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David Taylor: On a number of occasions, the Paymaster General has referred to consultation with the industry. I assume that by that she means consultation with the construction industry in the narrowest sense. I would be happy to hear whether that consultation included links or liaison with the accountancy firms who more commonly speak for the very small subcontractors and contractors in the construction industry rather than the formal organisations.

7.15 pm

Dawn Primarolo: Consultation is being undertaken not just with advisers from the industry, but with trade unions and trade bodies both large and small. Lately there have been discussions with the Federation of Master Builders, representing the smallest firms. My
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hon. Friend is right to draw attention to the disproportionate impact on the smallest businesses as a result of turnover tax. The turnover test causes them some concern. Things would be much easier if we could have "deemed employment", which would enable us to know immediately whether someone was genuinely self-employed or on PAYE. That is at the heart of this scheme.

The hon. Member for Hertford and Stortford asked about the verifying of payments made during the transition. Clause 77 excepts a contractor from the requirement to verify a subcontractor if a payment has been made in the current or previous two tax years prior to the transition. The hon. Gentleman also asked about penalties. When a penalty is imposed for a compliance failure such as a late return, the usual rights of appeal will apply.

As for the completing of an employment declaration, contractors are currently required to ensure that they engage people on the correct basis. If they are employees, the contractor should operate PAYE. The declaration merely underlines the importance of considering employment status, which has supposedly been part of the operation of the scheme for some time.

Both the hon. Gentleman and my hon. Friend the Member for North-West Leicestershire (David Taylor) mentioned the turnover test, which currently protects the tax flow to the Exchequer. The Government have agreed to consider with the industry other options that might provide the same protection.

The regulations are currently out for consultation. As the hon. Gentleman says, the details will need to be examined closely. When we have received the submissions, we will note comments and changes that might be made to the regulations. They will be recirculated for consultation with the industry. The industry is currently responding fairly, as is often the case when issues such as this are involved. They can see that there is a problem, but they do not know what the solution is, and they do not like the solution favoured by the Government .

It is a bit like the issue of tax stamps, if I dare return to that long debate. It is incumbent on those who want to engage in constructive consultation with the Government, and in the improvement of schemes, to come up with solutions as well as criticism. I hope that, on that basis, the House will support the clause.

Question put and agreed to.

Clause 57 ordered to stand part of the Bill.

Clauses 58 to 64 ordered to stand part of the Bill.

Schedule 11 agreed to.

Clause 65 ordered to stand part of the Bill.

Clause 66

Cancellation of Registration for Gross Payment

Mr. Laws: I beg to move amendment No. 40, in page 68, line 25, after 'it', insert

'twice within a period of five years'.

The aim of the amendment is to clarify one small aspect of the construction industry scheme, and clause 66 in particular. The concern is that subsection (1)(b)
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appears to be quite draconian, as just one error could lose a subcontractor his certificate. The preferable alternative suggested in the amendment is that an error in two returns in a five-year period would trigger the loss of the certificate. Another alternative is to introduce the concept of some type of serious error, although that introduces subjectivity and presumably the Government would need to define "seriousness" in terms of the amount of money lost.

Subsection (8) provides that, if the gross payment registration is cancelled, the person may not reapply for gross payment status within one year of the cancellation taking effect. The subcontractor must, however, be registered for payment under deduction. I hope that the Paymaster General will clarify whether the draconian interpretation of subsection (1)(b) is merited, or whether we are missing something that will satisfy us that our concerns are not justified.

Dawn Primarolo: The hon. Gentleman asks for reassurance about the regulation-making powers. I think that he interprets in an unnecessarily draconian fashion the conditions under which registration would be withdrawn.

The clause provides for regulation-making powers. The regulations, which are subject to discussion, will require the return to contain a declaration to the Inland Revenue. Without wishing to anticipate exactly what the industry may say, I think that I can assure the Committee that the declaration will be subject to the "two strikes" point that the hon. Gentleman made. It will require the contractor to confirm that he has properly considered employment status.

Therefore, I do not think that the hon. Gentleman need worry. I wonder whether he will consider looking at the regulations when the consultation has been completed. I will happily forward them to him, so that he will be able to reassure himself and those outside the Committee, who clearly have a concern.

Mr. Laws: I am grateful to the Paymaster General for that clarification. Obviously, there will be an opportunity to look at the regulations to establish precisely how the Government have defined the penalties. With that reassurance from the right hon. Lady, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 66 ordered to stand part of the Bill.

Clauses 67 to 69 ordered to stand part of the Bill.

Clause 70

Periodic Returns by Contractors Etc

Mr. Laws: I beg to move amendment No. 41, in page 70, line 44, after 'that', insert

'he has taken appropriate steps to confirm that to the best of his knowledge'.

The hon. Member for Hertford and Stortford (Mr. Prisk) has touched on the issue already, as has the Paymaster General. I seek clarification about the intention of the clause, in particular the requirement to say that a contract was not a contract of employment. The Paymaster General will understand why people are
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concerned about having to sign up to that requirement and the uncertainty that there may be in some circumstances. The amendment invites her and the Government to make a judgment about the intention and the information available, rather than to pursue a particularly draconian approach. I hope that she can reassure us that this provision will be interpreted sensibly, too.

Dawn Primarolo: Again, as with the gross payments to which amendment No. 40 referred, what is important on the question of the declaration is that we have a workable scheme. On both the gross payment and the declaration, we are seeking, in conjunction with the industry, to ensure that we have regulations and rules that are achievable and carry a disincentive for those who seek deliberately not to comply but that, equally, are sensitive enough to recognise that sometimes errors are genuinely made.It will be important to ensure that in the operation of the scheme and the regulations—this applies to declaration as well as to gross payments—that balance is correctly achieved.

Again, I am happy to make sure that the hon. Gentleman receives information on that, if he is particularly interested in the consultations and how the matter will be handled. However, I can tell him and the Committee of the whole House this evening that the issue is proceeding with the industry in a reasonable and constructive manner, and I am therefore confident that there will not be the kind of unwelcome and draconian side-product that the hon. Gentleman has identified. I hope that he will bear with us a little longer and, rather than press his amendment, see the outcome and the draft regulations. If he is still not happy then, of course he will be able to return to the matter at a later stage.

Mr. Laws: I am grateful to the Paymaster General for that clarification. It is clear that the Government's intention is similar to ours, so I beg to ask leave to withdraw the amendment.

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