New
Clause
4
Transitional
assistance
‘Before
implementing Part 1 of this Act, the Secretary of State shall publish
his proposals to provide transitional assistance to small employers in
implementing the legislation.’.—[Mr.
Waterson.]
Brought
up, and read the First time.
7
pm
Mr.
Waterson:
I beg to move, That the clause be read a Second
time.
This new clause
relates to another promise that I hope that I can get the Minister to
redeem—perhaps I will have more luck with this one. It is about
some transitional support and assistance for SMEs—small and
medium-sized enterprises—for the introduction of personal
accounts.
In its brief
on the subject, the CBI makes the point that while the regulatory
impact assessment for the Bill sets out clearly the likely total cost
to British business of implementing personal accounts, the cost falls
disproportionately on smaller firms. While the average cost of
contributions is 0.6 per cent. of all labour costs, it is 0.5 per cent.
for large employers and 0.9 per cent. for smaller firms. For some, the
cost would be as high as 2.5 per cent, which is a significant chunk out
of the bottom line. The CBI also makes the point that employers,
particularly smaller employers, have a limited capacity to absorb the
cost.
The Minister
will be aware that the CBI, along with other organisations that I will
mention in a moment, has set out its suggestions as to how to deal with
that. It says that the best way to ensure compliance and to minimise
economic pain is to ease the burden on smaller firms by allowing them
more time to adapt. It talks about three basic principles: there should
be a limited period to help firms to adapt, with assistance phased out
after that period; the scheme should be simple for employers to
understand and administer, and claiming should be simple; and there
should be no perverse incentives that could adversely affect the growth
of small business. The CBI says that a potential solution would be its
own proposal for the design of the scheme, which would involve
refunding a proportion of the mandatory contribution made to
employees’ personal accounts for exempt schemes. That would mean
that employees would be saving at the same rate, but the firm would
have a little more breathing space in which to
adapt.
The
British Chambers of Commerce makes similar points. It has five
proposals: a reduction in the first five years of employers’
national insurance; a flat rate lump sum payment to cover costs
associated with implementation; repayment of ongoing employer costs in
administering the system; the creation of a special training and
education budget for business organisations, which is also seen as a
necessity by other business organisations; and the allocation of a
Government budget for communicating the changes to the business
community so that it is clear that companies that have to pass on
increased employment costs to their customers have done so because of
the new pensions
system.
In his
evidence, Mr. Mike Cherry from the Federation of Small
Businesses also made some important points about the
federation’s concerns for smaller businesses and mainly, in
fairness, about information and education. That, of course, will be
disproportionately important for the smaller employer who has so much
else to cope with. In his oral evidence, Mr. Cherry
said:
“What
concerns us considerably is the cost, as well as the administrative
impact, that it is likely to have on the smallest
employers.”——[Official Report, Pensions
Public Bill Committee, 17 January 2008; c. 67,
Q88.]
Finally, it is worth touching on
the excellent and detailed work of the Engineering Employers
Federation, particularly that of Mr. David Yeandle, who we
all know well. It has put together a submission and a very detailed
appendix to its written evidence about the case for supporting small
firms and a possible model for doing that. That is all set out in great
detail in the appendix and certainly bears further reading by members
of the Committee.
All
those things are designed to help the Government to reach the most
satisfactory solution. I do not think that there is any question that
Ministers are aware that the situation has to be addressed. I am sure
that their finest minds have been working on it—perhaps even one
or two Ministers have as well. I am looking forward to perhaps a
glimpse from the Minister of what they have in
mind.
Danny
Alexander:
I wish to speak briefly in support of the
objective behind the new clause: to ensure that the provisions for
transitional assistance are clear, particularly to small businesses.
The Minister has made clear in his evidence, and at other times, that
he considers the matter to be of some importance. It has been clear
from the evidence that we have heard from small business organisations,
and from conversations that I have had with small employers in my
constituency, that there needs to be a sense that the Government
understand the problems and hurdles that they will have to overcome to
implement the Bill: both the financial costs that will be borne, and
the significant time costs to employers, particularly small employers,
of having to get their heads around the implications for their
businesses.
The point was
made to me at a small car saleroom that I visited in my constituency
that keeping track of pensions legislation takes up considerable time
at a management level. The manager told me that he would rather spend
that time managing his business. It is important that the Government
understand the problems that small businesses will face in implementing
legislation that will benefit their employees. That is why I hope that
the Minister will say more about his proposals for supporting small
business in the transition to implementing the Bill. The hon. Member
for Ochil and South Perthshire—I believe that he is a member of
the Federation of Small Businesses—made clear in the evidence
session that the matter was of concern to him, so transitional
assistance for small businesses is considered important on both sides
of the Committee. It would be helpful if the Minister could illuminate
us further about his
plans.
Mr.
O'Brien:
I agree that the co-operation of employers and
their support for the changes, particularly the introduction of
personal accounts, are critical. It is therefore important that we
continue to engage with organisations such as the CBI and FSB to ensure
that we keep employers supportive of a project that will involve some
extra burdens for them. It is envisaged in the December 2007 impact
assessment that it will cost micro-employers—the smallest
employers—an average of £200 to implement the
Bill’s
provisions. That will cause small employers some concern, but it is
manageable.
The new
clause asks for a level of financial support for smaller employers. I
join in the praise of Mike Cherry of the FSB and David Yeandle of EEF,
and I am grateful to them for the work that they have done in drawing
the matter to our attention. We will consider it with an open mind in
the coming couple of years, but now is not the time to make a decision
on it. We need to examine the detail of how we see the implementation
of the personal accounts regime happening, and we will listen with care
to advice from the Personal Accounts Delivery Authority about how it
will be implemented and the precise issues that will face small
employers, particularly micro-employers. We want to be in a position to
identify how we can best provide
assistance.
We are
providing some assistance at the moment by phasing in the personal
accounts regime and ensuring that it is introduced in a way that
enables employers to measure the impact on their budgets with care. It
will be phased in over three years. Only 23 per cent. of firms with
fewer than five employees currently offer pension provision with an
employer contribution, compared with more than 60 per cent. of firms
with more than 50 employees. The key firms to work with are the small
ones to ensure that we keep them on board. We are conscious of the
problem and are still listening to the employers’ organisations.
We are aware that they have requested some sort of financial
contribution, but we are not in a position to take a view on whether
that, or another way of providing assistance, is the best way of
helping them.
I assure
Committee members that the Government will continue to listen to
representations. We are not in a position to take a decision today or
in the immediate future. We need a more detailed picture of how PADA
will develop personal accounts and we need to know the precise
implications for micro-employers so that we can make judgments about
the best way of providing them with further
help.
Mr.
Waterson:
I am grateful to the Minister because he has
said what the employers’ organisations and I wanted to hear. He
said that he will continue to engage with them at ministerial and
official level, that these matters will be tackled at some point, that
he has an open mind about the different options, and that those options
will be worked through in the next year or two until we find a
solution. I am very happy with that, so I beg to ask leave to withdraw
the motion.
Motion
and clause, by leave,
withdrawn.
The
Chairman:
I have been most impressed with the constructive
way in which the debate has gone this afternoon and this evening. I
feel confident that we might beat the programme motion and finish
before the end of the week. I look forward to seeing members of the
Committee on Thursday
morning.
Further
consideration adjourned.—[Mr.
David.]
Adjourned accordingly at
twelve minutes past Seven o’clock till Thursday 21 February at
half-past Nine
o’clock.
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