National Insurance Contributions Bill
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Lord Newby
“Secondary Class 1 contributions: apprentices under 25Zero-rate secondary Class 1 contributions for apprentices under 25
(1) SSCBA 1992 is amended as follows.
(2) In section 9 (calculation of secondary Class 1 contributions), in subsection (1A), after paragraph (a) insert—
“(aa) if section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to the earnings, 0%;”.(3) In section 9A (the age-related secondary percentage), after subsection (1) insert—
“(1A) But this section does not apply to those earnings so far as section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to them.”
(4) After section 9A insert—
“9B Zero-rate secondary Class 1 contributions for certain apprentices
(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above, this section applies to the earnings paid in the tax week, in respect of the employment in question, if the earner is a relevant apprentice in relation to that employment.
(2) An earner is a “relevant apprentice”, in relation to an employment, if the earner—
(a) is aged under 25, and(b) is employed, in the employment, as an apprentice.(3) For the purposes of this Act a person is still to be regarded as being liable to pay a secondary Class 1 contribution even if the amount of the contribution is £0 because this section applies to the earnings in question.
(4) The Treasury may by regulations provide that, in relation to relevant apprentices, there is to be for every tax year an upper secondary threshold for secondary Class 1 contributions.
That threshold is to be the amount specified for that year by regulations made by the Treasury.(5) Subsections (4) and (5) of section 5 above (which confer power to prescribe an equivalent of a secondary threshold in relation to earners paid otherwise than weekly), and subsection (6) of that section as it applies for the purposes of those subsections, apply for the purposes of an upper secondary threshold in relation to relevant apprentices as they apply for the purposes of a secondary threshold.
(6) Subsection (7) applies if—
(a) a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above,(b) the earnings paid in the tax week, in respect of the employment in question, exceed the current upper secondary threshold (or the prescribed equivalent) in relation to relevant apprentices, and(c) the earner is a relevant apprentice in relation to the employment.(7) This section does not apply to those earnings so far as they exceed that threshold (or the prescribed equivalent) (“the excess earnings”) and, accordingly, for the purposes of section 9(1) above the relevant percentage in respect of the excess earnings is the secondary percentage.
(8) But the Treasury may by regulations modify the effect of subsection (7) in a case in which the earner falls within an age group specified in column 1 of the table in section 9A(3) above.
(9) In subsection (2)(b) “apprentice” has such meaning as the Treasury may prescribe.
(10) The Treasury may by regulations amend subsection (2)(a) so as to alter the age that an earner must be in order to be a relevant apprentice (and regulations under this subsection may have the effect of allowing anyone who is of an age at which secondary Class 1 contributions are payable to be a relevant apprentice).”
(5) In section 176(1)(a) (regulations subject to affirmative procedure), after “section 9A(7);” insert—
“section 9B(4), (8) or (10);”.
(6) SSCB(NI)A 1992 is amended as follows.
(7) In section 9 (calculation of secondary Class 1 contributions), in subsection (1A), after paragraph (a) insert—
“(aa) if section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to the earnings, 0%;”.(8) In section 9A (the age-related secondary percentage), after subsection (1) insert—
“(1A) But this section does not apply to those earnings so far as section 9B below (zero-rate secondary Class 1 contributions for certain apprentices) applies to them.”
(9) After section 9A insert—
“9B Zero-rate secondary Class 1 contributions for certain apprentices
(1) Where a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above, this section applies to the earnings paid in the tax week, in respect of the employment in question, if the earner is a relevant apprentice in relation to that employment.
(2) An earner is a “relevant apprentice”, in relation to an employment, if the earner—
(a) is aged under 25, and(b) is employed, in the employment, as an apprentice.(3) For the purposes of this Act a person is still to be regarded as being liable to pay a secondary Class 1 contribution even if the amount of the contribution is £0 because this section applies to the earnings in question.
(4) The Treasury may by regulations provide that, in relation to relevant apprentices, there is to be for every tax year an upper secondary threshold for secondary Class 1 contributions.
That threshold is to be the amount specified for that year by regulations made by the Treasury.(5) Subsections (4) and (5) of section 5 above (which confer power to prescribe an equivalent of a secondary threshold in relation to earners paid otherwise than weekly), and subsection (6) of that section as it applies for the purposes of those subsections, apply for the purposes of an upper secondary threshold in relation to relevant apprentices as they apply for the purposes of a secondary threshold.
(6) Subsection (7) applies if—
(a) a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) above,(b) the earnings paid in the tax week, in respect of the employment in question, exceed the current upper secondary threshold (or the prescribed equivalent) in relation to relevant apprentices, and(c) the earner is a relevant apprentice in relation to the employment.(7) This section does not apply to those earnings so far as they exceed that threshold (or the prescribed equivalent) (“the excess earnings”) and, accordingly, for the purposes of section 9(1) above the relevant percentage in respect of the excess earnings is the secondary percentage.
(8) But the Treasury may by regulations modify the effect of subsection (7) in a case in which the earner falls within an age group specified in column 1 of the table in section 9A(3) above.
(9) In subsection (2)(b) “apprentice” has such meaning as the Treasury may prescribe.
(10) The Treasury may by regulations amend subsection (2)(a) so as to alter the age that an earner must be in order to be a relevant apprentice (and regulations under this subsection may have the effect of allowing anyone who is of an age at which secondary Class 1 contributions are payable to be a relevant apprentice).”
(10) In section 172(11A) (regulations subject to affirmative procedure), after “9A(7),” insert “section 9B(4), (8) or (10),”.
(11) The amendments made by this section come into force—
(a) for the purposes of making regulations under section 9B of SSCBA 1992 or section 9B of SSCB(NI)A 1992, at the end of the period of 2 months beginning with the day on which this Act is passed, and(b) for remaining purposes, on 6 April 2016.”
Lord Newby (LD)
My Lords, in Committee, I outlined the Government’s intention to table an amendment to give effect to the important initiative regarding apprentices announced by the Chancellor of the Exchequer in his Autumn Statement on 3 December. I now move this amendment to the Bill. As noble Lords will be aware, the Chancellor announced that the Government will abolish employer class 1 national insurance contributions for apprentices under the age of 25 from April 2016. This builds on the removal of employer class 1 national insurance contributions for all under-21 year-olds from April 2015.
Amendments to Section 9 and new Section 9B of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992 give effect to the Government’s intention to abolish employer class 1 NICs for apprentices under the age of 25 from April 2016 by introducing a zero rate of secondary class 1 NICs for employers of apprentices under the age of 25 on the earnings of those employees. The zero rate will apply to earnings below the upper earnings limit.
As the Chancellor made clear, apprenticeships are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. Under this Government, employment is at its highest ever level while unemployment is now lower than when they came into power. However, there is still more to do. The Government will provide a zero rate of employer’s class 1 NICs on the earnings of apprentices under the age of 25 from 6 April 2016. The measure will apply both to new and existing apprentices aged under 25 and is not time-limited.
The first main feature of the new clause is that there is a regulation-making power to define “apprentice”. There are existing statutory definitions relating to apprenticeships. For example, in England and Wales, the Apprenticeships, Skills, Children and Learning Act 2009 introduces the concept of an “apprenticeship agreement”, which is defined in part with reference to an apprentice. Because education and training is a devolved matter, and not all apprentices are employed under apprenticeship agreements, we will need to look at the approaches taken towards apprenticeships in the different devolved Administrations. The power will allow time to discuss the definition with stakeholders such as the Skills Funding Agency and its devolved equivalents. The power will also enable us to respond simply to changing statutory definitions and requirements in the future.
Secondly, there are regulation-making powers to vary the age group to which the zero rate of secondary class 1 NICs for apprentices applies. For example, the Government could in the future allow for an increase in the age bracket of apprentices falling into the zero rate band of secondary class 1 NICs. Thirdly, there is a regulation-making power to ensure that the benefit of the zero rate of secondary class 1 NICs for apprentices can be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means to introduce an upper secondary threshold for apprentices in the same way as we are doing for under-21 year-olds. This threshold will be set at the level of the upper earnings limit in the 2016-17 tax year.
The Government believe that this measure, alongside other initiatives on apprenticeships and the abolition of employer’s NICs for under-21s from April 2015, will help to address the problem of youth unemployment in the UK. I beg to move.
Lord Davies of Oldham (Lab)
My Lords, I begin with an expression of gratitude to the Minister. As he indicated in his speech, he was kind enough in Committee to indicate the thrust of amendments that would be tabled on Report. He duly fulfilled that promise. Therefore, when I received his letter dated 22 December—I give the House the opportunity to imagine just when I settled down to read this letter—it did not cause quite the degree of consternation that the Minister might have thought. It was not an unfortunate Christmas present but merely confirmed that the Government were in fact carrying out their intentions with regard to the Bill. Therefore, I thank him for his letter, timely as it was.
As we indicated at Second Reading and in Committee, we are supportive of the broad intent of the Bill and the form of the NICs position. We welcome the particular amendment, but nevertheless have some anxieties which I hope the Minister will assuage. What will be the level of scrutiny to ensure that this change to the NICs position in order to encourage apprenticeships does not result in a rerun in apprenticeships of some of the aspects we have seen of the Government’s obvious enormous delight in the number of self-employed people?
We are all too well aware that the increase in self-employment conceals in many respects great difficulty for people who cannot get work in any other way, so they engage in the most risky process of advancing and safeguarding their lifestyle. What reassurances can the Minister give that this extension of the reduction in national insurance contributions will not lead to unscrupulous employers using this strategy in order to reduce the taxation that ought to be paid?
The Minister must know that there are certain areas where self-employment is very significant. We should mention in particular the construction industry. All of us in the House recognise that that industry has particular patterns of labour engagement—that goes without saying. Nevertheless, we also know that evasion can be carried out with regard to taxation in this respect. The noble Lord must appreciate that the addition which this legislation presents as regards the under-25s, for example, might lead to difficulties.
The Government are passing this Bill without a clear definition of “apprenticeship”; they say that they are working on it. In due course a definition will be introduced in legislation which the Government say will meet the requirements. It is to be subject to secondary legislation at a date that is certainly some way in the future. Given that the Government are emphasising the importance of apprenticeships in this Bill, we would have hoped that the Minister would have got some way towards defining the term.
I can give him some illustrations of what a proper definition of apprenticeship might look like. It might indicate that the apprenticeship should normally last for two or three years at the least. It might indicate that apprentices should be new entrants to the area of work rather than existing employees. The fact that the Government have made no real attempt during the passage of the Bill to address these issues means that we fear that what they will do with it, if they have the chance, will reflect their present activities; namely, that a great number of apprenticeships involve merely rebranding workers who are already at a place of work and calling them apprentices without identifying what the skills acquisition and development actually involves.
Lord Newby
My Lords, I am glad the Labour Party intends to address this when it forms the next Administration—if it ever does—but it would have done better to have addressed it when it formed the last.
As far as evasion is concerned, there is no evidence that employers will seek to use this measure to, for example, claim that a large number—or any number—of their staff are apprentices who are not actually apprentices. They will be required to meet the conditions of the regulations. The regulations that we are setting out in secondary legislation will include, at the least, an accredited form of training—for example by the Skills Funding Agency or its devolved equivalents. Employers will need to be able to confirm to HMRC that the employee in question is indeed an apprentice. The conditions will be designed in such a way that it will be easy for employers to provide verification if asked by HMRC on a routine compliance visit. The bull point is that there is no evidence whatever, circumstantial or otherwise, that employers either have been or will seek to use this relief, or existing funding schemes for apprentices, to get an unfair benefit.
The noble Lord asked about definitions and why we have not included a definition of apprenticeships in the Bill. As I said, there is a definition of “apprentice” in the 2009 Act, which is the starting point for the definition that we propose to put into secondary legislation. We have to consult with and seek the agreement of the devolved Administrations, which will take a little time. There is also an advantage in having an ability to amend the definition, which is obviously easier to do in secondary legislation, rather than in having a very detailed definition in the Bill.
We obviously share the noble Lord’s concern that the quality of apprentices and apprenticeships should be as high as possible, and we have worked very hard to ensure that. The principal way that we have been doing it is through supporting so-called Trailblazers, which are employer-led apprenticeship standards and assessment approaches. More than 1,000 employers, in more than 75 sectors, have been involved in those; 73 standards have been approved and published and more than 75 new standards are in development. These cover a wide range of sectors, from fashion to nuclear, law, banking and the Armed Forces.
The first apprenticeship starts under the new, improved standards began in September last year and the programme will continue. Our aim is that from 2017-18, all apprenticeship starts will be on the new standards. I hope that that will go some way to reassure the noble Lord that we are as concerned as he is to drive up the quality of apprenticeships so that young people—or indeed people of any age—taking part in them will get something of real value to themselves and to the economy more generally. I hope that I have been able to answer the noble Lord’s questions.
Lord Newby
“(5A) A statutory instrument containing (with or without other provision) regulations under this section that amend or repeal a provision of an Act may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
Lord Newby
My Lords, as I mentioned in Grand Committee on Monday 15 December, the Government are bringing forward four minor technical amendments to Clause 2 and Schedule 1, which deal with simplifying the collection of class 2 NICs payable by the self-employed.
Amendments 2 and 3 are the Government’s response to the report of the Delegated Powers and Regulatory Reform Committee on the delegated powers contained in the Bill, which was published on 27 November. The report drew to the attention of the House the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. This power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee said that in its view the justification given in HMRC’s delegated powers memorandum was not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and recommended that in this instance the power should be subject to the affirmative procedure. I can confirm that the Government have considered and acted on the report of the Delegated Powers Committee. Amendment 2 provides that regulations made under Clause 2 which amend or repeal primary legislation are to be subject to the affirmative procedure. Amendment 3 provides that the negative procedure will continue to apply to any use of the power set out in Clause 2 where a statutory instrument does not contain any regulations modifying primary legislation.
Amendments 4 and 5 are minor and technical amendments that the Government intend should be made to the draft legislation in the Bill that deals with simplifying the collection of class 2 NICs payable by the self-employed. Amendment 4 amends Schedule 1 to the Bill, which inserts new Section 11A into the Social Security Contributions and Benefits Act 1992. This is being made to ensure that the relevant self-assessment—SA—penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subject to two different regimes, but this particular penalty was unintentionally omitted. Amendment 5 makes a corresponding amendment to the Social Security Contributions and Benefits (Northern Ireland) Act 1992. I hope that noble Lords will feel able to support these minor amendments.
Lord Davies of Oldham
My Lords, I have not the slightest difficulty in commenting favourably on technical Amendments 3, 4 and 5, which of course I understand the necessity for. I am glad the Government have brought them forward. Nor am I against Amendment 2—far from it, I am very much in favour of Amendment 2.
I merely draw to the attention of the House the very credible work of our colleagues in the Delegated Powers and Regulatory Reform Committee, which drew this issue to the attention of the Government in a way that gave them just sufficient time before Christmas to get their act together and indicate that they were going to table amendments on Report to give effect to the committee’s recommendation, which is to ensure that such a significant part of the legislation should be subject to the affirmative procedure and therefore much closer and more effective scrutiny in Parliament than the negative procedure. I am very much in favour of Amendment 2 and I congratulate our colleagues. I am sure the whole House is very appreciative of the work that is done by the committee. Once again it has done something that the House can take great pleasure in approving.
Lord Newby
Lord Newby
“( ) Schedule 24 to the Finance Act 2007 (penalties for errors);”
Company, Limited Liability Partnership and Business (Names and Trading Disclosures) Regulations 2014
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Lord Newby (LD)
My Lords, I apologise, as I cannot match the opposition Chief Whip as regards festive footwear. I join him and the Chief Whip, echoing their words of thanks to the staff. They provide us with a first-rate service, and we do not always get the time to acknowledge that or to thank them properly.
A familiar name to very many Members of this House is Maureen Buck, who retired from the Finance Department earlier in the year after serving the House for just over a decade. Many Peers will have spoken to her over the years, in particular during the period of change in the finance scheme, which I know caused many Peers considerable concern. One member of staff described her as a lioness, and said that she was always firm but fair—ideal qualities for anyone serving in any finance department. I hope that she is enjoying her retirement and has had time to go on at least one of the cruises that she loves to take.
Malcolm Clayton, who retired at the end of September, joined the House after a long career in the Civil Service and was part of the internal audit team. During his time here he made a strong contribution to the unit and, in particular, undertook several useful reviews, including one on voting and Divisions in this House, for which all Whips were particularly grateful. I trust that he is enjoying his retirement in the New Forest.
Mike Thomas retired in March this year after six years as legal adviser to the Select Committee on the European Union. He had a long legal career, joining the Government Legal Service in 1980. During his time he worked for many government departments before joining the House of Lords. I understand that he is already enjoying his retirement with his wife.
Last but not least is Alan Neenan, who retires today. Alan has been an attendant in most of the buildings in and around the Palace, from Old Palace Yard to Tothill Street. He was an integral part of the team that helped get the Millbank building up and running. He will be sorely missed by the team, not just for his attitude to work but for the weekly quizzes that he devised for them. I have been told that he is known to be a rather snappy dresser, so I hope he is wearing his favourite shirt today. I wish him a long and happy retirement.
It remains only for me to wish all Members and staff a peaceful and enjoyable Christmas.
Lord Laming (CB)
My Lords, I am very happy to follow the noble Lords who have already spoken. On behalf of the Cross Bench group I associate myself with the very well earned tributes that have already been expressed. It is always a pleasure to participate in this important tradition, when the House, rightly, takes a moment to express its gratitude to the many staff who serve us so well, week in and week out, often over many years. They are often unseen, but I hope never unnoticed.
It has been another busy year for the House. We are often reminded that average attendance continues to rise, and more and more Members, understandably, wish to contribute to the valuable work of this House. We have more Select Committees, we ask more parliamentary Questions and, generally, we demand more of our staff, who enable us to continue to function effectively. This greater level of activity inevitably impacts on the administration of the House, particularly given the financial constraints under which it is committed to operate. It is therefore a real achievement, and a tribute to the dedication and resilience of the staff, that we continue to enjoy such a seamless service in every aspect of the work of the House. I am sure we all agree that we are very fortunate and it is entirely appropriate that we take the opportunity this afternoon to recognise the debt we owe the staff of this House.
I will take this opportunity to mention some former members of staff who have served the House in different but equally important roles. The first is Mark Thatcher, who was an executive chef and left the House in October after 31 years of loyal service. Mark began his career as a sous-chef and was promoted to executive chef three years later. During his employment, he oversaw the development of the kitchen operation to what it is today, serving more than 2,000 covers daily. We thank Mark most warmly for the service he has given to the House.
Paul Brightwell, who retired in July this year as a principal attendant, worked in the House for 21 years. In that time he became a well recognised face in the House, recognised by both staff and Members, in particular because, in 2005, Paul was posted to Fielden House and made a great success of establishing the services at this newly opened building. Those of our number who occupy accommodation in Fielden House know very well the contribution Paul made to our well-being. He was always diplomatic and was valued by colleagues and Members alike. During his retirement he is going to return to the gardening that we have already mentioned, and we wish him and his wife, Marian, a very long and happy retirement.
Guillermo Abelleira will also be taking a well earned retirement after 14 years of service to the House. Guillermo works as a waiter in the Peers’ Dining Room, where he is highly regarded by colleagues and Members alike. He is particularly well known for his hard work and his constant politeness to all he serves. Guillermo is looking forward to spending more time in his native Spain and we wish him well.
Terry Eiss will be well known in the House. He has been here since 2007, serving both as the verger of the chapel of St Mary Undercroft and as the manager of the River Room. Terry proved himself invaluable, as many of us will know, to the families of Members of the House in making the arrangements for a number of different services, marriages and baptisms in the chapel. He also presided over a wide range of receptions in the River Room and was always helpful in advising on catering and other arrangements that enabled those important events to run smoothly. Terry has many interests outside the House. We wish him very well in his future and thank him most warmly, as we do all these former colleagues.
Finally, I refer to Francisco De Freitas Nunes, a waiter working in both the Barry Room and the Peers’ Dining Room. Francisco will be leaving the House early next month after five years of exemplary service. He, too, is extremely well regarded by those he serves and will be much missed by his colleagues. I understand that Francisco has decided to pursue other career opportunities outside catering and, whichever way this takes him, we wish him great success and happiness.
From the Cross Benches I take this opportunity to thank you all for the support you give us, and me as Convenor, which I value very greatly. I wish you all a very happy Christmas and good success in 2015.
Bank Recovery and Resolution Order 2014
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That the draft orders and regulations laid before the House on 18 and 24 November be approved.
Relevant documents: 14th and 15th Report from the Joint Committee on Statutory Instruments. Considered in Grand Committee on 15 December.
Childcare Payments Bill
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Baroness Shephard of Northwold
To ask Her Majesty’s Government what specific estimates they have made of the impact of the Childcare Payments Bill on maternal employment rates and the level of income tax paid by working mothers.
Lord Newby (LD)
My Lords, the Government expect a positive impact on both participation in employment and hours worked as a result of the Childcare Payments Act, although it is not currently possible to quantify this, given the lack of recent literature evidence for the UK. Further evaluation of the evidence around employment effects can be found in the recently published updated impact assessment available on the parliament.uk website.
Baroness Shephard of Northwold (Con)
I thank my noble friend for his typically detailed reply. I wonder whether he is aware that the Select Committee on Affordable Childcare, on which I serve, has been requesting an answer to that question from the Treasury for some months. The committee has been deeply disappointed by his department’s apparent inability—refusal, even—to provide a Minister to give evidence before it, even though the Exchequer Secretary has specific and named responsibility for childcare, women and the economy. Would my noble friend, whose own accountability credentials are impeccable, care to comment on his department’s understanding of parliamentary accountability, it being the season of good will?
Lord Newby
Thank you for that. My Lords, it is standard practice that Treasury Ministers appear before only the Treasury Committee and the Lords Economic Affairs Committee when specific Treasury policy leads. I personally regret that, but I failed completely to get my Treasury colleagues to see the error of their ways.
Baroness Massey of Darwen (Lab)
My Lords, I, too, declare an interest as a member of the Affordable Childcare Committee. Does the Minister agree that matters of children and families should be cross-departmental as well as cross-party? Does he not therefore think it disgraceful that the Affordable Childcare Committee could not attract a Minister or anyone from the Treasury to comment on our proceedings? We lack its expertise on that.
Lord Newby
My Lords, as I said, I have considerable sympathy with the noble Baroness’s view. However, when I was on the Economic Affairs Sub-Committee on the Finance Bill, not only did the Treasury refuse under Gordon Brown to send a Minister, it refused to send officials or to answer a detailed letter.
Baroness Walmsley (LD)
My Lords, I also declare an interest as a member of the committee. Does my noble friend share my concern that, during our deliberations looking at the effect of childcare affordability and availability on maternal employment, we found that there was a distinct lack of research on where the tipping points are for families when they make a decision about whether both parents should work? In the light of that concern, does my noble friend share our frustration that we could not get a Minister there? The Department for Education provided an excellent Minister, who gave us a lot of answers to questions that arose out of his evidence, and that is the advantage of having a Minister in front of you. We did not have the opportunity to do that with the Treasury.
Lord Newby
My Lords, I absolutely take that point. However, as my noble friend will be aware, the chairman of the committee wrote to my honourable friend and she replied to the chairman of the committee a couple of days ago, I hope giving useful information which will be for the benefit of the committee.
Lord McFall of Alcluith (Lab)
My Lords, on the issue of childcare, as chairman of a civic welfare and benefits group in Scotland, along with my colleagues in the churches, trade unions, local authorities and charities I visited a food bank in Drumchapel last week. We were informed there that over 25% of the clients were working poor, mostly women with childcare needs. That supports research for the Joseph Rowntree Foundation which stated last year that there were more working poor in the UK than non-working poor households. Given that situation, if the Government are to live up to their rhetoric of helping hard-working families, is there not a case for Iain Duncan Smith—who, incidentally, visited Drumchapel—to look at this situation urgently so that we can indeed help the working poor and so that the Government can live up to their promises?
Lord Newby
My Lords, the Government are doing a whole raft of things to help the working poor. One of the main reasons why the working poor are quite so poor is that they are not working as many hours as they would like to work. One of the interesting findings from recent survey evidence is that nearly a quarter of employed mothers said that they would increase their working hours if they could arrange reliable, convenient, affordable and good-quality childcare. Many of those are exactly the kind of parents to whom the noble Lord referred.
Lord Higgins (Con)
My Lords, my noble friend will be aware that Treasury Ministers also refused to appear in front of the ad hoc Select Committee on Personal Service Companies, even though that was clearly a Treasury responsibility, and officials were not allowed to appear either. Is this not clearly, whatever the previous precedents might have been, a totally unsatisfactory situation if we are to hold the Government to account? Therefore, if my noble friend cannot persuade Treasury Ministers, should we not have a meeting between the Liaison Committee or the Leader of the House and the Chancellor of the Exchequer? We really cannot go on having matters that we are investigating, which are Treasury matters, with Treasury Ministers refusing to appear or allowing their officials to do so.
Lord Newby
My Lords, I would personally welcome any measures that would put more pressure on my Treasury colleagues to appear before your Lordships’ House.
Baroness Howe of Idlicote (CB)
My Lords, on the practical aspects of this Question, does the Minister agree that it is important that not only should the Government support working parents with the cost of childcare, they should also look at ways to help improve access to flexible childcare? What action are the Government taking in this very important respect?
Lord Newby
My Lords, the key thing is to increase both the quantity and the quality of the childcare that is available. A welcome development is the fact that a larger number of primary schools are now providing nursery places. Also, the Government have been supporting, by way of grant, individuals to set up as childminders, as a result of which there are now several tens of thousands more places available than was the case a couple of years ago.
Lord Davies of Oldham (Lab)
My Lords, it may be the season of good will, but there is not much good will on the part of the Government to women. Will he confirm that 85% of the additional cash received by the Government through changes to direct taxes and benefits is in fact obtained from women?
Lord Newby
My Lords, that is a figure I have never heard and do not recognise. I would just remind the noble Lord that more women are now in work than ever before, that there is better support in terms of free childcare for young children, that free school meals are provided for all children at a young age and that the pupil premium means, in effect, that families with several young children now get several thousand pounds-worth of direct benefit each year. None of these things obtained under the previous Administration.
Pension Schemes Bill
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Lord Newby
That the Bill be committed to a Committee of the Whole House, and that it be an instruction to the Committee that they consider the Bill in the following order.
Clauses 1 to 40, Schedule 1, Clauses 41 to 46, Schedule 2, Clause 47, Schedule 3, Clauses 48 to 65, Schedule 4, Clauses 66 to 76, Schedule 5, Clauses 77 to 85.
Pension Schemes Bill
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Lord Newby (LD)
My Lords, it is a great pleasure to be able to respond on behalf of the Government to our debate this afternoon. As ever, your Lordships’ House has demonstrated a very considerable degree of expertise in the subject. I am sure that I will not be able to cover all the points made, but we will have the opportunity of doing that at some length in Committee.
Like other noble Lords, I begin by joining in the tributes paid to the noble Lord, Lord Jenkin. I first saw the noble Lord when I, as an official at Customs and Excise, was drafted to sit in the Box during one day of a Budget debate when he was Secretary of State for Health and Social Security. I was very excited about this, until I was asked a question that I could not answer—fortunately, not by the noble Lord. The fact that in 1980 he was at the peak of his powers in that position and has remained a very influential Member in Parliament in its various forms since then is a real testament to his achievement. His interventions here, as noble Lords have said, have always carried great weight and have informed and guided our deliberations. We wish him a long and very happy retirement.
Lord Newby
I also pay tribute, very briefly, to my right honourable friend Steve Webb, who, as Minister for Pensions, has taken the lead in driving these and many other pension reforms forward. Many said that a coalition Government would not be able to make long-term reforms of a fundamental nature. Well, when it comes to pensions, whatever you think about them, you cannot claim that the Government have shied away from looking at all the issues. Indeed, they are effecting major changes.
At first sight, you would have thought that there could be no issue about the fact that giving people more freedom to spend their money is a good thing; that is what these Bills do, and therefore there will be unalloyed pleasure at the prospect of doing it. However, as noble Lords have pointed out, there are two challenges with this. First, many individuals either lack the financial literacy to make much sense of their finances, which we know about, or are slothful when it comes to thinking about pensions—which I think the current system encourages in some cases, not least because of the way in which they are treated by their pension providers.
As we know, many pension providers have been untrustworthy in the past, and have misled people rather than encouraged them. In the majority of cases, even now, they provide information to their individual policyholders in a manner that the policyholders cannot understand. Pension providers know jolly well that they cannot understand it and they have almost wilfully refused to make information available in a manner that people can understand. One of the great attractions of what we are doing on the guidance front is that it will require a template to be completed by pension providers about what on earth it is that individual policies amount to.
We have a market that is not working as markets are supposed to work. The purchasers do not have the information that they need and the suppliers very often are not providing products in a way that is fair to the consumer. That is why the whole issue of guidance is at the heart of these Bills and the debate today. I start with that because every noble Lord who has spoken has talked about guidance. As we have explained, from April next year everyone who benefits from the new flexibilities will get free and impartial guidance. The Treasury will take overarching responsibility for the service that will be delivered, but it will actually be delivered by the Pensions Advisory Service and Citizens Advice. I assure noble Lords that they will be adequately resourced and will be able to, and by their very nature will, give impartial advice.
To ensure that the service is in place in what is admittedly a tight timetable, an implementation team has been established within the Treasury to work with those providers. The Government have given the FCA responsibility for setting standards for guidance and monitoring compliance. This will, we believe, deal with the question asked by the noble Lord, Lord German, about whether the service will be of a high enough quality—we are confident that it will be. Further progress on how we intend to introduce and implement the guidance guarantee will be issued by the Government before Christmas.
Noble Lords asked whether there should be a second line of defence, so I should perhaps just explain what is already planned and what the FCA has already said. The FCA has made it clear that firms should not do anything to dissuade customers from getting guidance, but it accepts, and the Government accept, that not all individuals will seek to take up the offer of guidance. It is their choice to do so. In its new rules document, the FCA confirmed that pension providers must signpost individuals to the guidance service in wake-up packs. We have said that they should be issued four to six months ahead of an individual’s nominated retirement date. But I take the point made by a number of noble Lords that it might be advisable to think about giving earlier signposts to policyholders that they need to think about their pensions.
The FCA has reaffirmed the expectation that firms encourage consumers to shop around on the open market and that they should receive sufficient information about the consequences of their choices before signing up to a purchase. It is introducing a new requirement that, when communicating with customers about accessing their funds, firms are required to ask whether they have taken guidance or relevant financial advice. If not, they should encourage them to do so. As noted above, it has introduced a new requirement to recommend that consumers seek guidance or advice rather than simply signposting it.
Firms will be required to give a description of the tax implications of the option selected by the consumer and it has been made clear that firms can question the consumer’s decision when they feel that it is inconsistent with their circumstances without fear of overstepping the boundary into regulated advice. The FCA is considering whether it is appropriate to place further requirements on providers and, as noble Lords have mentioned, it is reviewing the rules in the first half of next year. The whole issue of what might constitute a second line of defence will be in its mind at that point.
Finally on the guidance, the noble Lord, Lord McKenzie, asked whether it would be one shot at getting the advice. I will say two things on that. First, the fact that the pension provider will have to provide details on the individual’s pension in a standard form will help to ensure that, when the person goes, they have the information that they need. One of my concerns is that people turn up without the key bit of information —I can imagine myself doing that. We hope that we are getting round that. At the very least, people who have had their advice will be able to go back to the website and access it to check further information that they then think they need.
I turn to individual noble Lords’ comments. The noble Lords, Lord Beecham and Lord Davies of Oldham, and others asked about the impact on the Exchequer. A number of noble Lords slightly implied that we were doing all this only to get a small amount of additional income. I can assure noble Lords that the public finances are not in such a bad way that we have completely to reorder the way we do pensions to get a short-term benefit. The Budget costings showed that the net additional income to the Exchequer from the scheme will be £320 million next year, rising to £1.22 billion in 2018, but then falling off after that because people will bring things forward. As I say, our motivation for doing that has nothing to do with something that is, though significant, a relatively modest figure in the overall context of the public finances.
The noble Lord, Lord Davies, set out the Opposition’s tests, which included guidance, which I have dealt with, fairness and cost. On fairness, we are ensuring that the generous tax reliefs available on pension savings are not used solely for tax planning, given the flexibility that the rules offer. Overall, we think that the rules promote fairness. On cost, and in particular the question of the impact of the changes on welfare and social care spending, that obviously will depend on how people choose to use their savings. However, the Government do not expect this impact to be significant in the context of the steps taken to improve the sustainability of pensions spending, such as the changes to the state pension age and reforms to public service pensions. I remind noble Lords that the estimated net impact of the Government’s key pension policies is a saving of about £17 billion in 2030 on today’s terms.
The noble Lord, Lord Davies, asked about the review. It has two elements. On reviewing the cost to the Exchequer, the Government are committed to keeping the policy under review through the monitoring of information collected on tax returns and tax records. Additionally, HMRC regularly publishes data on tax receipts, which will reflect any impacts on the Exchequer. Any such impacts will be reflected in forecasts made at future fiscal events. On the guidance, it obviously will be extremely important that we understand its outcomes. The Treasury will establish robust KPIs to measure consumer outcomes.
My noble friend Lord German asked about the publication of the FCA standards and when that would be. The FCA has stated that they will be produced before the new scheme comes in, which is hardly surprising. We hope that it will do that significantly earlier than that, we hope at Royal Assent. On his concern about regulators working together, I say that the DWP and HMRC work closely with the Pensions Regulator and the FCA to ensure that there are no gaps in regulation in this area. We have no reason to believe that there are any. He also asked about housing wealth. The guidance will make sure that consumers consider questions about their situation as a whole and will direct them to further sources of information as appropriate. However, one of the problems of housing wealth for many people is that they do not have any intention of accessing it as part of their pensions. Some people do, but very many do not. Given the practical problems of downsizing, which we discussed recently in your Lordships’ House, many people who in an ideal world might want to do that in fact do not.
The noble Baroness, Lady Greengross, asked about a possible extension of the levy beyond the number of firms currently planned. Until now, the Government have decided that those firms which are most likely to benefit from better informed and engaged consumers should help to fund the service, hence the levy on the current range of firms. Occupational pension schemes do not currently offer accumulation products, as membership of such schemes is linked to employment and they do not sell products into the market in the same way as financial services firms. It is possible, however, that schemes may wish to change this approach over time, and we will keep the levy under review.
The noble Baroness also asked about welfare and the impact of these changes on social care, as well as how the Government are treating the new pension arrangements. We are treating the options as similarly as possible for the current welfare means test purposes by applying a notional income of 100% rather than 150% of the income that an annuity would have provided. We want to make sure that the decisions people make about drawing down their pensions will not significantly affect how they are assessed for welfare and social care support.
A number of noble Lords, including the noble Lord, Lord Hutton, questioned the evidence that the pension flexibility as proposed will encourage or discourage saving. Of course, we will not know that definitively until we have the scheme up and running. However, the National Association of Pension Funds found in its spring workforce survey that 28% of workers say that they are now more likely to save into a pension. Young people are the most likely to say that, and lower-income respondents also said that they were more attracted to pension saving. While a number of noble Lords have been rather gloomy about how people will respond to these changes in terms of savings, one of the reasons people do not want to save for a pension at the moment is that they often think that an annuity is such appallingly bad value. That is definitely the case for young people, and indeed more generally.
Baroness Drake
Will the noble Lord accept that in terms of people not actively saving, the behavioural evidence shows that it has nothing to do with annuities, but with their own inertia about dealing with complex decisions? Any complex financial decision has the same effect.
Lord Newby
My Lords, I think that the strong take-up of auto-enrolment suggests that people are actually a bit more long-sighted than they are sometimes given credit for. Young people in their 20s and early 30s who are thinking about their pension savings are looking at what kind of value for money they can get from doing that as opposed to putting their money into alternative forms of saving. So I am not sure that I altogether agree with the noble Baroness.
The noble Lord, Lord Hutton, said that the Government should strongly encourage partial annuitisation. We have always been clear that an annuity will remain the right choice for many at some point in their retirement because it can provide the security that they are looking for. He also asked about inheritance tax. I can say that the intention of the legislation is that the scheme administrator will retain some discretion over how death benefits are paid, ensuring that these benefits can remain outside the scope of inheritance tax.
Lord Hutton of Furness
I am enormously encouraged by the Minister’s response, but can he explain to me how they will do that?
Lord Newby
My Lords, I do not know, I am afraid, but I will write to the noble Lord as I am almost out of time. The House has rules that, as a Whip—although I know I am going to break them already—I can break only to a certain extent. I will write to the noble Lord in that respect. I might also write to him about the situation in Australia.
The noble Lord, Lord Freeman, asked whether the new flexibilities would put people at risk of poverty in the future. The basic principle here is that people must be trusted to make their own choices about how to use their savings to fund their retirement. We believe that the introduction of the new, simpler state pension in April 2016 will help minimise the impact on means-tested benefits as the full level of the new state pension will be above the level of the basic means test in personal credit, and we expect over 80% of those reaching state pension age in the mid-2030s to be receiving the full new state pension.
The noble Baroness, Lady Drake, took up the theme of the noble Lord, Lord Hutton, about the dangers of a revolution. She saw the dangers as being significantly more considerable, I think, than most noble Lords who spoke. Of course, some of the potential problems that she foresees are impossible to predict absolutely, but I did not recognise the gloomy landscape that she portrayed in a number of respects. She asked why we were still paying tax relief when people will spend all their money. Tax relief is designed to support and encourage people to save for their retirement.
Baroness Drake
I did not ask why we are still paying tax relief if people are going to spend all their money. I asked whether, if people did not have to have annuities, it was possible that, over time, successive Chancellors revisiting the consequences for the next generation might not have this generation’s generosity on tax relief.
Lord Newby
My Lords, I was just about to say that this Government certainly are not going to revisit it. It is impossible to know what future Governments will do about tax policy. One of the key points about tax relief is to encourage people to save and I think any future Government will want them to carry on doing that.
A number of noble Lords, including the noble Baroness, Lady Drake, talked about the possibility of people taking their pensions early at 55. There is that freedom but my personal view is that, particularly as people are working to a later age rather than retiring earlier, the number of people who will wish or think it sensible to take their pension at 55 will not be very great. For some people, particularly those with health conditions, taking an early pension is absolutely the logical thing to do.
The noble Lord, Lord Holmes of Richmond, asked whether trustees and scheme managers will be required to evaluate the appropriateness of the advice that individuals are given when moving from DB to DC. As we have set out in our consultation, we intend that trustees and managers will be required to check that advice has been received from an FCA-authorised person but they will not be required to evaluate the content of the advice or to check its quality. The detail of the process by which scheme managers will be required to check that the advice has been taken will be set out in regulations, which we will work closely with the industry to develop. I apologise for rushing through.
The noble Lord, Lord McKenzie, asked whether I would be happy to arrange a meeting with BALPA, and I would indeed.
The noble Lord, Lord Bradley, gave a strong explanation of the benefit of collective schemes. He touched on one of the key benefits of the changes. We do not know at this stage how many people will take them up; we cannot give detailed estimates of how many people will do any number of things at this point. We see strong practical reasons to believe that collective schemes will benefit many people and that the industry will move to develop them.
To sum up, as my noble friend Lord Bourne laid out at the beginning of our debate, these are radical changes that build on this Government’s previous reforms to the UK private pensions market. At the heart of the reforms is the Government’s intent to give people greater choice. That entails both greater choice for businesses regarding the type of pensions that they offer and greater choice for individuals in how they access their pension savings. These radical changes need to be made to reinvigorate the private pensions market and to ensure that it remains relevant for future generations of savers. I commend the Bills to the House.
Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2014
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Lord Newby
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2014.
Relevant document: 14th Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, noble Lords may find it helpful if I start by outlining the background to this regulation. The term “sale and rent back” refers to a type of transaction whereby homeowners agree to sell their property, usually at a discounted price, in exchange for tenancy rights. This product reached the peak of its popularity in 2008, when the Office of Fair Trading estimated that 50,000 of these transactions had taken place until that point. Its attraction was mainly to homeowners struggling to meet mortgage repayments but who wished to stay in their family home. However, a number of questions were raised over whether customers taking out these agreements were receiving fair treatment.
In 2008 the OFT investigated business practices in this market and published a report that confirmed the presence of significant consumer disadvantage, in two respects. The first was through the financial loss to the customer when the property was sold. The OFT found evidence to suggest that most sale and rent-back providers bought the properties at a significant discount, paying between 70% and 90% of the market value of the property. The second was a lack of security of tenure. Sale and rent-back agreements make a virtue of the homeowner’s ability to continue to live in their home. However, the OFT report showed that in many cases people were being relatively quickly evicted from their home, while they had been led to believe they would be able to stay there over the medium to long term.
The OFT identified a number of market failures that led to these poor outcomes. These included the asymmetry of information between vulnerable individuals with low levels of financial capability and professional salespeople offering these agreements. That was a particular problem in this market because transactions tended to be undertaken by people in difficult and stressful circumstances, who may not have been in a position to weigh up all their options carefully and objectively. However, another factor was that relatively few homeowners took out such agreements. That meant that these firms were not subject to reputational risks in the same way as many other types of firm, limiting the ability of an effective feedback mechanism to operate where customers were consistently receiving poor outcomes. In addition, the OFT found that these market failures were often compounded by the deliberately misleading high-pressure sales tactics used by many providers.
As a result of the OFT report, the then Government issued a consultation paper recommending the statutory regulation of the sale and rent-back market by the then Financial Services Authority. An interim system was introduced to regulate the market in 2009, but it was then replaced in June 2010 by full regulation, as the Government legislated to add sale and rent-back agreements to the list of financial services activities regulated by the FSA. This meant that the FSA was given the powers to make and apply appropriate regulatory rules. The regime developed by the FSA included a requirement for providers to offer a minimum tenancy length of five years, a requirement for independent property valuation and a ban on high-pressure sales tactics. However, even following the introduction of regulation, consumer groups and other housing market stakeholders continued to report the widespread occurrence of detriment caused by purchases failing to meet the standards set by the new regulatory regime.
In response to this, the FSA conducted a thematic review of the market in 2011. The review confirmed that new regulatory standards were not being met in a number of key areas. These areas included, but were by no means limited to, the requirements for tenancy agreements, the form of financial promotions and the disclosure that customers received. In the light of these findings, the FSA temporarily closed down the market to protect customers.
In addition, the report highlighted that many firms were using complex financial arrangements with private financial investors, which providers argued meant that they did not fall within the scope of the regulation as set out in the legislation. It was the private investors who actually entered into the agreements, often on a one-off basis, which allowed them to argue that they were not doing so in the course of business, and therefore they fell outside the scope of regulation and did not need to comply with the requirements intended to protect consumers.
In response to this latter point, the Treasury worked with the FSA to develop the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) (Amendment) Order 2011. That made it clear that all sale and rent-back agreements should be within the scope of regulation unless it was a transaction between two family members. It ensured that the FSA was able to regulate this market effectively, as was originally intended by both this Government and the previous one.
Bank Recovery and Resolution Order 2014
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Lord Newby
That the Grand Committee do consider the Bank Recovery and Resolution Order 2014.
Relevant document: 15th Report from the Joint Committee on Statutory Instruments
Banks and Building Societies (Depositor Preference and Priorities) Order 2014
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That the Grand Committee do consider the Banks and Building Societies (Depositor Preference and Priorities) Order 2014.
Relevant document: 15th Report from the Joint Committee on Statutory Instruments
National Insurance Contributions Bill
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Lord Davies of Oldham (Lab)
My Lords, I rise to oppose Clause 1 standing part of the Bill, which ought to give the opportunity to explore in a little more detail the issues that we discussed previously. The Minister will appreciate that it was a fairly limited Second Reading, and I imagine he is anticipating that this Committee stage will also not be too prolonged. I certainly want to assure him that it is unlikely that I will ruin his Christmas Day and Boxing Day by giving him things to worry about on Report in the new year. We will move with some dispatch with regard to the Bill, because we are of course broadly in favour of it and have indicated that broad support at all stages. However, we have one or two anxieties, on which I would just like the Minister to give us the necessary reassurances that we have not detected thus far.
There are concerns about those who are going to be affected by the legislation. As the Minister will appreciate in particular, many who will be affected will be on low incomes, and therefore the issue of how and when payments are made is not a trivial matter but one that is bound to cause concern. We are worried about women claiming maternity allowance in the future. The Bill clearly recognises that pregnant women come into a particular category when it comes to claiming and we want to be certain about that, as well as about the rather broader category of those who claim universal credit. It would be very remiss if people on low incomes found themselves, as a result of this legislation, at a disadvantage when it came to claims for universal credit.
The self-employed will of course welcome the fact that the Bill introduces a simplification process and moves liability for NICs to the end of the tax year. However, that also means that there will be accumulated obligations that need to be paid, which for some low-paid workers could easily present very real problems indeed. We say this against the background of the Government making considerable play of the increase in the number of workers in the self-employed category. However, we detect that a very large number indeed are getting very little in terms of reward from this employment. We will come later on to those who were dangled a carrot—not, I hasten to say, by the Government but by unscrupulous intermediaries—about how to take a position with regard to the payment of NICs. We want reassurance from the Minister that he has fully taken on board the problems that may accrue for people who necessarily—we all know the evidence that establishes this—operate on the margin.
The Minister explained that the self-employed will continue to have the option of spreading the cost of paying NICs, but what is the method of payment? Is the Minister in a position to confirm that these payments may be made by monthly direct debit? That was the recommendation from the Chartered Institute of Taxation, and I would welcome his comment on that. Is the payment system due to be reviewed after implementation? We see it dealing with a group of people, some of whom—while many will find this very straightforward and will have welcomed the main proposals in the Bill, as indeed do the official Opposition—will find issues difficult. We wonder whether the Government have set in train a commitment to review the implementation of this part of the Bill.
The Government say that the simplification measure will help the self-employed, but of course it is the self-employed who have been the hardest hit in the cost-of-living crisis. A great number of the self-employed operate on very tight margins indeed, while those who have been self-employed for a considerable period of time, and are now subject to what may be an improvement in the way that NICs are collected, are likely to fall into the category of those who have lost significantly in recent years because average incomes have plummeted.
What other steps have the Government taken to address the impact that the cost-of-living crisis is having on self-employed people? It is clear that there has been a significant drop since this Government came into office, and therefore it would be a mistake on all our parts if, in thinking about the Bill as a progressive and helpful measure—a view that in broad terms we take—we failed to identify why those who are the hardest hit in our society might well find some difficulties in complying with the new arrangements.
Lord Newby (LD)
My Lords, I am extremely grateful to the noble Lord for his comments on Clause 1. He concentrated on the self-employed and the provisions for people to have a budget payment option available to them so that they can spread the cost. I assure him that budget payment plans will be operable and people can opt for them, paying by direct debit or standing order. They will allow an individual to decide the amount that they want to pay each week or month, change the regular payment amount, stop making payments for up to six months and cancel payments at any time. Indeed, even after they pay into the budget payment plan, an individual can choose to have the money repaid to them if they believe that there will be no eventual liability, or if they need it for another purpose. Indeed, we believe that this system is more flexible than what is currently available under the class 2 direct debit system, because someone is free to vary or cancel the arrangement at any time and there is no liability until a return is filed. They may request the money that they have paid through a budget repayment plan to be returned back to them, right up to the point when a future amount becomes a liability.
The noble Lord asked whether we would review the provision after implementation. The provision will indeed be kept under continuous review, because we are as keen as he is that everybody who operates it should be able to do so easily.
The noble Lord talked about the cost-of-living crisis as regards self-employed people and about the fact that, when many self-employed people become self-employed, they do so on a lower level of income than they were on when they were employed. That is undoubtedly true, but many people who start off on a lower level of income as self-employed build up a business and end up as well off as, if not better than, they were when they were employed. In addition, there is evidence that, for some people at least, being self-employed gives much more flexibility, which they welcome, and gives them a better work-life balance than they were able to achieve when they were in full-time employment.
The noble Lord talked about the cost-of-living crisis, but, as he is aware, the rate of inflation is low and falling and is likely to stay low; many prices—such as the price of petrol and food—are now falling and, as a result of the lower level of inflation, we are now seeing real wages rising across the board. All forecasters suggest that not just this year but for the next year and the next few years—indeed, for the entire forecast period—real wages are expected to rise. Therefore, while we do not in any way underestimate the impact of the recession on living standards, we believe that a very significant corner has been turned, and that the combination of low inflation, falling prices and rising real wages will mean that people will see greater prosperity than they have done as we have recovered from the great shock of 2008.
I hope that I have been able to give the noble Lord some reassurance on the specific questions that he raised.
Lord Newby
My Lords, the noble Lord raises the key question about whether these provisions will actually have any impact. The statute book is littered with provisions that have not been fully implemented or properly policed. One has to think only of the minimum wage, which, when it was established, simply had no proper provisions attached to it to ensure that people were paying it. I am very pleased that this Government have been able to make considerable progress in implementing a measure that everybody agrees is a good one but which was not being effectively implemented in the past.
As far as these measures are concerned, the Government have provided significant reinvestment of around £1 billion specifically to combat revenue lost and at risk through non-compliance. This means that, while most of HMRC’s lines of business are reducing in size, the number of roles in compliance is increasing very considerably. HMRC has brought together all its work to tackle avoidance into a new counter-avoidance directorate. Around 100 staff have been recruited into the directorate to deal with the issue of accelerated payment notices, and a further 100 will be added in 2015. That is a very considerable additional resource. HMRC is also deploying additional staff to handle collection work and additional legal staff. HMRC is taking a flexible approach which will depend on the number and nature of legal challenges. The Tribunals Service is currently recruiting additional tribunal judges, both to handle the cases involving accelerated payments and follower notices and, more generally, to accelerate the number of cases going through the tribunal.
The noble Lord asked about the procedures which HMRC has in place in respect of follower notices. HMRC already has strong governance procedures in place to handle a range of complex issues such as these where significant amounts of tax are involved. Therefore, as with any of its responsibilities, it has put in place appropriate governance for follower notices and accelerated payments. The case team, advised by litigation specialists and solicitors, is responsible for analysing the decision to be used as the basis for the follower notice, identifying the relevant principles and reasoning and setting out how those apply to the potential follower notice cases. The recommendation is signed off by all relevant parties in the department before being submitted for approval. It is then presented to a senior governance body, chaired at senior Civil Service level, to consider whether or not to give that approval. The taxpayer can make representations that the judicial ruling is not relevant to their arrangements and must do so within 90 days of receiving the notice. The representations will be considered by an independent HMRC officer who is unconnected with the team which issued the follower notice and the governance panel which decided that the judicial decision relied upon was relevant.
In terms of how the department will monitor the effectiveness of the scheme, the purpose of the legislation is to change behaviour, so its success is not measured just by how many promoters are subject to the new information powers and penalties but by the number that improve their behaviour to acceptable levels and demonstrate this to HMRC without any need for action under the legislation. The frequency of use of the legislation will of course be monitored by HMRC, which is putting in place the governance arrangements that I have just described. But its wider success will have to be viewed more holistically—with regard, for example, to the need for additional legislation or for legislation to stop specific schemes in the future.
The noble Lord asked about a specific Statement to both Houses on the effectiveness of the scheme. The most logical way in which an annual report can be given on the effectiveness of the scheme will probably be in HMRC’s own annual report, which it is of course open for this House to debate and which is considered, I believe, by the other place. The Government are as keen as the noble Lord is to see how effective the scheme is, because we think it is an important way of improving the collection of tax. The Government will make sure that they constantly monitor its effectiveness and report on that. As I say, I think HMRC’s annual report would probably be the first way of doing that, but it would be open both for the Government to report separately, should they think it necessary, and for Parliament to keep HMRC and the Treasury up to the mark in terms of the information they provide to Parliament.
Lord Newby
My Lords, the noble Lord asked me a number of specific questions about this clause. The first question, on staffing, asked whether HMRC had the appropriate level of staffing and whether staff had been transferred across from other parts of HMRC or recruited specifically. HMRC carried out a review of the resource required and is committed to ensuring that the appropriate resource is in place to introduce the new changes. As regards where the staff came from, some were transferred and some were recruited. There is a maximum pace as regards how quickly you can beef up this kind of compliance department, because it is highly technical work, and in particular people coming in from outside need to have a considerable amount of training to get up to speed.
The noble Lord made the point that self-employment was high in a number of sectors and he mentioned in particular the construction industry, which is absolutely right. Of course the construction industry is very cyclical, and people literally move about if they are skilled workers in that sector. It is therefore not surprising that self-employment is somewhat higher there than in many other sectors—and the same applies to offshore workers. However, I completely agree with him that we need to keep a very close eye on that and see how it develops and how the measure is working.
HMRC is introducing a quarterly reporting requirement from 6 April 2015 in this area, with the first return due by 5 August next year. This will provide HMRC with almost real-time monitoring to ensure that the measure in the legislation is being used effectively. Obviously, the whole purpose of doing that is to keep the issue under review and, if necessary, to take action to rectify any further problems that apply.
The noble Lord pointed out that the Swiss tax deal had had a shortfall, which shows how difficult it is to estimate the amount of cash that such deals might generate. The reason for that is of course not too surprising: people deliberately secrete their money out of the gaze of the taxman, so when the taxman attempts to guess how much money there is, it is extremely tricky to get that right. The Swiss deal did indeed bring in a smaller amount of revenue than was expected—or it has to date—but I think it is fair to say that the Liechtenstein disclosure facility has brought in more than was originally thought and has proved exceptionally effective. All that one can expect HMRC and the Treasury to do in these circumstances, when specific areas are targeted to repatriate funds to the UK, is, first of all, to do it—which previous Governments have failed to do—and, secondly, to make their best estimate of how much money might be involved. There is a considerable degree of uncertainty at the point when that estimate is made. The important thing is to close the loophole.
The noble Lord also referred to the tax gap. All I would say to him is that in monetary terms the gap has risen by £1 billion over a period, but in real terms, and in relation to the size of the economy, I think it is fair to say that that is a fall. Although over a long period we might see the monetary value of the gap rising modestly, the key question is: is it falling as a proportion of the total amount of tax payable? The figures he quoted suggested that, if anything, on that basis the tax gap was falling rather than rising.
Perhaps I could have the indulgence of the Committee briefly, before we finish our Committee stage today, to say a little bit about the amendments to the Bill that the Government intend to introduce on Report. As noble Lords will be aware, in the Autumn Statement on 3 December the Chancellor announced that the Government will abolish employer class 1 NICs for apprentices under the age of 25 from April next year. As the Chancellor made clear, apprentices are at the heart of the Government’s drive to equip people of all ages with the skills valued by employers. This measure is intended to support employers who provide apprenticeships to young people by removing the requirement that they pay secondary class 1 NICs on earnings up to the upper earnings limit for those employees. The measure is also intended to support youth employment. It will provide a zero rate of employer class 1 NICs on earnings between the secondary threshold and the upper earnings limit in respect of apprentices under the age of 25 from 6 April 2016. It will provide the power to define “apprentice” in regulations, allowing the time discuss the definition with stakeholders. It will also contain powers to alter the age range to which the zero rate applies and introduce a threshold for apprentices. As with the other changes to which I am about to refer, the Government intend to table amendments to give effect to these measures in advance of Report.
Noble Lords will also be aware that the Delegated Powers and Regulatory Reform Committee published its report on the delegated powers contained in the Bill on 27 November. It drew attention to the power in Clause 2 to amend primary and secondary legislation as a consequence of the reform of class 2 NICs. The power is currently subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee has said that the justification given in HMRC’s delegated powers memorandum is not sufficient for the negative procedure to apply where the power allows for the amendment or repeal of primary legislation, and it has recommended that in this instance the power should be subject to the affirmative procedure. The Government have considered the report of the Delegated Powers and Regulatory Reform Committee and intend to table an amendment on Report so that, where regulations made under this power amend or repeal primary legislation, they will be subject to the affirmative procedure.
Finally, we intend to amend Schedule 1 to the Bill to ensure that the relevant self-assessment penalties apply to class 2 contributions collected through self-assessment by adding a missing reference to the self-assessment underdeclaration penalty contained in Schedule 24 to the Finance Act 2007. It was always the Government’s intention to align penalties for class 2 contributions more closely with those for SA as part of the reform of class 2 so that the self-employed are not subjected to two different regimes, but this particular penalty was unintentionally omitted. This minor technical amendment will correct that omission.
I hope that noble Lords will have found that helpful. We will be tabling those amendments as soon as we possibly can.
Lord Davies of Oldham
My Lords, I am sure that the Committee is grateful to the Minister for indicating his response to the Delegated Powers Committee—that obviates the necessity of the Opposition chasing the Government on Report. We are very much in favour of the suggestion about the affirmative procedure, so we will be ensuring that the Report stage moves with maximum effect on that.
The only thing that I would add is that there is a certain justification for adding second thoughts and developments to a Bill as it proceeds. The Minister will recognise that it took the Delegated Powers Committee to bring this to the attention of the Government. We are only a couple of weeks from Christmas so I suppose we are bound to get a certain Christmas tree effect, but one of the consequences of this fixed-term Parliament is that, basically, since we came back in October we have had dangling bits of additional legislation added to Bills, whether they fit or not. In this respect I have no particular criticism, but I think for instance of the Infrastructure Bill, of which the first four parts were concluded before the Recess but then the minor issue of fracking was added to the Bill after it. The Government are not to take the fact that the Opposition very much approve of this initiative, which we will be supporting on Report, as in any way a feeling on our part that the Government are full of good conduct when it comes to adding bits to Bills whenever it suits them.