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3.35 pm
Mr. David Ruffley (Bury St. Edmunds) (Con): I begin by congratulating my hon. Friend the Member for Hertford and Stortford (Mr. Prisk), the shadow Paymaster General, on his admirably lucid and trenchant speech. His forensic ability will be a great help to us all in exposing the technical weaknesses in the Bill and ensuring that they are thoroughly scrutinised in Committee.
Although the Bill is by common consent a technical measure, it nevertheless illuminates how the Government run the national insurance system. First, clauses 1 and 2 were necessitated primarily by the unintended consequence of one of the Chancellor's many stealth taxes.
Secondly, clauses 5, 6, 7, 8, 9 and 10, which relate to powers to check employers' records, to the recovery of national insurance contribution debts and to a civil penalty system for statutory sick pay and statutory maternity pay, are all changes that have been brought forward in an extremely dilatory and tardy fashion. The intervening delays that successive Labour Ministers have tolerated have been greatly to the disadvantage of hard-pressed businesses. A truly business-friendly Government would have acted sooner to cure the deficiencies under which those businesses have laboured.
Finally, it is regrettable, although not surprising given the Government's track record on abusing the House, that when we vote on Second Reading, important regulations will not have been made available to us and we shall not have debated them in the Chamber. I refer especially to regulations under clauses 1 and 2 relating to NICs on security-based remuneration and employees' liability. We should at least have seen those regulations in draft. I deprecate the Government's pathological tendency to try to make changes—whether technical or otherwise—through secondary legislation, which, almost of necessity, is likely to receive less than thorough scrutiny.
I begin the body of my remarks with some comments on clauses 1 and 2, which will be of particular interest to companies and individuals who believe in employee share ownership. At present, as I hope we all know, an employer can make a security-based payment of earnings to an employee, but in the case of an options scheme, NICs liability will not arise until the options to acquire securities are exercised. In that eventuality, an employer will be liable to the Revenue not only for the secondary NICs liability, which is the amount that an employer pays, in a secondary role, on an employee's gain, but also for the primary NICs liability—the employee's own NICs liability.
Until 5 April 2003, as the regulatory impact assessment demonstrates, it was extremely unlikely that primary NICs, which were employees' liability, would be due on any share-based earnings because, in most cases, employees would have paid their fair whack up to the upper earnings limit, beyond which—before April 2003—they paid no national insurance. I hope that that point is clear to the Paymaster General, as she did not appear to grasp it during earlier interventions.
In practice, as the regulatory impact assessment makes clear, employers were not liable for the primary NICs liabilities of their employees because there were none above the upper earnings limit. That seems a fairly straightforward point. What the Paymaster General further does not understand, although it is spelt out in her own regulatory impact assessment, is that all that changed after 6 April 2003, when the Chancellor stealthily introduced a further one percentage point charge on earnings that exceed the upper earnings limit.
I am afraid that I will have to repeat the rather mealy-mouthed language of the regulatory impact assessment, which talks about the introduction of the 1 per cent. NICs charge on employees' primary NICs liability above the upper earnings limit having an unintended impact on employers' ability to recover from employees the primary NICs arising on non-cash payments of earnings such as securities. Nothing could be clearer. The phrase "unintended impact" does not do full justice to the Chancellor's shameless tax-hiking cynicism in sneaking in that stealth tax, about which nothing at all was said during the 2001 general election campaign—an election, incidentally, in which tax issues figured prominently.
During that general election campaign, Mr. Jeremy Paxman asked the Prime Minister on "Newsnight", on 22 May 2001,
- "whether any reasonable person wouldn't suppose that you . . . propose to increase national insurance contributions."
Labour Members should mark well the fact that in our report on the 2002 Budget, the all-party Treasury Committee—I repeat that it includes Labour Members—said about the new charge:
- "To insist . . . that the upper earnings ceiling remains intact seems to us mere sophistry. We note this departure from previous practice could be viewed as a move of the National Insurance contribution system towards that of general taxation."
Currently, some employers can, with employees' agreement, retain some of the securities granted to employees to cover any primary NICs liability that that employer has to make. However—I have to say, with respect, that this was not properly explained by the Paymaster General—that ability to enter into an agreement is subject to some very serious, onerous eligibility criteria. It can apply only to security-based earnings provided, first, that they are paid to former employees; secondly, that the payment is in the same year that they cease to work for that employer; and thirdly, that the employee has insufficient monetary earnings from which the employer can recover that primary liability. That is the position at the moment.
The proposals in clauses 1 and 2 are necessary to relieve more employers than satisfy those criteria from the new tax burden that they have been saddled with as a result of the Chancellor's NIC hike. Those clauses will also allow the retention of securities by an employer to pay primary NICs liabilities arising on securities-based payments to former employees in the year after they cease to work for that employer. Are the provisions technically sensible, as I have outlined them? Yes, the clauses are welcome. However, we are forced inexorably to the conclusion that they would not have been as necessary if the Chancellor had controlled his tax addiction, rather than jacking up national insurance over the upper earnings limit.
The clauses will make it possible for more employers, with the agreement of employees, to withhold an amount in securities equal to the value of the primary NICs liability that they pay on behalf of those employees. The problem that we face this afternoon is that clauses 1 and 2 rely on regulations, so if we are to be able to answer two important questions about the agreements, we need to see the regulations. How exactly may an agreement be entered into between an employer and employee? Secondly, what specific types of earnings will be the subject of any of the agreements? I think that the hon. Member for North Norfolk (Norman Lamb) touched on that point when he gave us his definition of
earnings, and mentioned the lack of one in the Bill. We do not know, because the regulations have not been produced.I looked for enlightenment in all the literature that the Inland Revenue has produced for the debate and turned—probably unwisely—to the frequently asked questions section of the Inland Revenue internet site. One question is:
- "Once the bill becomes an act can I ask employees to enter into these agreements?"
- "will be able to enter into these agreements once the bill receives Royal Assent, and the Clauses are given effect by a treasury commencement order and the necessary supporting Regulations are in force. These will be laid before Parliament following Royal Assent."
I assume that the regulations will be detailed and will cover such points, because there would otherwise be no need for the Government to delay revealing the details and keep us in suspense until Royal Assent. If the matter is straightforward, why can we not see the draft regulations now? Perhaps the Paymaster General will enlighten us on the form of the agreements and tell us why she has not published the regulations that will govern them.
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