament, we have identified a number of extremely minor and technical errors in or related to that order and found a further minor omission from the Social Security Contributions (Transfer of Functions, etc.) Act itself. The amendments before us now put right those matters.

The amendments do such things as ensure grammatical consistency in an amended list, remove a passage of rogue text and pick up a number of consequential amendments. None of them affects the effective operation of the legislation in Northern Ireland.

Some of the amendments in this group have a retroactive effect; that is, they are deemed to have taken effect in April or October, in place of the provisions which contain the errors. That is partly for simplicity, and partly to remove any doubt about whether the previously unclear legislation should have been applied.

I do not intend to take up any more of the Committee's time on the detail of the amendments, although I am happy to take any questions that Members may have. I ask the Committee to support the amendments in the assurance that they are technical and tidy up the drafting. I beg to move.

Earl Russell

I thank the Minister for her kind words about my noble friend Lord Goodhart. I am quite pleased to find that he joins the company of Homer and is found among those who are capable of nodding.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 143AE to 143AH:

Page 139, line 6, at end insert— ("15A.—(1) In section 116 (supply of information held by tax authorities for fraud prevention and verification), for subsection (1) there is substituted—

"(1) This section applies—

1. (a) to information which is held—
1. (i) by the Inland Revenue, or
2. (ii) by a person providing services to the Inland Revenue, in connection with the provision of those services,
2. but is not information to which section 115D above applies, and
3. (b) to information which is held—
1. (i) by the Commissioners of Customs and Excise, or
2. (ii) by a person providing services to the Commissioners of Customs and Excise, in connection with the provision of those services."

(2) This amendment shall be deemed to have come into force on 1st April 1999 in place of that made by paragraph 2(2) of Schedule 5 to the Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999.

15B.—(1) In section 145 (adjustments between the Northern Ireland National Insurance Fund and the Consolidated Fund of Northern Ireland)—

1. (a) in subsection (1)(a), sub-paragraphs (i) and (ii) are omitted: and
2. (b) in subsection (3)(a), for "subsection (1)(a) and (b)" there is substituted "subsection (1)(b)".

(2) These amendments shall be deemed to have come into force on 5th October 1999 in place of those made by paragraph 34 of Schedule 2 to the Tax Credits Act 1999.

15C.—(1) In section 165 (regulations and orders - general), in subsection (9)(c), for "142(7), I45(4)" there is substituted "145(4)(a)".

(2) This amendment shall be deemed to have come into force on 1st April 1999 in place of that made by paragraph 49(3) of Schedule 3 to the Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999.")

Page 139, line 26, at end insert—

("20A.—(1) In section 154 (disclosure of information between government departments, etc.), in subsection (5) after "Subsections (1) and (IA)" there is inserted "extend".

(2) This amendment shall be deemed to have come into force on 1st April 1999.")

Page 139, line 38, at end insert—

("21A.—(1) In section 177 (orders and regulations—general provisions), for subsection (7) there is substituted—

"(7) Any power conferred on the Secretary of State to make regulations or orders (other than an order under section 162) is exercisable by statutory instrument, and subsections (2) to (4) and section 178(1) apply to regulations or orders made in exercise of any such power of the Secretary of State as they apply to regulations made by the Department."

(2) This amendment shall be deemed to have come into force on 1st April 1999 in place of those made by paragraph 75(3) of Schedule I to the Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999.")

Page 140, line 17, leave out ("paragraph 66(3) (which has not come into force) is omitted") and insert ("the following provisions are omitted, namely—

1. (a) paragraph 4(6) (which was superseded by paragraph 4 of Schedule I to the Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999), and
2. (b) paragraph 66(3) (which has not come into force).")

On Question, amendments agreed to.

Schedule 11, as amended, agreed to.

On Question, Whether Clause 77 shall stand part of the Bill?

Earl Russell

I think I owe an apology to several people for raising what is properly a matter for the privileges of another place. But I do so at the request of my honourable friend, Mr Kirkwood. As a result of the operation of the guillotine in another place, this clause was never debated there.

The purpose of the clause is to make easier the authorisation of preliminary expenditure for a purpose which may be in the pipeline for the future. On such matters as IT preparation, a great deal of expenditure arises early on, before the legislation is tabled.

Some noble Lords may remember the paving Bill for theworking families' tax credit, which contained one of the most colossal Henry VIII clauses that I have ever seen. I understand the need for this kind of thing, but there is a real problem here. Without preliminary expenditure, a large number of policy changes cannot even be contemplated. So I understand why the Government want to be able to proceed by statutory instrument rather than needing an Act of Parliament to authorise each particular piece of expenditure.

However, the principle which is here—I shall not say breached, but possibly weakened—is one of very great importance historically and in another place it is guarded very jealously indeed. I understand that a certain amount of concern has been raised among fairly senior figures in another place about the possible effect of the clause. They would like the matter raised here in order that something can be written into the record about it.

I should like to know what safeguards will be in the way of this exercise of power. Under what circumstances is it likely to be exercised? What are the limits on the vires? What scrutiny will there be of the decision to table statutory instruments to authorise such preliminary expenditure? In particular, will it be possible for a Select Committee in another place—and several Select Committees are interested in the matter—to examine the statutory instrument in draft before it is tabled.

The principle of parliamentary control of expenditure and the principle of the efficient conduct of business are both important. If we can find, through the working of this clause, a way of reconciling them, that, I hope, will be for the good of all parties. I oppose the Question that Clause 77 shall stand part of the Bill.

Baroness Hollis of Heigham

This clause creates a power to incur expenditure on work undertaken in preparation for changes to the social security system.

Without the clause, expenditure could not be incurred on much of the work needed to prepare for a change in social security until after Royal Assent for the substantive legislation introducing the change. As the social security system is large, complex and increasingly dependent on computers—heaven help us—there are long lead in times for making changes. Having to wait for Royal Assent, therefore, means that much needed welfare reform is delayed or implementation is rushed with resulting higher costs and possible loss of quality.

So the clause is intended to give a specific and time-limited power to incur expenditure on making preparations for future change of the social security system. The power covers two types of preparatory work: first, work in support of changes arising from decisions on social security policy, such as the introduction of a new benefit or for major changes to existing policies which will require primary legislation; and, secondly, work in support of changes to the social security system needed as a consequence of other government policies. For example, as the Prime Minister made clear in his statement on 23rd February, the power could be used to allow work in preparation for the country joining the European Monetary Union. I was pressed on that question in your Lordships' House. I said that unless one spent the money in advance there would be no choice for people to make in a possible referendum. If we wish to have the option of joining, we must prepare for it and the scale and complexity of the DSS computer systems make advance preparation critical. At the time I believe I had the support of the noble Earl and his colleagues.

There would be firm additional parliamentary controls on this expenditure. They are set out in the clause itself and are additional to the normal processes of estimates and supply. First, only preparatory work could be subject to this procedure. Substantive expenditure on the new service—for example, payments of a new benefit—could not be approved in this way. Secondly, a report detailing the nature and amount of intended expenditure would need to be laid in the House of Commons before expenditure could be approved. Thirdly, that approval would have to be by affirmative resolution. Fourthly, any such approval would be limited to a time period of two years. There is no question of indefinite and continuing expenditure.

In addition to those provisions on the face of the Bill, my honourable friend the Minister of State, Mr Timms, assured the chairman of the Social Security Select Committee—the noble Earl's honourable friend Mr Kirkwood—and the chairman of the Public Accounts Committee, at col. 1338 of Hansard for 20th May 1999, that arrangements could be made so that in normal circumstances those committees could examine the report before the House of Commons takes a decision.

I was pressed on that point by the noble Earl. The mechanism for it will be further discussed with the Select Committees concerned.

The Committee may wonder why there is no role for this Chamber in these parliamentary controls. It is because, as the noble Earl, Lord Russell, acknowledged, it is purely financial and is therefore subject to Commons privilege. However, the House of Lords will have its usual role in commenting upon and influencing the substantive legislation as it passes through the parliamentary process. There may well be other opportunities to discuss the underlying policy.

I hope that in the light of the assurances I have been able to give the noble Earl, he will feel that the concerns of his honourable friends in the other place have been addressed.

Earl Russell

I am grateful to the Minister for that reply. I understand the force of all the points she makes. I conceded from the outset that the clause meets a real need. I am satisfied by the safeguards which she offers which are carefully thought out and well considered.

I have a slight uneasy sense that people in the past have conceded such things for good reasons and with good safeguards. They have found that they have got on the slope which leads on downhill. But if that happens, I am fully satisfied it will not be by any intention of this Government who, I believe, have done their best. I am grateful for the assurance about the Select Committees. I only hope that the normal circumstances will be normal. So do we all. I withdraw my opposition to Clause 77.

Clause 77 agreed to.

11.15 p.m.

Clause 78 [Regulations and orders]:

Baroness Hollis of Heigham moved Amendment No. 143B:

Page 83, line 22, at end insert— ("() A statutory instrument containing an order under section 23(3) shall be subject to annulment in pursuance of a resolution of either House of Parliament.")

On Question, amendment agreed to.

Clause 78, as amended, agreed to.

Clause 79 agreed to.

Schedule 12 [Consequential amendments]:

Baroness Hollis of Heigham moved Amendments Nos. 144 to 152:

Page 142, leave out lines 14 to 16

Page 142, line 27, leave out from beginning to ("and") in line 30 and insert— ("(a) make any one or more of the orders which it could make under Part II of the 1973 Act if a decree of divorce, a decree of nullity of marriage or a decree of judicial separation in respect of the marriage had been granted in England and Wales, that is to say—

1. (i) any order mentioned in section 23(1) of the 1973 Act (financial provision orders);
2. (ii) any order mentioned in section 24(1) of that Act (property adjustment orders);")

Page 142, line 37, leave out ("24C(5) and (6)") and insert ("24B(3) to (5)")

Page 142, line 38, at end insert ("and nullity);")

Page 142, leave out lines 39 and 40

Page 142, line 41, leave out ("section 24F") and insert ("section 24C")

Page 142, line 42, leave out ("section 24G") and insert ("section 24D")

Page 142, line 42, at end insert (", and (c) at the end there is inserted—

1. "(1) section 40A (appeals relating to pension sharing orders which have taken effect)."").

Page 151, line 19, at end insert—

("Family Law Act 1996 (c. 27)

62A. The Family Law Act 1996 has effect subject to the following amendments.

62B.—(1) Schedule 2 is amended as follows.

(2) In paragraph 2, for "section 21" there is substituted "sections 21 and 21A".

(3) In the section set out in that paragraph, for the sidenote there is substituted "Financial provision orders, property adjustment orders and pension sharing orders."

(4) In that section, in paragraphs (c) and (d) of subsection (2), there is inserted at the end ", other than one in the form of a pension arrangement (within the meaning of section 25D below)".

(5) In that section, after subsection (2) there is inserted—

"(3) For the purposes of this Act, a pension sharing order is an order which—

1. (a) provides that one party's—
   1. (i) shareable rights under a specified pension arrangement, or
   2. (ii) shareable state scheme rights,
   be subject to pension sharing for the benefit of the other party, and
2. (b) specifies the percentage value to be transferred."

(6) In that section, subsections (3), (4) and (5) become (4), (5) and (6).

(7) In that section, after subsection (6) (new numbering) there is inserted—

"(7) In subsection (3)—

1. (a) the reference to shareable rights under a pension arrangement is to rights in relation to which pension sharing is available under Chapter I of Part IV of the Welfare Reform and Pensions Act 1999, or under corresponding Northern Ireland legislation, and
2. (b) the reference to shareable state scheme rights is to rights in relation to which pension sharing is available under Chapter II of Part IV of the Welfare Reform and Pensions Act 1999, or under corresponding Northern Ireland legislation."

(8) In that section, subsection (6) becomes subsection (8).

(9) After paragraph 6 there is inserted—

"Pension sharing orders: divorce and nullity

6A. For section 24B substitute—

"Pension sharing orders: divorce

24B.—(1) On an application made under this section, the court may at the appropriate time make one or more pension sharing orders.

(2) The "appropriate time" is any time—

1. (a) after a statement of marital breakdown has been received by the court and before any application for a divorce order or for a separation order is made to the court by reference to that statement;
2. (b) when an application for a divorce order has been made under section 3 of the 1996 Act and has not been withdrawn;
3. (c) when an application for a divorce order has been made under section 4 of the 1996 Act and has not been withdrawn;
4. (d) after a divorce order has been made.

(3) The court shall exercise its powers under this section, so far as is practicable, by making on one occasion all such provision as can be made by way of one or more pension sharing orders in relation to the marriage as it thinks fit.

(4) This section is to be read subject to any restrictions imposed by this Act and to section 19 of the 1996 Act.

Restrictions affecting section 24B.

24BA.—(1) No pension sharing order may be made under section 24B above so as to take effect before the making of a divorce order in relation to the marriage.

(2) The court may not make a pension sharing order under section 24B above at any time while the period for reflection and consideration is interrupted under section 7(8) of the 1996 Act.

(3) No pension sharing order may be made under section 24B above by virtue of a statement of marital breakdown if, by virtue of section 5(3) or 7(9) of the 1996 Act (lapse of divorce process), it has ceased to be possible—

1. (a) for an application to be made by reference to that statement; or
2. (b) for an order to be made on such an application.

(4) No pension sharing order may be made under section 24B above after a divorce order has been made, except—

1. (a) in response to an application made before the divorce order was made: or
2. (b) on a subsequent application made with the leave of the court.

(5) A pension sharing order under section 24B above may not be made in relation to a pension arrangement which—

1. (a) is the subject of a pension sharing order in relation to the marriage, or
2. (b) has been the subject of pension sharing between the parties to the marriage.

(6) A pension sharing order under section 24B above may not be made in relation to shareable state scheme rights if—

1. (a) such rights are the subject of a pension sharing order in relation to the marriage, or
2. (b) such rights have been the subject of pension sharing between the parties to the marriage.

(7) A pension sharing order under section 24B above may not be made in relation to the rights of a person under a pension arrangement if there is in force a requirement imposed by virtue of section 25B or 25C below which relates to benefits or future benefits to which he is entitled under the pension arrangement.

(8) In this section, "period for reflection and consideration" means the period fixed by section 7 of the 1996 Act.

Pension sharing orders: nullity of marriage.

24BB.—(1) On or after granting a decree of nullity of marriage (whether before or after the decree is made absolute), the court may, on an application made under this section, make one or more pension sharing orders in relation to the marriage.

(2) The court shall exercise its powers under this section, so far as is practicable, by making on one occasion all such provision as can be made by way of one or more pension sharing orders in relation to the marriage as it thinks fit.

(3) Where a pension sharing order is made under this section on or after the granting of a decree of nullity of marriage, the order is not to take effect unless the decree has been made absolute.

(4) This section is to he read subject to any restrictions imposed by this Act.

Restrictions affecting section 24BB.

24BC.—(1) A pension sharing order under section 24BB above may not be made in relation to a pension arrangement which—

1. (a) is the subject of a pension sharing order in relation to the marriage, or
2. (b) has been the subject of pension sharing between the parties to the marriage.

(2) A pension sharing order under section 24BB above may not be made in relation to shareable state scheme rights if—

1. (a) such rights are the subject of a pension sharing order in relation to the marriage, or
2. (b) such rights have been the subject of pension sharing between the parties to the marriage.

(3) A pension sharing order under section 24BB above may not be made in relation to the rights of a person under a pension arrangement if there is in force a requirement imposed by virtue of section 25B or 25C below which relates to benefits or future benefits to which he is entitled under the pension arrangement."

62C.—(1) Schedule 8 is amended as follows.

(2) In paragraph 9—

1. (a) in sub-paragraph (2)—
1. (i) for "or 24A" there is substituted ", 24A or 24B", and
2. (ii) for "to 24A" there is substituted "to 24BB", and
2. (b) in sub-paragraph (3), after paragraph (a) there is inserted—

(aa) for "or 24B" substitute ", 24B or 24BB";".

(3) In paragraph 10, in sub-paragraph (2), for "24A" there is substituted "24BB".

(4) For paragraph 11 there is substituted— 11. In each of sections 25B(3) and 25C(1) and (3), for "section 23" substitute "section 22A or 23".

11A. In section 25D—

1. (a) in each of subsections (1)(a), (2)(a) and (ab) and (2C)(c)(i), for "section 23" substitute "section 22A or 23", and
2. (b) in subsection (3), in the definition of "shareable state scheme rights", for "section 21A(1)" substitute "section 21(3)"."

(5) In paragraph 16, in sub-paragraph (2), at the end there is inserted— (f) after paragraph (f) there is inserted— (fa) a pension sharing order under section 24B which is made at a time when no divorce order has been made, and no separation order is in force, in relation to the marriage; (g) in paragraph (g), for "24B" substitute "24BB".

(6) In that paragraph, after sub-paragraph (3) there is inserted— (3A) In subsection (4A), after "paragraph" insert "(de), (ea), (fa) or".

(7) In that paragraph, in sub-paragraph (4), for the words from "subsection (4)" to the end of the first of the inserted subsections there is substituted "subsection (4A) insert-", the second of the inserted subsections is renumbered "(4AA)" and after that subsection there is inserted— (4AB) No variation of a pension sharing order under section 24B above shall be made so as to take effect before the making of a divorce order in relation to the marriage.

(8) In that paragraph, after sub-paragraph (4) there is inserted— (4A) In subsection (4B), after "order" insert "under section 24BB above".

(9) In that paragraph, after sub-paragraph (7) there is inserted— (8) After subsection (7F) insert— (7FA) Section 24B(3) above applies where the court makes a pension sharing order under subsection (7B) above as it applies where the court makes such an order under section 24B above.

(9) In subsection (7G)—

1. (a) for "Subsections (3) to (5) of section 24B" substitute "Section 24BA(5) to (7)", and
2. (b) for "that section" substitute "section 24B above"."

(10) After that paragraph there is inserted— 16A. After section 31A insert—

"Discharge of pension sharing orders on making of separation order.

31B. Where, after the making of a pension sharing order under section 24B above in relation to a marriage, a separation order is made in relation to the marriage, the pension sharing order is discharged.""

(11) In paragraph 19, in sub-paragraph (3)—

1. (a) after "24A" there is inserted ", 24B", and
2. (b) after "property adjustment order," there is inserted "any pension sharing order,".

(12) In paragraph 21—

1. (a) after "24,", in the first place, there is inserted "24B,", and
2. (b) for "24,", in the second place, there is substituted "24BB,".

(13) After paragraph 25 there is inserted— 25A. In section 52(2)(aa), for "section 21A" substitute "section 21".

(14) In paragraph 32, in sub-paragraph (2), for the words from "the words" to the end there is substituted "paragraph (a) substitute— (a) make one or more orders each of which would, within the meaning of Part II of the 1973 Act, be a financial provision order in favour of a party to the marriage or a child of the family or a property adjustment order in relation to the marriage.".

(15) In that paragraph, in sub-paragraph (3), for "21(a)" there is substituted "21(1)(a)".

(16) In that paragraph, after sub-paragraph (3) there is inserted—" (3A) For section 21(1)(ba) substitute— (ba) sections 24BA(5) to (7) (provisions about pension sharing orders in relation to divorce); (baa) section 24BC(1) to (3) (provisions about pension sharing orders in relation to nullity);". (3B) In section 21(3), for "section 23" substitute "section 22A or 23."").

On Question, amendments agreed to.

Lord McIntosh of Haringey moved Amendment No 152A:

Page 151, line 21, at end insert—

("Bankruptcy (Scotland) Act 1985 (c. 66)

62D. The Bankruptcy (Scotland) Act 1985 has effect subject to the following amendments.

62E. In section 35(1), in paragraph (a) for "under the said section 8(2) for the transfer of property by him" substitute "a court has, under the said section 8(2), made an order for the transfer of property by him or made a pension sharing order".

62F. After section 36C there is inserted—

"Recovery of excessive contributions in pension-sharing cases.

36D.—(1) For the purposes of section 34 of this Act, a pension-sharing transaction shall be taken—

1. (a) to be a transaction, entered into by the transferor with the transferee, by which the appropriate amount is transferred by the transferor to the transferee; and
2. (b) to be capable of being an alienation challengeable under that section only so far as it is a transfer of so much of the appropriate amount as represents excessive contributions.

(2) For the purposes of section 35 of this Act, a pension-sharing transaction shall be taken—

1. (a) to be a pension sharing order made by the court under section 8(2) of the Family Law (Scotland) Act 1985; and
2. (b) to be an order capable of being recalled under that section only so far as it is a payment or transfer of so much of the appropriate amount as represents excessive contributions.

(3) For the purposes of section 36 of this Act, a pension-sharing transaction shall be taken—

1. (a) to be something (namely a transfer of the appropriate amount to the transferee) done by the transferor; and
2. (b) to be capable of being an unfair preference given to the transferee only so far as it is a transfer of so much of the appropriate amount as represents excessive contributions.

(4) Where—

1. (a) an alienation is challenged under section 34;
2. (b) an application is made under section 35 for the recall of an order made in divorce proceedings; or
3. (c) a transaction is challenged under section 36,

if any question arises as to whether, or the extent to which, the appropriate amount in the case of a pension-sharing transaction represents excessive contributions, the question shall be determined in accordance with subsections (5) to (9).

(5) The court shall first determine the extent (if any) to which the transferor's rights under the shared arrangement at the time of the transaction appear to have been (whether directly or indirectly) the fruits of contributions ("personal contributions")—

1. (a) which the transferor has at any time made on his own behalf, or
2. (b) which have at any time been made on the transferor's behalf,

to the shared arrangement or any other pension arrangement.

(6) Where it appears that those rights were to any extent the fruits of personal contributions, the court shall then determine the extent (if any) to which those rights appear to have been the fruits of personal contributions whose making has unfairly prejudiced the transferor's creditors ("unfair contributions").

(7) If it appears to the court that the extent to which those rights were the fruits of unfair contributions is such that the transfer of the appropriate amount could have been made out of rights under the shared arrangement which were not the fruits of unfair contributions, then the appropriate amount does not represent excessive contributions.

(8) If it appears to the court that the transfer could not have been wholly so made, then the appropriate amount represents excessive contributions to the extent to which it appears to the court that the transfer could not have been so made.

(9) In making the determination mentioned in subsection (6) the court shall consider in particular—

1. (a) whether any of the personal contributions were made for the purpose of putting assets beyond the reach of the transferor's creditors or any of them; and
2. (b) whether the total amount of any personal contributions represented, at the time the pension sharing arrangement was made, by rights under pension arrangements is an amount which is excessive in view of the transferor's circumstances when those contributions were made.

(10) In this section and sections 36E and 36F— appropriate amount", in relation to a pension-sharing transaction, means the appropriate amount in relation to that transaction for the purposes of section 25(1) of the Welfare Reform and Pensions Act 1999 (creation of pension credits and debits); excessive contributions" shall be construed in accordance with subsection (2)(b) of section 36A of this Act; pension-sharing transaction" means an order or provision falling within section 24(1) of the Welfare Reform and Pensions Act 1999 (orders and agreements which activate pension-sharing); shared arrangement", in relation to a pension-sharing transaction, means the pension arrangement to which the transaction relates; transferee", in relation to a pension-sharing transaction, means the person for whose benefit the transaction is made; transferor", in relation to a pension-sharing transaction, means the person to whose rights the transaction relates.

Recovery orders.

36E.—(1) In this section and section 36F of this Act, "recovery order" means—

1. (a) a decree granted under section 34(4) of this Act;
2. (b) an order made under section 35(2) of this Act;
3. (c) a decree granted under section 36(5) of this Act,

in any proceedings to which section 36D of this Act applies.

(2) Without prejudice to the generality of section 34(4), 35(2) or 36(5) a recovery order may include provision—

1. (a) requiring the person responsible for a pension arrangement in which the transferee has acquired rights derived directly or indirectly from the pension-sharing transaction to pay an amount to the permanent trustee on the debtor's estate,
2. (b) adjusting the liabilities of the pension arrangement in respect of the debtor,
3. (c) adjusting any liabilities of the pension arrangement in respect of any other person that derive, directly or indirectly, from rights of the debtor under the arrangement,
4. (d) for the recovery by the person responsible for the pension arrangement (whether by deduction from any amount which that person is ordered to pay or otherwise) of costs incurred by that person in complying in the debtor's case with any requirement under section 36C(1) or in giving effect to the order.

(3) In subsection (2), references to adjusting the liabilities of a pension arrangement in respect of a person include (in particular) reducing the amount of any benefit or future benefit to which that person is entitled under the arrangement.

(4) The maximum amount which the person responsible for an arrangement may be required to pay by a recovery order is the lesser of—

1. (a) so much of the appropriate amount as, in accordance with section 36D of this Act, represents the excessive contributions, and
2. (b) the value of the debtor's rights under the arrangement acquired by the transferee as a consequence of the transfer of the appropriate amount.

(5) A recovery order which requires the person responsible for an arrangement to pay an amount ("the restoration amount") to the permanent trustee on the debtor's estate must provide for the liabilities of the arrangement to be correspondingly reduced.

(6) For the purposes of subsection (5), liabilities are correspondingly reduced if the difference between—

1. (a) the amount of the liabilities immediately before the reduction, and
2. (b) the amount of the liabilities immediately after the reduction,

is equal to the restoration amount.

(7) A recovery order in respect of an arrangement—

1. (a) shall be binding on the person responsible for the arrangement, and
2. (b) overrides provisions of the arrangement to the extent that they conflict with the provisions of the order.

Recovery orders: supplementary.

36F.—(1) The person responsible for a pension arrangement under which the transferee has, at any time, acquired rights by virtue of the transfer of the appropriate amount shall, on the permanent trustee of the debtor's estate making a written request, provide the trustee with such information about the arrangement and the rights under it of the transferor and transferee as the permanent trustee may reasonably require for, or in connection with, the making of an application for a recovery order.

(2) Nothing in—

1. (a) any provision of section 159 of the Pension Schemes Act 1993 or section 91 of the Pensions Act 1995 (which prevent assignation and the making of orders which restrain a person from receiving anything which he is prevented from assigning),
2. (b) any provision of any enactment (whether passed or made before or after the passing of the Welfare Reform and Pensions Act 1999) corresponding to any of the provisions mentioned in paragraph (a), or
3. (c) any provision of the arrangement in question corresponding to any of those provisions,

applies to a court exercising its power to make a recovery order.

(3) Regulations may, for the purposes of the recovery provisions, make provision about the calculation and verification of—

1. (a) any such value as is mentioned in section 36E(4)(b);
2. (b) any such amounts as are mentioned in section 36E(6)(a) and (b).

(4) The power conferred by subsection (3) includes power to provide for calculation or verification—

1. (a) in such manner as may, in the particular case, be approved by a prescribed person; or
2. (b) in accordance with guidance—
1. (i) from time to time prepared by a prescribed person, and
2. (ii) approved by the Secretary of State.

(5) References in the recovery provisions to the person responsible for a pension arrangement are to—

1. (a) the trustees, managers or provider of the arrangement, or
2. (b) the person having functions in relation to the arrangement corresponding to those of a trustee, manager or provider.

(6) In this section— prescribed" means prescribed by regulations; the recovery provisions" means this section and sections 34, 35, 36 and 36E of this Act; regulations" means regulations made by the Secretary of State.

(7) Regulations under the recovery provisions may—

1. (a) make different provision for different cases;
2. (b) contain such incidental, supplemental and transitional provisions as appear to the Secretary of State necessary or expedient.

(8) Regulations under the recovery provisions shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament." ").

The noble Lord said: Amendments Nos. 152A, 152B, 152C and 152D make further necessary additions to our measures on the protection of pensions on bankruptcy. All the provisions apply to cases in which the court has ordered recovery of excessive contributions from a bankrupt's pension rights, but where some of the rights have been split on divorce. They supplement the provisions in Clauses 15 and 16.

The purpose is twofold. The first is to make it clear in the provisions covering England and Wales that the procedures that apply when recovering excessive contributions from a bankrupt's pension will also apply when recovery is being made from the arrangement in which a former spouse's pension share rights are held. The second is to introduce equivalent provisions for Scotland. They are technical amendments that clarify existing provisions in the Bill and introduce equivalent provisions in Scotland and I commend them to the House. I beg to move.

Lord Astor of Hever

The House will be grateful to the Minister for explaining the Government's thinking behind the amendments. We shall not oppose them because we see merit in protecting creditors from gratuitous alienations and unfair preferences that may be made through the pension-sharing provisions.

However, we have concerns about potential devolution issues and the drafting of a number of terms in the amendments. Part II of Schedule 5 to the Scotland Act 1998 stipulates in Sections C2 and F3 that insolvency and occupational and personal pension matters are reserved to the Westminster Parliament. However, the amendments relate directly to the Family Law (Scotland) Act 1985. Family law is a devolved competence.

The First Minister made a statement to the Scottish Parliament on the subject on 9 June, but he will not give the Scottish Parliament the opportunity to debate the issues, which are fully within its competence. Is it not ironic that the Government, who introduced devolution with such great enthusiasm, are failing to allow the Scottish Parliament to exercise its full powers for fear that they will not have a majority? Do the Government accept that they should proceed with great caution until interested parties in Scotland have had an opportunity to debate the issue? Surely the views of the Scottish Parliament should be sought before action is taken.

There may be a good reason in this case, but what about the future, when the Government want to make legislative changes for Scotland in which devolved and reserved matters are inextricably linked? How will that be done? Will the Scottish Parliament always be consulted, and if so, how? What if the Parliament refuses to make the change? Will Westminster overrule it, as the Scotland Act permits? Those are important questions, but I do not expect an answer from the Minister tonight. However, I should be grateful if he would write to me.

The phrase "fruits of contributions" is used in Section 36D(5) and (6) in Amendment No. 152A in conjunction with the words "directly" or "indirectly". I should be grateful if the Minister could clarify those terms.

It is not apparent at what stage the Government envisage that contributions will be so far removed from the original excessive contribution as to be exempt from the terms of this provision. Could the Government clarify whether, for example, interest paid on the fund and accruals to the capital will come within the ambit of this clause.

This problem is also apparent in new Section 36E(2)(a) which refers to rights which a transferee can acquire directly or indirectly from the pension sharing transaction. New Section 36D(5) also makes reference to contributions which have at any time been made on the transferor's behalf. Could the Minister confirm if the Government are referring in this clause to contributions made by an employer on an employee's behalf and whether this would also cover a windfall situation?

Reference is made in new Sections 36F(4) and 342F(7) to a prescribed person. New Sections 36F(6) and 342F(9) both state that prescribed means "prescribed by regulations". The prescribed person will have an important role in the calculation or verification of the amount to be paid under a recovery order. It is imperative therefore that the qualifications of such a person are stipulated in statute and not left to secondary legislation to be further described. We believe that a precise definition of who the Government envisage fulfilling the task of the prescribed person should be set out in the Bill. I would be grateful if the Minister could comment on this point.

Lord McIntosh of Haringey

I am grateful to the noble Lord, Lord Astor, for the consideration he has given to these amendments. He certainly raises some important points. I may be able to respond to some of them but, as he so kindly offered, I will certainly write to him about those which I am not able to cover.

On the first question about devolution, he suggested that, since it amends Scottish law—the Family Law Act—it should be for the Scottish Parliament to legislate. We have considered the matter very carefully with the Scottish Office and have concluded that because these clauses are about insolvency and occupational and personal pensions rather than about family law, although they go into the Family Law Act, they are reserved matters under Section 29(4) of the Scotland Act, and therefore they would not be for the Scottish Parliament. It is important, if we are providing a level playing field in the treatment of pensions north and south of the Border. to make the provisions in this Bill.

The noble Lord asked about what was meant by the fruits of contributions, both directly or indirectly. Direct or indirect contributions mean contributions made by the individual or on his behalf out of moneys due to him. The fruits of these contributions are the benefits which accrue—for example, the investment growth or the returns. It is right that there should be no benefit to the bankrupt from attempting to keep assets out of the hands of creditors, so it is made by the individual on his behalf. I shall have to write to him about employer's contributions.

He asked me about prescribed persons and ensuring that the prescribed person had a suitable qualification. The valuation of pension rights is usually undertaken by an actuary using guidance provided by the Faculty and Institute of Actuaries and approved by the Secretary of State. This is the approach which we have taken in these provisions. As with previous legislation, it would not be appropriate to set this out on the face of the Bill. However, the noble Lord can be assured that the appropriate qualifications will be available to prescribed persons and the regulations will be written in that sense.

I appreciate that there are other points, but I will write to the noble Lord about them. I beg to move.

Earl Russell

I am most grateful to the Minister for the care with which he gave that answer which is extremely reassuring. Anomalies do not worry me; lack of consultation would do so. I am extremely glad that the Government have taken care to satisfy themselves that these are not in fact devolved matters. What I would be glad to hear, and what I will assume to be the case unless I am told that it is not, is that that view is shared by Scottish Ministers and officers of the Scottish Parliament. The key maxim in this situation must continue to be "only connect." So long as these matters are discussed privately before they reach this Chamber, I think that we will get on all right.

Lord McIntosh of Haringey

I have to remind the noble Earl that E. M. Forster was English, not Scots. The noble Lord, Lord Astor, quoted the First Minister as saying that these matters would not be considered by the Scottish Parliament. If that is not satisfactory for the noble Earl, I shall consider writing to him about it.

On Question, amendment agreed to.

11.30 p.m.

Lord McIntosh of Haringey moved Amendments Nos. 152B to 152D:

Page 152, line 24, leave out ("the matters specified in paragraphs (a) and (b) of section 342A(6)") and insert— ("(a) whether any of the personal contributions were made for the purpose of putting assets beyond the reach of the transferor's creditors or any of them, and (b) whether the total amount of any personal contributions represented, at the time the pension-sharing transaction was made, by rights under pension arrangements is an amount which is excessive in view of the transferor's circumstances when those contributions were made.")

Page 152, line 26, at end insert ("and sections 342E and 342F")

Page 152, line 44, at end insert—

("Orders under section 339 or 340 in respect of pension-sharing transactions.

342E.—(1) This section and section 342F apply if the court is making an order under section 339 or 340 in a case where—

1. (a) the transaction or preference is, or is any part of, a pension-sharing transaction, and
2. (b) the transferee has rights under a pension arrangement ("the destination arrangement", which may be the 956 shared arrangement or any other pension arrangement) that are derived, directly or indirectly, from the pension-sharing transaction.

(2) Without prejudice to the generality of section 339(2) or 340(2), or of section 342, the order may include provision—

1. (a) requiring the person responsible for the destination arrangement to pay an amount to the transferor's trustee in bankruptcy,
2. (b) adjusting the liabilities of the destination arrangement in respect of the transferee,
3. (c) adjusting any liabilities of the destination arrangement in respect of any other person that derive, directly or indirectly, from rights of the transferee under the destination arrangement,
4. (d) for the recovery by the person responsible for the destination arrangement (whether by deduction from any amount which that person is ordered to pay or otherwise) of costs incurred by that person in complying in the transferor's case with any requirement under section 342F(1) or in giving effect to the order,
5. (e) for the recovery, from the transferor's trustee in bankruptcy, by the person responsible for a pension arrangement, of costs incurred by that person in complying in the transferor's case with any requirement under section 342F(2) or (3).

(3) In subsection (2), references to adjusting the liabilities of the destination arrangement in respect of a person include (in particular) reducing the amount of any benefit or future benefit to which that person is entitled under the arrangement.

(4) The maximum amount which the person responsible for the destination arrangement may be required to pay by the order is the lesser of—

1. (a) so much of the appropriate amount as, in accordance with section 342D, represents excessive contributions, and
2. (b) the value of the transferee's rights under the destination arrangement so far as they are derived, directly or indirectly, from the pension-sharing transaction.

(5) If the order requires the person responsible for the destination arrangement to pay an amount ("the restoration amount") to the transferor's trustee in bankruptcy it must provide for the liabilities of the arrangement to be correspondingly reduced.

(6) For the purposes of subsection (5), liabilities are correspondingly reduced if the difference between—

1. (a) the amount of the liabilities immediately before the reduction, and
2. (b) the amount of the liabilities immediately after the reduction,

is equal to the restoration amount.

(7) The order—

1. (a) shall be binding on the person responsible for the destination arrangement, and
2. (b) overrides provisions of the destination arrangement to the extent that they conflict with the provisions of the order.

Orders under section 339 or 340 in pension-sharing cases:

supplementary.

342F.—(1) On the transferor's trustee in bankruptcy making a written request to the person responsible for the destination arrangement, that person shall provide the trustee with such information about—

1. (a) the arrangement,
2. (b) the transferee's rights under it, and
3. (c) where the destination arrangement is the shared arrangement, the transferor's rights under it,

as the trustee may reasonably require for, or in connection with, the making of applications under sections 339 and 340.

(2) Where the shared arrangement is not the destination arrangement, the person responsible for the shared arrangement shall, on the transferor's trustee in bankruptcy making a written request to that person, provide the trustee with such information about—

1. (a) the arrangement, and
2. (b) the transferor's rights under it,

as the trustee may reasonably require for, or in connection with, the making of applications under sections 339 and 340.

(3) On the transferor's trustee in bankruptcy making a written request to the person responsible for any intermediate arrangement, that person shall provide the trustee with such information about—

1. (a) the arrangement, and
2. (b) the transferee's rights under it,

as the trustee may reasonably require for, or in connection with, the making of applications under sections 339 and 340.

(4) In subsection (3) "intermediate arrangement" means a pension arrangement, other than the shared arrangement or the destination arrangement, in relation to which the following conditions are fulfilled—

1. (a) there was a time when the transferee had rights under the arrangement that were derived (directly or indirectly) from the pension-sharing transaction, and
2. (b) the transferee's rights under the destination arrangement (so far as derived from the pension-sharing transaction) are to any extent derived (directly or indirectly) from the rights mentioned in paragraph (a).

(5) Nothing in—

1. (a) any provision of section 159 of the Pension Schemes Act 1993 or section 91 of the Pensions Act 1995 (which prevent assignment and the making of orders which restrain a person from receiving anything which he is prevented from assigning),
2. (b) any provision of any enactment (whether passed or made before or after the passing of the Welfare Reform and Pensions Act 1999) corresponding to any of the provisions mentioned in paragraph (a), or
3. (c) any provision of the destination arrangement corresponding to any of those provisions,

applies to a court exercising its powers under section 339 or 340.

(6) Regulations may, for the purposes of sections 339 to 342, sections 342D and 342E and this section, make provision about the calculation and verification of—

1. (a) any such value as is mentioned in section 342E(4)(b);
2. (b) any such amounts as are mentioned in section 342E(6)(a) and (b).

(7) The power conferred by subsection (6) includes power to provide for calculation or verification—

1. (a) in such manner as may, in the particular case, be approved by a prescribed person; or
2. (b) in accordance with guidance—
1. (i) from time to time prepared by a prescribed person, and
2. (ii) approved by the Secretary of State.

(8) In section 342E and this section, references to the person responsible for a pension arrangement are to—

1. (a) the trustees, managers or provider of the arrangement, or
2. (b) the person having functions in relation to the arrangement corresponding to those of a trustee, manager or provider.

(9) In this section—

• "prescribed" means prescribed by regulations;
• "regulations" means regulations made by the Secretary of State.

(10) Regulations under this section may—

1. (a) make different provision for different cases;
2. (b) contain such incidental, supplemental and transitional provisions as appear to the Secretary of State necessary or expedient.

(11) Regulations under this section shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament." ").

On Question, amendments agreed to.

Schedule 12, as amended, agreed to.

Clause 80 [Transitional provisions]:

Baroness Hollis of Heigham moved Amendments Nos. 153 to 155:

Page 85, line 4, leave out subsections (3) to (5)

Page 85, line 17, leave out ("24D") and insert ("24B")

Page 85, line 18, leave out ("of nullity")

On Question, amendments agreed to.

Lord Goodhart had given notice of his intention to move Amendment No. 156:

Page 85, line 19, leave out from ("before") to end of line 20 and insert ("1st January 2000.")

The noble Lord said: I am fairly certain that this amendment has not been debated. In view of the lateness of the hour and the fact that no doubt the Minister will not have been briefed on the amendment, I shall not move it tonight. However, it is likely that I shall raise the matter at Report stage.

[Amendment No. 156 not moved.]

Baroness Hollis of Heigham moved Amendments Nos. 157 to 159:

Page 85, line 21, leave out subsection (7)

Page 85, line 24, leave out subsection (8) and insert— ("(8) Paragraph 3 of Schedule 3 does not have effect if the proceedings in which the decree is granted were begun before the day on which section 19 comes into force.")

Page 85, line 43, leave out subsection (12)

On Question, amendments agreed to.

Clause 80, as amended, agreed to.

Clauses 81 and 82 agreed to.

Schedule 13 [Repeals]:

Lord McIntosh of Haringey moved Amendments Nos. 159A to 159H:

Page 159, line 28, column 3, at beginning insert—

("In section 8(3), the words ", subject to section 21(4) below,".")

Page 159, line 41, column 3, at end insert ("4(6),")

Page 160, line 10, column 3, at end insert—

("Section 145(1)(a)(i) and (ii).")

Page 160, line 22, column 3, at beginning insert—

("In Article 9(3), the words ", subject to Article 21(4),".")

Page 160, line 29, column 3, leave out ("and 24(3)") and insert (", 24(3), 33(5) and 75(3)")

Page 160, line 31, column 3, leave out ("and 38(4) and (5)") and insert (", 38(4) and (5) and 49(3)")

Page 160, line 31, column 3, at end insert—

("In Schedule 5, paragraph 2(2).")

Page 160, line 33, at end insert—

("1999 c. 10.	Tax Credits 1999 Act	In Schedule 2, paragraph 34.
		In Schedule 6, the entry relating to the Social Security Administration (Northern Ireland) Act 1992.")

The noble Lord said: These amendments were spoken to with Amendment No. 143AD. I beg to move.

On Question, amendments agreed to.

Schedule 13, as amended, agreed to.

Clause 83 [Commencement]:

[Amendment No. 160 not moved.]

Baroness Hollis of Heigham moved Amendments Nos. 161 and 162:

Page 86, line 18, after ("5") insert ("and 62A to 62C")

Page 86, leave out line 19 and insert— ("(c) section 80(6) and (8); and")

On Question, amendments agreed to.

Lord Goodhart moved Amendment. No. 162YA:

Page 86, line 23, at end insert— ("() Sections 68 to 73 shall not come into effect until such day (not earlier than 6th April 2000) as the Treasury may by order appoint.")

The noble Lord said: This is an example of my wish always to be of help to the Government in the drafting of their legislation. It seems to me odd that Clauses 68 to 73 are Treasury clauses. There are powers to make regulations under them which are made by the Treasury. However, as far as concerns the commencement power, the power to make a commencement order is given to the Secretary of State by Clause 83. It seems to me that a commencement order in respect of these clauses should be made by the Treasury. I beg to move.

Lord McIntosh of Haringey

I suspect that the noble Lord has identified a technical issue relating to the drafting of Clause 83, which contains no specific provision to bring the NICs measures into effect. Therefore, by default it is taken to be the responsibility of the Secretary of State for Social Security to make the necessary commencement order. However, as the noble Lord made clear, responsibility for national insurance policy was transferred to the Treasury and Inland Revenue in April by the Social Security Contributions (Transfer of Functions, Etc) Act 1999. I had better take this matter away for further consideration. If an amendment is necessary, we shall table it at a later stage. Any such amendment would have to be drafted by parliamentary counsel.

Lord Goodhart

In that case, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 162ZA:

Page 86, line 25, at end insert— ("() sections 49, 50(1), 50(2) (except for sections 39B(3) and 39B(4)(b) of the Contributions and Benefits Act contained therein) and section 51;")

The noble Lord said: It is perhaps a shame that we mentioned the previous matter. I deal with Amendment No. 162ZA briefly but it is a not unimportant point. I am aware that the Child Poverty Action Group in particular is concerned about this matter. The wording of the amendment is rather obscure. Effectively, it seeks to bring forward the date when widowers receive the new pension which the Government have conceded in the light of the case before the European Court of Human Rights. We propose that those people whose cases have been upheld by that Court should not have to wait until 2001 before they receive assistance. Various cases have been brought to my attention in which people may suffer hardship as a result of delay.

I understand that one of the reasons for the delay is problems with computers. The more I hear about the department's computers, the more concerned I become. Only this morning, representations were made to me that people who had deferred their entitlement to the state pension had been told that the Government hoped to pay them by next November. Perhaps we should have a debate soon about the department's computers, which are giving grave cause for concern. At all events, one would have thought that in the context of this amendment payments could be made manually. We hope that such payments will be made. I beg to move.

Baroness Hollis of Heigham

This amendment would bring forward implementation of the new bereavement benefit scheme to the date when the Act was passed but delay one element of it; namely, the 26-week time limit for the payment of bereavement allowance. I am a little surprised that the noble Lord tables this amendment now, given the very thorough discussions held earlier. However, I sympathise with his intention that, because the current scheme of widows' benefits discriminates against men, it should be changed as soon as possible.

On the other hand, it would not be possible for the Benefits Agency to implement any part of the new scheme before April 2001. Once the parliamentary process is completed, the changes require extensive modifications to our computer systems, as the noble Lord so shrewdly—and, I fear, the second House repeatedly—anticipated. We are not able to begin spending money on the development of these computer systems until the Act receives Royal Assent. The Benefits Agency will also need time to ensure that staff are fully trained. This means that inevitably there will be a time lag between Royal Assent and implementation of the proposals.

I do not believe that I need go into the details of the proposals. Given that it is simply not possible to introduce the new scheme, or some parts of it, as soon as the Bill receives Royal Assent, I hope that the noble Lord will withdraw his amendment. I could describe what we are doing, but I am sure that the noble Lord does not want me to describe again the policy intention; certainly, the Opposition Chief Whip urges me not to do so. In the light of that, I ask the noble Lord to withdraw the amendment. We cannot do it even if we wanted to. Therefore, the amendment is not appropriate.

Lord Higgins

The noble Baroness said that the preparatory work to make provision for the computers in relation to this proposal, which we would like to see accelerated, could not be undertaken until the Bill received Royal Assent. Am I wrong in thinking that this kind of preparatory expenditure would be appropriately authorised once the Bill had a Second Reading in another place?

Baroness Hollis of Heigham

Perhaps I should write to the noble Lord. I understand that some preparatory expenditure can follow Second Reading but the bulk that the noble Lord seeks cannot. It has to await Royal Assent to the Bill.

Lord Higgins

Perhaps the Minister will write to me. We are all interested in getting the matter moving. Subject to that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 162A to 163A not moved.]

Lord Astor of Hever moved Amendment No. 163B:

Page 86, line 33, at end insert— ("() Part IV shall not come into force until a period of no less than one year after regulations to be made under that Part have been published in draft by the Secretary of State for consultation.")

The noble Lord said: In moving the amendment, I shall speak also to Amendment No. 163C.

Two weeks ago we debated Amendment No. 70A. We on these Benches and the insurance industry accept that the Government have made the provisions in Part IV of the Bill overriding in some cases. However, the Minister confirmed that Part IV will not on the whole be overriding. In this context, it is vital for the insurance industry to have clarification of the point encompassed by the amendment, which is intended to ensure that if the legislation is not wholly overriding trustees of pension schemes will need to be given adequate time to implement the detailed changes to be included in regulations.

The insurance industry is hoping that at least a year must be allowed between draft regulations being made available and the provisions of Part IV coming into force. The provisions on pension sharing contained in Clauses 23 to 47 are technically complicated. It will fall to pension scheme trustees to ensure that all the necessary changes are made to their schemes. Life insurance companies must be given sufficient time to make the substantial computer system and administrative changes which will be needed. This is a considerable burden. Trustees could be placed in the unenviable position of not being able to implement pension sharing orders because they have not had time to amend the scheme rules permitted, but facing a possible penalty from OPRA if they do not.

As the provisions will not be made wholly overriding, the insurance industry estimates that it will take at least one year, and perhaps realistically 18 months, from regulations being made assuming that it had had a few months prior to that to see proposals in draft to implement the necessary changes.

Will the Minister confirm that the insurance industry will be given at least a year in which to implement the detailed changes? I beg to move.

Baroness Hollis of Heigham

I am happy that the noble Lord puts forward this probing amendment so that we can make our position clear to the industry.

The amendments are concerned with the timing of the introduction of the pension sharing Bill. The Government's thinking is very much in line with the spirit of the amendment, which I assume is essentially a probing amendment about the implementation date for pension sharing. I entirely agree with the noble Lord that it is extremely important to give the pensions industry and family lawyers adequate time to prepare for implementation. In fact we aim to give everyone about a year to prepare from the date on which the regulations—there will probably be over 100 of them: so it is a complicated matter—are laid. So assuming implementation by the end of the year 2000, we shall aim to consult on draft regulations this autumn and lay the regulations around the end of the year.

That is our aim. It represents a challenging timetable. We recognise that it is important to allow practitioners adequate time to prepare for implementation. Before we make the final decisions on the precise start date for pension sharing we need to be aware of all the factors involved. On that basis, we believe that it would be unnecessarily restrictive to insert the proposed amendment into primary legislation.

I do not believe that there is a case for delaying the introduction of pension sharing. On the contrary, people outside are pressing us to speed the matter up. We are determined to see the project through. I am sure we shall have the support of the whole House in doing so. I hope that we shall have the implementation during the lifetime of this Parliament. Our aim certainly is to implement it by around the end of 2000 which would give the industry the year's approach that the noble Lord requested. In the light of what I have said, I hope that he will feel able to withdraw the amendment.

11.45 p.m.

Lord Astor of Hever

I thank the Minister for that reply. She is right that the amendment is a probing amendment. In the light of what she has said about the industry having at least a year, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 163C and 164 not moved.]

Clause 83, as amended, agreed to.

Clause 84 [Extent]:

Baroness Hollis of Heigham moved Amendments Nos. 165 to 170:

Page 87, line 3, after ("5") insert (", 62A to 62C")

Page 87, leave out line 5 and insert— ("(e) section 80(6) and (8).")

Page 87, line 10, after ("13") insert ("and 62D to 62F")

Page 87, line 25, leave out ("26,") and insert ("26(b),")

Page 87, line 38, after ("25") insert ("and 26(a)")

Page 88, line 5, leave out ("15,") and insert ("15C,")

On Question, amendments agreed to.

Clause 84, as amended, agreed to.

Clause 85 agreed to.

House resumed: Bill reported with amendments.

House adjourned at thirteen minutes before midnight.