The Parliamentary Under-Secretary of State for Work and Pensions (Jonathan Shaw): I beg to move,

It is a pleasure to serve under your chairmanship this morning, Mr. Martlew.

It is a requirement that I confirm to the Committee that these provisions are compatible with the European Convention on Human Rights. I am happy to do so.

These regulations are being made under powers in sections 45 and 51(1) of the Employment Act 2002. The Committee may be wondering why a Minister from the Department for Work and Pensions is introducing amending regulations under the Employment Act 2002. That task would usually fall to the Minister of State, Department for Business, Enterprise and Regulatory Reform, my hon. Friend the Member for Wolverhampton, South-East (Mr. McFadden). However, with his agreement, I am making these changes because they introduce a statutory sick pay responsibility, which rests with the Department for Work and Pensions.

The purpose of these regulations is to entitle agency workers with contracts of three months or less to SSP, in the same way that other employees are entitled, provided they meet the qualifying conditions. This change will take effect from 27 October 2008. Extending entitlement to SSP to these agency workers will restore the original policy intent behind the 2002 amendment to the Social Security Contributions and Benefits Act 1992. That earlier modification was made by the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 and it was intended to remove restrictions preventing the payment of SSP to employees with short contracts of three months or less. However, in 2007 the Court of Appeal ruled that that change in the law did not apply to agency workers.

Before going into further detail, it may be helpful to the Committee if I give a brief description of SSP and the various integrated Acts, in so far as they relate to this amendment. I hope that this description will help anyone who is not familiar with the scheme and the relevant employment legislation.

When a person is sick and is unable to work for four or more days in a row, their employer may be required to pay SSP, provided the individual satisfies the qualifying conditions. SSP is payable to all those who are classed as employed earners for national insurance purposes. Agency workers may be categorised as employed earners for national insurance purposes. When that happens, they become liable for national insurance contributions in the same way as other employed earners and they have the same opportunity to qualify for all statutory payments, including SSP.

SSP is fully funded by employers. Of course, many employers also choose to top up SSP with occupational sick pay, but the underlying entitlement to a minimum payment remains. Employers are able to claim a Government rebate if they experience unusually high levels of absence by employees.

Our aim with SSP legislation is to maintain a balance between providing a fair and just payment for employees who are sick and providing a scheme for employers that is easy to manage. As I have already mentioned, legislation for SSP is made under the Social Security Contributions and Benefits Act 1992.

The Employment Act 2002 improved statutory rights in employment. In particular, it improved provision for employees with fixed-term contracts, by removing working practices or legislation that treated people with fixed-term contracts less favourably than those with permanent contracts. As a consequence, we amended the rules for SSP to remove the restriction that required a person to have a contract of more than three months in order for them to be entitled to receive SSP. Henceforth, people who worked on short-term or fixed-term contracts lasting three months or less became eligible for SSP.

The change in 2002 was introduced on the assumption that it would remove that three-month barrier to payment for all employees and agency workers equally, for SSP purposes.

Shortly after the change came into effect, an employment agency, Thorn Baker, challenged the requirement to make SSP payments to its agency workers. It argued that regulation 19 of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 excluded agency workers from the general rights to equal treatment and the amendments to SSP provisions.

As I explained, the challenge was successful in 2007. The effect was that agency workers with contracts of three months or less are now the only group of workers who are not eligible for SSP, although they are entitled to statutory maternity, adoption and paternity pay. That unintended anomaly is contrary to the Government's commitment to the principle that those who work through agencies should have the same access to SSP as they have to other statutory payments, and the same access to SSP as all other workers. An amendment to the 2002 regulations will achieve that aim, and it is for such an amendment that I seek approval from the Committee today.

As I said earlier, the SSP scheme seeks to provide a balance between fairness of payment to employees, and fairness of application and administration costs to employers. We estimate that more than 60,000 agency workers will benefit from the change. We considered the cost to agencies before bringing the amendment to the House. We estimate the average cost of the measure to be in the region of £850 per agency per year, and the overall cost to be some £13.6 million. Agencies were, of course, meeting those costs prior to the court ruling, and they already meet those costs for staff who have contracts totalling 13 weeks or more. Equally, other employers routinely meet such costs when paying SSP to their employees, regardless of the length of employment contracts.

In spite of the costs, there can be no possible justification for retaining an exclusion from SSP that affects just one group of workers with short contracts—agency workers—when everyone else in the same position and liable to the same national insurance contributions benefits from entitlement.

I therefore commend the regulations to the Committee. They will amend the wording of regulation 19 of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 and remove the current restriction that prevents such workers from receiving SSP if their contract is for three months or less. By adopting the amendment, we will put agency workers on a level footing with all other workers.

Andrew Selous (South-West Bedfordshire) (Con): The Opposition welcome the regulations and intend to support them.

May I begin by thanking the Department and its officials for an extremely comprehensive set of explanatory notes to the statutory instrument? I do not know whether Members have read them, but the document has 12 pages, and is comprehensive and informative. As someone looking to probe the measure, I found it extremely helpful, and I would like to put that on the record.

As the Minister himself was honest enough to say, we are here this morning because the Government did not get the legislation quite right in 2002. They had a policy intention, but the legislation introducing it was challenged and found wanting in the court. We are putting right something that slipped through, perhaps because of insufficient scrutiny in 2002, so it is as well that we spend a few minutes this morning ensuring that this statutory instrument is fit for purpose and will do the job that we all want it to do.

The instrument is clearly good news for employees who work for agencies and have contracts of three months or less. They will now be paid when they are sick. We all think that that is only fair and right. In a week when the taxpayer has had to step up to the mark in a fairly extraordinary way, the instrument is also good news for taxpayers: there will be a £14 million pound saving to the Exchequer because employers will pay SSP rather than the Government having to step in with incapacity or other benefits.

One could argue from a level playing field point of view that the measure makes life fair for all businesses. Why should businesses that do not rely on agency workers and have to pay statutory sick pay be undercut by part of the market that can avoid those costs, which most people believe should reasonably be paid by employers? It is worth noting that such agencies already have to pay statutory sick pay for their permanent employees, so they would not have to set up a new system. It is also worth mentioning that all employers, large or small, agency or otherwise, receive a refund of statutory sick pay if the amount that they pay in a month is more than 13 per cent. of the employer’s national insurance contributions. There is a cap, so the amount is not unlimited, and if a large number of employees in a very small firm went off sick the financial cost would not be crippling.

I note that the Department says that it will save 2,000 reams of paper because of not having to process incapacity benefit claims, and I am sure that we are all grateful that some 63,000 incapacity benefit and employment support claims will be saved later this year.

I have two questions for the Minister, which I should be grateful if he would address when he replies to what will probably be a fairly short debate. First, have he or his colleagues in the Department for Business, Enterprise and Regulatory Reform estimated whether any agencies might go out of business? I support the measure, but during a week when unemployment has risen quite sharply, we need to know whether work will cease in some sectors because people will not buy a service if it becomes more expensive? Therefore, are we discussing putting some agency workers, whom we are all pleased to see being entitled to statutory sick pay, out of a job? I accept that some of that analysis may have been done outside the Minister’s Department, and if he does not have the answer now, perhaps he would write to me.

I come to my second question, and the Committee will be pleased that I have only two. I am curious as to why, at the bottom of page 9 of the explanatory notes—I am sure that all hon. Members looked through all 12 pages before coming here this morning—it states that if an employee has been on incapacity benefit within the previous two years, they should have to claim that rather than statutory sick pay. That seems curious. Why, if I had been on incapacity benefit two years ago for a minor disability and then worked for an enlightened employer who concentrated on what I could do rather than what I could not do, but developed a terribly bad flu bug that kept me off work for two and a half weeks—that is, more than four days—should the state automatically have to swing back in and pay me incapacity benefit when, if I had not been on incapacity benefit previously, my employer would pay me statutory sick pay? That seems curious, and I do not understand the rationale. It seems to be an extra and perhaps unnecessary cost for taxpayers, and not logical. I should be grateful if the Minister will enlighten me and the Committee.

Lorely Burt (Solihull) (LD): I hope that this is the end of a saga. Temporary workers have been entitled to statutory sick pay from three months. The Department for Work and Pensions reduced that to one day on the back of the fixed-term regulations, but when that was disputed and reached the Court of Appeal, the Department lost the case.

One understands the feelings of employment agencies that could end up paying SSP for months when the worker might have worked for the agency for only a couple of days with no obligation to return to work with the agency at the end of the sickness period. However, agency workers must clearly not be treated less favourably than other workers. I have supported and been involved in putting through a lot of legislation to make the situation for agency workers just as fair as for other workers. The Liberal Democrats are clearly minded to support the statutory instrument.

Jonathan Shaw: First, I congratulate the hon. Member for South-West Bedfordshire on his kind comments about my officials. He mentioned the reams of paper that we will save as a consequence of not having to fill in various forms, although when I see my box at night there seems to be plenty of paper at the Department for Work and Pensions.

This is a good day for workers, because we have shown that the Government are on their side. The hon. Gentleman talked about the impact that the measure will have on agencies that do not pay statutory sick pay—those that followed Thorn Baker. Seeing a former Secretary of State for Trade and Industry, my right hon. Friend the Member for North Tyneside, in his place reminds me of the arguments that we put forward for the minimum wage. Those who were against it said that it might lose jobs, and those in favour said that there had to be a floor, because poor employers undermine good employers. This issue is exactly the same. Thorn Baker challenged the spirit and will of this House. There was consensus, but Thorn Baker’s appeal was upheld and we have regrettably had to return to the House to make this amendment, so that the original intention of the House and the Government, who are on the workers’ side, will come into law.

The hon. Gentleman also asked about incapacity benefit provision for people who had received it in the past two years. That provision supports people back into work, encouraging them to take work opportunities, while leaving them safe in the knowledge that the benefit will be available if necessary. That is why we put that provision in place.

Andrew Selous: I am not quibbling about the fact that if someone is sick and cannot work, they need money to live on. I am asking why they should automatically get incapacity benefit. If I have a bad cold and am off for more than four days, and I was on incapacity benefit 20 months ago, why should not I get statutory sick pay like everyone else? It seems odd that the Minister’s Department should have to start processing a claim at the cost of the Exchequer. I do not understand that.

Jonathan Shaw: Those are the provisions that we have in place, and I will happily provide the hon. Gentleman with the detail, but he will be aware that we are pressing forward with our welfare reform. We want to ensure that the system is flexible and effective, and allows people every opportunity to come off benefits and into work. We will be introducing those proposals in the House soon.

I am pleased that there is agreement in the Committee. I hope that I have answered the hon. Gentleman’s points, and am grateful for the remarks of the hon. Member for Solihull.