The Prime Minister: I certainly do not want to see further reductions in, for instance, the size of our Army. We have had to take difficult decisions, such as going to a regular force of 82,000 and a larger reserve force, and

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I do not want to see further changes to that. But as I said in answer to a question earlier, what matters most of all is having armed forces that we are confident to use because we know that we have the most modern equipment and that we are never going to send soldiers, sailors and airmen into a difficult situation with substandard equipment. We have been able to make sure they have the very best equipment now, with the Scout vehicle to come, because that is absolutely crucial.

Andrew Gwynne (Denton and Reddish) (Lab): May I thank the Prime Minister for his kind tribute to our friend Jim Dobbin, who was a greatly respected member of both the labour and co-operative movements in Greater Manchester and will be missed?

I was interested in what the Prime Minister said in his statement about the new exercises in eastern Europe. Given that NATO’s permanent bases have historically been located in what is probably now the wrong part of Europe, may I ask him, without wishing to ramp up the tensions on NATO’s eastern flank, what discussions were had at the NATO summit about where NATO’s permanent bases ought to be located in the future to face the challenges of the future?

The Prime Minister: The hon. Gentleman is absolutely right to make that point. Part of the readiness action plan is that there should be prepositioning of equipment and better use of bases in central and eastern Europe. He will see from the detail of the declaration that that is very much anticipated by the NATO conference.

Philip Davies (Shipley) (Con): We have always been told that the more we spend on overseas aid, the more it will enhance our security. We have been spending more on overseas aid, but the security threat level has been raised, so that correlation has clearly been shown to be a load of old cobblers. Will the Prime Minister therefore divert some of the money from the overseas aid budget and give much-needed additional resources to our armed forces and security services to help keep us safe in these very dangerous times?

The Prime Minister: I do not think it is quite right to make that correlation. I would argue that had we not put money into stabilising Somalia, for instance, or Afghanistan or into helping save lives in countries such as Pakistan, we would have seen even more pressures from asylum seeking and migration, and even greater problems with drugs and terrorism. What we have to get right is the balance between armed forces to keep us strong and an aid budget that fulfils our moral responsibility to the poorest in the world, which also helps, I would argue, to keep us safe.

Richard Graham (Gloucester) (Con): The NATO summit showed how vital NATO still is. It was good to see the Gloucestershire constabulary in RAF Fairford playing a small role in the logistics, and I welcome the Prime Minister’s statement. As part of the security discussions, did members discuss the role of foreign imams in our mosques? UK-born and educated imams preach in the context of understanding Britain and are valued, but that is not always the case with foreign imams. Does my right hon. Friend believe that it may be time to tighten the policy on foreign imams while encouraging the training of British ones?

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The Prime Minister: There is a lot in what my hon. Friend says. I think what matters most of all is that imams are able to communicate to their constituents in English—that is absolutely vital—and that they are up to date with how to help young people by diverting them from the extremist preachers that they find online.

Jason McCartney (Colne Valley) (Con): I, too, pay tribute to Jim Dobbin. As a new member on the Transport Select Committee, I particularly appreciated his expertise, knowledge and shared passion for trans-Pennine infrastructure in transport. He will be sadly missed in the Committee.

I very much welcome the news about the full commissioning of our carrier, the HMS Prince of Wales, but will my right hon. Friend take the opportunity to debunk the myth that our carrier force will not have the aircraft it needs and confirm our full commitment to the new joint strike fighter, the F-35 Lightning II, which will provide the aircraft for both HMS Queen Elizabeth and HMS Prince of Wales?

The Prime Minister: I can confirm that. We will have joint strike fighters on these aircraft carriers, as well as, of course, vital attack and other helicopters, which will provide platforms of real power. The announcement I made about making sure that both are commissioned means that at any time we will always have a carrier available. I think that really strengthens this country’s defence capabilities.

Mark Reckless (Rochester and Strood) (Con): I chair the all-party parliamentary group on Georgia. The Prime Minister referred to NATO beginning its capacity-building missions. He is held in very high regard in Georgia since his visit shortly after the war with Russia. Will he say a little more about the enhanced partnership, which will put Georgia alongside Sweden and Finland, among other countries, and how it will help the country, and particularly its Defence Minister Alasania who has done exceptional work on modernising the Georgian armed forces?

The Prime Minister: I thank my hon. Friend for his question. There are various elements to this. First, the fact that there will be a defence capability-building mission in Georgia is very significant; it will help the Georgians modernise and build up their armed forces. It is also worth noting that a lot of this is being done because of the real contribution that Georgia has made, not least to the ISAF forces in Afghanistan, where the Georgians took on some very difficult work and paid a high price in terms of casualties. This is an enhanced partnership. Georgia is one of the strongest partners that NATO has, and I am sure that this defence capability mission will be much welcomed.

Andrew Bridgen (North West Leicestershire) (Con): I think it reasonable to regard the defence budget of our country as an insurance policy for its security, and to regard NATO as a group insurance policy. However, it is clear that while all NATO members wish to enjoy the security that the cover of membership gives them, not all of them wish to pay the premiums. Does my right hon. Friend agree that now is the time for Germany, in particular, to step up to the plate and increase its defence spending to 2% in line with NATO guidelines?

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The Prime Minister: My hon. Friend puts it in a good way. In order to enjoy the collective security, we must pay into the insurance policy, but the Germans tend not to sign things unless they have read the small print. They are quite meticulous. I know that Chancellor Merkel looked very carefully at what the agreement said before she signed it. I think that that is important, because Germany’s defence expenditure is below 2%, and it must therefore halt any decline in that expenditure.

Mr David Nuttall (Bury North) (Con): May I associate myself with the remarks made about the late Jim Dobbin? He was my parliamentary neighbour, and he was a man of faith and a man of great principle and decency.

Does the Prime Minister agree that, in an increasingly dangerous and uncertain world, our 27 allies in NATO provide a better guarantee of safety and security for the British people than could be provided by the other 27 members of the European Union?

The Prime Minister: I must point out to my hon. Friend that they are two quite different organisations. NATO is about defence and collective security—and we have, if you like, signed away a bit of our sovereignty in NATO, in that we are pledged to go and defend anyone who is attacked—whereas, of course, the core purpose of the European Union is not defence, but should be about securing our prosperity and ensuring that we can trade freely with our 27 partners.

James Morris (Halesowen and Rowley Regis) (Con): Does the Prime Minister agree that in considering defence equipment increases across NATO, we should give equal weight to the importance of co-operation on cyber-defence and cyber-attack? Will that not be an important area of theatre in the future, particularly in relation to countries such as Russia?

The Prime Minister: I entirely agree with my hon. Friend. He mentioned cyber-defence and cyber-attack. If we believe in deterrence in the field of, say, nuclear power or conventional forces, we should apply the same logic to cyber-warfare.

Rehman Chishti (Gillingham and Rainham) (Con): In the context of achieving a secure, stable, democratic Afghanistan, does the Prime Minister agree that it would be helpful to have a secure, democratic, successful Pakistan? That being the case, and in view of recent events, does he also agree that the United Kingdom will always support a democratically elected Government in Pakistan rather than those who are trying to derail that Government?

The Prime Minister: I agree with my hon. Friend: we should be friends of a democratic Pakistan. I think it is good that, in spite of that country’s difficulties, there has been a transition from one democratically elected Government to another democratically elected Government, and we should be encouraging that process.

Robert Halfon (Harlow) (Con): I thank my right hon. Friend for the work that he has done in NATO to secure a strategy to deal with ISIS. Does he agree that Kurdistan is the only beacon of democracy and the rule of law, and the only place of religious tolerance, in Iraq? Does he also agree that, as well as supporting Kurdistan in

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the short term, we should bear in mind the fact that, given its status, it will need continuous political, military and humanitarian support in the long term? May I also ask whether there was any discussion in NATO about Iran’s onward march towards nuclear capabilities?

The Prime Minister: Obviously, this meeting spent more time on ISIL, Ukraine and other elements than on the Iranian nuclear issue, which has been discussed a great deal at other recent meetings. As for what my hon. Friend said about the Kurdish regional authority, yes, of course we should support it—I very much admire what it has done to protect minorities and foster democracy—but I think that we should support it as part of our effort to build a pluralistic and democratic Iraq. I think it is absolutely vital that we see it as part of that country.

Mr Philip Hollobone (Kettering) (Con): Both Greece and Turkey are members of NATO, and both were at the weekend summit. Was it made clear to Turkey that it needs to secure its border to prevent the flow of foreign jihadist fighters to the new caliphate forces, and was it made clear to Greece that it must secure its border, which is the weakest part of the EU’s external frontier, against the hundreds of thousands of illegal immigrants who are making their way into the EU and across it to Calais, and then trying to make their way on ferries to our shores?

The Prime Minister: My hon. Friend makes two points that I totally agree with. First, I discussed the Turkish border issue with President Erdogan. The Turks have taken quite a few steps to provide further security at their border, and they are looking at a range of military intelligence and security co-operation with us to that end. There is a real problem with Europe’s external borders—the Greek border being one—where people are coming into Europe to claim asylum, but instead of claiming asylum in the first country they arrive in, which is what they ought to do, they are making their way to Calais in order to try and come to the UK. We need those external borders secured, but we also need everyone properly to implement the rules we have all agreed.

Martin Vickers (Cleethorpes) (Con): Although the British people are united in their opposition to terrorism and their determination to overcome it, they remain somewhat nervous about possible military involvement unless there is a clear link to our own security. I welcome my right hon. Friend’s approach, particularly when he says that he will make careful and methodical moves towards a comprehensive plan. Can he assure the House that he will be equally careful and methodical in his moves to ensure the full support of the British people?

The Prime Minister: I will try to be careful and methodical about everything I do, but the point I would make, even today, to the British people is: be in no doubt about the threat that the so-called Islamic State poses to us here in the United Kingdom. We have already seen something like six planned attacks by ISIL in the countries of the European Union, including of course the appalling attack in the Brussels Jewish museum where innocent people were killed. That flows directly from this organisation. It kidnaps people, it has ransom

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payments—it has made tens of millions of dollars in that way—and it now has the weapons, resources and oil of a state and is using some of that money directly to target people in this country and across the European Union. We have to be fully cognisant of that fact. There is no option to look away, to put our heads in the sand, to hope this will all go away if only we did not get involved. The fact is that we are involved because it has decided to target us, and that needs to be the beginning of the conversation we have.

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Points of Order

4.52 pm

Mr Charles Walker (Broxbourne) (Con): On a point of order, Mr Speaker. Over the weekend, my surgeries were picketed by an individual in dispute with the Courts Service. I recognise the right to protest, but the use of a loud-hailer made it almost impossible to hold a conversation with those visiting my surgeries. The protest also extended to my home and, more worryingly, those of my patient and generous neighbours, which resulted in multiple calls being made to the police throughout Saturday and Sunday. The protester made it clear to my neighbours that unless I succeeded, as their MP, in changing the law to his liking, he would mount a sustained campaign against them. These threats caused great distress. Protest is one thing, but it is intolerable to try to coerce an MP to act in a particular way under the threat of his neighbours and constituents being harassed, disrupted and distressed. To paraphrase a US President—I think it was Truman or Roosevelt—“Your right to throw a punch ends where the nose of another constituent begins.”

Mr Speaker: I am extremely grateful to the hon. Gentleman both for his point of order and his courtesy in tipping me off yesterday about his desire to raise it. I think the whole House will have been shocked to hear the hon. Gentleman’s account of the distress and disruption to which he, his family and his neighbours have been subjected. Let me, perhaps—I hope on behalf of the House—make the situation clear beyond doubt: however strongly any individual feels about a particular cause or campaign, each and every Member of this House has a right to go about his or her legitimate business without intimidation or harassment, or fear thereof. Moreover, it is quite unacceptable for any individual to threaten continuing such harassment if the Member fails to seek to bring about the particular change in the law that that member of the public seeks. That simply will not do. I think I can say that the whole House will be behind the hon. Gentleman on this matter, and I hope he will be good enough to keep me informed of the developing circumstances. We wish him, his family and his neighbours well.

Dr Julian Lewis (New Forest East) (Con): Further to that point of order, Mr Speaker. May I remind the House that in 2009 we had an intense debate on the security of Members’ home addresses, in which the then Labour Leader of the House, the right hon. and learned Member for Camberwell and Peckham (Ms Harman), rightly said that MPs must be able to do their jobs without fear or favour and without having to look fearfully over their shoulders. What disturbs me, from what little I know about this incident, is that the police appear reluctant to intervene. If that is so, is it not absolutely disgraceful?

Mr Speaker: I cannot comment on that because I do not know whether it is true or not. I think I had better reserve judgment on that point—

Mr Charles Walker rose—

Mr Speaker: Order. I will come back to the hon. Gentleman in a moment. The hon. Member for New Forest East (Dr Lewis) and I will have known each other for 30 years next month, and I say in all courtesy

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to him that when first he proposed, in the interest of all colleagues, to bring about a change in the law on the subject of home addresses, I do not mind admitting that I did not think his chances of securing such a change were very good. I should have known better than to predict failure, however, because his mission was successful. I have a feeling that the hon. Member for Broxbourne (Mr Walker) wants to get in again.

Mr Walker: Further to that point of order, Mr Speaker. May I just make it perfectly clear that the Hertfordshire constabulary has been simply wonderful in its dealings with me? I wholly accept the first part of the intervention by my hon. Friend the Member for New Forest East (Dr Lewis), but Hertfordshire constabulary has been absolutely brilliant. It has supported me and my neighbours, and I have nothing but admiration for it.

Mr Speaker: I am grateful to the hon. Gentleman for that further point of order.

Dr Lewis: And I am happy to withdraw what I said.

Mr Speaker: I am grateful to the hon. Gentleman for that.

Angus Robertson (Moray) (SNP): On a point of order, Mr Speaker. Have you received notice of an imminent Government statement on new devolution legislation or other plans for Scotland? If there is no statement, would it be correct to conclude, given that the UK Government are currently in strict purdah, that there is no substance to what is being proposed outside this Chamber?

Mr Speaker: If I did not know the hon. Gentleman as well as I do, and if I were not inclined to regard him as a straight dealer—which, through my natural generosity of spirit, I am—I would think that he was seeking to inveigle me into some sort of partisan debate, perhaps

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relating to an upcoming plebiscite. But of course I cannot believe that he would attempt to do any such thing. To seek to dragoon the impartial Chair into such a partisan debate would be quite improper, and I cannot believe that he would seek to do anything that could be described as quite improper. We will leave it there for today.

Jeremy Corbyn (Islington North) (Lab): On a point of order, Mr Speaker. I was very pleased with the way in which you gave us the sad news about the death of Jim Dobbin at the start of today’s proceedings. I treasure a photo of him outside this building campaigning for the end of nuclear weapons in this country. However, something seems to be missing here. When a Member dies in office, tributes have to be paid through interventions in debates on completely different subjects or through a brief statement by you, Mr Speaker. Could there not be a proper facility for paying appropriate tributes to people we have worked with who have been good friends and to whom we wish to pay due regard?

Mr Speaker: I thank the hon. Gentleman for his point of order. I am very open to that proposition, although it would not be right for me to seek to impose a new arrangement. I have, however, sought to update and humanise the procedure. When I first took office, I was told that the proper practice was to report the fact of a death very baldly and rather coldly. When I suggested that I should perhaps utter a couple of sentences of tribute to the Member, I was told, “Oh no, Mr Speaker, that is not the way it is done. That is not appropriate.” I am afraid I decided that it was appropriate, and that we should move on and invest these matters with some humanity. I do not know whether there is a feeling in the House that we should have a short, dedicated session in such circumstances, but I have a feeling that the hon. Gentleman’s point of order will quickly be brought to the attention of the Procedure Committee, whose Chair was here only a few moments ago. Let that conversation begin. I will happily be guided by the House, and I thank the hon. Gentleman for his point of order.

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National Insurance Contributions Bill

Second Reading

4.59 pm

The Financial Secretary to the Treasury (Mr David Gauke): I beg to move, That the Bill be now read a Second time.

This is the third national insurance contributions—NICs—Bill this Parliament. The Government have already taken action to reduce significantly the burden of NICs on earnings and employment through previous Bills. At Budget 2011, the Chancellor announced a £21 a week above-inflation increase to the employer’s NICs threshold. Last April, the employment allowance was introduced, which will benefit up to 1.25 million businesses and charities. Next April, the vast majority of under 21-year-olds in work will be lifted out of employer NICs, which will support 1.5 million jobs. All those measures have been strongly welcomed by business and have contributed to the current record levels of employment.

This Bill contains four measures: simplifying NICs paid by the self-employed; accelerating the payment to the Exchequer of NICs in dispute in avoidance cases, and providing for the issue of follower notices where the scheme or arrangements have been shown to fail in another party’s litigation; applying new information powers and penalties to promoters of avoidance schemes; and introducing a targeted anti-avoidance rule—TAAR—to prevent people from circumventing new legislation tackling avoidance involving employment intermediaries.

Let me explain each of those four measures in more detail, starting with the simplification of NICs paid by the self-employed, which is contained in clauses 1 and 2, and schedule 1. Hon. Members may recollect that at Budget 2014 the Chancellor announced that the Government intended to simplify the NICs collection process for the self-employed, who currently have to operate two different processes for two separate classes of NICs. This followed a 2012 recommendation by the Office of Tax Simplification and a consultation published in July 2013 entitled “Simplifying the National Insurance Processes for the Self Employed”, which sought views on proposals to simplify class 2 NICs.

The number of self-employed individuals in the UK is growing, with more people having multiple jobs and moving in and out of self-employment. Having two separate collection methods for class 2 and class 4 NICs causes confusion and extra work for both the self-employed and Her Majesty’s Revenue and Customs. The objective behind the measure is to modernise the way class 2 NICs are assessed and collected, making the system simpler and more straightforward, and reducing administrative burdens on the self-employed. Class 2 NICs are currently collected via a flat-rate charge of £2.75 per week, paid through six-monthly billing or by direct debit, while class 4 NICs are a percentage charge on profits—of 9% between the lower and upper profits limit and 2% above the upper profits limit—paid through self-assessment alongside income tax.

The aims of clauses 1 and 2, and schedule 1 are to change the way in which class 2 NICs are structured; change the means by which class 2 NICs are collected, by moving their collection into self-assessment, so that they can be collected alongside class 4 NICs and income tax; change the means by which class 2 NICs are

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enforced, with changes to associated appeal rights to mirror broadly those for class 4 NICs and income tax; and make consequential changes to legislation relating to maternity allowance to allow women to continue to become eligible for it post-reform.

Those changes are proposed to take effect for the 2015-16 tax year onwards, so that the collection of class 2 NICs under self-assessment will be from 6 April 2016. The changes are aimed at simplifying NICs for the self- employed and small businesses—sole traders, partnerships and unincorporated businesses—by enabling them to report their class 2 NICs liability and pay it through their self-assessment, thus reducing the administrative burden of the two current separate collection mechanisms. The six-monthly billing and direct debit systems will cease from April 2015 and July 2015 respectively.

During the consultation there was some concern that the reform would mean that the self-employed would no longer be able to spread the cost of paying class 2 NICs. I want to take this opportunity to reassure the self-employed that there is already the facility in self-assessment to make budget payments to spread the cost of tax and NICs through the year.

Hon. Members may be interested to know that one of the key changes that we made through this reform is that there will no longer be a need for customers with low profits who want to opt out of paying class 2 NICs to apply for a small earnings exception in advance—something that we know they find confusing and burdensome. Under this reform, customers with profits below the new small profits threshold, which will be equivalent to the current small earnings exception threshold, will not be liable to pay class 2 NICs, but will be able to choose to do so on a voluntary basis. That means that those with low profits who want to opt out of paying class 2 NICs will not need to do anything apart from confirm that when they are completing their self-assessment return, while those who still choose to pay in order to protect the benefits entitlement will be able to do so quickly and easily. Rather than a separate process, the decision will be built into the self-assessment return.

There is a small proportion of HMRC customers who pay class 2 NICs but who are not in self-assessment. Those individuals will continue to get a separate class 2 NICs payment request. They will receive that once a year instead of twice a year as they currently do. Hon. Members will be pleased to learn that the tax information impact note published by HMRC about this measure indicates a net administrative burden reduction to the self-employed of £74 million over five years as a result of these reforms.

I now wish to take the House through the provisions in the Bill that deal with accelerating the payment to the Exchequer of amounts of NICs in dispute in avoidance cases. That also includes providing for the issue of follower notices where there is a relevant case in which the scheme or arrangement has been shown to fail in another party’s litigation. Those provisions are in clauses 3 and 4 and schedule 2.

The provisions broadly follow, for NICs, new powers that are included in the Finance Act 2014—the hon. Member for Birmingham, Ladywood (Shabana Mahmood) and I debated this matter not that long ago—which allow HMRC to issue a notice to taxpayers who have used avoidance schemes that have failed before the courts in another party’s litigations. The provisions in

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the Bill and the Finance Act 2014 are estimated to raise £5 billion in tax and NICs for the Exchequer in the years ahead.

A follower notice sets out HMRC’s view that a judicial decision in another case is directly relevant and that those who receive the notice should settle their disputes. If the taxpayer does not settle in response to this notice, they will face a tax-geared penalty if they are unable to show that their case is materially different from the other party’s litigation or if they did not have reasonable grounds to continue the dispute.

An accelerated payment may be required from taxpayers in the following circumstances: where a follower notice has been issued and the taxpayer decides not to settle their dispute; where taxpayers are involved in schemes subject to disclosure under the disclosure of tax avoidance schemes—DOTAS—rules: and where taxpayers have used arrangements that HMRC decides to counteract under the general anti-abuse rule.

For both follower notices and accelerated payments, taxpayers will have 90 days to make representations. There is no formal right of appeal against the notices or payments, but taxpayers can appeal against any penalties. The measures are expected to lead to the issue of payment notices to around 43,000 taxpayers involved in avoidance schemes currently under dispute with HMRC over the period to the end of March 2016.

Now that I have outlined what the provisions in the Bill do, I want to address some of the points raised in debate on the Finance Bill and by some commentators. One point that has been made is that the measure effectively assumes that someone is guilty before they are proved innocent. The Government do not agree, as most people pay their tax up front and can apply for a refund afterwards, for example through pay-as-you-earn, VAT and tax on interest income, and the measure extends the existing practice of having disputed tax sit with the Exchequer. That is already the case when taxpayers seek tax refunds for disputed avoidance. The measure in no way alters the rights of appeal that people already have when disputing the tax or NICs they owe HMRC; it is only about where the money sits while the dispute continues.

Hon. Members might also be aware that the measure has been described as having retrospective effect. The Government do not agree. It is not retrospective and there is no change to the liability to make a contribution. It involves NICs that the individual and his or her employer would already have paid if they had not entered into the avoidance scheme. The taxpayer can continue to dispute the case and will be repaid with interest if they succeed.

It has also been suggested that taxpayers are likely to find it difficult to find the money to pay. The Government’s view is that we would expect a prudent taxpayer to anticipate that an avoidance scheme might not deliver savings and would be subject to challenge by HMRC and that such a taxpayer should have made some provision against that possibility. I can reassure the House, however, that when a taxpayer has genuine difficulties in paying some or all of the NICs, HMRC will use its usual collection tools, including appropriately structured payment arrangements, to assist taxpayers in paying the required amounts.

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I have seen representations from businesses suggesting that they entered into such arrangements to reduce business costs and that the measures will now put unacceptable pressure on their business activity. The Government have put in place an attractive business tax regime and expect everyone to pay the taxes that are due. Avoidance involves trying to pass the burden on to the vast majority who have not tried to avoid tax and where business is concerned it involves attempts to gain an unfair competitive advantage against those who pay their taxes and do not try to avoid tax.

I want now to take the House to the provisions in the Bill that apply new information powers and penalties to the highest risk promoters of tax-avoidance schemes. The provisions are also contained in clauses 3 and 4 and schedule 2. The measure was announced for tax in Budget 2013 and the Government’s intention has been to extend it to NICs at the earliest opportunity. A consultation on the tax aspects, called “Raising the stakes on tax avoidance”, ran until 4 October 2013.

Hon. Members might also be aware that the Finance Act 2014 includes legislation that allows HMRC to issue conduct notices to promoters of tax-avoidance schemes and monitor promoters who breach a conduct notice. The Bill applies the tax legislation to NICs so that the legislation operates as one unified measure that covers tax and national insurance contributions. Monitored promoters will be subject to new information powers and penalties, which will also apply to intermediaries who continue to represent them after the monitoring commences. The monitored promoter will be named by HMRC and the naming details will include information on why the conduct notice was breached. It will be required to inform its clients that it is being monitored by HMRC. Clients of monitored promoters will also be subject to certain obligations that have a penalty for non-compliance and extended time limits for assessments.

The measure is part of the Government’s strategic response to avoidance. It will deter the use of avoidance schemes through influencing the behaviour of promoters, their intermediaries and clients and it is aimed at changing the behaviour of promoters of NICs and tax-avoidance schemes. Naming a monitored promoter should deter intermediaries from acting for them and clients and potential clients from using their products. I can confirm to the House that the measure is not expected to have any significant economic impact and that the cost to HMRC of dealing with the additional information and reporting it is expected to be negligible.

Now that I have outlined what those provisions do, I would again like to address several points that have been raised during Finance Bill debates and by some commentators. It has been suggested that the Bill is too wide and will catch innocent promoters, but the Government disagree. To be covered by the legislation, a person must be the promoter of avoidance schemes that give a tax advantage, or that avoid or reduce a NICs liability, and to have made a significant breach of a threshold condition. The vast majority of promoters will not be in that position.

Hon. Members may be aware that it has been suggested that this response to avoidance is disproportionate, but we disagree. The Government have made it absolutely clear that we are determined to crack down on tax avoidance. The vast majority of taxpayers pay the right tax and NICs at the right time, and should not have to subsidise those who participate in avoidance.

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One part of the Government’s strategy is to tackle the behaviour of the supply side of the market—those highest-risk promoters who design and sell avoidance schemes. We want to ensure that promoters who avoid their obligations to HMRC and their clients are made to change their behaviour, and the Bill achieves that by imposing consequences for those who do not meet acceptable standards of behaviour. It requires monitored promoters to tell HMRC about their schemes and clients, and there will be significant fines if they do not comply.

Another argument that has been made against the measures is that they apply retrospectively. The House will not be surprised to learn that the Government disagree with that proposition. While the provisions involve looking back at a promoter’s past behaviour, they are designed to improve current and future behaviour. It is only if there is no improvement in the promoter’s compliance with their obligations that they are subject to significant information powers and penalties.

I shall now describe to the House the provisions relating to the new targeted anti-avoidance rule that will prevent people from circumventing new legislation that tackles avoidance involving employment intermediaries. The proposed TAAR is set out in clause 5. The National Insurance Contributions Act 2014 strengthened legislation in respect of offshore employment intermediaries. It was specifically intended to address the non-payment of employer’s national insurance in the oil and gas industry involving the placement outside the UK of the employer of oil and gas workers working on the UK continental shelf.

Hon. Members may be aware that the temporary labour market is quick to react to legislative change and to find new convoluted ways to reduce the amount of income tax and NICs that would otherwise be liable to be paid. Stakeholders have indicated to HMRC that intermediaries involved in the facilitation of false self-employment may set up avoidance vehicles with convoluted structures that are specifically designed to circumvent the 2014 Act. To dissuade such intermediaries, the Government propose that a TAAR is included in NICs legislation to deter such avoidance. That TAAR is similar to the tax TAAR established for the same purpose through the Finance Act 2014. The rule will focus on the motive for setting up arrangements—on whether it is to avoid NICs—and whether those arrangements result in less NICs being paid. To ensure that the tax and NICs TAARs operate as one, both will take effect from 6 April 2014.

Let me explain why we are bringing forward the TAAR now. The use of employment intermediaries as a way of avoiding tax has grown in recent years, and they are increasingly marketed and promoted as a way of avoiding employer’s NICs. The TAAR will dissuade some businesses from entering into convoluted arrangements to avoid NICs. The proposed measures will help to level the playing field for UK businesses and ensure that compliant UK businesses that facilitate the UK’s flexible labour market are not undercut by those trying to avoid tax.

The Government have already taken action significantly to reduce the burden of NICs on earnings and employment through previous Bills. At Budget 2011, the Chancellor announced a £21 a week above-inflation increase to the employer’s NICs threshold. Last April the employment allowance was introduced, which will benefit up to

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1.25 million businesses, and next April the vast majority of under-21s will be lifted out of employer NICs, which will support 1.5 million jobs.

The Bill introduces further welcome measures and is both important and necessary. The modernisation of the way class 2 NICs are assessed and collected will make the system simpler and more straightforward and will reduce administrative burdens on the self-employed. The Bill also includes a package of measures aimed at activity that attempts to reduce the amount of NICs payable to the Exchequer. I commend the Bill to the House.

5.20 pm

Shabana Mahmood (Birmingham, Ladywood) (Lab): I thank the Minister for his introduction to this short Bill, which, as he said, aims to simplify the administrative process of paying class 2 NICs for the self-employed; apply measures from this year’s Finance Bill, now the Finance Act 2014, to NICs; and introduce a targeted anti-avoidance rule, TAAR, to tackle disguised self-employment made possible through employment intermediaries and offshore employers. We support the measures and so will support Second Reading, but we will examine in detail some of the expected practical impacts of the measures in Committee.

As the House will know, national insurance benefits are funded by a system of compulsory contributions on earnings paid by employees, employers and the self-employed. Most of the income from NICs goes into the national insurance fund to pay for contributory benefits, including the state pension, contributions-based jobseeker’s allowance and bereavement benefits. Some NICs money goes directly into the national health service. NICs are the second largest tax after income tax, raising £108 billion in 2013-14.

The self-employed make two types of national insurance contribution. Class 2 NICs are paid by the self-employed at a flat weekly rate of £2.75. A self-employed person can apply to be exempted from liability if their annual profits are under a certain threshold—the so-called small earnings exemption—which is currently set at £5,885. Class 4 NICs are paid annually by self-employed persons on profits immediately derived from a trade, profession or vocation that are chargeable to income tax. Class 4 NICs are payable at a rate of 9% on profits between £7,956 and £41,865 and 2% on profits above £41,865.

Until now, payments of class 2 and class 4 NICs have had to be made separately. Individuals may pay class 2 NICs by direct debit either twice a year, in January and July, or monthly, paid four months in arrears. Alternatively, HMRC will issue two payment requests a year. In contrast, self-employed persons pay class 4 NICs with income tax on completion of their self-assessment tax return. From 2011, the dates on which payment of class 2 NICs is due have been aligned with the dates for tax and self-assessment—31 January and 31 July each year—but payment of both has continued to be made separately.

As the Minister said, when the Office of Tax Simplification looked at these matters in 2012, it suggested bringing class 2 NICs within self-assessment, and that this would bring administrative benefits to self-employed persons and businesses. In July 2013, HMRC published a consultation document in which it noted that the present system places significant burdens on small business,

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and that while class 2 NICs accounted for less than 0.3% of the £102 billion-worth of NICs collected by HMRC in 2012-13, they accounted for more than 40% of national insurance-related telephone calls to HMRC and the associated processing work that resulted. The Bill therefore changes the liability for class 2 NICs so that it arises at the end of the tax year and not weekly, as now, and moves class 2 NICs into self-assessment, so that self-employed people can deal with their class 2 NICs together with their income tax and class 4 NICs.

We support the aim of making the system easier for self-employed people and reducing the administrative burden caused by the current arrangement of having two separate systems for collection of class 4 and class 2 NICs. Almost one person in six is self-employed, so this is a significant issue affecting a large number of people. Making the system easier to navigate is therefore welcome and of genuine practical benefit for the self-employed.

A number of specific issues arise as a result of this change on which we will seek greater clarification from Ministers in Committee. However, it would also be helpful if the Exchequer Secretary offered some further comments on the points I am about to raise, as that could help to clarify the issues ahead of Committee. The first relates to the maternity allowance. At present, 25,000 self-employed women claim maternity allowance each year. Entitlement to maternity allowance is not assessed on self-employment and class 2 NICs paid in a particular benefit year. Instead, it is assessed over a test period of 66 weeks up to and including the week before the baby is due. Collecting class 2 NICs at the end of the tax year means that some women may find that it appears as though they have not been paying class 2 NICs during the period needed to make them eligible for the maternity allowance.

In order to address this problem, the Government have proposed measures in the Bill that would enable women who have not had the opportunity to file a self-assessment return and pay class 2 NICs to pay them early in order to secure maternity entitlement at the standard weekly rate. However, there is a danger that these proposals may be impractical. Women would have to make voluntary contributions before they filed their self-assessment returns, and this demands a very high level of forward planning on their part. The provisions may therefore require some additional clarification. If the Exchequer Secretary or the Financial Secretary have had any additional representations on these points—I know that some stakeholders have been raising such concerns—it would be helpful if they set out their thinking. The Minister will be aware that the Chartered Institute of Taxation has suggested that the Government should review these changes at the earliest opportunity—in two years, I think—to ensure that they have not resulted in a reduction in the number of claims for the standard rate of maternity allowance. Again, it would be helpful to have an indication of the Minister’s current thinking on this point.

For the 650,000 self-employed households that claim universal credit, these proposals will have a different impact. Universal credit regulations require the individual to report their income, net of certain expenses, on a monthly basis. That net income is then used to establish their entitlement to universal credit. Certain safeguards

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are built in so that if income from self-employment for an assessment period falls below a certain level, the claimant’s income is treated as being a higher amount called the minimum income floor. Because universal credit is assessed on a monthly basis, if a claimant has to pay all their class 2 NICs in one month, this could push their earnings under the minimum income floor, thereby reducing their universal credit for that month. Simplification should not come at the cost of hardship, We will press the Government for assurances that they have fully considered the potential impacts of this change along with the introduction of universal credit, and the interplay between both policies.

The tax information and impact note suggests that the option of monthly payments will still be made available to self-employed persons and businesses. However, there is no provision for that in the Bill. A number of stakeholder groups have suggested that the retention of a monthly payment system would be of particular value to those on very low incomes who may struggle with one lump sum payment. Even accepting that for many people the total amount does not seem large or too onerous, of course that is not necessarily the case for those on extremely low incomes, and retaining the monthly payment option would therefore be helpful. It is not clear why the note suggests something that the Bill does not touch on. I would be grateful for some further clarification on that.

The Chartered Institute of Taxation points out that there will be a gap of 22 months between the collection of class 2 payments for 2014-15 and the collection of payments for 2015-16 as liability moves from a weekly basis to arising at the end of the tax year. Thereafter, the payment of class 2 will be in arrears on 31 January following the end of the tax year. This could affect entitlements to benefits. Under the current system, the entitlement to many contributory benefits is based on the claimant having paid contributions and operating on a pay-as-you-go basis. Have the Government considered the cash-flow implications of class 2 NICs coming in up to 10 months after the end of the tax year, rather than being paid in-year as they are at the moment? Are they able to give us some more information on that today?

We will also seek reassurance and confirmation that moving class 2 into self-assessment will not adversely affect entitlement to contributory benefits. These are significant changes and the Government will need to ensure that they are properly advertised and that taxpayers are educated about them. We do not want a situation to arise whereby people have gaps in their payments. As I have said, NICs relate to eligibility for important benefits that people rely on. We need greater reassurance from the Government that they will have a full programme of education and information about the changes. It is also fair to say that we will need a relatively widespread publicity programme ahead of April 2015, as existing direct debits will need to be stopped. It would be helpful if the Exchequer Secretary could tell us what the Government have planned in relation to educating taxpayers who will be affected by the changes.

As the Financial Secretary said, the Bill also extends measures introduced in the Finance Act 2014 to cover NICs, particularly in relation to follower notices, accelerated payment notices and measures to tackle high-risk promoters of tax avoidance schemes. During the passage of the Finance Bill we had an extensive debate on the issues

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raised by the new provisions, which are the same as those contained in this Bill, and we will continue to press Ministers in Committee on the practical arrangements for the measures.

On follower notices, we welcomed the amendment made on Report of the Finance Bill, which brought in a right of appeal on three grounds where a follower notice has been issued. Outside of those three grounds, however, the only other option will be for taxpayers to seek a judicial review. What further reassurances can Ministers give that follower notices will be issued only in cases that are on all fours, as it were, with the precedent or lead case, so that occasions where a taxpayer may have to resort to a judicial review are kept to a minimum?

It is important that the internal systems operated by Her Majesty’s Revenue and Customs in deciding whether to issue a follower notice allow for the points of difference in a case to be considered, rather than the process amounting to a more straightforward box-ticking exercise to determine eligibility for a notice. Now that the Finance Act is law, I would be grateful if the Government could set out what further work has been done on the approach and methodology that will be adopted by HMRC staff and officials as they make important decisions about whether to apply a follower notice to a particular case.

As the Financial Secretary has noted, there has been considerable controversy and heated debate about whether accelerated payment notices amount to retrospection, as we discussed in Committee. Although we have put to him the concerns of stakeholders and constituents from all over the country, I agree with him that, from a legal perspective, they are not retrospective per se. The issue is more one of tax liability that has already been disputed and of where that liability sits. We have, therefore, supported the measures relating to accelerated payment notices. The Government have assured the House that decisions about whether to issue an APN will be made only by HMRC staff with sufficient seniority who are at a high grade. The Financial Secretary and I have had a number of discussions about HMRC staffing and resources, so he will not be surprised to hear that I will be taking up those issues again.

The Association of Revenue and Customs believes that HMRC faces a demographic time bomb, with more than half its work force aged over 45 and 18% over 55. That proportion is even higher at senior level, where about 30% of grade 6 employees are over 55. It is important to know how that will affect the implementation of APNs. We will need to be satisfied that there will be enough sufficiently experienced staff and that those who are due to retire are being replaced at the correct rate.

We have pressed Ministers on the resourcing of HMRC, and I note the Financial Secretary’s comments in our previous debates about the expansion of the counter-avoidance team at HMRC. Again, we will pick that up in greater detail in Committee. Now that the Finance Act is law, we must keep a close eye on implementation and resourcing. Especially given the high level of interest in such matters, the first decisions made about follower notices and accelerated payment notices must be robust and stand up to scrutiny if they are to inspire confidence within the population of taxpayers.

The Bill will introduce a new targeted anti-avoidance rule to cover the payment of national insurance contributions, which sits alongside the provisions in this year’s Finance Act aimed at tackling the issue of

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employment intermediaries who falsely label workers as self-employed to reduce their tax liabilities. The problem is widespread, and a Government review found that at least 100,000 individuals working in this country were employed through an intermediary company that had no presence, residence or place of business in the UK. In many cases, the employee was unaware that their payroll was located offshore and that tax was avoided on their earnings.

For workers falsely badged as self-employed, particularly those who do not know that that is the case, the impact is that they are not eligible for many of the benefits available for employed earners, such as holiday and sickness pay. This year’s Finance Act amended legislation directly to address the issue in relation to the payment of income tax. A worker will now be designated as an employee if they are under the supervision, direction or control of someone else, and in that case they must be paid through PAYE, rather than as self-employed people. That is a change from the previous designation, under which a worker was deemed to be an employee if they provided their services personally. It was found that many intermediaries could exploit the test by claiming that there was no obligation for the worker to provide their services personally, and to get around that, a clause was often inserted into a worker’s contract stating that they could send someone else to do their work, even though the employee in reality wanted that specific worker.

The role of the TAAR in this Bill is to ensure that the new measures cannot be circumvented, and that workers who would be employed earners if it were not for the intermediary arrangements are treated as employed earners. The TAAR will allow HMRC to consider both the motive for setting up such an arrangement, including whether it was set up with the motive of avoiding NICs, and what was achieved, including whether it resulted in less NICs being paid.

During debates on the Finance Bill, we supported the new measures and the corresponding TAAR for income tax, but we stressed the importance of considering the resource that HMRC would need both to implement the changes and to ensure that sufficient guidance was provided to those affected. The same applies to this Bill. In addition, we will continue to press, as we did on the Finance Bill, for further examination of the case for having deeming criteria to combat disguised employment in the construction industry, particularly where such practices are a significant problem, with self-employment levels at 40% compared with an average of 14% across all industries. However, the TAAR envisaged in this Bill takes us forward in dealing with the problem, and we will support it.

With those points, I hope that I have given Ministers sufficient notice of the debates that we will have as the Bill progresses, and I look forward to picking up those issues in greater detail in Committee.

5.38 pm

Ian Swales (Redcar) (LD): I rise to say a few words in favour of the Bill, which the Liberal Democrats wholeheartedly support. We are very pleased that it incorporates measures to deal with tax avoidance.

The whole problem of disguised employment is rife across the country, and the Bill will go some way to combat it. The shadow Minister, the hon. Member for

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Birmingham, Ladywood (Shabana Mahmood), spoke about it as though people were unwilling to be disguised employees, but in many cases people are willing disguised employees who duly make savings themselves. I believe that the Bill will help to combat the problem.

The measures in relation to offshore workers are particularly welcome in my constituency, which has a large number of them. Some only realised what their real national insurance status was when they claimed their pension and found that their contribution record was nothing like they expected, because the payments that they thought they had paid were not properly rendered as national insurance contributions. I therefore very much welcome the removal of another anomaly in the system.

I look forward to the Bill passing smoothly through the House, as it so far seems to be doing.

5.39 pm

Catherine McKinnell (Newcastle upon Tyne North) (Lab): Before I begin my remarks, I should probably declare an interest as a member of the all-party parliamentary group on the freelance sector. As such, I am fully aware of the invaluable contribution that genuinely self-employed people, including freelancers, make to the economy. They play an increasingly prominent part in the generation of economic growth and prosperity.

As my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) and the Financial Secretary set out, the main aim of the Bill is to make life a bit easier for self-employed people in respect of the payment of their national insurance contributions. That is more important than ever, given the structural changes in our labour market over the past few years. There are 4.5 million self-employed people, which is more than at any point in the past 40 years, according to the Office for National Statistics. Welcome though the changes are, the Government need to go further in supporting the self-employed because, while we know that the majority of working people are not feeling better off in their pockets, it is becoming increasingly clear that the self-employed have been hit particularly hard by the cost of living crisis of the past few years.

The latest labour force survey figures from the ONS show that more than a third of the new jobs that have been created since the last quarter of the last Parliament—39%—are self-employed jobs. The self-employed make up one in seven people in the work force. The Institute for Public Policy Research recently described the UK as the

“self-employment capital of Western Europe”.

Although the Government like to boast that 2,000 businesses have been set up and have been “flourishing” in every month over the last year, that masks the true effect of the cost of living crisis on many self-employed people. Although self-employed people are included in the employment figures in the ONS labour force survey, they are not included in the pay figures. The Resolution Foundation has concluded that, were the 4.5 million self-employed people included in the labour force survey, average wages could have fallen by a further 20% due to the huge shift towards low-paid self-employment. Whereas the official figures show that working people are, on average, £1,600 a year worse off since 2010 after inflation,

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Labour’s analysis shows that the self-employed have been hit particularly hard and that their average incomes have fallen by £2,000 a year. According to the Institute for Fiscal Studies,

“the fall in average living standards was caused primarily by sharp falls in gross earnings and self-employment income.”

We know that the Bank of England’s Monetary Policy Committee has a range of views on the extent to which the growth in self-employment has painted a false picture of the strength of the labour market. We also know from a recent survey by the Resolution Foundation that more than a quarter of those who have become self-employed in the past five years—almost half a million people—would rather have salaried jobs.

It is for those reasons that the shadow Secretaries of State for Business, Innovation and Skills and for Work and Pensions have written to Sir Andrew Dilnot, the chairman of the UK Statistics Authority, to ask him to examine whether new measures are needed to take better account of the earnings of self-employed people. The truth is that they are working harder for less and that many of them are struggling to make ends meet. We must ensure that they get the support that they need.

My hon. Friend the Member for Birmingham, Ladywood set out the Opposition’s concerns about the Bill. The first relates to clauses 1 and 2 and schedule 1, which will simplify the payment of national insurance contributions that are currently paid by monthly direct debit or in six-monthly instalments, so that they will be paid under the self-assessment regime at the end of the tax year. Although that simplified process will be welcomed by many self-employed people, there are concerns that shifting all liability for NICs to the end of the tax year, potentially to be paid in one big lump sum, could be difficult for low-paid workers.

The Chartered Institute of Taxation recommended that the option of monthly direct debit is retained, and the Government’s tax information and impact note also anticipates that

“a small number may want to continue to make Class 2 NIC payments through a regular payment option.”

No such option is referenced in the Bill, however, so it would be helpful if the Minister cleared up that point and said whether there is any intention to include such a measure.

There are also implications for self-employed people who receive universal credit—I say receive, but I mean when, or if, universal credit is ever fully rolled out, given the current timetable. Because under universal credit income is reported net of expenses on a monthly basis, as my hon. Friend the Member for Birmingham, Ladywood said, if income falls below a certain threshold in a given month—the minimum income floor—the claimant’s income is treated as being a higher amount, and they therefore lose some of their universal credit entitlement for that month. NICs and income tax will count as such deductions, and in any one month liability may fall on both of those under self-assessment. That could result in universal credit claimants losing out in that month, which could set them back significantly for a longer period. The Low Incomes Tax Reform group has expressed its concerns that that shift could “spell misery” for some self-employed people, and create a system where

“payments will be made much later and could affect entitlements to benefits in the meantime.”

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Ian Swales: I am following the hon. Lady’s argument with interest and she is making an excellent point. Does she believe that the annual assessment and payment of class 2 NICs will cause a big problem for people on universal credit? How does she think that could be dealt with? Clearly, it is part of their costs and deductions from income, which will not be known when they are claiming and receiving universal credit.

Catherine McKinnell: I think the hon. Gentleman very much agrees with the concerns raised by Labour Members, and I hope that the Minister will have some suggestions on how those potential pitfalls can be addressed. If not now, thought should certainly be given to that before the Committee stage to ensure that the most vulnerable self-employed workers, and those on lowest incomes, are not penalised by the change in processing national insurance contributions. We accept that there are clear benefits to reducing red tape and the administrative burden on self-employed people who would benefit from such a measure, but there are those in a more vulnerable position who could be forced into “misery”, as the Chartered Institute of Taxation puts it well.

There is also an increased administrative burden for those who are self-employed as a result of the introduction of universal credit. They will have to draw up two separate accounts—one for HMRC that they report yearly, and one for the DWP that they report monthly. Perhaps Ministers will provide some much-needed clarity about the provisions that they intend to put in place to support low-paid self-employed people, so that they are not disadvantaged by the Bill.

My hon. Friend the Member for Birmingham, Ladywood mentioned the 25,000 self-employed women who claim maternity allowance each year. Currently, class 2 contributions are the means by which a self-employed earner accesses entitlement to contributory benefits, including the standard rate of maternity allowance. In order to receive that, a self-employed woman must have paid 13 weeks’ of class 2 NICs within the previous 66 weeks. That shifting liability for class 2 NICs to an annual payment to cover the previous 12 months’ liability could mean that they fail to satisfy those criteria and are not able to access the standard rate of maternity allowance. HMRC’s consultation document from July 2013 flags those concerns. It states:

“The Government recognises that the proposals have implications for the way eligibility for”

maternity allowance

“is determined for pregnant self-employed women and will be considering how best to ensure the changes have no adverse impact for the small group who might otherwise be affected.”

Despite the promise of that wider review of maternity allowance eligibility for self-employed women, the Government have settled on what has been described as a “wholly impractical” solution, whereby women must pay their class 2 NICs throughout the year of their own accord before they file their self-assessment returns at the end of the year.

The Bill’s aim is to simplify NICs for the self-employed, but the proposed approach is anything but simple. In fact, it places a much greater burden on some 25,000 pregnant women each year who want to access their entitlement to the standard rate of maternity allowance. The Chartered Institute of Taxation has labelled that

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approach as “impractical”, and has suggested that a review should be carried out after two years to see what impact it has had on the claims of self-employed women for standard rate maternity allowance. Perhaps the Minister could respond to those concerns. Have the Government considered alternative approaches, and why have they settled on what has been described as an impractical approach for those women who could be affected?

My hon. Friend the Member for Birmingham, Ladywood spoke in depth about the anti-avoidance measures in the Bill, which were debated at some length in the Finance Bill Committee. However, I want to make the general point that the Opposition are committed to anti-tax avoidance measures. We believe strongly that everybody should pay their fair share. That is why we support the measures in the Bill, but what reassurances can the Minister provide for hon. Members that HMRC will be sufficiently resourced in order to implement the measures and the safeguards? My hon. Friend mentioned the demographic challenges that HMRC is likely to face in the coming years, and the challenge of the numbers of those available to ensure that the promised safeguards are put in place. Will the Minister provide reassurances on that? I am sure the matter will be debated at some length in Committee.

To conclude, we have only to look at the Government’s past record on tax avoidance to understand why the Opposition seek those reassurances. The Government have got it wrong in some respects, such as on the UK-Swiss tax deal, and have over-egged their tackling of tax avoidance and the tax gap, which the National Audit Office recently said is almost £2 billion lower than it should have been, and that the Government have mis-stated the situation. Ministers must provide reassurance for hon. Members and for those who are interested in the debate that they have learned those lessons, and that we will not experience tax avoidance in relation to measures in this Bill that the Government are similarly unable to deal with.

5.53 pm

The Exchequer Secretary to the Treasury (Priti Patel): This has been an efficient debate—the Bill was discussed at great length in debates on the Finance Bill. On that basis, I will not recap the purpose of the Bill or the clauses, which have been effectively discussed. However, it is fair, right and proper that I address the points made by Labour Members. Clearly, there is consensus in a number of areas—work has taken place in debates on the Finance Bill and discussions have been had—but there are a number of areas that I should like to address.

The hon. Member for Birmingham, Ladywood (Shabana Mahmood) asked a number of questions. I will begin the debate on them now, and I have no doubt that they will be explored further in Committee. On the reform of maternity allowance for self-employed women, I challenge the assertion that the process is burdensome. As we have heard, the Bill is about simplification and introducing a degree of efficiency to NICs. Primary legislation and supporting regulations, and a revised claim process, will ensure that expectant mums are no worse off than they were under the previous class 2 arrangements. Right hon. and hon. Members will be pleased that HMRC and the DWP are working together to ensure that the process is straightforward and simple for them. As I have said, that will no doubt come up again in Committee.

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The hon. Members for Birmingham, Ladywood and for Newcastle upon Tyne North (Catherine McKinnell) made a point on reform for the low paid and the impact of universal credit. It is fair to say that most self-employed people have the option to pay their class 2 NICs regularly using the budget payment option that is already available in self-assessment. Importantly, they are enabled to spread the cost of those payments. That is not legislated for in the Bill because the option to make the budget payments already exists within the current system of self-assessment. Once the Bill becomes law, the issue is how we raise awareness to ensure that people know about that. NICs are accounted for on an accruals basis, so the important fact is the time period within which the money is due rather than the date for payments. Of course, they will continue to be counted in the tax year, but as I have said, it is a question of spreading the costs.

The hon. Member for Birmingham, Ladywood rightly asked how HMRC will ensure that it applies the rules fairly for all taxpayers. It is fair to say that that argument was rehearsed in Finance Bill debates. The Government recognise that there are significant new powers. Obviously, the system must be administered fairly and consistently for all taxpayers. To that end, HMRC will establish clear governance for the key decisions on which cases can be designated as followers, which disclosure of tax avoidance schemes will be within scope and on the appointment of designated officers for the calculation notices. One important point is that clear separations will be established so that reviews of follower notices are carried out independently of the original issuing team. In addition, clear internal guidance and training will be provided for staff within HMRC on how they are to apply the rules. That goes with the clear external guidance, which has been published by HMRC so that taxpayers and advisers know how the rules impact on them. This is about not only fairness, but transparency, so that there is no confusion. On follower notices, those who know that they are deliberately avoiding tax will also know that they are being looked at, which is important. It is fair to say that our determination to lift every stone, and ensure that those who deliberately avoid tax are actively watched and pursued, is unequivocal.

The hon. Member for Newcastle upon Tyne North touched on wage growth for self-employed individuals. The self-employed community is growing, which is a good thing. This is about how we support them through the tax system, but there must be agreement that the only way to raise living standards is to tackle wider challenges and economic problems. We appreciate that times are tough, but this is about how we support hard-working people and the self-employed. We have increased the tax-free personal allowance to £10,500 from April next year, which will save the typical taxpayer £805 per year. We have also taken more than 3.2 million people out of tax altogether and cut income tax for someone on the minimum wage by nearly two thirds.

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There have been other effective measures such as the freeze in fuel duty and the freeze in council tax in every year of this Parliament.

There is no doubt that more discussion will follow in Committee, but given that there is a great deal of agreement on the Bill’s provisions, at this stage I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.

National Insurance Contributions Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the National Insurance Contributions Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 28 October 2014.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Mark Lancaster.)

Question agreed to.

NATIONAL INSURANCE CONTRIBUTIONS BILL (WAYS AND MEANS)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the National Insurance Contributions Bill, it is expedient to authorise:

(1) provision for, and in connection with, the application of Part 4 of the Finance Act 2014 in relation to national insurance contributions;

(2) the payment into the Consolidated Fund of any increase attributable to the Act in the sums payable into that Fund under any other Act.—(Mark Lancaster.)

Question agreed to.

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Business of the House (10 September)

6.1 pm

The Deputy Leader of the House of Commons (Tom Brake): I beg to move,

That at the sitting on Wednesday 10 September, the Speaker shall put the Questions necessary to dispose of proceedings on the Motion in the name of Jesse Norman relating to Select Committee on Governance of the House not later than two hours after their commencement; such Questions shall include the Questions on any Amendments selected by the Speaker which may then be moved; proceedings may continue, though opposed, after the moment of interruption; and Standing Order No. 41A (Deferred divisions) shall not apply.

Last Thursday during the business statement, the Leader of the House announced, following representations from and discussions with the Backbench Business Committee, that on Wednesday of this week the House would consider a motion to establish a Select Committee on governance of the House. The motion to establish the Select Committee has been found time additional to that already provided for Back-Bench business. Given the level of interest throughout the House and the importance to the House of resolving its governance arrangements in a timely manner, the Government have brought forward the motion to allow the issue to be considered and resolved after the moment of interruption on Wednesday should that prove necessary.

The House will be aware that the major item of business being taken on Wednesday is the general debate on Ukraine, the middle east, north Africa and security. That is obviously a significant debate, and it is important that the House is given an adequate opportunity to debate those issues. That is why the Government have agreed, on this occasion, to provide Government time for the debate on international issues, in addition to the statements and other debating opportunities that the House has had to consider those issues. I hope the House will agree that this business motion will facilitate the business of the House in a sensible way, and I commend it to the House.

6.2 pm

Karl Turner (Kingston upon Hull East) (Lab): We support the motion to timetable a Back-Bench debate on Wednesday evening on the creation of a Select Committee on governance of the House. The time proposed by the Government will give Members throughout the House a sufficient chance to have their say, and the motion also recognises that we will have spent a significant amount of time on Wednesday debating international matters of crucial importance.

Mr Speaker was right last week to say that it is important that the House move as one on the issue of its governance. That is why we welcome both the chance to have the debate and the motion proposed to the Backbench Business Committee. I do not want to address the content of Wednesday’s debate now, but it is clear that the moment is right to consider splitting the roles of the Clerk and the chief executive, and that the House should have a process for considering that properly and in a timely fashion, so I hope that Members will support today’s motion.

Question put and agreed to.

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Backbench Business

Food Fraud

[Relevant documents: The Eighth Report from the Environment, Food and Rural Affairs Committee, Session 2012-13, on Contamination of Beef Products, HC 946, and the Government response, HC 1085; and the Fifth Report from the Environment, Food and Rural Affairs Committee, Session 2013-14, on Food Contamination, HC 141, and the Government response, HC 707.]

6.4 pm

Roger Williams (Brecon and Radnorshire) (LD): I beg to move,

That this House has considered food fraud.

First, I thank the Backbench Business Committee for granting the debate on this important and topical issue. I must say that some of us had anticipated that the Government business would take rather longer this afternoon and that this debate would start rather later. I was given the information that we might have the debate this evening rather late last week, and despite the best efforts of my staff to contact right hon. and hon. Members to urge them to make a contribution, the message obviously got out rather late. Perhaps there was not much contentious business to debate today, either. Nevertheless, the debate is topical, coming soon after the Elliott report, which the Government commissioned following the horsemeat scandal of just over a year ago. I should declare my interests related to meat production, which appear in the Register of Members’ Financial Interests.

I first became interested in food crime when I was elected in 2001. We were in the middle of a foot and mouth disease outbreak, and the election had actually been postponed for a month until the first Thursday in June so that the outbreak could be contained and dealt with. Unfortunately, it went on well after the election, particularly in my constituency. Thousands of sheep were slaughtered on the Brecon Beacons in an attempt to control the disease, which did happen. At that time, farmers were concerned about the lack of checks taking place at the ports on meat coming into this country. They were particularly concerned about the seaports through which meat was imported and the airports through which illegal meat was thought to come. I tabled a ten-minute rule Bill to ask the Government to re-examine the checks and balances, and that was what happened.

Neil Parish (Tiverton and Honiton) (Con): I congratulate my hon. Friend on securing the debate. Does he agree that the lesson that we have learned about food fraud is that we need spot checks on processors so that they do not know we are coming? We should go to them and find out exactly what sort of meat they are processing so that we can stamp out fraud, rather than carry out general testing all the time, which is expensive.

Roger Williams: I thank my hon. Friend for that point, which is made in the Elliott report. Intelligence-led monitoring is also important. Controls on food coming into this country have been tightened at the airports and seaports. Sniffer dogs have been introduced at

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Heathrow, and I have been there and seen them in action. It was extraordinarily impressive to see dogs being able to find little bits of food that were being brought into the country—not intentionally but because somebody had forgotten they had left a ham sandwich in their suitcase or backpack.

Ian Swales (Redcar) (LD): I congratulate my hon. Friend on fighting on this issue. My hon. Friend the Member for Tiverton and Honiton (Neil Parish) mentioned checks on food processors. Given the amount of food that comes into this country already processed, is my hon. Friend the Member for Brecon and Radnorshire (Roger Williams) satisfied that spot checks and other measures can be undertaken outside the country?

Roger Williams: My hon. Friend makes a good point. Of course, because we are in the European Union we expect that all food that comes into this country will have been slaughtered, processed or manufactured to a standard that would be acceptable in this country. Food coming in from third world countries is another matter altogether. One issue that I concentrated on when I first became involved with the issue of food fraud was the smuggling of meat into this country from Africa. There were various types of meat, but the most serious were parts of primates, including gorillas, apes and monkeys, which certain ethnic communities in this country particularly value. It was obvious that there was no scrutiny of the safety of these meats or even what they were. There was a real concern that not only animal diseases but human diseases could be brought in by this means. Much of the meat came from west Africa. The problem of Ebola today shows that we might still face a real danger from this problem.

I certainly welcomed the final publication last Thursday of the Elliott review of the integrity and authenticity of the UK food supply. We waited quite a long time for the report, but it was worth the wait because it is a comprehensive and well set-out document. It demonstrates the UK Government’s commitment to improving the integrity and assurance of our food supply networks. Professor Elliott’s report highlights that the UK has one of the safest food supply systems in the world, with a great deal of work being done to ensure that food is safe to eat and free from chemical and microbiological contamination, and all those involved in the supply of food and those responsible for developing and enforcing legislation should be commended for what has been achieved.

More attention and more resources, however, need to be put into food authenticity and combating food fraud and food crime. At the beginning of the horsemeat problem, the important question arose about what was meant by adulteration and what was meant by contamination. As far as I am concerned, contamination is not the deliberate introduction into food of other substances—it happens by mistake or inadvertently—whereas adulteration is the deliberate introduction into food of mostly lower-priced commodities. That issue was certainly at the heart of the horsemeat scandal.

Mr David Heath (Somerton and Frome) (LD): My hon. Friend will remember that I had some involvement in the problems at that time. It was important early on

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to establish a threshold for contamination/adulteration that made sense. Otherwise, we would have been in the absurd position of testing every piece of meat and finding that it was contaminated simply because somebody in the room might be shedding human DNA or because the meat had been sitting in a butcher’s shop where beef or pork sausages were not in separate airtight compartments. The level of the threshold, it seems to me, was one of the most important early advances we made in understanding the issue and ensuring that we were not attacking the wrong problem.

Roger Williams: I commend my hon. Friend for the work he did right at the beginning of the horsemeat scandal. He provided us with greater clarity about what was involved and about the difference between contamination and adulteration. Of course, contamination is not something that should be taken lightly in its own right. Halal meat contaminated by pork, for example, is a very serious matter for the religious beliefs of some of our communities. I do not in any way view contamination as of little interest; it is of great interest, but it must not be confused with the deliberate adulteration of food.

Food fraud is corrosive of consumer confidence, which has ramifications right through the food chain. The horsemeat contamination incident last year is an example of such a damaging effect on the food industry and on consumer trust. After “Horsegate”, a poll showed that only 56% of consumers were confident that the food they bought was what it claimed to be—a rather shocking statistic. This figure is far too high, and it is one of the reasons why it is so important that we are having this debate today.

Small businesses are especially vulnerable to food fraud, and according to the Elliott review, many have said they are struggling to stay in business because they are competing against those who cheat. That goes for farmers, too, as they grow the raw ingredients for the food industry and rely heavily on consumer confidence. It is essential to safeguard this industry.

Neil Parish: I thank my hon. Friend for giving way a second time. Does he agree that there is huge pressure on the processors to reduce their prices, especially from some unscrupulous retailers? Of course, if we drive the price too low, beef cannot be put in the beefburgers and other things start to get mixed in with them. Although retailers are not directly responsible for what happens, I think they play a rather bad part in the whole saga.

Roger Williams: My hon. Friend is completely right that food fraud is price-driven—there is no doubt about that. Food adulteration and fraud are as old as history, as we know from many centuries of experience. The watering down of milk was one such example, but an even more heinous crime is the watering down of beer, which should carry an especially heavy penalty!

Huw Irranca-Davies (Ogmore) (Lab): Is there watered-down beer in Brecon?

Roger Williams: We do not have any examples in Brecon; it is mostly down in south Wales! But the history books are full of examples of this sort of thing.

As I was saying, it essential to safeguard this industry. Food and farming is the UK’s largest manufacturing sector, contributing £96 billion to the economy and

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employing almost 4 million people. It is essential to keep up confidence in the UK, while also protecting the reputation of our food abroad.

Another point inn Elliott’s proposals is the setting up of a cross-Cabinet Committee on food safety and food crime. I fully agree with that recommendation and I am glad that the Government have accepted it.

Huw Irranca-Davies: I congratulate the hon. Gentleman on securing this debate and thank him for giving way. Particularly in the light of the splitting of the roles and responsibilities of the Food Standards Agency in 2010, was he surprised that some sort of cross-Government or cross-Cabinet regular systematic group was not established to take account of that fact?

Roger Williams: The hon. Gentleman makes a very good point—one that is addressed in the Elliott report and one that the Government have accepted, as I said. I am very pleased that the Government have accepted all the report’s recommendations, so we should pay tribute both to the report and to the Government’s response to it.

Following on from the hon. Gentleman’s point, there was such a cross-Government forum for co-ordination on food at Cabinet level until May 2010. Up to that point, there was also more clarity on the responsibilities for food, as the FSA then had the responsibility for authenticity, testing and policy on compositional labelling of food, as well as on nutrition policy, which subsequently went to the Department of Health.

Huw Irranca-Davies: I thank the hon. Gentleman for generously giving way again. In his interim report, Professor Chris Elliott made it clear that he wanted to see both responsibilities returned directly to the FSA. In his subsequent final report—he has made it clear that it is because of the political difficulty—he has stepped back a little from that, but the suggestion is that he would still like to see this done. What does the hon. Gentleman think about that? Should these responsibilities be returned to the FSA?

Roger Williams: If the hon. Gentleman reads the full report by Professor Elliott, he will find that he responds to the concern that the final report took quite a long time to come out. He makes it very clear that none of the recommendations in the final report is the result of any political pressure, but are the result of his committee looking at the issue and coming up with what he believes are the best proposals for protecting food and consumers.

Huw Irranca-Davies: No doubt the Minister will correct me later if I am wrong, but I believe that Professor Chris Elliott said he was loth to include the full recommendation in the interim report—that is, the recommendation that all the responsibility should be returned to the FSA—and made it clear that that was because of the political difficulty of doing so. I make that point purely for the sake of accuracy.

Roger Williams: I am sure that the hon. Gentleman will develop his point further when he makes his own speech, and that the Minister will do so as well.

Miss Anne McIntosh (Thirsk and Malton) (Con): I congratulate my hon. Friend on securing the debate. As he has already pointed out very eloquently, the Government

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will be setting up—at a very early date—a cross-departmental Committee, which I think will prevent the same thing from happening again.

On Thursday, the Minister did not have time to respond to an important question that goes to the heart of this issue, namely the question of what is happening in regard to traceability and labelling at European Union level. I hope that we shall be able to stay here all evening and hear about that at first hand from him.

Roger Williams: As always, the Chairman of the Select Committee has made a very good point. I listened to what she said on “Farming Today”. Was it on Thursday? I cannot remember. When one is up very early in the morning, the days may not be readily identifiable. Anyway, the hon. Lady made the very good point that the real problem with the horsemeat scandal was that we had never identified the point at which the horsemeat entered the food chain. There have been a number of prosecutions, but they have taken place on a very small scale. Whoever perpetrated this fraud on such a large scale is still out there, and is still, perhaps, waiting for an opportunity to commit either the same or a similar crime.

The real problem is that we do not know where that horsemeat came from. Were the animals slaughtered in a registered slaughterhouse? Were they slaughtered in a farm barn? Was the meat properly looked after? As it turned out, there was not, we understand, a very big threat to public health, but that may have been due more to luck than to judgment.

Miss McIntosh: In order to prevent a Select Committee love-in, may I press my hon. Friend a little further? I think that the key proposal from Professor Elliott is the proposal for a food crime unit, with intervention by the police. However, even a close reading of the Secretary of State’s written statement does not make immediately clear what powers the police will have. Perhaps my hon. Friend has had more time to look into the matter than I have.

Roger Williams: I have not, but I was going to mention the establishment of a police crime unit, which I think is essential. This was criminal: laws were broken, and people should face the consequences. I hope that the new unit will ensure that those people are brought to book in future, that they are named and shamed, and that they will not be able to have a role in the food industry again.

Neil Parish: I thank my hon. Friend for indulging me a third time. I rather fear that a few small operators may have been singled out for what happened, and that there are some very big guys out there who have never been thoroughly investigated.

Roger Williams: That is the point that I was trying to make. There have been a number of arrests, but on a very small scale. Certainly the prime operator in the crime has not been identified and brought to book. It is important for there to be a police involvement, but it is also important for there to be an international police involvement. As the horsemeat scandal demonstrated, the food chains are very long and convoluted, and the people involved often do not actually handle the meat at all. They are traders who buy and sell it without ever knowing its quality or composition. It is therefore essential for an international police view to be maintained.

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Ian Swales: While we are on the subject of crime, may I ask what my hon. Friend thinks are the ultimate responsibilities of retailers? Are they not ultimately responsible for what they sell? Does my hon. Friend believe that the right controls are in place, and that the penalties are right? My hon. Friend the Member for Tiverton and Honiton (Neil Parish) mentioned the prices of some of the processed meals involved. Does my hon. Friend not think that the retailers ought to have known that those meals could not have been produced at that price with the proper contents?

Roger Williams: My hon. Friend has put his finger on it. As has already been pointed out, price is the driver of food crime, and as Professor Elliott said in his report, if major retailers or processors have a deal that is too good to be true, they should trace it to its source. Both processors and retailers have a real responsibility in that regard. It is no good saying that they have not the facilities or the wherewithal; they have the ultimate responsibility.

Huw Irranca-Davies: The hon. Gentleman is making a very good and wide-ranging speech on the basis of his experience. He mentioned European and international co-operation, whose importance Professor Elliott has stressed strongly and repeatedly. Did he share my concern when, only a few months after the height of the horsemeat scandal, the European Commissioner for crime and justice—who deals with such collaborative approaches—remarked how preposterous it was that, at a time when we were seeking international collaboration, the coalition Government were seeking opt-outs on 130 areas of European co-operation on that very issue?

Roger Williams: I think that the hon. Gentleman is trying to introduce a political point which is far outside the scope of the debate.

Guy Opperman (Hexham) (Con): I congratulate the hon. Gentleman on securing the debate. Let me return it from the political point-scoring of the hon. Member for Ogmore (Huw Irranca-Davies) to the fact that we all support the fundamentals of the report. More specifically, and more importantly, does the report not ram home the point that our constituents should be buying from their local butchers whenever possible, because they offer the greatest possibility of traceability in the food chain?

Roger Williams: The hon. Gentleman is absolutely right. I am tempted to give a long list of local butchers in my constituency, but I will confine the list to butchers in my village. Brian George operates a very fine butcher’s shop, and slaughters the animals in the back. I am told by the Welsh Assembly Government that the hygiene standards there are excellent. I also know that it is possible to walk around other butchers’ shops in my constituency, and to be told “This piece of beef came from a bullock belonging to Mr Price of Llanafan”, or “Mr Jones of Drostre”. After the horsemeat scandal, there was a tendency to use local butchers, but, unfortunately, people now seem to be going back to supermarkets and more processed food.

My father always used to say that he would never eat any meat other than in slices, because then he could see where it came from. Once people started mincing it up,

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he said, there was doubt. That takes me back 30 or 40 years, but it strike me as good advice which some of our retailers could have taken during the horsemeat scandal.

Professor Elliott rightly observed that the main priority should be a “consumers first” approach. That returns me to the point made by my hon. Friend the Member for Redcar (Ian Swales) about the interface between the retailer and the consumer. Given that interface, the retailer should take the responsibility.

Ian Swales: To press my hon. Friend on one of the points I made earlier, does he feel that the legal responsibilities of the retailer are sufficiently strong and that the penalties on the retailer in this case were sufficiently punitive?

Roger Williams: No, my hon. Friend makes a good point, and certainly there was a lack of prosecutions. Where penalties are imposed, they tend to be of a very low order. Some of this large food fraud involves large criminals, probably acting across-country. They get involved because profit from food fraud is equal to that from drug smuggling or human trafficking, yet the chances of being caught are a lot lower, and if they are caught, the penalties are a lot lower as well.

Despite the Government’s having implemented many of the recommendations already, research carried out by Which? that tested 60 takeaway lamb curries and minced kebabs found that 24 of them had been mixed with other meats such as beef and chicken. Worryingly, seven of the samples did not contain any lamb at all. That is particularly worrying to me, given the area I represent and our dependence on the lamb trade. I was very pleased that recently our local authority prosecuted a restaurant that was advertising Welsh lamb, but in which inspectors found nothing but New Zealand lamb. That is obviously a fraud of its own kind—only on a small level, but even at that level, local authorities must take action.

Since the publication of the Elliott report, Which? has conducted another poll through Populus, and it shows that there is still concern among the public. The fieldwork for that research was conducted between 5 and 7 September, and the poll shows that, even after the publication of the Elliott review, over half of people are worried that a food fraud incident will happen again, a third are not confident that the food they buy contains exactly what is stated in the ingredients list, and, a year after the fiasco, nearly a quarter say that in the past 12 months they have changed the type of meat products they buy because they are worried about food fraud.

We welcome the publication of this report. The Government have accepted all the recommendations, but one thing that will give us cause for concern is whether the resources will be available to carry out all the recommendations, and if they are carried out, whether that will be at the expense of other good work that needs to be done in this area. In general, however, I welcome the report and the Government response.

6.32 pm

Jim Fitzpatrick (Poplar and Limehouse) (Lab): I congratulate the hon. Member for Brecon and Radnorshire (Roger Williams) on leading our bid to secure this debate and thank the Backbench Business Committee

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for affording us the opportunity to have it. It is good to see the Minister and the shadow Minister in their places. I think this is the third time in four days that we have been in the Chamber discussing various issues that fall under their brief, and we look forward to hearing their comments in due course.

I am also delighted to see the Chair of the Select Committee, the hon. Member for Thirsk and Malton (Miss McIntosh), in her place. I see that she issued a press release last week, in which she says:

“Many of Professor Elliott’s conclusions echo those made by the Environment Food and Rural Affairs Committee in its two reports on Contamination of Beef Products and Food Contamination.

In particular, both the Committee and Professor Elliott raised concerns about the reduced capacity for testing in the UK and stressed the need for more Public Analysts to undertake such testing. The Government must set out how it intends to deliver this.

We also welcome the creation of a Food Crime Unit which should help to deter criminals from seeking to defraud consumers.”

I know the hon. Lady will speak extensively on those points, and I will return to them in my comments, too. I do not intend to speak for long. I just want to draw on several of the briefings we have all received over recent days, and I will begin with the National Farmers Union briefing.

The NFU makes two very strong points which are worth reading into the record. It says:

“It is important that the costs of any new regulation, or the proposed food crime unit, aren’t pushed on to farmers, who weren’t implicated in the horse meat scandal.”

That is very important, because farmers may very well end up being looked on, sometimes unfairly, by Governments of different colours as the people who should be funding certain things, but this scandal was not of their making and therefore they very strongly defend their position, which is absolutely correct. The NFU goes on to say:

“This highlights the need for short, traceable, supply chains and the importance of food assurance schemes such as ‘Red Tractor’, which ensures high standards and traceability from farm to fork.”

The Minister may well wish to discuss such schemes that provide assurance to consumers that the products they are purchasing are safe.

The Food and Drink Federation is a very respectable organisation that represents very respectable trade bodies that are, however, vulnerable to unscrupulous traders who damage reputations across the industry. As the hon. Member for Brecon and Radnorshire said, the latest polling of consumer confidence demonstrates that the industry’s reputation has been damaged. It is not the reputation of those involved in criminality or unscrupulous trading that has been damaged, but the reputation of the whole industry—the good traders and good producers. The FDF says in the opening paragraph of its briefing:

“The final report of Professor Elliott’s Review into the integrity and assurance of food supply networks…recognises that UK consumers have access to perhaps the safest food in the world. However any supply chain, no matter how simple or complex, can present risks that need to be adequately managed.”

I want to draw quite heavily on the briefing from Which? It is extensive and highlights the eight key pillars identified in the Elliott report. It refers to

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“the National Food Crime Prevention Framework for ensuring the integrity of our food system”

and, of the eight key points, it starts with the “‘consumers first’ approach”, which must be the key priority of any Government. It goes on to talk about zero tolerance and states:

“The Report’s call for the reintroduction of a central register of food law convictions should be acted upon urgently to ensure information is available to consumers to enable them to make an informed choice about the food they buy.”

The briefing also talks about improved intelligence to pre-empt fraud and says:

“We support the creation of an FSA intelligence hub and a ‘safe haven’ to enable industry intelligence to be better shared…The Government should also address the need for mandatory local authority testing and sharing of information in order to identify problems and draw national linkages.”

I would very much like the Minister to address the local authorities issue. We covered it in when we debated puppies last Thursday, when my hon. Friend the Member for Hayes and Harlington (John McDonnell) in particular said it is all very well us all wanting trading standards bodies and local authorities to do a better job, but if local authorities are not resourced, they are not going to be able to do the job we expect them to do. One theme that frequently crops up in the different briefings we have received on food fraud is that the quality of the job the public sector and local authorities are able to do varies across the country. It would be interesting to hear the Minister’s comments on local authority testing and their ability to carry out mandatory testing, and how to make sure best practice is replicated across the country.

Which? goes on to talk about laboratory services and says it

“supports the finding that a more strategic and effective public sector laboratory testing service is necessary.”

It also says that the Government’s

“additional £2 million funding is welcome, but in light of the challenges raised by the Elliott report, a more systematic approach to ensuring future provision is required.”

I would welcome hearing the Minister’s comments on the Which? analysis that the £2 million is very welcome, but is it going to be adequate for the task in hand?

On audits, Which? states:

“The Government should now provide guidance and set minimum standards to help smaller as well as larger players understand the level of action that is appropriate, including the level of testing that is needed. It is also important the FSA leads national investigations and works more closely with local authorities to ensure effective enforcement.”

It then goes on to talk about Government support. It shares the report’s concerns about local authorities’ resources being increasingly stretched. As evidence, it cites a 16.8% drop in food standards interventions and a 6.8% drop in testing the composition of our foods. It states:

“Our research has also found a huge variation in the way that food enforcement is carried out across the UK.”

Will the Minister tell us more about the standard and quality of testing across the different local authorities? On Government support, Which? goes on to state:

“The FSA’s audit process identifies areas of weaknesses within individual local authorities, but now needs to take a more fundamental look at the way local authorities are performing. The Agency must also have sufficient powers to intervene in particularly complex or national cases.”

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On leadership and co-ordination of investigations and prosecutions, the Which? briefing states:

“The report raises questions around the effectiveness of penalties and the limits of the current sanctions to deter criminal activity.”

I shall ask the Minister a question about that in a moment. On crisis management, Which? states:

“The Report notes the need for timely support to the FSA from across government in the event of a serious incident.”

It goes on:

“The Report identifies the need for the Government to urge the FSA to be better prepared for responding to future food incidents.”

In conclusion, I want to make a couple of brief comments and ask a few questions of the Minister. My hon. Friend the Member for Ogmore (Huw Irranca-Davies) pointed out to the hon. Member for Brecon and Radnorshire that the machinery of government changes and the weakening of the FSA in 2010 was criticised by the National Audit Office, which stated that the changes had created confusion and offered “no obvious benefit”. The changes included removing responsibility for food authenticity from the FSA to DEFRA, which was thought to have been part of the problem. Do the Government now accept that that change was a mistake?

Professor Elliott’s report, which was commissioned by the Government, was due in the spring. It is now here, and we would be interested to hear about the delay and about what is believed to have been the softening of the recommendations between the publication of the interim report and the final report. The fact that the Government are accepting all the recommendations is good news, however.

Returning to one of the points raised by the hon. Gentleman, serious criminality has been uncovered but, although investigations are continuing here and in many other countries, there has been only one prosecution for breaching food regulations and a lack of traceability of meat. Huge frustration has been expressed over the lack of accountability. Does the Minister envisage more prosecutions as a result of these recommendations, or does he think that the legal examinations and prosecutions have run their course? Are we drawing a line under that and moving on to change the regulations?

I hope that the Minister will also comment on the eight pillars of the Elliott review. Everyone agrees that food security is too important to be left to chance or to unscrupulous traders. It is up to the Government to act, and I am pleased that they will be acting on the Elliott recommendations. We look forward to those recommendations being implemented, but the fundamental question relating to the ability to act revolves around the adequacy of the funding and resources to enable the appropriate agencies, the new structures and the local authorities—especially trading standards officers—to deliver the improvements that we all want to see.

6.44 pm

Miss Anne McIntosh (Thirsk and Malton) (Con): It is a great pleasure to follow my fellow Committee member, the hon. Member for Poplar and Limehouse (Jim Fitzpatrick). I congratulate him and my hon. Friend the Member for Brecon and Radnorshire (Roger Williams) on their contributions to the debate. Before I begin my speech, I should like to say how sad I was to hear today of the loss of Jim Dobbin. As a microbiologist, he

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played an important role in the health service and in keeping us all safe. He was a particularly delightful colleague, and I had the pleasure of working with him on the European Scrutiny Committee. Our thoughts are with his friends and family at this very sad time.

My Committee met briefly on Thursday to consider the Elliott report. The Minister also gave a good summing up of the report, and I hope that he will now be able to respond to all our questions. I repeat the request I put to him on Thursday to update the House on the labelling and traceability provisions at European level.

There have been two positive and, I hope, long-lasting developments following the aftermath of the horsemeat scandal. One is that buying meat more locally from butchers and local shops has increased incrementally. That is very welcome and I hope that it will be a lasting trend.

David Simpson (Upper Bann) (DUP): I congratulate the hon. Lady on her work on the Committee. I declare an interest in the agri-food sector. Does she agree that, even though it is a good thing to put in all the necessary strategies and traceability mechanisms, if we are going to root out fraud in the food sector—and in any other industry—we need proper deterrents? The perpetrators need to know that they will do time for this. No matter how big a company is, or the reputation that it has had in the past, penalties need to be put in place so that it cannot perpetrate such fraud again. Some people are making millions of pounds out of this.

Miss McIntosh: I thank the hon. Gentleman for his intervention. My hon. Friend the Member for Brecon and Radnorshire has made a similar point. I believe that the new provisions will address this; the use of the criminal law is important. The fact that the City of London fraud police were invited to carry out the examinations was illuminating, in a sense. They are very skilled in tackling business fraud and paper crime. I shall elaborate on that point later.

The second development, which I hope will be long-lasting following the horsemeat scandal, is the emergence of shorter supply chains. A number of hon. Members have already mentioned the comments of the Food and Drink Federation and the testing that has been carried out. We must not forget the cost of that testing. I hope that the Minister will be able to confirm that such testing will be more regular. I welcome the fact that there will be unannounced testing and auditing of food companies. Will he confirm that the testing will take place not only on the basis of risk assessment?

We can see the lengths to which the retailers are now going from the briefings that they are issuing. We must not forget that they were not necessarily in the best place. One supermarket—a leading household name—had not checked the integrity of its supply chain for months, if not years. That simply cannot be allowed to happen again. The Food and Drink Federation has flagged up certain questions for retailers. It has asked them to identify their key raw materials, asking the simple question, “Where do they come from?” It also asks them to assess how resilient their supply chain is, and how they protect their business from food fraud. This shows just how far the food industry has come.

Like other hon. Members, I was approached by Which? magazine in advance of today’s debate. I took the precaution of contacting my local authorities in North

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Yorkshire. I am sure it took them time and probably some expense to go through the recent testing, but I have reams of results from North Yorkshire county council, Hambleton district council, Scarborough borough council and Ryedale district council. I say to

Which?

that it would be helpful to know how extensive its survey was, because such surveys can be alarmist if the message goes out to consumers that our food is in any way unsafe to eat, and we have come on a long journey since the first horsemeat adulteration was found in January 2013. In welcoming this evening’s debate, it is important to accept that the Select Committee has not had the chance to consider collectively the final report and recommendations of Professor Elliott on food security, but it is very welcome that the Secretary of State and the Government have announced that they will accept all the proposals. I am delighted that the two reports on contamination of beef products and on food contamination that the Committee adopted last year form part of this evening’s debate.

Roger Williams: One important part of the report is where Professor Elliott says that he anticipates that the Select Committee on Environment, Food and Rural Affairs and the House of Lords Select Committee on Science and Technology will be keeping a watching brief on how the recommendations are put into place.

Miss McIntosh: Indeed. I wish to record how pleased I am that Professor Elliott has agreed in principle to come to discuss his final report findings with us.

It is a matter of regret that no prosecutions leading to conviction have been brought—one might say that the horse has already bolted.

Mr Jim Cunningham (Coventry South) (Lab): I fully support some of the proposals the hon. Lady has mentioned, and I think there should be criminal prosecutions in this area and more inspections. Have there been any more incidents of horsemeat finding its way into the food chain?

Miss McIntosh: Not to my knowledge, but the Minister will be better placed to answer that. As my hon. Friend the Member for Brecon and Radnorshire said, there have been instances—I believe this was in part of Yorkshire, but, thankfully, not in North Yorkshire—where kebabs and other takeaway foods were found not to have been what they were reported to be; we are talking not about processed food there but about other retail outlets. So we must be ever vigilant and the level of testing must remain high. The point raised earlier is key: consumers must now be at the heart of this process, as Professor Elliott has said and the Government and DEFRA have accepted. However, the second note of regret is that we still do not know at which point the adulteration or contamination, whichever we want to call it—my hon. Friend gave some eloquent definitions—entered into the food chain. This was a multimillion-pound business and, as Professor Elliott concluded, these events crossed 26 out of 28 EU member states, which is why it is so important that we must find out where the adulteration took place. Perhaps we will never know that, but if we do not, how can we say to consumers, in all honesty, that we can prevent it from happening again?

Importantly, Professor Elliott’s interim report identified two weak links—two particularly vulnerable areas—in respect of the horsemeat scandal. The first was slabs of

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cold meat held in cold storage. The second was raw products, and ingredients of processed foods or processed foods, travelling the long distances that we now know they did. I will be honest and say that I have not had chance to go through Professor Elliott’s report line by line, but it is extremely important that the Minister reassures us this evening on the Europol aspect, where there has been wilful criminal acts. It is also important that he reassures us that the rest of Europe has tightened up its act. This is not just about Europol and Interpol. I go to markets regularly in my constituency—I tend not to go to abattoirs—and if someone were to string up a cow carcase and a horse carcase, I would be hard-pressed, ignorant as I am, to tell the difference between them. Professor Elliott did us a great favour by spelling out in his interim report, and repeating in his final report, the two most vulnerable aspects in this country. I do not think that he was being in any way alarmist, so we must not lose sight of the fact that he did say that we are still vulnerable to such adulteration in future. The purpose of the

Which?

report is probably to say that the criminals will move on, and they have moved on from the meat, slab or carcase form—the processed form—to other retail outlets selling kebabs and other takeaways.

The Committee’s report and Professor Elliott’s conclusions show the concerns about the reduced capacity for testing, which has been alluded to by the hon. Member for Poplar and Limehouse. The Committee report stressed the need—we took powerful evidence in the Select Committee—for more public analysts to do the testing. The hon. Gentleman made the point well that it must not be the innocent party—the farmers—who should pay for that. Obviously, the closer to home it is produced and the shorter the supply chain, the more confidence we can have in our food and in our meat. I am a meat eater who represents a large livestock producing —meat producing—area. I want to make sure that we have absolute confidence in the production in this country, and I believe it is second to none.

Professor Elliott’s final recommendations are on the national laboratory service and the drawing together of the nine—I believe it is—public laboratory services. He specifically says that public laboratory services need to be protected, that they are in “a fragile position” and that the review should be seen as

“an opportunity to develop a sustainable national asset.”

A lot can be done through DEFRA, the Food and Environment Research Agency, which is in my constituency, and LGC, a major science service company, to develop these centres of excellence—that would be pleasing indeed. He goes on to say that the Government should:

“Work in partnership with Public Health England and local authorities with their own laboratories to consider…options for an integrated shared scientific service around food standards”.

The Minister must grasp that point and reassure us—whether it is the labs, the food analysts or the police—that they will be given a specific target and resources to do that. It is important that the Government address the potentially reduced capacity for testing arising from the stranglehold on local authority budgets. Will the Minister use his good offices to speak to the relevant Minister in the Department for Communities and Local Government to see whether this money for public testing and public analysts could be ring-fenced? That would put a lot of people’s minds at rest. So we need the national laboratory service and we need to

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ensure that the level of food testing by local authorities remains high. These unannounced audits and tests by the food industry will be a very positive development. Perhaps we need to be reassured again that shorter supply chains are in place and will not be jeopardised in the future.

Briefly, the food crime unit will go to the heart of preventing food adulteration incidents in the future. We need to see real leadership. The fact that the new unit will be placed within the FSA is pleasing. There was some criticism of the FSA in the Pat Troop report and in our own report. It was felt that perhaps the agency needed to co-operate more with local authorities and with other FSAs across the European Union. I hope that the Minister will tell us that that will be a top priority.

The hon. Member for Ogmore (Huw Irranca-Davies) rightly touched on the matter of crisis management. The Government must clarify the roles and responsibilities of the various agencies before another incident occurs—it could be an incident of food safety rather than food adulteration—and ensure that all incidents are regarded as a risk to public health until there is evidence to the contrary. That was in the Troop report in June 2013. Will the Minister assure us tonight that NHS England will make that matter a top priority?

The Secretary of State set out in her written statement that she would like to see the food crime unit set up by the end of the year, which is pleasing. Will the Minister assure the House that the resources will follow the responsibilities and set out who will pay? I was very taken by the two models set out in Professor Elliott’s report. The Danish model was found to be slightly less adequate than the Dutch one, but if we look at the costings on page 138 of the report, we find that they are very high for the Dutch model. The population of Denmark is 5.5 million, and the population of Holland is between 10 million and 11 million Obviously, the costs will increase incrementally; one figure that is mentioned is between £2.8 million and £36 million. Can the Minister explain how those costings have been reached and promise that the money will match the responsibilities? How does he think the money will be raised and who will pay?

Importantly, will the police have the ability to make arrests? Apparently, police in Denmark do not have that power, but they do in Holland. Under the Elliott model, the police will have the powers to swoop and investigate. Presumably, they will then be able to make an arrest. As concerns on that matter have been expressed this evening, it is extremely important that the Minister clarifies whether arrests can be made. Furthermore, will the Minister set up a detailed timetable for implementing the recommendation, confirm that the food crime unit will be in place by December, provide an update on labelling and traceability and tell us whether the police will have the right powers in this regard?

Finally, in November 2012, the Food Safety Authority of Ireland alerted the FSA in England to a potential food adulteration problem, as meat was being sourced from the same suppliers. No testing took place in England until we had the horsemeat adulteration confirmed in January 2013. What reassurance can the Minister give the House tonight that we will not find ourselves in that situation again in a year, two years’ or three years’ time?

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7.4 pm

Mr David Heath (Somerton and Frome) (LD): I congratulate my hon. Friend the Member for Brecon and Radnorshire (Roger Williams) on securing this debate, which is of critical importance to consumers, retailers, producers and everyone involved in the food industry. As I said earlier, I was Minister with responsibility for food when the horsemeat scandal broke, and I have to say that nothing has made me angrier than what was happening then. Not only was a deliberate fraud perpetuated on consumers who deserve better, but that fraud had a serious reputational effect on very good producers in this country who had no part whatever in what had taken place. Retailers who had good reputations were trying to do the right thing but were none the less affected. We must put in place systems that are as effective as they possibly can be to prevent such a thing from happening again.

I am unashamedly a fan of British food and British food producers. We have some superb production in this country, and we should be proud not only of the quality of the food we produce but of the standards that we maintain day to day, week to week and year on year. We should deal to the best of our abilities with anything that sullies that reputation.

Huw Irranca-Davies: I thank the hon. Gentleman and former Minister for giving way. He has great experience and knowledge of this area. One of the great things about Professor Elliott is the great emphasis he places on this safe haven of intelligence coming forward and on a strengthening of the powers around whistleblowing. When the scandal was kicking off, it astonished me that people were then coming forward and whistleblowing. Elliott is right to say that there is a cultural change in the industry. There are lots of good players out there, but there needs to be a cultural mindset change to encourage people to come forward.

Mr Heath: The hon. Gentleman is absolutely right. One of the earliest actions I took as a Minister was to convene a meeting—I remember it happening—at the Food Standards Agency with all the major retailers. I made it plain to them that they had a very real problem to deal with, and that that problem was not going to be resolved unless they were prepared to do the work that was necessary in terms of testing and of sharing information, which were not part of the culture of the industry at that point. I said that unless they were prepared to do that, it was impossible for the Government to take the steps that would help to restore the reputation of the food industry.

Jim Fitzpatrick: Let me reinforce the point that the hon. Gentleman is making. Every food retailer was affected by the scandal. Nobody was left untouched. The most diligent retailer was also being conned by unscrupulous dealers somewhere down the chain. Did the hon. Gentleman get a sense that they were going to invest more in their own testing, or were they looking to Government for that investment? What was the balance there?

Mr Heath: We made it clear that testing was the retailers’ responsibility. Retailers had not only a legal responsibility but a moral responsibility to their consumers to ensure that the material they put on their shelves was what they said it was. They were put in no doubt

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whatever that they had to up their game, and they did, and all credit to them. I have no criticism of the actions that the retailers took to meet the demands that we placed on them for this very comprehensive testing regime, which took place not just once but time after time to ensure that the incidents that had been identified had been eliminated and remained eliminated. I have one caveat, which the Minister may wish to address: I did not feel that I had the same level of commitment from the catering industry. I am worried that as a lot of food arrives unlabelled on tables across the country through the catering industry, that might perhaps still be a weak spot. I would like to think that continuing pressure will be placed on the catering industry to be as assiduous as I hope the retailers now are about composition, testing and ensuring the integrity of their systems.

Zac Goldsmith (Richmond Park) (Con): I enjoyed my hon. Friend’s tribute to British food earlier, to which I completely subscribe. Does he share my hope that we will do everything we can to maintain the high standards of British food as progress is made in the transatlantic trade and investment partnership? As negotiations continue, there is tremendous pressure from US agribusiness to try to weaken our resolve to avoid unlabelled GM food, beef treated with hormones and poultry meat that has been contaminated with chlorine, and we should do everything we can to resist that pressure and to maintain the standards that he has just praised, which I totally support.

Mr Heath: I see no reason to compromise on high standards of quality. There are areas that I think we can quite properly discuss with the United States in which the answer is labelling and letting consumers make the choice rather than simply having bans. Some of the areas the hon. Gentleman mentions fall into that category; others do not. I have no interest in hormone treatments being used in this country and think that it would be a very great shame if that were standard practice in our dairy herds. We have been down that road before; I remember having exactly that conversation 30 years ago when I was leader of the county council and American Pharmaceuticals proposed to bring in bovine somatotropin to increase yield in our dairy herds. As a Somerset representative, I would say that we simply do not want that. It will be bad for our cattle and for their welfare and it will also be bad for the industry as regards consumer acceptance of a very wholesome product. I have a lot of sympathy with what the hon. Gentleman says.

David Simpson: I neglected to apologise for my late arrival when I intervened earlier, so if I was repetitive I apologise. A number of the complaints I received in my constituency from commercial companies concerned the fact that although we welcome an open border policy for free trade within the European Union, it has its downside as regards free movement, and there were not the border checks that there should have been. There is paperwork, and we can do many things with that, but there are not the necessary physical checks. I am sure that the hon. Gentleman heard that complaint when he was a Minister.