Despite the Paymaster General's protestations, the truth is that, as she said in her opening remarks, when an employer makes a security-based payment of earnings, there is no national insurance liability until these payments are realisedfor example, when options are exercised to acquire shares. At that point, the employer is liable to pay both the primary and the secondary national insurance contributions due on the employee's gain. Until 5 April last year, most employees would have already paid their contributions up to the upper earnings limit, through the usual pay-as-you-earn system. However, from 6 April 2003, as a direct consequence of the Chancellor's decision, an additional 1 per cent. has been due on earnings that exceed the UEL. That is largely in accordance with the Government's own documents. Of course, employers have faced the difficulty of trying to recover the primary contributions to which the Paymaster General referred.
The Bill is therefore designed, we are told, to enable employers to recover these contributions through new agreements and joint elections. As such they are, as the Paymaster General said, generally welcomed by employers and outside organisations. Indeed, encouraging employee share ownership is very important. When people have a stake in their workplace, it benefits everyone. When a company's performance is enhanced by the ideas and efforts of the people who work for it, it is right that those who have contributed to such success should be able themselves to share in the rewards. And the knowledge that they have a financial stake in their company can only encourage such people to strive to perform betterto add value, if one likesleaving not only themselves but customers, investors and the economy as a whole better off.
Of course, promoting wider share ownership is a Conservative value. Indeed, when we privatised so many of the old Government operations, we ensured that the employees had a share. That is why more employees bought and owned shares under the last Conservative Government than ever before. As I recall, at the time the Labour party, including the Paymaster General, bitterly opposed such changes. State ownership, not share ownership, lay at the heart of Labour's beliefs.
Mr. Prisk: Now, it would seem that Labour Members have realised the error of their ways. So I do hope that in her response, the Paymaster General will confirmas I am sure she willher Damascene conversion to promoting wider share ownership. It is a very welcome conversion, and I certainly look forward to hearing more about it later.
When we consider the Bill in detail in Committee, we shall be able to ensure that the clauses achieve the Government's stated aims. However, we shall also want to know why some opportunities for reform have been overlooked. Before today's debate, I took the opportunity to discuss the Bill with a number of outside organisations, including ProShare, an excellent independent organisation that promotes wider share ownership. It raised one important issue that other experts have also mentioned, and I should like to touch on it now to see whether the Paymaster General will respond. She said that she was not aware of any omissions, but this may be one that is worthy of genuine consideration.
The problem arises when, for example, an employees' trust established by the company founder holds shares and/or cash that cannot be distributed to employees without triggering a liability to NICs for the employer company. Where, for example, the employer company is now owned by persons other than the founderfor example, an institutional investorthe shareholders may be opposed to any move by the trust to distribute benefits, as that would create a new national insurance liability for the company, and so reduce its net assets. Typically, however, a trust cannot reimburse the employer for the cost of those contributions, as that would benefit a non-beneficiary and would therefore breach its own rules. lf there is no further need for an employer to fund the trust, as is usually the case, there is no opportunity for other set-off arrangements to compensate the employer company.
Therefore the problem is that money trapped in a trust that is owed to employees cannot be released because the company, quite naturally, is concerned about a triggering of liability that it would then have to pay. In other words, we have a stalemate.
Rob Marris: The hon. Gentleman offers an interesting example. As I understand it, he is talking about a scenario in which, for example, a family trust has become divorced from the family company because the company has been taken over. But surely that contingent liability would have been factored in when a determination was made as to what share price should be offered by the person taking over the family company. Therefore, such liability would have already been taken into account.
Mr. Prisk: That should normally be the case, but there are a number of exceptions. My purpose in raising this issue is to share in the hon. Gentleman's concern that a problem does in fact exist, and to see whether we
I understand from ProShare and other outside bodies that this problem affects a number of companies and several thousand employes. I therefore ask the Paymaster General why it has been overlooked, and whether the Government plan to address it in the immediate future. If the Government were willing to introduce appropriate amendments to the Bill on this issue, we would certainly be willing to look on them constructively.
At the heart of the Bill lies the need to correct the Government's previous errors and omissions, and in that sense we welcome it. The need to correct the problems associated with securities-based earnings and the recovery of NICs is clear. Indeed, as the party that has encouraged more people to own shares than any other, the Conservative party wants to help to remove any barriers to wider share ownership. We are waiting to see and examine the proposals in detail, but we hope and expect to do so positively.
At the same time, we feel strongly that the Government should have acted far sooner to realign the rules for tax and national insurance and statutory payments. It is somewhat bizarre that a Secretary of State can call the case for change "overwhelming", only for nothing to happen for five years among his ministerial colleagues. The fact that that has been to the disadvantage of the self-employed is a disgrace, and it follows on from the shoddy treatment all too often meted out to them by so many Ministers in the Government. The next Conservative Government will redress that discrimination.
The Bill is important, but it is, as the Paymaster General acknowledged, largely technical in content. As such, I can confirm that, although we plan to scrutinise the measure properly in Committee, it is not our intention to oppose it in the Lobby at the end of the debate.
Norman Lamb (North Norfolk) (LD): I thank the Paymaster General for her helpful explanation of what is clearly a very technical Bill and also for the way in which she took interventions during her presentation.
I want to make it clear from the outset that we welcome this uncontroversial and constructive Bill. It is extraordinary that, since its publication before Christmas, it seems to have passed by without comment from anyone. It seems as though no organisations have made representations in response to the publication of the Bill. We checked with several organisations, but discovered no briefings. That is not necessarily a bad thing, although the Bill is unlikely to excite people either today or in Committee.
We also need to recognise that the Bill is part of a process that has continued for some years. The most significant step was the transfer of administration of national insurance, statutory sick pay and statutory maternity pay from what used to be the Department of Social Security to the Inland Revenue in April 1999. I heard what the hon. Member for Hertford and Stortford (Mr. Prisk) said about how slowly matters have developed since then. I share his concerns, but it is
After the transfer, we had an announcement in the pre-Budget report of 1999 that consultation would take place between the Inland Revenue, employers' representatives and so forth to assess how to reduce the technical differences between tax and national insurance. In turn, that led to the technical discussion paper, which makes pretty heavy reading, that was issued in June 2000 and considered a number of areas for possible reform. A summary of responses to that document was published in July 2001. As the hon. Member for Hertford and Stortford said, that was two years ago and progress made since then appears to have been slow.
The Bill deals with only one of the issues in the discussion paperthe power of officers to check employers' records. I shall return to the other issues later. As the hon. Member for Hertford and Stortford said, there has been considerable criticism of the pace of change since the transfer of administration to the Inland Revenue. We have already heard that, back in April 2002, the Institute of Chartered Accountants complained that the supposed benefits of merger had simply not been achieved even three years after the merger had taken place. The institute highlighted the potential benefits that the Government had mentioned: reducing the burdens on business and people; sharing experience, knowledge and skills in combating avoidance; making better use of resources; enabling a more joined-up approach to customer service; and achieving a gradual alignment of tax and national insurance rules.
However, areas of concern were also highlighted in April 2002: long delays in dealing with correspondence; correspondence sometimes not being dealt with at all; a less than helpful national insurance helpline for employers; lack of consistency between local offices, head offices and the employers' helpline; and national insurance issues and associated problems being downgraded in importance following the merger. Such was the analysis of members of the Institute of Chartered Accountants. Key national insurance personnel appeared to have moved on or left, leaving a gap in the understanding of issues, yet claims for repayment of national insurance had become more complicated. As we have heard, Peter Bickley, the technical manager of the institute's tax faculty, claimed that the national insurance service had deteriorated since the merger, and he described national insurance as the Cinderella of taxes, and called for urgent action to ensure that the objectives of the merger were achieved and the burdens on business reduced.
There have also been repeated complaints about the national insurance recording systemNIRS2, as it is known. Although there seems to have been some improvement, problems are still being reported. Given that the Bill's purpose, according to Inland Revenue's own press release, is