Previous SectionIndexHome Page

Norman Lamb (North Norfolk) (LD): Will the Paymaster General explain a little further how the third-party scrutiny will work?

Dawn Primarolo: In judging whether it is making a reasonable request, the Inland Revenue will need to consider and refer to a commissioner. We are aligning all the processes and appeals processes in one common system, rather than keeping the two separate systems that we currently have. I am sure that the hon. Gentleman appreciates that it is much better for employers to operate one set of rules across both tax and national insurance, and to deal with only one organisation in doing so. Because of the way in which national insurance is dealt with in legislation, that cannot be achieved in a finance Bill; it requires a national insurance Bill. That is the reason for our discussing this Bill today. Perhaps I can elaborate on this matter in my next point on debt recovery, to demonstrate to the hon. Gentleman what I mean.

Mark Tami (Alyn and Deeside) (Lab): Will my right hon. Friend tell us how long an average case would take, using this process, and how that compares with the present system?

Dawn Primarolo: Perhaps I can respond by giving an example that relates to debt recovery. If I explain what the powers are at the moment and how they will change, my hon. Friend will be able to see that they are proportionate. I was concerned to ensure that we were not using a sledgehammer to crack a nut, and that we were not introducing a huge amount of procedure to deal with a small issue. For example, the debt incurred in relation to class 2 national insurance contributions over a year is about £100. In my view, it would be disproportionate to operate a system separate from the tax system to recover such an amount. The Bill is therefore pushing together all the debt into one process, and operating at a de minimis level, as outlined in the legislation. How long the process will take once the minimum level that triggers the recovery has been reached depends on the employer's response. If they accepted the liability and paid it, it would take a matter of days from the requirement to pay. If they did not, and the case went to the appeals procedure, it could take slightly longer. Perhaps I could provide examples when I explain the next clause.

The main alignment measure deals with the way in which the Inland Revenue recovers debt. The vast majority—about 97 per cent.—of national insurance contributions are collected with tax, and since 1975, any debt has been recovered under tax rules. The Bill aligns the debt recovery rules for the remaining 3 per cent. of national insurance contributions with the tax rules. Until now, national insurance contributions payable by the self-employed—mainly the £2 a week flat-rate class 2 contributions—have been recovered under different rules, which can be rather lengthy and unclear. This

6 Jan 2004 : Column 194

means that a person owing both tax and class 2 national insurance contributions could face two separate actions. The Bill puts that right by aligning the periods of notice required for distraint action in England and Wales, and for the application of a summary warrant in Scotland, with those that apply to tax debts. It also aligns the procedure that applies to Northern Ireland with that of England and Wales.

These changes are essentially a tidying-up exercise that will allow the Revenue to operate more effectively. While debt recovery might not always be a pleasant experience for the person from whom the debt is being recovered, it is obviously important that it should be a straightforward, single, swift action across all the areas in which debt is outstanding to the Inland Revenue.

Mr. Prisk: The Paymaster General rightly says that the need to align the procedures is important, and that is welcome in principle. However, does she accept that reducing the notice period from 30 days to seven, in some cases, represents a diminution and a significant change, and that those affected need to be made aware of it? Some people who are used to the old rules could find themselves getting caught out. Can she assure the House that proper notification will be made prior to the implementation of this measure, so that those who could be caught out will be properly informed?

Dawn Primarolo: The hon. Gentleman makes an important point. Of course, informing the individuals concerned of the change in period to seven days will be important, and that will be done. Often, when a debt is outstanding for national insurance contributions, a tax debt is also outstanding, and the tax debt is within seven days. Therefore, such a move, although it appears to be a change from seven to 30 days, actually puts all the arrangements within one procedure, with which individuals and companies are already familiar because it is the procedure that applies to tax. I am sure that he has also read, because he is assiduous in his preparation for Bills, that when the Lord Chancellor's Department conducted an extensive consultation on the question of periods of notice and best practice, seven days was the recommended notice period. Of course, the position in Scotland is slightly different, because we are following the legislation in Scotland. It is an important point, however, that we may wish to investigate in a little more detail in Committee.

The other change in this area is a new regulation-making power that will allow the Inland Revenue to apply tax legislation to the recovery of this type of national insurance contributions debt in future, without having to introduce consequential primary legislation. Basically, that means that the rules covering tax and taxes Acts will still be subject to scrutiny, but the two sets of rules will be kept aligned so that we do not need to keep returning to the House to make primary legislation.

As hon. Members will be aware, most national insurance contributions are outside the scope of the annual Finance Bill. The power that we intend to introduce in the Bill is similar to that which applies to the other 97 per cent. of national insurance contributions. It is therefore important to understand

6 Jan 2004 : Column 195

the scale. The fact that we require primary legislation is related to the structure of national insurance. The purpose is to enable us to keep the tax and national insurance rules in alignment in future. Otherwise, as I said, we would constantly need to find space in parliamentary time for small technical Bills, when the principle on tax had already been dealt with in the House. Clearly, if we can assist the House in that way, that will be a desirable outcome.

I want to turn to the important issue of employers' national insurance obligation on securities-based earnings. An alignment of administrative rules for tax and national insurance is important, but we are also mindful of those areas in which, because of the structural differences between tax and national insurance, alignment is not the answer. Instead, we need to make sure that we enable individuals and employers to meet their obligations in relation to national insurance contributions in a way that is fair and straightforward.

We received representations saying that employers were facing difficulties because of the rules on paying national insurance contributions when earnings were paid in the form of shares or other securities. The majority of securities-based earnings are share based. The Government and, I think, all Members, are keen to encourage employees to have a stake in the company for which they work through share ownership. It is a good incentive, and it is good for employees' motivation and therefore for productivity. The awarding of shares recognises employees' work within the company and enables them to share in their firm's success. We therefore encourage the payment of share-based earnings by employers. Because of that, and because of the representations that we received, we have included in the Bill two measures that will offer employers choices in the way that they meet their national insurance contributions obligations when they make payments of earnings in the form of securities. We believe that those will make a positive contribution to help employers who want to reward employees through share-based earnings.

I now want to turn to the question of recovery of primary national insurance contributions. First, the Bill extends employers' liability to cover primary national insurance contributions paid on behalf of their employees and ex-employees when the earnings have been in the form of securities. That means that both employers and employees will be able to choose how those obligations are met, and ensures that employers are not forced to carry the charge themselves. Secondly, it addresses a problem faced by employers who pay earnings in the form of restricted or convertible securities. The timing and the amount of employers' national insurance contributions on those securities are unpredictable, which gives rise to large accounting difficulties for employers. The Bill will allow an employer to ask an employee to fund the employer's secondary national insurance liability on post-acquisition earnings received from restricted and convertible securities. In doing so, however, the Bill will not introduce a new facility but will extend the scope of a facility introduced in 2000 that allowed that transfer of liability on unpredictable share option gain. That facility has been well received and applications for its

6 Jan 2004 : Column 196

use have been received from more than 1,800 employers. We believe that the extended facility introduced in this Bill will also be widely used.

Next Section

IndexHome Page