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Earl Russell: My Lords, I am grateful to the noble and learned Lord for what he said about the European Court of Justice. That was extremely helpful and clarified a great deal. I am grateful to him also for his offer of a meeting. However, what is really needed here is better communication between the Executive and the judiciary.

I will be extremely glad of a meeting if there is a prospect of any change in the clause. However, I doubt that there will be between now and Third Reading. If we can arrange a much wider round table discussion to help to improve communications between Ministers and judges roughly along the lines recently suggested by the noble and learned Lord, Lord Ackner, that would be very helpful. Were such a thing possible, I would be extremely proud to participate in it.

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The noble and learned Lord referred to the law being "re-interpreted". That is absolutely correct. But it is not the same as the law being changed. If the law is re-interpreted, it means that previously it was incorrectly perceived. Obviously, there must be protection for what happens when cases are re-opened after a long time. But I ask again the question I asked before: which is more in need of protection, the claimant to a means-tested benefit or the public purse? I admit that a balance must be struck, but it is not self-evident that as a general matter of principle the public purse is always entitled to the greater protection.

In relation to the earlier point of peerages in abeyance, I look forward to the noble and learned Lord's letter. My recollection is that a peerage which had been in abeyance since 1497 was revived by the Committee of Privileges in this House in the recent past. That is, to be precise, 501 years. That was the reason for the choice of 500 years; it was not simply a figure of speech.

It is possible, when we read the noble and learned Lord's report, that it turns out, as prudent rulings do, to contain the word, "normally". That is merely a hypothesis, but it seems to me to meet all the known evidence.

The disagreement between us about the nature of "entitlement" remains wide and deep. I thank the noble and learned Lord for the care he has taken in attempting to answer the questions. He attempted to take them seriously and has done his level best to narrow the gap between us as much as possible. There remains an underlying difference. It is not the kind of issue which, if we can possibly avoid it, we should resolve in the Division Lobbies. As with so many other issues, there is a culture clash and those are best resolved by interpretation. With that principle in mind, I withdraw my opposition to this clause standing part of the Bill, and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 50 [Payments treated as remuneration and earnings]:

Lord Haskel moved Amendment No. 36:

Page 35, line 19, at end insert--
("(1A) After subsection (5) of that section there shall be inserted the following subsection--
"(6) For the purposes of section 3 above regulations may make provision for treating as remuneration derived from an earner's employment any amount on which the earner is, by virtue of any provision of sections 140A to 140H of the 1988 Act, chargeable to income tax under Schedule E in respect of an acquisition of shares or an interest in shares." ").

The noble Lord said: My Lords, in moving Amendment No. 36 I shall speak also to Amendments Nos. 37, 38, 110 and 111.

At Committee stage in this House, we said that we intended to introduce amendments at Report to change the national insurance treatment of employee-acquired shares which are subject to risk of forfeiture or conversion. These measures are needed to keep national insurance in step with income tax changes announced in another place by my right honourable friend the Chancellor of the Exchequer in his Budget. These

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changes affect a small number of payments made in the form of shares outside Inland Revenue approved employee share schemes.

When we debated this matter during Report on 2nd April, the noble Lord, Lord Higgins, raised the matter of Commons' privilege. He also raised it earlier today. My noble friend Lady Hollis, when responding to Amendment No. 1, replied to that point and it is not therefore necessary for me to repeat the arguments. Perhaps I can move straight to the amendments.

The amendments deal with the national insurance treatment of non-approved schemes involving restricted shares and convertible shares which are not able to be used in Inland Revenue approved schemes. I will not detain the House with a detailed account of those schemes, though I shall be happy to say more if noble Lords find that helpful.

The Finance Bill inserts new Sections 140A to 140H into the Income and Corporation Taxes Act 1988. Those sections change the income tax treatment of shares carrying a risk of forfeiture and of convertible shares. The inserts will help businesses by giving them legislative certainty about the tax position. Similar changes are needed so that business will also have legislative certainty for national insurance purposes. The amendments do precisely that.

The new amendments to mirror those Budget income tax changes are placed in Clause 50 because they also require an amendment to Section 4 of the Social Security Contributions and Benefits Act 1992 which treats certain kinds of payments as earnings for national insurance. Amendment No. 36 provides for regulations to match the income tax changes. There will be a direct read across to the relevant tax provisions when they are introduced. Amendment No. 37 is a minor change which simply provides greater clarity by inserting the full title of the Income and Corporation Taxes Act 1988. Amendment No. 38 provides that the regulations made under Clause 50 shall come into effect after the passing of the Finance Act 1998, but will have effect in relation to this type of share acquired on or after 6th April.

We intend to use the regulations to provide for liability in respect of shares acquired on or after the date that the amendment was introduced; that is, 9th April 1998. This is important because it will enable business to apply the same regime for tax and national insurance as early as possible. Amendments Nos. 110 and 111 amend Clause 84 so that this measure comes into force following Royal Assent.

We believe that these arrangements provide the most practical way to mirror in national insurance legislation the income tax changes in the Finance Bill. They will ensure that business is not faced with the burden of administering two different sets of rules over an extended period. I beg to move.

Lord Higgins: My Lords, as the noble Lord pointed out, in Committee and again earlier today we raised the question of the relationship between the two Houses. I do not wish to pursue that point in any detail now; it arises more appropriately on some of the later amendments.

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These amendments relate to a fairly narrow and technical point, as I understand it. It is essentially an anti-avoidance measure on the part of the Treasury and when that is debated in another place it will no doubt be duly considered. As the noble Lord rightly pointed out, the measure brings into line with the tax changes the changes in relation to social security provisions.

What gives me more concern is that the distinction between a national insurance contribution and a tax has now disappeared effectively to vanishing point. The contributions are now to be transferred to the Inland Revenue, so they come under its province rather than otherwise. In addition, for the first time the Government are fundamentally undermining the contribution principle which has been the main reason for maintaining the distinction between taxation, pure and simple, and national insurance contributions in the past.

People will now be allowed to have the benefit of social security payments without, in some cases, having contributed. The contributory principle is therefore being undermined. This is a fundamental matter. There will be no distinction at all between tax and national insurance contributions. I am not clear why the Government are timing it in this way. The timing is somewhat strange. Indeed, the Government's own brief accepts that it is unusual. Effectively, the change is backdated on the one hand and delayed in implementation on the other.

The amendments suggest that the provision will come into operation only when the Finance Bill receives Royal Assent. It is highly unlikely that the Finance Bill will not receive Royal Assent. I presume that what is intended is that the provision will come into operation only if this set of tax clauses come into operation. Otherwise we will be landed with the situation whereby the social security benefits side is implemented but the tax side is not. That would be an absurdity.

Having said that, what the amendments together with the proposals in the Finance Bill do is to remove the income tax charge when the shares are given to someone and impose it when, for want of a better expression, they are cashed in. As has rightly been pointed out, that means that a possible way of avoiding taxation is prevented. I make no complaint about that. However, it brings out another point. This is said to be a national insurance contribution, but the charges that will be imposed as a result of the amendments impose a contribution on people for which they will get absolutely nothing. The fact that they are paying the contribution will in no way entitle them to any increased benefits. That brings through once again my fundamental point that national insurance contributions are now pure and simply a tax.

I do not want to delay the House, but I wish to raise one point which was made by the noble Baroness in her opening remarks this afternoon. She said that it would not be possible to make any of these changes with regard to national insurance contributions in the Finance Bill. If it is now the case, as I believe it is, that national insurance contributions are a tax, I am not clear what the basis is for the noble Baroness's assertion that this could not be done in the Finance Bill. All the horrible

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problems of timing which the amendments now present in terms of the implementation being delayed but when they are finally implemented being backdated, which is a strange situation to envisage, would be overcome if the whole matter could be tied up in the Finance Bill. As I understand the position, the Bill is not to receive a Second Reading until tomorrow, so there is time for the matter to be sorted out. Having said that, I understand why the Government are proceeding as they are with the basic decision on taxation. In due course it will no doubt be considered in another place.

8 p.m.

Lord Goodhart: My Lords, I agree with the noble Lord, Lord Higgins, that the distinction between tax and national insurance contributions has now for all practical purposes been eliminated. I may have more to say about that when the Report stage resumes on Thursday, but I do not propose to deal with it now.

These amendments are directed to stopping an extremely artificial tax avoidance scheme which will enable companies to provide benefits to a small number of "fat cat" employees without having to pay employers' national insurance contributions. It will not affect employees' national insurance contributions because anyone who benefits from the scheme will be earning more than the upper earnings limit anyway. The companies which make use of this scheme will, as a result, be throwing a greater burden on other contributors and other taxpayers. I therefore give completely wholehearted support to this group of amendments.

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