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Norman Lamb: In a sense, the Paymaster-General has answered my question. I understand entirely how the present restrictions might act as a disincentive to employers to offer the kind of securities that are dealt with in the Bill. Does any evidence exist, however, that trends in the offers of such securities-based remuneration by employers are being held back, as suggested by the representations?

Dawn Primarolo: We accepted the representations made by employers that circumstances existed in which they did not feel able to offer securities or share options, on the basis that they were not properly protected in terms of the unpredictability of such options. Clearly, it is difficult to quantify how many share options would have been given, but given that we received those representations during the consultation on simplifying national insurance and tax administration—to which my hon. Friend the Member for Dumbarton (Mr. McFall) referred—and given the evidence in them, we believe that this is the correct way forward.

In making provision for this arrangement, however, we have been careful to ensure that the central principle within the national insurance contribution system— that employers and employees have a liability, and that employers cannot transfer unreasonably liability to employees or put pressure on employees in relation to the transfer of that liability—is protected in the way that we have approached the Bill. Clearly, that is a difficult line to walk, and we have tried to ensure at all costs that the principle is maintained and that employees do not come under pressure in circumstances where share-based options, or the offer of them, would not be a sensible way forward.

Rob Marris : Paragraph 13 of the explanatory notes says:

and goes on to delineate them. I accept that that is in the explanatory notes rather than the Bill, but I am slightly confused by the statement that both methods of recovery require

If the employee's written consent is required, why is primary legislation necessary to deal with what could be simply a written contractual matter between employer and employee?

Dawn Primarolo: An employer's national insurance contribution could be transferred only in the narrow case of share options. The rest of the system protects the principle that employers pay. As I told the hon. Member for North Norfolk (Norman Lamb), the written consent of employees was considered necessary to ensure that they fully understood their obligations in accepting share options. We do not intend employees to be put under undue pressure in the transfer of earnings-based remuneration that would escape employers' NI contributions.

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I am sure my hon. Friend agrees that, while we should try to facilitate the share options that all Members want to encourage, it is incumbent on us to ensure that there is no breach of the basic principles of the NI contributions system.

Rob Marris rose—

Dawn Primarolo: I must bear in mind that when my hon. Friend is present I should pay a little more attention to my own explanatory notes.

Rob Marris: I thank the Paymaster General for her generosity in giving way again. Will she clarify a point for me? I may well not have interpreted it correctly, for, as she will appreciate, it is very technical. Will she confirm that if a written agreement is made between employer and employee transferring liability for the employer's contributions on security options to the employee, and if the employee does not meet the cost of that transferred liability, the Treasury will not seek to recover it from the employer?

Dawn Primarolo: My hon. Friend is right: this is complicated. I believe he was a member of the Standing Committee that considered what became the Finance Act 2003, which engaged in extensive discussion of the new schedules on share ownership and the complexities of the requirements involved. That legislation arose from the unpredictable gains resulting from share ownership. The Government want to ensure that when a gain accrues to an individual and is realised, either the employer or the employee meets the NI liability. In these circumstances, the employee would have accepted liability, and the amount would be paid when a gain had been realised, as long as it was within the range required for NI to be triggered. I hope my hon. Friend is satisfied with that answer.

Let me now deal with a slightly easier, more straightforward part of the Bill. The final clauses deal with statutory sick pay and statutory maternity pay. The Bill makes important reforms to the way in which the Inland Revenue oversees SSP and SMP schemes, to protect the rights of sick people and new mothers. Responsibility for their operation was transferred to the Revenue at the same time as the transfer of responsibility for NI contributions. The compliance regime was transferred from the then Department of Social Security unchanged. Failures to comply with SSP and SMP obligations are currently dealt with as a series of minor criminal offences, as is benefit fraud. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) mentioned the consultation document that we issued to businesses on the simplification of tax and national insurance; this is one of the matters mentioned in that document.

Treating non-compliance as a criminal offence is clearly out of step with the Revenue's practice of imposing civil penalties for compliance failures, and is disproportionate to the nature of the failures involved. The Bill aligns SSP and SMP regimes with the regime governing other parts of the Revenue's business. The arrangement introduced by the Bill is identical to that introduced for statutory paternity and adoption pay by

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the Employment Act 2002. Our proposed system of civil penalties is proportionate to the failures to which it applies, and will be easier to implement.

It is important for an effective compliance regime to operate. The vast majority of employers comply with their obligations voluntarily, and we are grateful for that, but we should bear it in mind that a small minority seek to avoid those obligations, either deliberately or through inaction. That is unfair to employees and to other employers. The Bill will protect employees' rights and also provide a level playing field for all employers. We are also introducing regulation-making powers enabling employers' SSP and SMP records to be inspected on the same basis as their payroll records.

All the issues I have mentioned were identified by business when the Inland Revenue actively sought, through its consultation exercise, to simplify the operation of national insurance in particular—to align its procedures with tax procedures and to remove the burdens of unnecessary record-keeping and unnecessary repeated inspections of the same material by different teams.

As I have said, this could be politely described as a technical Bill, but it is also a crucial enabling Bill. I assure Members that these changes are important to employers who administer and pay national insurance on behalf of their employees, to employees who become ill or have children and need the protection that the state affords through SSP and SMP, and to the tax and national insurance payers—all of us, essentially—who fund the administration of the NI system. We want to ensure that the system is as efficient as possible, that it is fair and that the requirements it places on both employees and employers to give the necessary information to the tax authorities are proportionate. On that basis, I commend the Bill to the House.

2.49 pm

Mr. Mark Prisk (Hertford and Stortford) (Con): I thank the Paymaster General for her thorough opening remarks. I apologise in advance for my throat. I think it was the Chief Secretary to the Treasury who described me as sounding rather like Edgar Lustgarten. I think that today I sound more like Gollum. I apologise if there is a creak and a crack halfway through—we shall see.

The Bill has two distinct aspects. The first part seeks to change how employers administer national insurance contributions for, as the Paymaster General said, securities or share-based earnings. That change is a direct result of the ill-considered decision by the Chancellor to impose an additional 1 per cent. on employees' contributions over the upper earnings limit.

The second part, as the Paymaster General mentioned, is intended to align the administration of both statutory sickness and maternity payments, as well as national insurance contributions. Those changes seek, in her own words, to tidy up previous, incomplete legislation and, according to much outside expert opinion, should have been enacted some years ago.

Both parts of the Bill, therefore, arise from past errors and oversights by the Government. If, as such, it is both an admission of those failings and an attempt to correct them, it would be churlish not to welcome it. Despite that, we intend to ensure thorough scrutiny of the Bill throughout its progress. However, our ability to fulfil

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that parliamentary role will be hampered by the fact that significant parts of the Bill will be published in secondary legislation, at a later date. This Government, perhaps more than most, have an unhealthy habit of pushing through substantial legal change by the abuse of secondary legislation. That means that we, as a House, rarely get the opportunity to see the proposed legislation in its finished form. There always seems to be a key part missing.

In that sense, law-making under Labour has become a bit like buying cheap self-assembly furniture: you do not know whether you have all the pieces, you are not quire sure what the instructions are telling you and you cannot be absolutely certain that it will all fit together.

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