Social Security Contributions (Limited Liability Partnership) Regulations 2014
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Lord Newby
That the Grand Committee do consider the Social Security Contributions (Limited Liability Partnership) Regulations 2014.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
Social Security (Contributions) (Amendment No. 5) Regulations 2014
Lord Newby Excerpts(9 years, 6 months ago)
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Lord Newby
That the Grand Committee do consider the Social Security (Contributions) (Amendment No. 5) Regulations 2014.
Relevant document: 9th Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, as both sets of regulations deal with national insurance contributions and arise from the changes made to the taxation and charging of national insurance consequent to changes made to the treatment of partnerships in the Finance Act 2014 and the National Insurance Contributions Act 2014, it seems sensible to debate them together. The Joint Committee on Statutory Instruments considered these regulations and has not raised any issues relating to them, and I can confirm that they are compatible with the European Convention on Human Rights.
I turn first to the Social Security (Contributions) (Amendment No. 5) Regulations. Section 13 of the National Insurance Act 2014 provides a power to make regulations to modify the way in which the liabilities of members of certain partnerships to class 4 national insurance contributions are determined. That section addressed an issue arising under existing partnership rules whereby the immediate entitlement to partnership profit is restricted by the alternative investment fund managers directive. Under existing partnership rules, tax and national insurance contributions are charged on profits as they are earned rather than when they are received. An unfunded NICs charge can therefore arise on profits that are allocated to an individual partner of an alternative investment fund management partnership and which are then deferred in line with the regulatory requirements of the AIFMD. This is because the partner cannot access the profits in the year they arise. Following discussions with fund sector representatives and the Financial Conduct Authority, the Government have put in place a statutory mechanism to address this issue. These regulations remove the charge to class 4 NICs when the profits are allocated to an individual but access is restricted under AIFMD, and reinstate the charge when those profits are eventually vested in the individual. As a result, the individual will be liable to pay class 4 NICs only when they have unfettered access to the profit. To ensure consistent treatment between NICs and tax, these regulations mirror income tax legislation.
Turning now to the Social Security Contributions (Limited Liability Partnership) Regulations, Section 14 of the National Insurance Act 2014 provides an express power to regulate to treat some members of a limited liability partnership who meet certain conditions as employed earners for NICs. Similar provisions treating these members as employees for income tax purposes can be found in the Finance Act 2014. Previously, all members of an LLP were treated for tax and national insurance contributions as self-employed. They benefited from the tax and NICs rules for the self-employed and the LLP did not have to pay employer’s NICs.
The treatment of members of LLPs as being self-employed for tax and NICs was designed to replicate the position of traditional partnerships. However, LLPs have increasingly been used to disguise employment relationships and to avoid accounting for employment taxes and NICs. The new measures in these regulations and the Finance Act ensure that the original intent—that of treating members of a LLP the same as traditional partnerships—is not used to create a tax and NICs advantage. They create a level playing field for those who have not sought to misuse the rules for a tax and NICs advantage and those who have.
When certain conditions are met, a member of an LLP will be treated instead as an employee for the purposes of NICs. Broadly, that means that they will have employee NICs deducted from payments to them and the LLP will have to account for employer NICs and assume the other responsibilities arising from being the secondary contributor. The conditions were introduced by the Finance Act 2014, and are that the individual member of the LLP has little or no real economic interest or risk in the LLP, no significant influence over its affairs, and is largely rewarded by a fixed salary. During the course of the consultation in 2013 and 2014, HMRC became aware of proposals to create structures with corporate members to avoid the impact of the proposed changes. The proposals involved the individual establishing a personal service company or other intermediary and that intermediary becoming a member of the LLP in place of the individual. These regulations contain measures to counteract the artificial interposition of a company or other intermediary to avoid the impact of the legislation.
The regulations apply where the new tax provisions apply and an individual salaried member of an LLP is treated for income tax purposes as an employee of the LLP under a contract of service. For the purposes of NICs, the salaried member is treated as an employee and their income is treated as earnings, and the benefits in kind regime applies to them. As the salaried members are treated as employees for the purposes of employee NICs, the LLP is treated as an employer for NICs purposes and must account for employer NICs. The employer as secondary contributor is also responsible for statutory sick pay, statutory maternity pay, statutory paternity pay and statutory adoption pay. These regulations provide that the LLP will be responsible for these statutory payments in respect of salaried members.
As I have mentioned, HMRC became aware of schemes to avoid the impact of the Government’s partnership proposals. The tax legislation to prevent such avoidance provides that where an individual provides services to the LLP through an arrangement involving a member of the LLP who is not an individual—generally a personal service company—the individual providing the services is then treated as a salaried member. So an individual cannot sidestep the impact of these measures by interposing a company or other intermediary between themselves and the LLP. These regulations ensure that where the tax anti-avoidance measure is in play, the like NICs consequences will follow.
To avoid a double charge arising where the anti-avoidance measure applies and the intermediaries legislation, commonly known as IR35, also applies, the regulations in respect of IR35 are modified so that only one charge under these regulations can occur. To ensure consistent treatment for NICs and income tax, these regulations mirror the tax legislation, relying on mirroring definitions. These provisions are part of a package of tax and NICs measures that will yield £3.2 billion over the period to April 2019. The regulations contain mirror provisions applying to Great Britain and to Northern Ireland.
I commend the statutory instruments to the Committee.
Lord McKenzie of Luton (Lab)
My Lords, I thank the Minister for introducing these regulations. I am reverting to dealing with Treasury matters today because my noble friend Lord Tunnicliffe is in the Chamber.
As the Minister explained, these regulations spring from a review of the taxation liabilities of partnerships, and elements of avoidance related to the conversion of employment income into self-employment income, particularly regarding mixed partnerships, with individuals and corporates, and the allocation of profits and gains on a favourable basis. I should make it clear that we support the tackling of such avoidance; it is absolutely right that we do so.
The Explanatory Memorandum to the second set of regulations made reference to estimated,
“tax and NICs revenue of £3.27 billion over the forecast period to 2018-19”.
In the light of tax receipts to date, will the Minister comment on how robust that figure is and whether there is a revision on the cards? Unless he can respond, we may have to wait for the OBR report in a few weeks’ time.
As I said, we support the principle of those with disguised self-employment income being treated as employees for both income tax and national insurance purposes. Can the Minister say a little more to clarify the precise circumstances under which these provisions will apply? I looked at the summary of responses in HMRC’s document, Partnerships: A Review of Two Aspects of the Tax Rules. Pages 11 and 12 set out the Government’s proposals for when the rules would apply, and state:
“Where all of new conditions A to C (as set out below) are met, then with effect from 6 April 2014”—
I note that these measures are retrospective, and we support that—
“an individual member of an LLP will be treated as an employee of the LLP for tax and NICs purposes”.
Condition A then states that,
“the member is to perform the services for the LLP in his or her capacity as a member, and is expected to be wholly or substantially wholly rewarded through a ‘disguised salary’ that is fixed or, if varied, varied without reference to the profits or losses of the LLP”.
That is one of the three tests, and I understand that all three must be satisfied. If that is one of the planks that the Government are moving forward on, it would not be too difficult to circumvent and seems somewhat flimsy.
Condition B in the Government’s response is that,
“the member does not have significant influence over the affairs of the partnership”.
I wonder about the extent to which that condition reflects what happens in lots of partnerships at the moment. I remember being, in a former life, a partner in Price Waterhouse, but as a new equity partner, with another 120 partners at the same time, frankly one’s influence over the business was quite small. A lot of these partnerships have grown much broader in the intervening years. I would have thought it quite likely that someone who is a genuine equity partner does not have significant influence over the affairs of the partnership. Collectively, equity partners do, but individually they do not. Perhaps the Minister will help us with that.
Will he also say something about the territorial aspects? The regulations refer to partnerships that are constituted under UK law and, clearly, that are operational in the UK. What happens to partnerships that are constituted under the rules of a territory outside the UK?
Do any other consequences flow from treating income as employment income? The Minister referred to statutory payments, but there are issues around employment rights and health and safety. For example, there are some changes in legislation that are looking to exempt a huge swathe of the self-employed from the Health and Safety at Work etc. Act. Would that continue to apply to people who purport to be self-employed, notwithstanding that they are being treated as employed for the purposes of tax and national insurance contributions?
I move briefly to the regulations that relate to the AIFM arrangements. As the Minister explained, these apply to class 4 self-employed contributions. What is the situation of somebody who is treated as an employed person under the other regulations? How does this work for such people? That is very unclear. The regulations seem to focus just on class 4, which presumably applies only to those who have deferred income arising and are accepted as being genuinely self-employed, and not to this other category, which we are seeking to address in the other regulations. I must say, I am a little confused about how that works.
Paragraph 4.4 of the Explanatory Memorandum refers to class 4 contributions applying when profits,
“vest in the individual partner, if that partner is carrying on the AIFM trade at the time of the vesting”.
What if the individual is not carrying on the trade at the point of vesting? I am not sure technically how that would work, but clearly the Explanatory Memorandum recognises that it is a possibility. When does class 4 bite in those circumstances?
I should be grateful for the Minister’s help on those points, in follow-up if not here today. Clearly, we have no problem with these regulations and we support the thrust of the anti-avoidance provisions that they seek to address.
Lord Newby
I am most grateful to the noble Lord for his support for these SIs and for his questions. On his first question about the revenue of £3.2 billion, the formal answer is, of course, that as this has just started and is looking at the period to 2018-19, it is far too early to tell. To the extent that there has been any weakness in income tax receipts, it is due to shortfalls in income from people at the lower end of the income spectrum. These people are definitely not there. Given that the sector we are talking about is doing pretty well at the minute, there is certainly no reason to think that that figure is unlikely to be met.
The noble Lord asked about the territoriality of the measure. My understanding is that it applies to UK-constituted partnerships only. He asked about the conditions, of which there are three. Condition A is that reward is largely fixed. The use of “largely” simply allows for small variations to take place but for an individual still to fall within that condition. As regards exactly what is meant by the second condition, HMRC has issued detailed guidance, which was written following extensive consultation and discussion with the sector.
I am sure that I have not responded to one or two points and I am very grateful to the noble Lord for being willing to accept a letter dealing with those remaining points. With those responses to the noble Lord’s comments, I commend the regulations to the Committee.
Defence: Budget
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Lord West of Spithead
To ask Her Majesty’s Government whether they intend to ring-fence the defence budget in the same manner as the international aid and National Health Service budgets.
Lord Newby (LD)
My Lords, the Government have set departmental budgets for the remainder of this Parliament. No departmental budgets are set beyond 2015-16, including for health, international aid or defence. However, the Government are committed to ensuring that we have properly funded Armed Forces, which continue to be the second biggest contributor to NATO, and to growing the defence equipment programme at 1% above inflation each year until 2020-21.
Lord West of Spithead (Lab)
My Lords, I thank the Minister for his Answer, as far as it goes. However, the defence cuts since 2010 are the largest since Options for Change in 1990, which were taken against a much bigger set of forces. On this very special day—I know that all of us are thinking of those who have given their lives for this country—it is a hard thing to say, but as Plato said, “Only the dead have seen the end of war”. Are the plethora of experts and, indeed, the Chiefs of Staff correct when they say that the structure of Future Force 2020 planned by this Government cannot be achieved without the injection of extra funding, which was promised by the Prime Minister in 2010?
Lord Newby
My Lords, I support the noble Lord’s comments about the importance of today. We must work endlessly to promote peace, which of course is partly the result of the defence budget, but is also something we do via our political, economic and aid budgets. There are many views on the appropriate level of the defence budget. All parties are considering what they believe an appropriate level of defence expenditure should be as they begin to think about the spending review, which will be conducted early in the next Parliament.
Lord Trefgarne (Con)
My Lords, is it not the case that the size of our defence forces ought to relate to the threat that we face? Is the noble Lord satisfied that the present size of our forces is sufficient for the new threats currently appearing?
Lord Newby
My Lords, the threats that we currently face are obviously very different from those that we have faced in the past. We have accepted that we would have a smaller but more flexible defence force, enabling us to deliver one enduring operation or two non-enduring operations. We are still committed to that. We are also spending increasingly more on cyber expenditure, including some £210 million next year on the national cybersecurity programme.
Lord Bilimoria (CB)
My Lords, following on from the remarks of the noble Lord, Lord West, does the Minister agree that the SDSR in 2010 was means before ends? It was negligent in that we had unpredicted events, one after the other—Libya, Iraq, Syria, Ukraine—and our Armed Forces cannot even fill Wembley Stadium. Will the Minister assure us that we will stick to the 2% spending commitment to NATO and that we will not cut our Armed Forces any more?
Lord Newby
My Lords, the Government are committed to that 2% for the remainder of this Parliament and into the next Parliament and to keeping the defence equipment budget growing. Any commitments in the medium term beyond that are commitments that the parties will be making in their manifestos.
Lord Liddle
My Lords, has the Minister read the analysis in Monday’s Financial Times which shows that, on the basis of what at least the Conservatives are proposing, the implications in the next Parliament for non-protected departments will be a budget cut of one-third? What might be the impact of this analysis on the defence budget? Does he believe that the Prime Minister’s assurances to the defence community carry any credibility whatever?
Lord Newby
My Lords, I did read the Financial Times article. It is fair to say that all the parties going into the next election will have different views about how to bear down on the deficit. The Conservatives have one view and the Liberal Democrats have a different view as to where the balance between expenditure cuts and tax rises should fall. I have no idea what the Labour view is.
Lord Palmer of Childs Hill
My Lords, I want to be more specific. The Government’s original plan was to purchase 138 F-35B joint strike fighter aircraft. This was reduced to 48 and it has been further reduced to 19. How will this commitment be affected by budget requirements and how will budget requirements and the needs of the defence of the realm be balanced?
Lord Newby
My Lords, at this stage of the Joint Strike Fighter programme, aircraft are being procured via a rolling programme of annual contracts which confirm customer requirements two years ahead of purchase. We will make further announcements on new contractual commitments in due course. The overall number of F-35 joint strike fighter aircraft to be purchased will not be determined before the next strategic defence and security review.
Lord Davies of Oldham (Lab)
My Lords, as on this day we look with sadness on the past, should we not also be constructive about the future? Does the Minister agree that the strategic defence and security review should be put on a statutory basis, brought before Parliament to ensure that it is robustly scrutinised, and that this process should take place once in each Parliament, as my party is proposing?
Lord Newby
My Lords, that is an interesting idea. However, the key thing is the content of the review, rather than the procedure.
Lord Stirrup (CB)
My Lords, the Minister referred to the fact this country is still the second largest contributor to NATO. Sadly, that is not a terribly high bar to clear these days. At the recent NATO summit in Wales, the Prime Minister stressed the importance of alliance members contributing at least 2% of their GDP to defence. While no one can commit the next Government, does the Minister not think that, were the current Prime Minister to form the next Government, it would be utterly bizarre if he and his party were not to adhere to this principle which he so strongly espoused so recently?
Lord Newby
My Lords, I really cannot comment about what the leader of the Conservative Party might think after the next election.
Immigration Act 2014 (Bank Accounts) (Prohibition on Opening Current Accounts for Disqualified Persons) Order 2014
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Lord Newby
That the Grand Committee do consider the Immigration Act 2014 (Bank Accounts) (Prohibition on Opening Current Accounts for Disqualified Persons) Order 2014.
Relevant documents: 8th Report from the Joint Committee on Statutory Instruments
Immigration Act 2014 (Bank Accounts) Regulations 2014
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Lord Newby
That the Grand Committee do consider the Immigration Act 2014 (Bank Accounts) Regulations 2014.
Relevant documents: 8th Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, the Government recognise and welcome the benefits that migrants bring to our country. However, they also recognise the need to deter people from attempting to enter the country unlawfully and to ensure that those who are here illegally are encouraged to leave. As part of the Government’s reform of the immigration system in the Immigration Act 2014, action is being taken on illegal migrants’ access to services. Effective immigration controls require responsibility to be shared—between government, local public service providers, employers, landlords and other private service providers—for denying illegal migrants the means to establish themselves here unlawfully. That is why the Government are bringing forward this legislation to prevent known illegal migrants accessing banking products and services in the UK.
From 12 December 2014, banks and building societies will be prohibited from opening current accounts for illegal migrants unless they have first checked the applicant’s immigration status with a specified anti-fraud organisation or a specified data-matching organisation. Where this check identifies that the applicant is a “disqualified person”—that is, an illegal migrant that the Home Secretary considers should be denied access to a current account—the bank or building society must refuse to open the account. These measures will make it more difficult for illegal migrants to establish a viable life in the UK by closing the gateway to transactional banking and lines of credit.
The two orders we are considering today specify which current accounts will be within scope of the prohibition. The regulations will enable the Financial Conduct Authority to make arrangements for monitoring and enforcing compliance with the prohibition imposed on banks and building societies. Before discussing the detail of the instruments themselves, I will first remind the Committee of the Government’s intentions for the banking provisions within the Immigration Act.
The legislation is designed to prohibit banks and building societies from opening current accounts for those who are present in the UK and who require leave to remain in the UK, but who do not have it. The prohibition will apply only to illegal migrants whose details have been notified by the Home Office to an anti-fraud or data-sharing organisation. The Home Office has already specified that this will be CIFAS—the Credit Industry Fraud Avoidance Service. The Home Office will notify CIFAS of illegal migrants who have exhausted the immigration process and are liable to removal from the UK. This will not include people who have an outstanding application or appeal. The prohibition does not require banks and building societies to check immigration or identity documents presented by the customer. Instead, they will be able to undertake electronic checks against the data provided by CIFAS.
The decision to limit the scope of this measure to current accounts provided by banks and building societies ensures that the measure is proportionate. This will ensure that smaller deposit-taking institutions, such as credit unions, are not impacted by these measures. We have also decided that the prohibition should apply only to current accounts, as they serve not only as a product for day-to-day transactional banking but also as gateways to further financial services and lines of credit.
I should make it clear that, in the view of the Government, a current account is intended to be used principally for conducting day-to-day banking activities. Such an account would be expected to provide functionality to hold deposits and make withdrawals without having to give notice. It would also typically enable the customer to receive and make payments through a number of different methods, including by cheque, direct debit, standing order, continuous payment authority or other electronic payments. Withdrawals, money transfers and other payment transactions can typically be conducted through various channels, including ATMs, branches and online, mobile or telephone banking. Many current accounts also have overdraft facilities. For the purposes of the Immigration Act, “current accounts” should also include basic bank accounts.
The prohibition does not apply to savings accounts, which, in the Government’s view, are intended to be opened for the primary purpose of accruing savings and not for day-to-day transactional banking, although they may provide some of the functionality described above. Savings accounts have been deliberately excluded from the provision as they do not act as a conduit to further financial products in the same way as current accounts. This will also ensure that smaller institutions which only offer savings accounts are not unduly burdened.
I now turn to the statutory instruments themselves. Following initial publication of the Bill, the banking sector raised concerns that the range of current accounts within scope of the prohibition might be too broad and could include accounts that were outside the Government’s initial policy intention. For example, concerns were raised that accounts of large companies would, unnecessarily, be covered by the prohibition. The Government’s intention through this legislation has been to stop illegal migrants from opening current accounts in order to prevent them accessing other products such as credit cards, mortgages or mobile phones, and thereby establishing themselves illegally in the UK. We have listened to the concerns raised and agree that the legislation, as it stands, goes further than necessary to achieve this aim.
The effect of the two orders, taken together, is to limit the scope of the prohibition to current accounts that are operated by or for consumers, microenterprises—that is, companies with fewer than 10 employees and an annual turnover or balance sheet total of no more than €2 million—and charities with an annual income of less than £1 million. These categories are consistent with the definition of a “banking customer” already in common usage in the banking sector and set out in the FCA’s existing Banking Conduct of Business Sourcebook.
Including consumers, microenterprises and charities within the ambit of the prohibition is also consistent with the distinction that the FCA already makes between the conduct of banks and building societies with respect to these retail banking customers and to other customers such as large corporations. This will make it easier for the banking sector to comply with the Act and for the FCA to enforce the prohibition at Section 40 of the Act. By retaining microenterprises and charities within the prohibition, the amendment will also make it more difficult for illegal migrants to circumvent the prohibition set out in Section 40 of the Act. Illegal migrants will be unable to set up as a sole trader, for example, in order to open a current account.
In summary, the Government believe that this approach strikes the right balance between ensuring that the prohibition is appropriately targeted and minimises the burden on businesses while still preventing obvious avoidance schemes.
I turn to the monitoring and enforcement of the Act. It is important that a relevant body is equipped with the necessary authority and powers to monitor and enforce the requirements in the Act. The Immigration Act 2014 (Bank Accounts) Regulations 2014 therefore give the Financial Conduct Authority the power to monitor compliance with the Act and to further investigate firms when necessary. As the conduct regulator for deposit-taking institutions, the FCA is well placed to regulate, monitor compliance with and enforce these provisions. The regulations require banks to provide the FCA, at the latter’s direction, with information in respect of compliance or non-compliance with the requirements of the Act. They will also oblige firms to retain records relevant to compliance or non-compliance for a minimum of five years. It is also important that there are proper sanctions against individuals or institutions that fail to comply with the Act’s requirements.
That is why we are equipping the FCA with the power to levy financial penalties, of such amounts as it considers appropriate, on any firm that it considers has breached the prohibition in Section 40 of the Act or breached a requirement of or under the regulations. The regulations will also allow the Financial Conduct Authority to restrict the deposit-taking permissions of an institution that it considers has contravened a relevant requirement and to publish a statement naming any such institution. These sanctions will act as a clear deterrent and help to ensure compliance with the prohibition imposed on banks and building societies. I commend the regulations to the Committee.
Lord Tunnicliffe (Lab)
My Lords, the Opposition will not in any way oppose these three statutory instruments, but we have some small questions. The impact assessment created more questions than it answered. First, how many people will be impacted by these regulations? The impact assessment states, I think, that there are 60,000 disqualified persons and then uses a questionable bit of logic to suggest that 2,000 of them might be impacted. Does the Minister agree with that estimate or feel that the actual figure might be somewhat less?
The impact assessment implies that the net present value of the cost of the exercise is £2.7 million. I had some trouble between the pages but I think that that is what it states on page 8—that there will be £2.1 million set-up costs and £0.6 million of ongoing costs at net present value. It is difficult to feel bad about that £2.7 million as it will be paid for by the banks, but, nevertheless, it is not an insubstantial sum if the impact is going to be de minimis. The impact assessment leads one into even greyer territory when it comes to the benefits. A benefit prayed in aid was that there might be fewer people to seek out and move out of the country, and the impact assessment offered an incredibly precise estimate of the cost of exiting a disqualified person, with a range from £400 to £60,100. That is a pretty heroic estimate with no indication of where in that range these individuals might fall or how many of them there might be.
I am trying to envisage a situation whereby any individual would come into this position. It seems to me that the provision could only apply against an individual who, for all other reasons, could reasonably expect to open an account with a bank. As I understand it, when one is an asylum seeker, you may open a bank account if a bank will allow you to open a bank account. There is no prohibition against an asylum seeker opening a bank account, and these orders create no such prohibition, if I have understood them properly. I would be delighted if I am wrong. My understanding is that if you are an asylum seeker and you can satisfy a bank in every other respect, the fact that you are an asylum seeker is not a reason for prohibition.
It seems to me that any asylum seeker of sufficient sophistication to intend not to leave the country when they become a disqualified person and who wants to have a current account will have the wit to set up the account before they become a disqualified person. We know from today’s Question Time that the period that they are an asylum seeker as opposed to a disqualified person is frequently very long. It seems to me that most people who are in this situation will disappear into the black economy and not need a bank account. However, the small number who are going to do this period as a disqualified person in a sophisticated way which requires a full bank account will surely have set up a bank account beforehand. As I understand it, the order does not require a bank to close an account when it is notified that somebody who has a bank account has become a disqualified person. I would be grateful if the Minister would tell me if I am right or correct me for the record.
Lord Newby
My Lords, I am grateful to the noble Lord, Lord Tunnicliffe, for his support for these regulations. He asked how many people are likely to be affected by them. The impact assessment has made an estimate of approximately 2,000 people. As it happens, it is estimated that, in 2013, almost 2,000 people were the subject of Home Office data shared with CIFAS, who were then refused current accounts in 2013. So, in 2013, getting on for 2,000 people were refused current accounts. On the basis that this legislation extends the scope of the scheme to some number of—
Lord Tunnicliffe
In 2000, as I think the Minister has just quoted, this scheme was not in place, so I assume that those 2,000 people were refused for other reasons, such as their creditworthiness, or as potential launderers, or whatever. It was nothing to do with their being asylum seekers, as I understand the logic.
Lord Newby
Not with being an asylum seeker; but banks that were already signed up to CIFAS were already, before this legislation, as a matter of course, referring to CIFAS as regards whether a person was an illegal immigrant. The banks that were doing that already were refusing about 2,000 current accounts in 2013. It is reasonable to expect that the figure will be 2,000, or something slightly more than that, as we expand the number of banks and building societies that are covered by the scheme. It is obviously impossible to know exactly, but that gives you an idea of the order of magnitude. You are almost certainly talking about a small number of thousands rather than a few hundred or tens of thousands. I think that that must be the scale of the impact of the legislation or the process.
The noble Lord asked whether, given the cost of implementing the scheme, it was worth it. We believe that it is worth it. The annual cost to banks and building societies is only £200,000, which is relatively modest. The set-up cost, although greater in the overall scheme of things, is relatively modest.
The noble Lord asked about the situation of a legitimate asylum seeker who is going through the process and opens a bank account. What happens if, at the end of the process, they are not given asylum and are required to leave the country? We have taken the view that only new bank accounts should be covered by these regulations, and therefore if there is an existing bank account which it subsequently transpires is operated by an illegal immigrant, the law under these regulations will not require the bank to close that account. The view was and is taken by the Government that the approach we are adopting is proportionate and that to go beyond what we now propose would impose an unnecessary burden on the industry.
The noble Lord asked about one-in, two-out. I am told that this qualifies as one-in but, of itself, it is obviously not contributing to the two-out because it is a new regulation. The Government are committed over a period, taking all the activities of government, to end up with two out for every one in. This is an in, but there are lots of other outs, including some of the measures going through in the Deregulation Bill, almost literally as we speak. As the noble Lord is aware, the Government are absolutely committed to reducing the burden of regulation and we believe that the broad approach of having two out for every one in makes a major contribution to that effort.
With those responses, I hope that I have satisfied the noble Lord, and I commend the regulations to the Committee.
Immigration Act 2014 (Bank Accounts) (Amendment) Order 2014
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Lord Newby
That the Grand Committee do consider the Immigration Act 2014 (Bank Accounts) (Amendment) Order 2014.
Relevant documents: 8th Report from the Joint Committee on Statutory Instruments
Assisted Dying Bill [HL]
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Lord Falconer of Thoroton
That the House do now resolve itself into Committee.
Lord Newby (LD)
My Lords, it may be for the convenience of the House if I highlight the estimated rising time of 5 pm that is advertised in this morning’s edition of today’s list. Noble Lords will be aware that it is a firm convention that the House normally rises by about 3pm on Fridays but in view of the level of interest in this Bill, as reflected in the volume of amendments tabled, we anticipate that the House may wish to sit a little beyond 3 pm on this occasion. As ever, progress on the Bill of the noble and learned Lord, Lord Falconer, and our rising time will ultimately be in the hands of the House.
Lord Trefgarne (Con)
My Lords, before the House resolves itself into a Committee on the Bill, as I have no doubt it will in a moment, can the noble Lord who has just spoken say whether there are any further plans? There are 175 amendments on the Order Paper today and I doubt very much that they will be finished. Are there any plans for a further day in Committee and does the noble Lord realise what effect that will have on all the other Private Members’ Bills waiting in the list?
Lord Newby
My Lords, it would not be conducive to making progress and good use of the time available today if we started thinking about what happens after today. We will decide what we do after today after today.
Lord Deben (Con)
On a further point, may I ask my noble friend two things? First, what discussions took place with the interested parties? I do not mean the parties on either side because this is, after all, a cross-party division. Secondly, what are the precedents for this and will he ensure that this does not become a precedent for all kinds of Bills in the future?
Lord Newby
My Lords, my noble friend the Chief Whip had numerous discussions earlier in the week with the principal protagonists on the Bill. On precedents, noble Lords will remember that we sat beyond 5 pm for the Second Reading of the Bill from the noble and learned Lord, Lord Falconer, as we did in the 2005 Parliament when the noble Lord, Lord Joffe, brought forward a Bill on the same subject. The House sat beyond 5 pm for its Second Reading on that occasion. If your Lordships look at the pattern of Fridays, we have risen at 3 pm or thereabouts on the vast bulk of them. This Bill is clearly unusual in its significance and the amount of attention that it has generated, both inside and outside your Lordships’ House. I do not think that either my noble friend the Chief Whip or I detect any mood to move beyond 3 pm as a normal finishing time on Fridays.
Lord McAvoy (Lab)
My Lords, to follow up on that issue, will the Minister indicate how much consideration was given to noble Lords who do not stay in London? If no consideration was given to the inconvenience, extra travel time and all the rest of it for anyone who does not stay in London, that would only confirm the trend towards this place becoming a metropolitan House rather than a House of the United Kingdom.
Lord Newby
My Lords, consideration was given to that, which is why we are not suggesting that the House sit beyond 5 pm, although it is conceivable, given the number of amendments, that one could go on beyond even then. The other thing that was in my mind, although I cannot speak for anyone else, is that for the country, looking in at our deliberations, the idea that it would be impossible to sit beyond 3 pm on a matter of this importance does not necessarily put your Lordships’ House in a good light.
Lord Jopling (Con)
My Lords, to avoid confusion, and because the Minister tends to mumble, may I make it clear that the noble Lord, Lord Joffe, who presented the previous Bill was not me?
Lord McColl of Dulwich (Con)
My Lords, can we have some clarity about the length of speeches? Several speakers have been interrupted by comments that they have gone on too long. I understood that the recommended speaking time was a maximum of 15 minutes for each speech—or am I wrong?
Lord Newby
My Lords, noble Lords will have seen an unusual amount of toing and froing, as there has been a certain amount of confusion about the consequences of the pre-emption of several amendments as a result of the amendment passed earlier. Having spoken to noble Lords who have amendments affected by that pre-emption, or who have amendments that are due to be debated, I propose that for the rest of the afternoon we proceed as follows. First, the noble Lord, Lord Alton, should speak to his Amendment 11 as part of the debate on whether Clause 1 should stand part. If any noble Lord wants to speak to any of the amendments that were dropped, as it were, as a result of pre-emption, I suggest that they do so at the conclusion of that debate.
The amendments covered by pre-emption were the initial amendments in those three groups, Amendments 8, 10 and 11. The later amendments in those groups, Amendment 69 and onwards, Amendment 25 and onwards and Amendment 90 and onwards could be debated later, when we get to them. I propose that when we have finished the debate on whether Clause 1 should stand part, in the light of the fact that, by common consent, the debate on the following group will be very long, I adjourn the House.
National Minimum Wage
Lord Newby Excerpts(9 years, 6 months ago)
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Baroness Hollis of Heigham
To ask Her Majesty’s Government, in the light of the fall in value in real terms of the National Minimum Wage since 2010, what assessment they have made of any additional cost to the Exchequer in tax credits and other benefits.
Lord Newby (LD)
My Lords, in the evidence that it submitted to the Low Pay Commission in January this year, the Treasury looked at the impact of increasing the national minimum wage to £7. It estimated that overall net borrowing would be reduced by between £30 million and £70 million. The figure is relatively low because there would be an increase in social security spending as a result of fewer jobs, higher prices and lower corporation tax receipts.
Baroness Hollis of Heigham (Lab)
My Lords, last year HMRC failed to collect more than £250 million as a result of the failure to keep pace with the minimum wage. Work is no longer the route out of poverty; the majority of those in poverty are now in work. This is living wage week and the living wage is, rightly, voluntary, but it would save HMRC more than £3 billion a year in reduced benefits and increased tax revenues and, above all, it would make work pay. DWP pays the living wage but HMRC, with 25,000 fewer staff, does not. Why not?
Lord Newby
My Lords, the Government support the living wage and encourage all employers who are able to do so to pay it. Her Majesty’s Treasury’s pay rates ensure that all its employees, including apprentices, are paid above the living wage and other departments are following suit, including DECC.
Baroness Wheatcroft (Con)
My Lords, the minimum wage is only a floor. Many companies are now choosing to pay the living wage and, indeed, ensuring that their suppliers pay it. Can my noble friend give us some numbers on that?
Lord Newby
My Lords, the number of companies that were accredited for paying the living wage in 2013 was 432. I believe that the number has more than doubled during the course of this year.
Baroness Farrington of Ribbleton (Lab)
My Lords, will the Minister identify those people in government departments who do not pay either the living wage or take into account what people need? Will he please comment on the large number of people working in the care sector who get the minimum wage but do not actually receive it because they are not paid for the time taken in travelling between clients? How on earth can the Government announce that the route out of poverty is work in these circumstances?
Lord Newby
My Lords, as I said, a number of departments already pay the living wage. It is fair to say that there is a move across the rest of government in that direction, which is not yet complete. It is for individual departments to take those decisions. As far as care workers are concerned, HMRC, which is responsible for enforcing the minimum wage, has done a significant amount of work on this and is increasing its enforcement activities in the care sector and elsewhere. I take the point that the noble Baroness makes. In 2012-13, HMRC identified £3.9 million in arrears of wages for 26,000 workers who were not getting their full whack on the minimum wage.
Lord Stoneham of Droxford (LD)
My Lords, there is a sensitive relationship between raising the minimum wage and employment levels. Does my noble friend agree that it is only now, with rising employment and economic growth, that we can afford to give priority to raising the real level of the minimum wage, together with simplifying benefits and raising tax thresholds as a way of helping the low paid?
Lord Newby
My Lords, I completely agree with my noble friend; the increase in the tax threshold has made a major impact on living standards. That is why real household disposable income, which is the key figure looking at living standards, increased by some 2.2% in quarter 2 2014, and why the OBR forecast that earnings will rise faster than inflation from the second half of this year for every year to 2018.
Lord Campbell-Savours (Lab)
My Lords, when the Labour Government introduced the national minimum wage in 1997, we were told that unemployment would go up. In fact employment went up. Why does the Minister think that employment went up when we introduced the national minimum wage?
Lord Newby
My Lords, there are a number of reasons. One was that it was introduced at a time when the economy was growing, which made it easier for people to pay higher wages. That is why I am so pleased that the economy is growing so strongly now, which means that wages are rising again.
Lord Flight (Con)
My Lords, have the Government looked at the possibility of varying the minimum wage to reflect the cost of living in different parts of the country?
Lord Newby
My Lords, this has been looked at on a number of occasions and has always been rejected.
Lord Tunnicliffe (Lab)
My Lords, the thing that always strikes me about this debate is the theoretical level that it is held at. Very few of us could contemplate living on the minimum wage—I feel almost ashamed of my personal affluence when comparing it with the idea of living on £6 an hour—yet more than 5 million workers do so. The minimum wage is a good thing; it brings affluence to individuals, it improves the economy and it has not had any significant impact on employment. Will the Government join the Labour Party in our pledge to set an ambitious target to significantly increase the minimum wage to 58% of median average earnings, putting it on course to reach £8 before the end of the next Parliament?
Lord Newby
My Lords, the minimum wage may well reach £8 by the end of the next Parliament just through being uprated by inflation, so that is not a very ambitious target. The minimum wage is a very important floor but, for example, when I recently visited a textile factory in Leicester where the entire workforce consisted of Asian women, the managing director said to me when I asked him what the Government should do to support him: “Do not significantly increase the minimum wage, because if you do I will have to import products from eastern Europe and lay off all my workers”. Is that something that the Labour Party wants?
Barnett Formula
Lord Newby Excerpts(9 years, 6 months ago)
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Lord Newby (LD)
My Lords, I begin by expressing my personal condolences to the family and friends of the noble Lord, Lord Barnett. Lord Barnett was a delight to have as a sparring partner, and I will certainly miss his presence in your Lordships’ Chamber very much.
The Government are aware of the Welsh Government’s views on continuing the Barnett formula. Although there are no changes to Barnett in prospect, we have agreed with the Welsh Government to revisit the arrangements for jointly considering relative funding in advance of each spending review. The Prime Minister has been clear that Wales will be at the heart of the debate on how to make the United Kingdom work for all its constituent parts.
Lord Wigley (PC)
My Lords, I, too, pay tribute to Lord Barnett: a lovely, gentle, intelligent colleague who was among the first to recognise that the funding formula bearing his name by now needs radical reform. Does the Minister accept that if Wales were to receive the same level of funding as does Scotland, relative to population and the portfolios devolved, Wales would now get a staggering £1.2 billion a year more than is currently the case? On what possible basis of equity can Wales be denied parity with Scotland in regard to such funding? Would it not now be a fitting tribute to Lord Barnett if the Government today pledged to revise the formula to deliver for Wales parity with Scotland in funding matters?
Lord Newby
My Lords, as the noble Lord knows, a very significant review of funding in Wales was undertaken by Gerry Holtham, which suggested that Wales would be getting a fair degree of funding if it was approximately 114% of that in England or more—I believe that that is the right figure. I believe that, certainly this year and next year, that figure will be met.
Lord Peston (Lab)
My Lords, I thank my noble friend for his Question, with which I know for a fact that my noble friend Lord Barnett was in total agreement. I also thank the Minister for his kind remarks, because he might be forgiven for thinking that one of Lord Barnett’s missions in life was to make his life a total misery. Lord Barnett will be remembered for his formula, but those of us in this House will surely remember that he contributed to a vast number of other topics and therefore deserves to be remembered for all that as well. I think we all agree that he will be missed much more than, perhaps, some of us when our time comes.
Lord Newby
My Lords, I absolutely agree with the noble Lord that Lord Barnett was a formidable parliamentarian across a range of subjects.
Lord Forsyth of Drumlean (Con)
My Lords, I associate myself with the remarks about Lord Barnett, who was a good friend and a great person in this House.
Can my noble friend explain to me how the vow made by all three party leaders in the concluding days of the Scottish referendum, which states that they are committed to,
“sharing our resources equitably across all four nations”,
is consistent with keeping the Barnett formula?
Lord Newby
My Lords, the noble Lord will be aware that the system for funding across the nations will change as we move to a greater degree of devolution in Scotland and that, when a greater degree of taxation powers is devolved to Scotland, the importance of the Barnett formula will be proportionately diminished. Therefore, it is not as though we are standing still on this; we are making a move in a direction that I hope the noble Lord will support.
Lord Thomas of Gresford (LD)
My Lords, I would like to associate these Benches with the tributes that have been paid to Lord Barnett. I used occasionally to share a taxi with him from Euston and he was a delightful person.
Do the Government agree that the cost of providing services to people in Wales on an equal basis is greater than that in England, having regard to relative levels of ill health, poverty and sparsity of population? If so, is not the basic premise of the Barnett formula utterly and fatally flawed?
Lord Newby
My Lords, I think that we need to remember that Wales receives greater per capita expenditure support than England; in 2012-13, while in England as a whole the level was just over £6,000, in Wales it was just shy of £7,000.
Baroness Royall of Blaisdon (Lab)
My Lords, my noble friend Lord Barnett was an extraordinary man, as an MP, a Minister, a colleague and a friend to all Benches in this House. He diligently held the Government to account and did his utmost to ensure the best for the people of this country until just a few weeks ago. He believed, as we all do, that government should be a force for making life better for the people of this country. I have just been joined by my noble friend Lord Davies of Oldham, who used to be a PPS for my noble friend Lord Barnett.
Can the Minister confirm that the Government will agree to the all-party request from the Welsh Assembly for bilateral talks between the UK and Welsh Governments on fair funding, and to rapid implementation of a funding floor, which the Welsh Government suggest should be completed by January 2015?
Lord Newby
My Lords, as I said in my initial Answer, we have agreed that we will revisit the arrangements for funding in Wales in advance of each spending review. We will do the next review next year in conjunction with the Welsh Government.
Lord Elystan-Morgan (CB)
Does the Minister recollect that our late splendid friend Lord Barnett often said that his formula was intended to be of only very short duration, and that he accepted, particularly in relation to Wales, that it was wholly inequitable for it to be perpetuated from year to year?
Lord Newby
Yes, my Lords, but the Barnett formula is the opposite of most government policies, which do not survive very long. His has survived a lot longer than anybody ever envisaged.
Lord Anderson of Swansea (Lab)
My Lords, I join the tributes to my noble friend Lord Barnett.
Does the Minister agree that the problem is not in the formula itself? The grievance, as seen in Wales, is the lack of fair funding. When the Government look at the totality of relations with Wales, perhaps avoiding the straitjacket of the formula, would they consider a multitude of matters, including for example helping Wales by abolishing the tolls on the Severn bridges, which amount now to a tax on the people of Wales?
Lord Newby
My Lords, the Barnett formula is a bit like the Schleswig-Holstein problem. Virtually nobody understands how we got to where we are today. The key question is how much money makes its way to Wales. As I said earlier, for the period ahead Wales will receive a figure in line with most definitions, I believe, of what people think is fair.
Bank of England
Lord Newby Excerpts(9 years, 6 months ago)
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Lord Harrison
To ask Her Majesty’s Government whether they will rename the central bank of the United Kingdom, “The Bank of England and of the United Kingdom”.
Lord Newby (LD)
My Lords, having begun life in 1694 as a commercial bank, the Bank of England predates the formation of the United Kingdom itself. Of course, the Bank’s role is not limited to England and it acts as the central bank for the whole of the UK. However, to change its name would represent a break from over 300 years’ worth of history and the prestige which it carries as a global brand.
Lord Harrison (Lab)
My Lords, given the particular saliency of the currency issue in the recent Scottish referendum, would it not be a wise, inexpensive and inclusive act to extend the title of Britain’s central bank to the “Bank of England and of the United Kingdom”, thereby properly recognising the reach and relevance to all four nations of the United Kingdom of our own central bank?
Lord Newby
A notable feature of the referendum campaign was that Alex Salmond was desperately keen to keep the comfort blanket of the Bank of England. As far as I am aware, he never suggested that its name should change.
Lord Forsyth of Drumlean (Con)
My Lords, given that the Bank of England has responsibility for ensuring that other banks and financial institutions have proper systems and back-up systems in place, what action has been taken following the failure of the CHAPS system—for which the Bank of England is responsible—that resulted in many people being unable to buy their houses on the day concerned; quis custodiet ipsos custodes?
Lord Newby
Quite, my Lords. The Financial Services Act gave the Bank of England new powers in this area. It is conducting an investigation to see what happened in that unfortunate case and what lessons can be learned for the future.
Lord Peston (Lab)
I congratulate my noble friend for raising this Question, but I am sorry to say that I disagree with him. Changing the name of the Bank of England would be economically very damaging to our country. Is the Minister aware that there is a lesson to be drawn from this? It is mainly that making constitutional changes on the hoof is not the right way to do this sort of thing. The next time he sees his right honourable friend the Prime Minister, will he tell him that the way to go on in this area is to think before you speak and not the other way round?
Lord Newby
My Lords, whatever one can say about the history of constitutional change in the UK, it has not been characterised by great speed. While there is now considerable urgency in dealing with consequential constitutional change in both Scotland and the rest of the United Kingdom, it will require a commitment by many people across all parties to bring that about—which in the past has been conspicuously lacking.
Lord Shutt of Greetland (LD)
My Lords, if there is to be any change, would not the name “Bank of Britain” be more solid, simple and straightforward?
Lord Newby
It might be, my Lords, but as I said in my initial Answer, I suspect that there will not be any change.
Lord Davies of Oldham (Lab)
My Lords, Her Majesty’s Opposition are in favour of the retention of the name “Bank of England”. However, the Minister said that there is some urgency about future action, so will he say whether the Treasury has made any progress, and will he give us an update on that progress, in looking at the financial consequences of further devolution of income tax?
Lord Newby
My Lords, as the noble Lord will be aware, the various proposals on the table for the devolution of income tax were set out in the Command Paper that was published earlier in the month. The exact nature of further devolution of income tax is under consideration in the Lord Smith process. As part of that, the financial and political consequences of various possibilities in respect of income tax are being actively considered.
Lord Cormack (Con)
My Lords, is there not much to be said for the old adage that if it is not necessary to change, it is necessary not to change?
Lord Newby
My Lords, that is an extremely sweeping statement and I would need prior notice before I felt that I could absolutely agree with it in every case.
Lord McFall of Alcluith (Lab)
My Lords, in 1999, Alex Salmond described the Bank of England as a “millstone round Scotland’s neck”. Fifteen years later, he was pledging his love and fidelity to it. Does that not prompt the question that, if it was good enough for Alex Salmond as the Bank of England, it is good enough for the rest of us?
Lord Newby
I am not sure that that is a general principle that one would wish to apply more widely.
Lord Flight (Con)
My Lords, I agree with the Government’s view about retaining the well tested name, but would the Government also consider retaining in full, or restoring, the Bank of England’s lender of last resort powers, which have served this country’s banking system well for 150 years?
Lord Newby
My Lords, the key thing is the Bank of England’s role to protect and enhance stability of the financial system. I think that the legislation that we have passed in recent years gives the Bank wide powers in almost every respect to enable it to do that.