I welcome you to the Chair, Mr. Griffiths. You had the good fortune not to hear the earlier part of what I have to say, and Labour Members will be delighted to hear that I have nearly finished.
My last point is about the range of compliance regimes in the Inland Revenue. The Library note on the Bill refers to the regime for the national minimum wage. The Bill seeks to achieve consistency of approach, so that the compliance regime is the same for statutory maternity pay and statutory sick pay as for the other new benefits and for tax and national insurance. Will the Minister confirm whether compliance regimes across the Inland Revenue are consistent?
Good afternoon, Mr. Griffiths, and welcome to the Chair. The Committee has covered several issues while debating clause 9.
For the sake of the record, and with the Committee's indulgence, I will clarify a point that I made this morning in response to the hon. Member for Hertford and Stortford (Mr. Prisk). To make it clearer for Hansard, I will repeat what was said. The hon. Gentleman made a point about typographical errors, including one in the regulatory impact assessment. I am impressed by his thorough perusal, but his suggestion that there are typographical errors there and in the regulatory impact assessment are not correct. I think I gave him the correct answer, but I also told him that he was correct about the typographical errors, so I will put that straight.
First, the hon. Gentleman suggested that, in the part of clause 3 that is to be inserted in paragraph 3A of schedule 1 to the Social Security Contributions and Benefits Act 1992, we had missed out an ''or'' at the end of sub-paragraph 2B (a). The Inland Revenue does not believe that an ''or'' is necessary because the meaning is clear without it and the punctuation follows similar provisions in other parts of the Bill. I think that I inadvertently used a double negative,
which might have given the opposite impression. I apologise—I have been swapping between ''employers'' and ''employees'' and between ''primary'' and ''secondary''.
Secondly, there was a reference to employees paying the secondary national insurance liability. That was in the regulatory impact assessment, in the context of clause 3. That is quite right, and it is not a typographical error. The clause describes one of the few occasions—it was the subject of our debate—on which employers' secondary liability is transferred to employees, who, as the hon. Gentleman rightly pointed out, would normally pay only primary national insurance liability. None the less, he made a good point, although it was not correct. I apologise to hon. Members if I inadvertently gave a different impression. I think the record will show that I am making the same point, minus the double negative.
I welcome you to the Chair, Mr. Griffiths. I am grateful to the Paymaster General but, naturally, I am slightly crestfallen. To move on, having licked my wounds, I wish to clarify whether sub-paragraph 2B, to which she has just referred, contains three distinct definitions related to relevant employment income. Regarding sub-paragraph 2B, I understand that (a) and (b) are mutually exclusive circumstances, but find the drafting uncertain as to whether it means (b) or (c). I assume from the way it reads, and from what I think she was just saying, that the meaning of the definition is (a) or (b) or (c). I think that it is (a) and (b) or (c), but I want to clarify the exclusivity of those sub-definitions.
Yes. In sub-paragraph 2A, the ''relevant employment income'' means the sum in (a) or (b) or (c). I hope that that is what the hon. Gentleman just said. I would not like him to be crestfallen.
Yes, it was dogged of the hon. Gentleman to pursue that point, and quite right. Thank you, Mr. Griffiths, for allowing me to ensure that it was correctly covered.
I return to the specific questions asked by the hon. Members for Hertford and Stortford and for North Norfolk (Norman Lamb) about clause 9. The hon. Member for Hertford and Stortford asked a straightforward question about the notification and the changes being explained so that employers fully understand. Implementation will take a year, during which time the measures will be fully explained and provided to employers, so that they are given the necessary time and understanding.
The hon. Gentleman's next question was about the scope of employers' non-compliance with statutory sick pay and statutory maternity pay schemes, as opposed to non-compliance on tax. Generally, most employers comply voluntarily with their obligations under the PAYE system and under the statutory sick pay and statutory maternity pay schemes. Employers deal with tax and national insurance at least every
month, but they do not deal with statutory sick pay and statutory maternity pay as frequently. That is why some employers may find those schemes more difficult to deal with and may be more prone to errors. We believe that it is right to recognise that and to have some understanding of that in the system. I think that is the point that the hon. Gentleman is pressing.
The penalties will not be applied where employers have tried their best to get things right, but have made mistakes. In such cases, the Inland Revenue would want to help the employers to get it right for the future. As we discussed on Second Reading, a significant amount of help is available to assist employers with that, including dedicated telephone helplines, extensive online guidance and a network of business support teams.
There are a small number of cases—about 50 a year—in which employers adamantly refuse to pay statutory sick pay or statutory maternity pay. Although the number is small, it impacts directly on the rights of vulnerable employees, who are denied their right to statutory sick pay or statutory maternity pay when they most need it. We will use the penalties in such cases. The system of criminal offences is ineffective, as it is both costly and complex. The Inland Revenue believes that a more flexible civil penalty regime will help us to reduce the number of such cases, while giving us latitude when dealing with employers that have made genuine errors or very small errors that can be put right.
In a larger number of cases—about 100 a year—the employer refuses to pay because he disputes his liability to pay, and continues to fail to pay once the technical dispute has been resolved. Again, that is a small number, which we hope the operation of the compliance regime will reduce even further. We will have to monitor the situation carefully. The number is small, but none the less important to those employees.
The hon. Member for North Norfolk asked about the calculation of penalties in individual cases and about the different standard proof required in civil and criminal proceedings. On Second Reading, we covered the point about ensuring that the penalties are proportionate, which echoes my point that an error over paying one employee is different from a systematic failure and refusal to pay 50 employees.
The procedure for imposing the penalties will be common with the procedures applying to tax penalties. Those procedures are set out in the Inland Revenue's published guide—again, we want a common approach—and the procedures for applying the penalties will also be published. The Inland Revenue officer will calculate the penalties based on the principle that, within the statutory maximum, the penalties will be proportionate to what has taken place.
In the case of a refusal or a repeated failure to pay, the penalty to be charged will be based first on the number of employees involved, then on whether there has been a repeat of an earlier failure. Similarly, if an employer fails to produce documentation, the penalty
awarded will be based on the number of documents involved, their importance and whether there has been a repeat of an earlier failure. I should add that there is always a right of appeal against a penalty through the tax appeal commissioners. The guidance is that which has already been published. The penalty regime will also be published. It can be challenged, although the official will try to make it proportionate.
Will the Minister say how long an employer should keep documents for possible inspection? The welcome draft regulations, which we have, refer to other regulations on document keeping that we do not have, but do not make it clear how long an employer has to keep documents.
An employer must keep records for three years. Things are not the same as in respect of the ability on tax, where the period for claiming back owed or refundable tax is six years. What is important is that the employers understand the requirements. Again, to underline the point that I made at the beginning of the debate, the overwhelming majority of employers understand and comply with them, and there are no problems. The requirements are mechanisms to deal with the albeit small number of employers that fail repeatedly to fulfil their obligations.
Finally, the hon. Member for North Norfolk asked about the different standard of proof required in civil and criminal cases. I believe that he is a qualified solicitor, so he will know better than I do. The standard of proof required in civil cases is based on the balance of probabilities. I am sure that he would agree with what I have said so far, which is that that would be a reasonable approach in this case. However, the penalties introduced by the Bill are about the failure of employers to comply, for example, by paying statutory maternity pay or by providing relevant information. When the Inland Revenue official considers whether a penalty should be applied, there should be no doubt in his or her mind that such a failure has occurred.
Once the penalty has been awarded, the employer may appeal to an independent body—the tax appeal commissioner—if he or she believes that the alleged failure has not occurred. In short, the penalties will not be applied where there is real doubt about the circumstances of the case. Again, we seek to strike the right balance between the lack of any need for such action, given that the overwhelming majority of employers comply, and the need for appropriate powers to deal with the recalcitrant.
Am I right in my understanding that the power of prosecution has not been used in recent years, or at least has been used rarely?
I understand that the hon. Gentleman is correct. This is an example of having powers that are not used and probably another indication that they are inappropriate to the task that needs to be set. Opposition Members might be sceptical, but the Government encourage our
Departments to address powers that are not used or are inappropriate to the task, or, as the Bill demonstrates, are there for good reason but act as a block on behaviour that we would like to encourage—therefore, they need to be amended. If the system was working perfectly well, one might ask why we were changing it, but as the hon. Member for North Norfolk said, criminal proceedings have not been used recently.
The whole thrust of the work that tax departments do should be to assist and encourage voluntary compliance by employees or employers, while having powers for use only in extreme cases. Maintaining a tax system with high levels of compliance, which we have, means ensuring that those powers are appropriate and appropriately used. We could have thousands of prosecutions, but that might clog up the system and take us no further forward. The idea is to educate employers so that they understand what their obligations are and have clear expectations of what the tax authorities will do, so as to produce the end result that we want.
The hon. Gentleman's final point was about the national minimum wage. The penalties are wholly consistent with those for failure to provide information with respect to tax and are identical to those for statutory paternity and adoption pay. However, compliance in respect of national minimum wage cases is different. The distinction, which hon. Gentleman may think arbitrary, concerns the Inland Revenue. The Secretary of State for Trade and Industry has responsibility for the operation of the national minimum wage, whereas Inland Revenue officers act as the enforcement arm. They do so on behalf of the Department and operate under powers that it introduced in section 31 of the National Minimum Wage Act 1998, which sets out criminal offences for failure in respect of the national minimum wage. The national minimum wage continues to bed in and the Inland Revenue has been successful in using those powers to ensure compliance, so I see no argument at present to move from that. However, there is a difference and the hon. Gentleman is right to flag it up.
I understand that the Paymaster General makes a distinction because the matter is dealt with by a different Department, but for employers that makes no difference. On the national minimum wage, they deal with one department—the Inland Revenue—that acts on behalf of the Department of Trade and Industry. Given that we are trying to move towards a consistent approach, surely it should make no difference whether two different bodies are involved. There should be joined-up thinking, or does the Paymaster General argue that criminal penalties are needed with regard to the national minimum wage but not with regard to tax? I do not understand the logic behind taking an approach to the national minimum wage different from that applied to all the other regimes of the Inland Revenue.
That goes back to the point that the hon. Gentleman made when he asked when the criminal powers were last used over statutory sick pay or statutory maternity pay. If he asks me that question about the national minimum wage, he is going to get a rather longer list of examples in which criminal powers have had to be used, reluctantly, for enforcement. I do not know whether that is a product of new arrangements—I could not say whether there were more criminal proceedings when statutory sick pay was first introduced than there are now—but he makes a fair point about looking at the issue. However, for all that, the offence is prosecutable and one can be taken to court for failing to comply. It is important to understand the difference between complying with obligations and wilfully not complying.
On statutory sick and maternity pay, given the smallness of the number of those who remain intransigent and refuse to comply, it is the Department's judgment that those people can be brought into line by the use of penalties in civil proceedings.
May I ask the Paymaster General the question that she invited me to ask? Can she provide us with the statistics for prosecutions and convictions in relation to the national minimum wage? Also, she has referred to fraud. I assume that, irrespective of the fact that we are moving towards civil penalties, if there were evidence of a deliberate attempt to avoid a payment that is due, the criminal law on fraud could still be used in relation to tax, statutory maternity pay or statutory sick pay.
It is important to draw a distinction between failure to comply and wilful failure to comply, which can turn on small points, and fraud or evasion. We need to be able to respond. Given the breadth of the obligations on both the tax authorities and the taxpayer to which the tax authorities need to respond, it is important that, where we can, we have one set of rules and we pursue them. Sometimes, for there to be fairness, a response has to be proportionate, so there might be slight variations.
None the less, the hon. Member for North Norfolk makes a valid point. It is not for the Committee to discuss the national minimum wage, but there was, and still is, some resistance to those requirements. I cannot speculate as to whether new provisions go through phases, but I will say that the national minimum wage is a matter for the Secretary of State for Trade and Industry. I am happy to write to all members of the Committee about the position regarding prosecutions and their success rate, although that will be published in the joint minimum wage reports of the Inland Revenue and the DTI. There will be no problem with that. I have covered all the questions and I am grateful to hon. Members for their patience.
Question put and agreed to.
Clause 9 ordered to stand part of the Bill.