Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

Clause 5 aligns the periods of notice required for distraint action to recover national insurance contribution debt in England and Wales, and the application for summary warrant in Scotland, with those that apply for tax debt.

In this part of the Bill, we turn to measures concerning the recovery of NICs debt. Clause 5, and clause 6 for Northern Ireland, deal with the small minority—3 per cent.—of NICs that are not collected with tax. They are mainly the flat-rate class 2 contributions that are paid by the self-employed. The purpose of the clause is to align the Inland Revenue's procedures for recovering that type of NIC debt with those for recovering tax debts. Tax legislation and procedures have applied to debt recovery contributions collected with tax since the mid 1970s.

Perhaps I should briefly explain why we need the changes. First, given that all tax and contributions debts are recoverable by the Inland Revenue, there is no logic in having separate rules for a small proportion of cases. Secondly, situations can and do arise in which a person has both a tax debt and a class 2 contribution debt. As the legislation stands, it is not practicable to deal with both debts in a single action.

The current provisions were inherited from the Contributions Agency in 1999. Although the Social Security Contributions (Transfer of Functions, etc.) Act 1999 gave the Inland Revenue responsibility for recovering such debt, it did not change the legislative mechanism for the recovery action.

The changes are relatively straightforward. The period of notice for distraint action in England and Wales is changed from 30 days to seven, in line with the procedures for recovering tax debt and accepted good practice. The period of notice for application for a summary warrant in Scotland is changed from 30 days to 14, in line with the tax legislation and the procedures under the Debt Arrangement and Attachment (Scotland) Act 2002. The 30-day notice periods prescribed are out of line with tax procedure and legislation, and with best practice on the recovery of general debt.

Distraint action involves the seizure of goods for sale at auction if the debt is not settled. Where a debtor is determined, for whatever reason, not to pay, a 30-day notice of the action provides a more than ample opportunity to dispose of valuable goods that might otherwise be seized.

The clause makes two changes. It clarifies the legislation regarding the recovery of amounts due under personal liability notices and it provides for the alignment of the tax and contributions debt recovery provisions by regulations. Personal liability notices can be issued in respect of unpaid national insurance contributions to the former directors of companies that have been wound up. For the avoidance of doubt, the clause specifies that debts arising from personal liability notices are to be recovered in the same manner as the class 1 contributions to which the notices relate.

The final provision in the clause is a regulation-making power to allow tax legislation to apply to the recovery of such contributions. An equivalent power has existed since the mid-1970s for contributions collected with tax. This is a future-proofing provision designed to prevent misalignment from arising. It is necessary because most national insurance matters are outside the scope of the Finance Bill. Thus, if a future Finance Bill were to change the provisions governing the recovery of tax debt that needed to be mirrored in such contributions, separate provision would have to be made in a programme Bill. That would inevitably be delayed, as space in any Government's legislative programme is scarce.

I am happy to answer questions from members of the Committee, but I hope that they accept that it is sensible for employers to have one procedure, with which they are familiar, for the recovery of debt across all tax debts. The provision brings national insurance debt in line with tax debt, making a single, recoverable action. I hope that the Committee accepts the clause.

Mr Mark Prisk (Hertford & Stortford, Conservative)

I welcome the Paymaster General's opening remarks on the clause and on clause 6, which, as she said, in so many ways mirrors it.

The clauses relate to the outstanding differences in certain rules between tax collection and the recovery of national insurance and, in particular, to class 2 contributions, which are particularly pertinent—indeed, pertinent only—to the self-employed. The misalignment of rules relates to the recovery of outstanding contributions. This is where we get into the discussion about debt, distraining and so on. Opposition Members believe that it is logical to align the two different notice periods—30 days and seven, and 14 for Scotland. Business would then have to deal with only a single procedure for all outstanding contributions. It is perhaps worth putting it on the record that, in making that decision, the Government have diminished the rights of the self-employed, but I share the analysis that I think the Paymaster General expounded on Second Reading—on balance, it is probably a reasonable change to make. Therefore, we do not oppose it.

The Paymaster General said that the Government do not intend to amend the appeals procedure. I was looking through the explanatory notes to try to

understand how the system will work from now on. They say that the Inland Revenue has a standard debt collection procedure and that one must work through a series of stages to recover debt. However, the notes fail to set out how the procedure works and how it will work when the Bill is enacted. Therefore, coming at the matter from a business point of view, I want to understand what steps those whom the Bill will affect must take.

I am concerned with real businesses, but I shall take a hypothetical one—West Bromwich Bloggers Ltd.—so that we can understand how the Bill will affect businesses in practice. Although it is unlikely that the proprietor would find himself in that situation, what would happen if he did? How would he recover the debt and what steps would the business go through? In particular, how would the procedure work if there was a sister business—the West Lothian Wanderers club, perhaps—because, under clause 5(2), the procedures are slightly different in Scotland? I would be grateful if the Paymaster General clarified that.

Mr Norman Lamb (North Norfolk, Liberal Democrat)

I will limit my comments: I was planning to ask why the Scots require twice as much time as the rest of us, but my hon. Friend the Member for Argyll and Bute (Mr. Reid) has arrived so I feel slightly embarrassed about asking that now.

Mr Rob Marris (Wolverhampton South West, Labour)

It is because they are always late.

Mr Norman Lamb (North Norfolk, Liberal Democrat)

I am half Scottish, so I have a foot in both camps.

It would be sensible to align the procedures so that the same process is used for all national insurance. As the Paymaster General said, most national insurance is already collected in the same way as tax and I have no other questions for her on the clause.

Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

Perhaps I may first cover the point about how the recovery action would work. Of course, a company or individual can challenge a notice of liability at any point through the appeal procedure. We are discussing the final stage when the liability is not in question or has been challenged unsuccessfully, so there is a liability to pay, although there is shyness over doing so. On behalf of all our honest taxpayers who have complied with their obligations, it is only fair to ensure that that liability is paid.

When a clause 2 debt—the £2 a week—has reached the limit of civil prosecution, which is £130 and could be a year's contribution, it is referred to the debt management service. The Inland Revenue's experience is that if someone has a national insurance debt, they also have debts elsewhere—perhaps a default on tax in other categories. The debt may be an oversight, but it is unusual for the Revenue to be at fault.

The person is contacted by phone and advised of the debt as well as the options for payment, which is the same procedure as for tax. That is what happens and the procedure is familiar. If that initial contact does not result in the debt being paid off, further contact is made by phone and letter—usually three phone calls and one letter. If that action fails, the case is referred for formal recovery action either by distraint or through the courts.

About 10 to 15 per cent. of cases that are referred to the debt management service reach that stage, but, after that, formal action is taken to recover the debt. It can be recovered through summary proceedings in the magistrates court. That is the preferred option for debts of less than £1,800, distraint action or county court proceedings. The first step towards distraint action in the Revenue is to issue the formal notice of the debt. That informs the person that distraint action will be taken within seven days unless the debt is paid.

A lot goes on before that to inform the company and to ensure that it understands it has a liability. If the debt is not paid when the period of notice has expired, the debtor is visited and again asked to pay. If the debt is not paid at that point, distraint is levied. However, fewer than 2 per cent. of visits result in distraint being levied. The debtor then has five days to pay the debt. If it is not settled by the sixth day, the goods can be put up for auction—approximately 2 per cent. of the cases in which distraint is levied result in the sale of the goods. The process works; only a few recalcitrants get right the way through the system, which is how it should be. It is a shame that the Revenue has to engage in so much activity to ensure that people fulfil their legal responsibilities.

Mr Mark Prisk (Hertford & Stortford, Conservative)

It is important that we should know how the process will work in practice and whether the proprietor of West Bromwich Bloggers, or whichever company, understands that too. In the Paymaster General's experience, and that of the Revenue, does it appear that, in the majority of cases, deadlines are missed and money fails to be sent due to oversight rather than to malevolence?

Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)

It is difficult to answer that question. Distraint action is triggered only after repeated requests from the Inland Revenue to honour a liability. One can accept that it is possible that there could be an oversight before those intense reminders are given. That is why there is a need to align the processes. Employers are familiar with the process that operates for tax liabilities. Making this subject to the same procedure gives certainty and reduces—let us be generous—the scope for misunderstanding that might arise from a different procedure for recovery.

I am not saying that there are never exceptional circumstances—the Inland Revenue has provisions to deal with such cases. We are considering people who are clearly informed annually of their responsibilities. It could not be clearer that we all have to pay national insurance, whether we are employed or self-employed. Attempts are made before the formal distraint procedure starts to remind, rather robustly, any company or individual concerned that a liability is outstanding and should be paid now. Even within that procedure, a person has a right to appeal against the liability for class 2 national insurance that can be exercised at any point in the debt recovery process. I cannot think of any exceptional circumstances, but there must, among millions of taxpayers, be one person who encounters an unforeseen scenario—

something that could not be dreamt up—that we would ultimately accept as meaning that the liability should not be pursued.

Bearing in mind what the Public Accounts Committee has said today about pursuing debt, I have to say, as a Minister who has been involved in a large number of Finance Bills, that I often struggle in dealing with financial legislation. All that the legislation seeks to do is to require people to fulfil their obligations under the law, but I am pressed as to whether I am behaving reasonably in putting such powers and actions on the statute book. I was pleased to hear what the PAC said and I look forward to future Finance Bills in which we pursue such points as whether people should pay their tax liability and under what circumstances.

Of course it is always right that in pursuing those obligations, the tax authorities behave reasonably. I suppose I would say this, but I think that they do behave reasonably. I am happy to defend with some vigour the right of officials to pursue those debts on behalf of all of us.

The final question concerned Scotland and ahs nothing to do with time keeping. It would be ideal if we operated one set of rules throughout the United Kingdom, but it so happens that a slightly different set of rules operate in Scotland, and those are the rules commonly understood that arise from the Debt Arrangement and Attachment (Scotland) Act 2002. I considered that, and my officials advised me on the matter. Bearing in mind that we are trying to assist employers in meeting their obligations, and given that 14 days was the common practice in Scotland, it was sensible to align the provision with that point. I think that is correct. I would have preferred seven days, but it is not worth going to the wire on the issue. We want to encourage people to pay their liabilities, and do not want to have to use distraint as a way of recovering them.

I hope that that has dealt with the questions, and I am happy to commend the clause to the Committee.

Question put and agreed to.

Clause 5 ordered to stand part of the Bill.