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Dawn Primarolo: It was my intention to say, should I catch your eye, Madam Deputy Speaker, that I will answer with precision every one of the allegations made in 2002.

Norman Lamb: I am grateful for that helpful intervention.

Furthermore, on the computer front, we have witnessed all sorts of chaos at the Revenue in recent months regarding the computer systems for the introduction of the new tax credits—a matter on which the Paymaster General gave evidence to the Treasury Committee. We also know that the contract with EDS is not being renewed. Given the problems experienced with NIRS2 and the tax credit system, can the Minister provide any reassurance that those problems are now behind us? Can she clarify the relationship between the various Inland Revenue computer systems and the systems that will go out to tender? Can she give some reassurance about the co-ordination between the different systems to ensure less confusion in future?

Dawn Primarolo: On that narrow point, I should like to answer the hon. Gentleman's question now. As he knows, the NIRS2 computer was commissioned and brought in by the previous Government; the present Government unfortunately had to sort out the mess. The system is now stable and is working effectively. It supplies the necessary information to the national insurance system and is part of the wider contract. The hon. Gentleman also referred to tax credits, but he will be pleased to hear that the two systems are not connected. As I said, we now have a stable, operational system, thanks to the Labour Government clearing up the mess of the previous Conservative Government.

Norman Lamb: I am grateful for that reassurance, but I have to say that I have heard reports of continuing problems with NIRS2. I hear what she says—that all the problems have been resolved.

Dawn Primarolo: I thank the hon. Gentleman for his graciousness in giving way again. He will find that there have been no problems with the operation of the computer system. Other problems took several years to clear up because of the initial failure under the previous Government. That was connected with contributions, but the problems have now been overcome. As for the operation of the system, the computer platform is stable and operates effectively.

Mr. Ruffley: The hon. Gentleman sat on the Treasury Sub-Committee, which produced a fine volume: "Inland Revenue Matters: Tenth Report of Session 2002–03". That all-party committee includes Labour Members, and it took evidence from the Paymaster General in the course of producing the report. The last sentence of the report states:

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What does that say about the Paymaster General's performance?

Norman Lamb: I am grateful to the hon. Gentleman for reminding me of the conclusion reached by that all-party committee. Certainly, the concerns raised during the Treasury Sub-Committee's inquiry into a number of matters at the Inland Revenue gave rise to serious concern about the Department's leadership. Questions were asked about whether there should have been resignations at that time. Serious concerns have been expressed about leadership at the Revenue in connection with matters such as the issue of contribution notices, the Mapeley Steps scandal, and the introduction of tax credits. The Paymaster General has tried to reassure the House about the Revenue's administration of national insurance, but we are not convinced that things will be as smooth in the future as she has suggested.

As for the principle of the merger of tax and national insurance, the Government have chosen to take an incremental approach to reducing differences between tax and national insurance. They want to improve and, where possible, merge the administration of those two taxes. However, the Bill has little to do with what many people consider desirable—the full merger of tax and national insurance. The Paymaster General dealt with that briefly in response to an intervention, and it was also referred to in the discussion document issued in 2000.

I recognise that significant policy issues had to be addressed if merger were to be pursued. There would be significant distributional effects, and the future of the contributory principle would need to be looked at. However, the 2000 discussion document referred to a report published in March of that year by the payroll subgroup of the Better Regulation Task Force, which described full-scale merger as a "long-term goal".

One possible indication of the Government's intent was the 1 per cent. rise in employers' national insurance contribution applicable above the upper earnings limit that was introduced in the 2002 Budget, as the hon. Member for Hertford and Stortford noted. That increase was pretty much indistinguishable from a rise in income tax. It conveniently avoided any technical breach of the manifesto commitment not to increase income tax, even though its effect was precisely the same. However, was it also a move towards the eventual merger of tax and national insurance?

Rob Marris: The 1 per cent. increase in employers' national insurance contributions was not akin to a 1 per cent. increase in income tax. It was levied with the specific purpose of funding the NHS. Two thirds of NHS spending goes on pensioners, who by and large do not pay national insurance contributions. The rise was an example of this generation paying for the health of the previous generation—and a good thing too.

Norman Lamb: I am grateful for that intervention, and perhaps I should clarify what I said. For employees, there is no difference between an increase in national insurance contributions and an increase in income tax, and savers also got off scot free as a result of the way the increase was introduced.

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Will the Paymaster General confirm whether it is Government policy to pursue merger as a long-term goal? Is that the Government's ultimate objective? I hope that she will provide some clarity on that. If so, is any time scale envisaged? What is the Treasury's state of mind on the issue? What view does it take of the potential savings for employers arising from a full merger of the two systems? Has a regulatory impact assessment been made of the effect of full merger?

I turn now to what has been left out of the Bill, which is another matter raised by the hon. Member for Hertford and Stortford. As I said earlier, the Bill deals with only one of the issues included in the Revenue's 2000 discussion paper. It does not deal with ways to make it easier for employers to cut national insurance contributions correctly, with the definition of pay for tax and national insurance purposes and the differences of approach between the two taxes, with the assessment of national insurance contributions for UK employees seconded abroad and the guidance offered by the Revenue for people in those circumstances, or with the assessment of national insurance contributions on payment of vouchers made by third parties.

It may be that all those matters have been dealt with in other ways, such as through secondary legislation or amendments to the guidance issued by the Revenue. However, I hope that the Paymaster General will clarify the position on each of those matters, so that we can understand exactly where things stand in the wake of the consultation exercise held two and half years ago.

The 2000 discussion paper referred to a plan to introduce secondary legislation to implement a number of specific reforms by April 2001. Was that time scale achieved? On page 18 of the response document, it is noted that there was general agreement among those who responded to the consultation that a proposal to transfer from class 1 to class 1A the liability for national insurance contributions in respect of funded unapproved retirement benefits schemes should be adopted. The Inland Revenue responded that that would be dealt with through changes to primary legislation. Has that happened?

It would be helpful if the Paymaster General provided us with a checklist showing progress on all the intended reforms covered in the consultation process and referred to in various other contexts. Has guidance been amended, where that has been necessary and where it has been suggested that that would happen? Has secondary legislation been introduced to deal with other matters raised in the consultation process? Are there any other outstanding issues that require primary legislation? Does the Paymaster General envisage introducing any other measures, by either primary or secondary legislation, that have not been dealt with in consultation and which are currently in the pipeline? In other words, is this the end of the reform process, or are further changes envisaged in the relatively near future?

I shall make a few comments about the Bill's specific provisions. Clauses 1 to 4 deal with national insurance payable on securities, and make it easier for employers to recover contributions, by agreement, from employees and ex-employees. They also enable employers and employees to agree that the employee should pick up the tab for the employer's national insurance payments, in circumstances where the employer awards restricted and convertible securities to an employee. I understand that

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the Paymaster General dealt with that point. There is a potential unpredictability about the scale of the national insurance liability when such securities are issued to an employee, because of the unknown value of the securities in the future. I can see that that could act as a disincentive to employers who might contemplate offering securities to their employees. We share the Government's objective of encouraging wider share ownership, so the removal of that disincentive is welcome.

An exchange of interventions in the speech by the hon. Member for Hertford and Stortford addressed the point about any link with the 1 per cent. increase. It is clear from the Government's regulatory impact assessment that there is a direct link. It states:

It would helpful if the Paymaster General, in the spirit of openness, could confirm that link when she responds to the debate.

Clauses 5 and 6 deal with aligning the periods of notice required for distraint action, as between tax and national insurance. The old social security legislation provided for a 30-day notice period in respect of NI, compared to a seven-day period for tax—14 days in Scotland. It is eminently sensible to reduce the notice period for NI to the same length as for tax. As the Paymaster General said, that is in accordance with the recommendations made by Professor John Beatson QC in his review of bailiff law.

Clauses 7 and 8 deal with the powers of Inland Revenue officers to gather information for tax and NI purposes. In essence, the Bill unifies the powers relating to tax and NI and in the process removes overbearing powers that exist in relation to NI. In a separate consultation exercise conducted by the Revenue on that specific matter, respondents had said that the NI powers were "disproportionate with few safeguards". It is a rare but welcome moment when Government actually reduce their powers in relation to the citizen. That should be celebrated and I congratulate the Paymaster General on that achievement.

Clauses 9 and 10 deal with the compliance regime for statutory sick pay and statutory maternity pay. In contrast with the regimes for tax, NI and the new schemes for statutory paternity pay and statutory adoption pay, if employers fail to meet their obligations under the SSP and SMP schemes, they commit a criminal offence. All the other regimes provide for civil penalties. Again, the Government have recognised that criminal offences are, in their words,

The proposal therefore is to replace the criminal offences with civil penalties, which is to be welcomed, with two caveats. First, concern has been expressed recently about the Government's tendency to raise extra cash by way of increasing penalties for all sorts of breaches of administrative rules. Can the Paymaster

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General confirm what plans the Government have for the size of the penalties in the future? Will they be pegged and what guidance will be given on the size of the penalty, up to the maximum provided for, in any particular case? Secondly, the burden of proof with a civil penalty is of course lower than that with a criminal offence, and the penalty would be imposed by the Revenue rather than a court. Can the Paymaster General reassure us that the powers will be used in a proportionate way? I am aware of the powers of the Revenue with regard to compliance with the national minimum wage. Are the powers in that area consistent with those proposed in the Bill? Is there now a consistency of approach to compliance in all the various areas of the Revenue's powers?

The discussion document mentioned an anomaly in that there was no power for Revenue officers to inspect an employer's records on SSP and SMP. Legislation was promised—on page 6 of the responses paper—to provide such a power. Has that been achieved?

I realise that I have covered a number of technical issues, which is inevitable in a technical measure, so it might not be possible for Ministers to provide answers to all my questions today, but I should be grateful if the Paymaster General would give an undertaking to write to me, especially given the fact that the Standing Committee is due to sit soon, with answers to each issue I have raised that she is unable to deal with today.

The Bill is a small but important step in the right direction and we shall support it. It is long overdue; I am amazed at how long the Government have taken to introduce it, although I appreciate that primary legislation is required, which takes longer than secondary legislation. However, one hoped that it would have been drafted a little sooner, given the problems that the issue causes for employers. Despite the fact that the Bill is overdue, however, it is none the less welcome.

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