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Lord Higgins: If I understand the position correctly, there are to be more clauses about the issue in the next Finance Bill. If this clause goes through, they will have the power to alter anything in Clause 70 which we are debating this evening.

Lord McIntosh of Haringey: If there are clauses which deal with the National Insurance Fund, they will have to be dealt with by other primary legislation than the Finance Bill. It is the convention of Parliament that they should not be in the Finance Bill.

The noble Lord, Lord Higgins, went on to criticise the lack of consultation, but he gave evidence of the degree to which there has been a huge amount of consultation and publicity and, as the noble Lord, Lord Goodhart, said, a huge amount of lobbying. The consultation has been extremely serious. I shall gladly write to the noble Lord about its details and not weary the Committee with it now. I undertake that the consultation will be fully published well in advance of the Report stage. We will report to noble Lords and the public about the issues raised in the consultation process.

Lord Higgins: If the noble Lord will allow me to intervene, we will come to it on a starred amendment concerned with Clause 70(9) on page 77 of the Bill. The subsection states:

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It seems that the point the noble Lord was making earlier is not valid. If I understand it correctly, it would be possible in the next Finance Bill to alter the clauses in this Bill.

Lord McIntosh of Haringey: No, there is a distinction between what goes into a Finance Bill and what is dealt with by the Treasury. The matter is being dealt with by the Treasury now in a non-Finance Bill which is being discussed in full by your Lordships' House. The Treasury is involved in all kinds of legislation other than Finance Bills. I can assure the noble Lord that I have not been at the Dispatch Box answering for the Treasury for the past two years only on issues of the taxation which goes into the Consolidated Fund. That is not the distinction. The distinction is whether it goes into the Consolidated Fund or, as in this case, the National Insurance Fund.

The issue of the control test raised by the noble Lord, Lord Higgins, is far more serious. It was also mentioned by the noble Lords, Lord Jenkin and Lord Goodhart, and in a specific case by the noble Lord, Lord Campbell of Croy. In seeking to have a control test, we attempt to do two things: first to simplify the complex case law which exists as between Schedule D and Schedule E; and, secondly, to put the responsibility for making a decision on the client, in other words the putative employer rather than on the individual himself or herself. Although the control test worked perfectly well in the market research business, I recognise that there are cases--the noble Lord, Lord Jenkin read out one--where it may not work so well. I shall not attempt to engage with him as to the way in which orchestras work. He and I are both patrons of the New London Orchestra which is a scratch orchestra. It raises exactly the kind of case to which he referred.

Nevertheless, there is no doubt that the issue of whether we can impose this obligation on the client and force the client to make the deductions from the worker is important in the consultation, and it will be taken account of in our response to the consultation.

Then there is the issue in the consultation about the certification system for agencies. The legislation proposes that the certification system should be voluntary; nevertheless, that is an issue which has gained currency in the consultation and we shall have to respond. We shall do so before the Report stage.

Rebadging has also been referred to, with employees leaving on a Friday and coming back as consultants the following Monday. That happens in the public sector as well as in private industry. The issue has been raised in consultation and we shall have to address it in our response. Your Lordships will have to know about it before we come back to the issue on Report.

There are many important issues, particularly those identified by the noble Lord, Lord Goodhart, on which we have a great responsibility to respond to consultation and to report that response to the House before we come back on Report. I am not making any promises, but there may be modifications to Clause 70 as a result. However, we shall not retreat from the position that the intervening service company is an abuse of tax and

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national insurance legislation. We have to find some way of dealing with that. That is the point of the clause and that is our sticking point.

Lord Jenkin of Roding: Before the Minister sits down, I quoted from an Inland Revenue document on the case about the vets. The document makes it clear that the Government are not going to attempt to ban the intermediate personal services company. How does that square with what the Minister has just said?

Lord McIntosh of Haringey: There have always been personal services companies. The question is whether the company is inviting an abuse of the tax and national insurance system. Reading from a press statement, the noble Lord, Lord Campbell of Croy, said that 60,000 small businesses were at risk. That is not the case. There are many thousands of genuine one-person companies--maybe the plumber of the noble Lord, Lord Higgins, is one of them--that have a large number of clients and need the protection of limited liability status. They will not be threatened. Our target is the intervening company that is set up to avoid tax and national insurance.

Lord Campbell of Croy: I was saying that the press were reporting that the Government had admitted that 60,000 small businesses would go out of business. I am glad that the Minister has said that that was incorrect.

Lord McIntosh of Haringey: It is indeed incorrect.

Lord Higgins: The Minister has suggested that there should be extensive consultation between now and Report stage. We welcome that because we have been inundated with representations from many interested parties. As the noble Lord, Lord Goodhart, rightly stressed, they were from highly reputable bodies with no individual interest in the issue. They are simply concerned about the repercussions of the Government's proposals.

It is all very well to hold consultations at this stage. That should clearly have happened some time ago. In the light of what the Minister said, I shall not press the amendment, although I should like him to clarify his objection to Amendment No. 137, which, as the noble Lord, Lord Goodhart, and I have pointed out, would seem to get over the dangers created by introducing a new and different definition of an employee. Experience and case law suggest that the definition is not adequate. It would be helpful in trying to reach a better conclusion if the Minister could make clear the Government's attitude to the amendment.

Lord McIntosh of Haringey: The noble Lord did not speak to his amendment in his original speech and that is why I did not reply to it. The record will show whether I am right or wrong. If the client controls how the task is to be undertaken or how it is to be completed, he would be considered to be liable to pay national insurance contributions on the worker's earnings; that is the way the clause is drafted. If the worker is engaged for a specific task and has complete freedom as to how

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it is to be completed, the clause would not be applicable. Our thinking is that a simple one element test would provide certainty and ease of operation for both parties and that is what is now in question as a result of the consultation process.

I heard what the noble Lord said, I have taken into account all of the considerations that have been raised in this debate and it is on that basis, rather than a specific critique of either this amendment or of Amendment No. 141B in the name of the noble Lord, Lord Goodhart, that I invite your Lordships to await the response which I have undertaken to make.

Lord Goodhart: As it is obvious that if there is a direct contract between the client and the worker, the existing test of whether it is self-employment or employment will apply, what is the justification for applying a different test simply because of the existence of the intermediate company? Would it not be simpler just to ignore the intermediate company and apply the same test to both workers?

Lord McIntosh of Haringey: The noble Lord answered that himself in his earlier speech when he said that there is not a single existing test as between Schedule D and Schedule E. The point is that it is a multi-dimensional test. Control is certainly one of the issues but, as he said, others might be whether there is a degree of risk or whether the worker is using his own tools. I do not welcome the idea of going back to the old Schedule D/Schedule E tests because I prefer simplicity as the officials of the noble Lord, Lord Jenkin, preferred simplicity, but if it cannot be done, then it cannot be done.

Lord Jenkin of Roding: The Minister insists in dealing with this case as between one client and one worker. That is what the whole focus of the clause and indeed of the Minister's speech has been. Can he give us an undertaking that, in the course of his consultations, he will have regard to the nature of the independent contractors' total activity because it is that which makes the person self-employed and, even though he may be working for one client at a time because of the nature of the work that he does, in fact, over a period of a year, he may have several clients. It seems to me that you have to take account of that in determining the relationship between the worker and any particular client.

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