New Clause 1 — Administration of statutory leave payments

Orders of the Day — Work and Families Bill – in the House of Commons at 12:35 pm on 18th January 2006.

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'The Secretary of State shall make regulations providing that any employer employing fewer than 50 persons may transfer to the Secretary of State responsibility for the administration of payments to that person's employees of—

(a) statutory maternity pay,

(b) adoption pay,

(c) additional statutory paternity pay, and

(d) ordinary paternity pay.'. —[Norman Lamb.]

Brought up, and read the First time.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry) 12:44 pm, 18th January 2006

I beg to move, That the clause be read a Second time.

Although we strongly support the purposes of the Bill as a package, we must recognise its impact on employers, especially small employers. It is incumbent on us all to ensure that its impact on employers is kept to a minimum. That has clearly been the Government's view, which they have expressed at various times.

The Government's 10-year strategy for child care, published at the same time as the pre-Budget report in 2004, made a commitment to consider the case for what the Revenue document, with which the Government have provided us, described as "direct payment"—a term I shall use in making the case for the new clause. Their starting point suggests that they saw the possible benefits of direct payment. Indeed, Labour's manifesto repeated the commitment to help employers. It made a commitment to increase paid maternity leave

"while simplifying the system for employers".

That commitment has been constantly stated.

The paper from Her Majesty's Revenue and Customs, which the Government have helpfully supplied, refers to the consultation that took place in the run-up to publication of the Bill. It talks about meetings with a consultation panel to discuss the issue; the panel included payroll experts and representatives from small and large employers. Interestingly, the Government's paper confirms that the employer representatives on that panel, in essence, support the new clause. They recognised that concern was greatest among small employers and that large employers did not want to introduce direct payment, as it would cause them unnecessary complexity and they would prefer to administer the system themselves. They recognised that there would be benefits for some small employers. The paper and common sense suggest that the benefits would be felt most by employers who still use manual payroll systems, where the process for making payments is more time-consuming than in an automated system.

The paper confirms that if a system were introduced based on the provisions of the new clause, or something akin to them, the cost of its introduction would be reduced. It gives a figure for start-up costs of £38 million—rather than £75 million—for a simple system, directed to assist small employers who choose to transfer responsibility to the Government. The paper accepts that the ongoing yearly costs would inevitably be substantially less than the £50 million it cites.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

If we accept the figure of £38 million that the hon. Gentleman gives, what benefit to small business would accrue each year?

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

The paper refers to a total net benefit of £1.1 million. The figure for small employers, defined by the national insurance contribution threshold of £45,000 a year, would be about £400,000 a year, but the benefit would be focused on employers whose costs are much greater than average—those who decide that it is in their interests to transfer the administration to the Government, presumably because they have manual systems that they judge will take too much time to administer themselves. So the paper nowhere identifies how much that would benefit those employers whom the new clause would help.

Photo of Helen Jones Helen Jones Labour, Warrington North

What estimate can the hon. Gentleman give of the number of employers who would wish to transfer their responsibilities in the way that is suggested in the new clause?

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

I cannot give an estimate of the number, and it is not necessary to do so to make the case. The HMRC document confirms the fact that the employers' representatives on the Government's consultation panel advocated a system that would allow the right to transfer responsibility to the Government to be focused particularly on small employers. In essence, the new clause builds on the case put by the employers' representatives on the Government's panel and recognises the fact that large employers see no benefit in the proposed system. They are left out of the equation. The focus is simply on those employers who would benefit by transferring the system to the Government.

According to the HMRC paper, small employers said that they would benefit. The paper also correctly recognises that every employer is different—employers have different payroll methods—so rather than simply seeking to transfer the responsibility for all payments to the Government, the new clause would give employees the power to decide whether they want to take advantage of the right. Under the new clause, we seek to recognise the facts that are set out in the HMRC document by excluding large employers, who would not benefit, from the right to transfer.

The paper also confirms that approximately 40,000 women employed by small employers—those employers who make national insurance contributions of up to £45,000 per annum—are in receipt of statutory maternity pay. I cannot begin to estimate the cost of the Government employing an administration to operate on the opt-in principle dealt with in the new clause, but if we are talking about a total of 40,000 women and only a proportion of their employers choose to transfer, I can imagine that the size of the unit that would be required to administer the system for the Government could be very limited and therefore could be provided at vastly lower cost than that set out in the HMRC paper. The paper itself concedes that the costs would be significantly lower when dealing with an opt-in system of the sort that we recommend.

I have already dealt with the net savings, but I want to say a word about whether we can rely on the figures set out in the Government's paper. We all accept that any regulatory impact assessment is inevitably only an estimate, because it considers what would happen in the future. There must inevitably be doubt about how accurate those estimates are likely to be in practice. The concern of many in the small business community is that the paper underestimates the time taken to administer those arrangements, particularly by small employers who operate manual systems.

The paper obviously considers average times for employers, but the new clause focuses on those small employers with manual systems who are trying to cope with everything, who do not have a director dedicated to dealing with payroll and staff issues and where a one-man or one-woman operation is trying to keep the whole show on the road, as well as dealing with all this. In those cases, learning and understanding what is involved in the payment of maternity or paternity pay, when the employer may not have had someone in that situation for some years, is a time-consuming operation. It is very easy to underestimate the burden that that imposes on employers. If that burden can be lifted and transferred to the Government—as they clearly envisage would be appropriate, provided that the costs are not too high—it seems right to do so.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

That is recognised in the 104.5 per cent. that can be returned to small businesses. That percentage contains an element to meet those costs.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

I am grateful to the Minister for making that point. Page 2 of the HMRC paper states that the additional 4.5 per cent. is intended to compensate businesses for the employers' national insurance contributions.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

The point is that that part of the scheme will not do what the Minister says it will do: it is not intended to cover the cost of administering the scheme. Given that he clearly understands that there is a case for ensuring that an element of the payment covers the administration costs, if he rejects the new clause will he consider increasing the percentage repayment as an alternative? I am happy to give way if he would like to intervene.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I do not want to take all the hon. Gentleman's time, and we will have a great deal of time for the debates this afternoon. I want to emphasise the point that the Government acknowledge the position of small businesses. I think that a lot of the hon. Gentleman's information relies on the brief issued by the CBI, and we have told the CBI that we will be prepared to talk to small businesses and to ask them how we can help them to administer what we know is a culture change in the Bill.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

I am grateful to the Minister for those comments. If we can take them as a willingness to consider the possibility of increasing the percentage repayment, I am sure that small business would be delighted to hear that. I am not entirely convinced that he has that in mind, even though he has indicated that he thought that the payment included something to cover the cost of administration.

Photo of Alan Reid Alan Reid Shadow Minister (Trade and Industry)

Does my hon. Friend agree that, because the 104.5 per cent. figure is based on a certain level of employers' national insurance contributions, it will often apply to employers with about 15 or 16 employees, whereas the extra money will not apply to those employers with between 15 and 50 employees who would be covered by the new clause?

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Yes. A very limited benefit will apply to only the very smallest employers. As my hon. Friend rightly says, many employers in the category caught by the new clause, who would benefit from the right to transfer responsibility back to the Government, will get no assistance in covering NI contributions and only 92 per cent. of statutory maternity pay back from the Government. If the Government are not prepared to go down the route that we suggest, they should consider whether they are prepared to increase the percentage repaid to employers.

I am not sure whether HMRC's assessment adequately takes into account the cash-flow benefits for small employers in not having to make the payment in the first place. At the moment, every week, they must pay the woman on maternity leave or the man on paternity leave. If the responsibility were transferred to the Government, those payments would not come from small employers' systems at all. I am not sure of the repayment time at the moment—it would be helpful if the Minister could confirm it—but a cash-flow burden is imposed on businesses for the period that the money is out of their systems. Those businesses would be assisted if the Government took over responsibility for making the payments. I do not think that the assessment made by HMRC adequately takes that into account.

HMRC's calculation takes account of the fact that many employers have complex remuneration packages because of pension contributions and so on. It says that all those burdens remain with the employer, but the remuneration packages of most small employers are much simpler than those of large employers, so the burdens would not be relevant if they were not part of the remuneration package in the first place.

The Government's response is to try to solve everything by handing out a CD-ROM to employers—that is their get-out-of-jail card. They will also provide employers with a "teach yourself" package that will give them everything that they need to administer the system. However, the Government do not understand that the voluminous guidance that comes out of the Department of Trade and Industry in itself puts an administrative and regulatory burden on employers. In my previous life as an employment lawyer, I was constantly aware that employers were swamped by "teach yourself" guides and guidance notes on how to interpret regulations, such as the working time directive. Small companies are struggling to maintain their businesses, let alone do all the administration that goes with that, but the Government want to give them yet another "teach yourself" guide and burden. The proposal is not the panacea that the Government think that it is.

I have outlined the thinking behind new clause 1. I realise that the Government have stated an intent to help businesses, especially small businesses, to deal with the new burdens on them. However, we have seen little action to back up that intent. The Minister looks distressed by what I say, but it is the truth. Little has been done through the Bill to ease the burden on employers. In a nutshell, the assessment by HMRC understates the costs for employers. If we had the opt-in system about which we are talking, the cost to the Government would be significantly less. I know that the Minister is a reasonable man, so I hope that he will accept our arguments and that there will be no need to divide the House.

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality) 1:00 pm, 18th January 2006

We want the Bill to work, which is why we have joined the Liberal Democrats in tabling new clause 1. Norman Lamb explained eloquently and thoroughly the reasoning behind it, and we also discussed the matter at some length in Committee. He has cited all the statistics and arithmetical reasons that explain why we think that the Bill would be considerably improved with the addition of new clause 1 and I will not repeat his arguments—I agreed with what he said.

We understand that if the Bill is to work, its measures must have the confidence of those who will be affected by it. I am especially worried, as ever, about burdens on small businesses. Again and again, the Government bring forward ideas. Those ideas are sometimes good in principle, as is the case with the Bill. The Bill's intention of improving the work-life balance not only for parents—both mothers and fathers—but for people with caring responsibilities is good, but as ever, the Government will not take responsibility for administering their proposals. They expect, and indeed require, others to do so, and in this case, as in so many other cases, those others will be small businesses.

Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform)

I hate to interrupt my hon. Friend's flow, but does she realise that the people to whom she just referred are also parents? The irony of the Government's position is that self-employed parents might be able to spend less time with their families because of the administrative burden that we are debating.

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

My hon. Friend is correct. It is undoubtedly true that when we talk about helping parents and carers, and thus improving matters for children, we are talking about all families in the country. Some families consist of employees, while others consist of employers. No one is suggesting that they should be treated differently. We want to improve matters for all families, so my hon. Friend makes a pertinent point.

As ever, the matter comes down to a question of balance. New clause 1 would help small businesses considerably by taking away from them the burden of administering maternity and paternity leave and pay. It would thus be easier for small businesses to concentrate on the matter on which they should concentrate: in a nutshell, making money. Time is money for a small business person. If employers have to spend more time than is necessary on administrative matters, they are, by definition, spending less time on running the business and making a profit. If a business makes a profit, it allows more jobs to be created and, perhaps, the payment of bonuses to employees. It is in everyone's interest that businesses run efficiently and well. The days of employers taking everything out of a business and employees putting in all the effort are gone—well, we hope that it does not happen any more, at least in 99 per cent. of cases. Most good employers know that if they treat their employees well, they will have a better work force and thus better businesses.

We return to the question of balance. Most people in Britain today are employed not by large businesses and multinationals, but by small businesses. What happens to small businesses thus has a knock-on effect on most employees. If employers spend too much time on administration, their businesses suffer and become less profitable, which might mean that they have to make employees redundant, or not take on more employees. A successful business will create employment and provide better conditions for employees, and a business is more likely to be successful if the administrative burden is removed from it.

Photo of Stewart Jackson Stewart Jackson Conservative, Peterborough

Does my hon. Friend agree that there seems to be a dichotomy in the Government's position? They are unwilling to accept new clause 1, but on Second Reading, at column 645 of Hansard on 5 December 2005, the Secretary of State for Trade and Industry said that the Government estimated that the new provisions would affect only a small number of small businesses. One thus wonders why they are not willing to accept the reasonable measure that we are considering.

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

I agree. My hon. Friend makes a very good point. I was about to mention the cost question, the Minister will not be surprised to hear.

In Standing Committee A, on 13 December, at column 53 of Hansard, when we were debating an amendment about the central administration of benefits and statutory pay, the Minister gave us some remarkable figures. He said that the cost to small businesses would be in the region of £400,000 a year. That is quite low, and if that were to be the cost, it would be reasonable. Yet the cost to Government, the Minister told us, of doing exactly the same would be £75 million in start-up costs and £15 million annually. I do not suggest for a moment that the Minister gave those figures in anything other than good faith, but I am amazed, and have been since 13 December. Where do those figures come from? The difference between £400,000 and £15 million is enormous, and it beggars belief that the figures can be accurate.

I do not believe that £400,000 would be the effective annual cost to small businesses throughout Britain. It must be much, much higher. When we pass the Bill, as I hope we do, we shall be asking businesses to take on an even greater task than they have at present, and give more and more flexibility to their employees. I agree with that in principle. It is right that maternity arrangements and pay should be as advantageous as possible because, as a society and an economy, we need women to do two jobs. We need them to produce children and we need them to be economically active in the work force.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

The hon. Lady referred to the figure of £400,000 as the cost for small businesses and made the point that it may well be much higher. Is not the issue also the rather unquantifiable time that it takes someone who is trying to cope with everything to deal with this burden on top?

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

Yes, and that is exactly the point that I am about to make. We are asking businesses to give extra flexibility to their employees. That means that we are asking them to make administrative arrangements for people to be away from their work duties. We support that; it is right. Families need that time; children, particularly new babies, need that time. I know personally that it is vital, as I seem to be running around in circles. This is my son's first week at real school, and I am trying to take him there in the morning and pick him up in the afternoon, although I will not be there this afternoon. We are fortunate. We have great flexibility in our hours here—they are long hours but they are quite flexible. If we have that privilege, so should as many other employees in the country as possible. I am completely in favour of that.

We are, however, asking an employer, first, to make arrangements to provide that flexibility, and secondly to administer a replacement employee, perhaps from an agency, to do the work that is not being done by the person on leave. We are asking the employer to pay money to the employee, and to go through a further administrative form-filling experience of claiming it back from the Government and then balancing the accounts. The hon. Member for North Norfolk made the cash-flow point very well. Instead of a very simple arrangement between employer and employee for the payment of wages, tax and national insurance, the situation becomes much more complicated, and it all takes time. As I said before, to an employer or small business man, time is money. The very effectiveness of the businesses that we are trying to encourage and support is threatened by what we are asking them to do in the Bill.

In new clause 1, we recognise that we are asking businesses to take on extra burdens because that is right for the economy, society and families, good for employers and businesses, and good for employees, so the Government ought to help in the administration of that burden. The Government promised to be deregulatory—that is the biggest joke I have ever heard. The Chancellor makes speeches about deregulation; the Government count the regulations and say how many there should be. My understanding—the Minister will correct me if I am wrong—is that if a new regulation is introduced, some other regulation has to be abolished to keep the regulatory burden balanced. That is certainly not happening. The Chancellor likes to talk about these things, but in reality that is not what the Government are doing for the employers and employees in UK businesses.

Photo of Michael Jabez Foster Michael Jabez Foster Labour, Hastings and Rye 1:15 pm, 18th January 2006

It is enormously difficult to decide what regulation to get rid of when another is introduced. The hon. Lady has said what a good idea these regulations are. Can she give an example of a regulation that she would get rid of, to help us out?

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

Yes—exactly what new clause 1 proposes. The entire content of my speech is the answer to the hon. Gentleman's question. I propose that as we require an extra burden to be put on businesses by the regulations on maternity and paternity leave being introduced by the Bill, we should at the same time remove from small businesses the burden of administering those regulations.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I read with interest the Financial Times this morning, which says, "Tories back concerns over parental leave". The hon. Lady was quoted as saying that she was concerned about fathers taking days off. Is she saying that, contrary to what her party said on Second Reading and in Committee, it does not accept the culture change and principles underlying the Bill because the Government are not prepared to consider one aspect of the issue—direct payments?

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

Not at all—far from it. I did not think that I was wrongly quoted in the Financial Times; I thought that it was a well-balanced explanation of the situation, although I admit that I have not yet read it, so I will have to check it very soon. I am utterly consistent with everything that my hon. Friends and I said in Committee. We entirely back the principle of the Bill. Michael Jabez Foster asked me a pertinent question: if a regulation is to be brought in, which one would we take out? As I said, all this is a question of balance. We are asking small businesses to take on extra burdens, and it is the Government's responsibility to help them with those burdens. It is simply not fair to expect small businesses to do the Government's work of collecting taxes and paying out benefits. That is what the civil service is for.

Photo of Michael Jabez Foster Michael Jabez Foster Labour, Hastings and Rye

Is the hon. Lady simply talking about who should pay for the regulations, rather than whether the regulations should be introduced? I thought that she was arguing that certain regulations were unnecessary. However, she now seems to be arguing about who should pay. What substantive regulations would she get rid of?

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

It is not just a question of who pays; it is a question of who administers the regulations. The hon. Gentleman has misunderstood my point. Theoretically, the provisions in the Bill should not cost small businesses anything, because they will be reimbursed for the statutory maternity and paternity pay that they pay out. They could choose to pay additional maternity and paternity pay, but that would depend on the business, and on the contract between a particular employer and employee. The issue is one of who does the administration involved.

The Government continually fail to recognise this problem. We are the party of small business, and we do recognise it. I can still hear my father complaining, as he sat up late into the night—often past midnight—year after year, filling in forms and administering the part of his business that he was required to administer by the Government. This was at its worst under the Labour Government of the 1970s, when there was a recession in the building industry. I will never forget the effect that that had on my father and the rest of our family, or the enormous strain caused by the Government's imposing great difficulties on small businesses. It is not difficult to run a business, but it is difficult to keep all the regulations straight and do everything that the Government require. That is mostly what makes businesses go out of business, and I do not want to see that happening.

The intentions of the Bill are good, and I can confirm, in answer to the Minister's question, that whatever the Financial Times says, we back the intent of the Bill. We are in favour of the really good provisions that it contains, because they will help families, employees and employers alike. However, we want the new regulations to work properly, and it is simply unfair to impose extra burdens on small businesses. They are the lifeblood of our economy and our society, and they must be helped, protected and nurtured, not burdened by extra red tape, regulations and costs.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Trade and Industry)

I welcome this opportunity to make a small contribution to this debate. As I said on Second Reading, I support the Bill because it introduces important new rights for workers. However, I also find myself strangely in agreement with much of what Mrs. Laing has said about small businesses, although I should gently remind her that I ran a small business during the 1980s and 1990s, and regulation under the previous Conservative Government was every bit as bad as under any Labour Government. Whoever is in power, the amount of regulation for small businesses never seems to get any less.

My experience of running a small business leads me to support the new clause. I was surprised, however, to see that it stipulates the figure of 50 employees, as any business employing that many people would be considered relatively large in my neck of the woods these days, given the direction that the rural economy has taken over the past few years. Before I was elected to the House, I ran a small business as a country solicitor, and I recognise the hon. Lady's description of her father's frustration. The reality of running such a business is that employers do not do the VAT, the tax and the PAYE between the hours of 9 to 5 while they are in the office. That is when they try to make some money. They do those things in the evenings or at weekends. They go home at night and sit up until midnight, or often later, wrestling with these things. I was a solicitor but I am afraid I never truly got to grips with PAYE.

The Minister must realise that we are not just talking about tax regulation and maternity and paternity pay. Every business is subject to regulations from many other agencies as well. The cumulative effect of all these regulations, and the amount of time that anyone running a business has to spend dealing with them, will have an impact on that business. In my own case, there were masses of regulations that had built up from the Law Society of Scotland and the Financial Services Authority. Eventually, we decided that it was not worth the candle to go through all that, and that it would be better to junk our financial services business altogether because of the amount of regulation involved. There were good reasons for those regulations, because of what had happened in the financial services industry, but they became a huge burden for small businesses, which were doing their best to provide a service in small-town areas. The time spent dealing with those regulations impacts on a business, because it eats into the time that can be spent doing other things, such as spending time with the family.

A particular difficulty with these regulations could be the complexity of the interaction between the times when a mother and a father take their maternity and paternity leave. There could be difficulties with dealing with the statutory pay involved. That is another reason for considering ways of making it easier for small businesses to deal with these regulations, because they could get into difficulties if both parents were not working for the same employer. There would have to be interaction between the employers involved, as well as the Inland Revenue, and that could present problems. Transferring the obligation to the Revenue might provide a way round that, but there could still be an inherent difficulty if one party were with the Revenue and the other were not.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

The hon. Gentleman is describing the reason why we want to consult on how to deal with the additional paternity leave. We shall do that, and we shall have discussions with small businesses about the issue. I am concerned that the hon. Gentleman seems to be talking about regulation in general, rather than the direct payments proposed in the Bill. Does he consider a benefit of £400,000, following an investment of £38 million, to represent value for money for the taxpayer?

Photo of Michael Weir Michael Weir Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Trade and Industry)

If the figures are correct, it would not appear to do so. I must echo what the hon. Member for Epping Forest said earlier: the figures seem incredible for what I would have thought to be a relatively simple operation. The Minister says that I am not talking about the specific measures in the Bill, but we cannot divorce those measures from the impact that other regulations have on small businesses. They have a cumulative effect. This might only be a small regulation that we are passing—although it is an important one—but it will be yet another regulation on top of all the other regulations that businesses have to deal with.

I accept that there is a need for many of these regulations in the modern world. I do not subscribe to the theory that we should just throw all regulations out of the window. We have to have regulations, but they must be minimised, and we must do everything that we can in that regard when imposing new laws for the social good. The Bill will be for the social good of families, but we must also minimise its impact on business and on those families who run businesses. There could be other ways of achieving that. In my experience, many small businesses now outsource their PAYE and other tax work to local accountants because of the increasing complexity of the work involved. However, there is a cost involved in doing that. The more the accountant has to do, the greater the cost will be. Many small businesses are already struggling to make a living—there is a pretty hard business environment in some areas—and they would not be able to bear such costs.

I am inclined to support new clause 1. I appreciate that the Minister is going to consult on the provision, but this might not be the best way of dealing with the issue. We must find a way of minimising the impact on small business of these very good policies.

Photo of Stewart Jackson Stewart Jackson Conservative, Peterborough 1:30 pm, 18th January 2006

When speaking in this place, it is always a good rule of thumb to speak about something that one is vaguely acquainted with. That is a personal credo which is not always followed by other Members, but I hope to follow it today, as in a previous life I was a business adviser with Business Link. I well remember the days when I would trudge round Europe's largest industrial estate at Park Royal. As I would knock on the door and go into those very small micro-businesses, some with fewer than five staff and many with fewer than a dozen staff, the most dread words that I could say were, "I'm from the Government and I'm here to help your business."

That was rather unfair, and I take this opportunity to pay tribute to the sterling work done by Business Link. It does an excellent job. It is important to recognise the struggle that small businesses face every day to make ends meet. The points about cash flow made by Norman Lamb and my hon. Friend Mrs. Laing are well made. Whether by the British Chambers of Commerce, the Institute of Directors or the CBI, much comment has been made about the speed and quantity of regulations coming from Government.

I should like to explain in a wider context why I support the Bill from a political as well as a personal point of view. To be slightly partisan, I resent the implication that the Labour party—the Government—has a monopoly on concern for working people and on care about work-life balance, that amorphous group of policies dealing with quality of life issues. That is not true. My party should not be pigeon-holed as a party that is not progressive, that is not modern, and that is unwilling to look at Britain as it is today, rather than as it was. I strongly support the views of my right hon. Friend Mr. Cameron in that respect.

Similarly, I am not speaking today as a mouthpiece of big business. To me, big business has good parts and bad parts. The bad parts are supermarkets and banks, which are my own bugbear. But that is not free enterprise and competition. Free enterprise and competition is the invisible hand of Adam Smith, which my hon. Friend the Member for Epping Forest no doubt invoked when speaking about her father, a good Fife man.

We care about working families and we welcome the Bill because we think that in general it will be successful, it will make an impact and it will help with aspects such as bonding between parents, quality time, and nurturing and protecting family life. I say that not because I am some wishy-washy Liberal, although they are in the news this week, but because that is good, practical, economic common sense. I reiterate the comments of my hon. Friend the Member for Epping Forest that small business people have families too and they want quality time. If they have mortgaged their house or remortgaged their business and gone cap in hand to the bank, their right to have a family life is important too. We should do everything we can to mitigate the pressures on them.

I turn to the issue of paternity pay. In Committee Kitty Ussher was offended by the fact that men are paid more than women and consequently that paternity pay was an issue. That is a fact of life. There are cultural issues involved in the non-take-up of paternity rights. Men are often at a higher level in the hierarchy and are better paid than women, and they perceive that their careers will be damaged if they take paternity pay and avail themselves of paternity rights.

I referred earlier to the dichotomy in the Government's position, and I sense a slight weakening in resolve on the Minister's part with regard to new clause 1. The Government are effectively saying, "We are going ahead with paternity rights. We want more men to have that work-life balance, but there are not many of them, so don't worry about it." If that is the case, the Government should consider new clause 1 with an open mind.

We should be careful about the amount and proximity of regulations coming through to small businesses. There is both anecdotal and empirical evidence suggesting that we should not inadvertently bring about discrimination. If a business is struggling at the margin, business people will look at the legislation coming through and make a judgment about the impact that it will have on them. If the future of the business is a matter of life or death, they may well decide that they do not want to employ a young woman of childbearing age or a younger man. That is discrimination. I make no excuse for it, but if the Government are not sensitive to that degree of regulation and the burden that it places on businesses, they will find that the people they most wish to help—young families, mums and dads who have to work to pay the mortgage and meet the costs—will be discriminated against.

I am concerned particularly about paternity rights because I am unsure about the figures. Are they based on social studies, demography or statistics compiled centrally by the Department of Trade and Industry? I am not clear how straightforward and transparent the figures are and what impact they will have on small and medium-sized enterprises. For instance, the indicative estimates of the cost of paternity pay are anywhere between 12 and 21 per cent. That is potentially an 80 per cent. overrun. For the right to request flexible hours, the indicative cost is anywhere between just under £30 million and £120 million, which is a pretty substantial difference. That is a concern to me. One might say flippantly that the figures could have been prepared by the architects of the Scottish Parliament, but I would not go that far.

The issue is balance, as my hon. Friend the Member for Epping Forest said. We must get the balance right. We all care about making sure that the economy is improved, that businesses grow, and that families are not put under stress to the extent that they disintegrate as a result of getting the work-life balance wrong. None of us wants that. Given that 97 per cent. of the UK's gross domestic product is generated by small businesses, many of which are micro-businesses and innovative businesses, we must not throw the baby out with the bathwater or crack the golden egg. No more similes.

I broadly support the Bill. My experience as a business adviser is that where they can, people who run businesses will do their best to comply with regulations if they think they are fair and if they think others are complying with them. If they think the regulations are unfair and that the Government are not listening to them or their representative organisations, they will avoid them, the scheme will not work, and ultimately the Government will not achieve their aims. With that, I give the Bill a broad welcome. I hope that when the Minister speaks later, he will address the concerns that I raised today.

Photo of Alan Reid Alan Reid Shadow Minister (Trade and Industry)

The Bill is important and I welcome the rights that it extends to working families, particularly the rights that relate to the clause, concerning maternity, paternity and adoption pay. However, there is a downside to the Bill, as other hon. Members have pointed out—the extra burden of administration that it will place on employers, especially the owners of small businesses.

I shall quote from a document that I am sure the Minister is familiar with, the 2005 Labour party manifesto. It states on page 77:

"We will therefore increase paid maternity leave to nine months from 2007—worth an extra £1,400—with the goal of achieving a year's paid leave by the end of the Parliament while simplifying the system for employers."

Photo of Alan Reid Alan Reid Shadow Minister (Trade and Industry)

My hon. Friend Norman Lamb is correct. The Government made a commitment to simplify the system for employers, but it seems to consist of a CD-ROM and a do-it-yourself guide. That is not simplifying the system for employers and that is not what employers read into the Labour party manifesto.

I hope that the Government accept new clause 1, because we are trying to assist them in implementing their manifesto. New clause 1 would transfer responsibility for the administration of payments for maternity, adoption and paternity pay from a person's employer to Revenue and Customs. The procedures involved are complicated, and they will become even more complicated with the introduction of additional paternity pay, because in most cases parents work for different employers, which introduces an extra level of complexity.

The Government have referred to a cost-benefit analysis produced by HM Revenue and Customs, which claims to show a minimal benefit. However, that cost-benefit analysis considers only statutory maternity pay and does not attempt to examine issues such as adoption pay or paternity pay. Many small business owners challenge the assumptions in the cost-benefit analysis—in particular, they take issue with the time that the report assumes that it will take them to perform the necessary tasks. Employers who have examined the report say that it will take them far longer to carry out those tasks than the analysts from Revenue and Customs suggest. It is questionable whether the savings to employers set out by Revenue and Customs will accrue from the transfer of direct payments, and it is also questionable whether the benefits to employers will be as low as the report suggests.

We need to take account of the great burden on small employers who come across new working procedures for the first time. A big employer with large human resources and IT departments will handle the new processes easily, but a small employer who is faced with working out additional paternity pay for the first time will find that it takes a great deal of time, even with the help of the Government's CD-ROM and do-it-yourself guide. As hon. Members have said, that time is often late at night, and if the employer tries to deal with the matter during the day, it distracts them from trying to grow their business and create jobs.

New clause 1 states that companies with fewer than 50 employees should be given the choice between running that part of the payroll themselves or transferring it to HM Revenue and Customs, which should be able to run such procedures more easily given the benefits of scale. That would compensate small employers—the Government are giving small employers more work by introducing new rights for workers, and they should help them by taking on that part of the administration. It is vital that we free up small employers to enable them to grow their businesses, and we can do so by giving them a choice on the burden of administration.

Finally, I remind the Government of their manifesto commitment, which I hope that they honour today.

Photo of John Redwood John Redwood Conservative, Wokingham

I rise to support my hon. Friend Mrs. Laing and other hon. Members who support new clause 1. I am non-executive director of three companies cited in the register, but I am, of course, not speaking on their behalf or at their request.

The Minister should ask himself two important questions before he asks the House to reject the new clause. The first question has partially emerged in the debate: what has become of the Prime Minister's policy, which is very good, that a regulation should be struck off for every new one that is imposed? No equal and opposite regulation is being struck off to balance today's sizeable one.

Michael Jabez Foster asked my hon. Friend the Member for Epping Forest which regulation we would strike off. If he had been present in the House just before Christmas, he would have witnessed my leading for the Opposition from the Front Bench and setting out a wide-ranging deregulatory policy, which includes 63 specific ideas for the Government, and we have sent those ideas to different branches of the Government in the hope that some of them will be incorporated. Indeed, a Minister suggested the beginnings of one such idea in an overnight briefing to the papers, and perhaps the House will have the courtesy of being told whether it is true—it would be nice to feel that as a Member of Parliament, one is sometimes the first to hear such things rather than the last.

We have identified plenty of regulations that could be struck off to add to the good workings of the British economy and reduce the burden on people and businesses, but they fall outside the scope of the debate on new clause 1. One sometimes wonders whether Ministers belong to the same Government as the Prime Minister. The Prime Minister has made some extremely good speeches, such as his speech on deregulation, but the opposite of what he has said is happening day by day. As has been said, this provision is a good example of something happening in exactly the opposite direction from that set out by the Prime Minister and without the action to balance the situation enjoined by him. My hon. Friend the Member for Epping Forest has made it clear that she supports the proposal, but on the condition that offsetting deregulation, which has not been introduced, takes place.

The second question about which the Minister should think more carefully concerns cost. It is unsatisfactory that we should debate such an important measure with no credible figures from the Government, and I find it unbelievable that we are discussing a cost of only £400,000. If we examine the Government's assessment of the impact of the legislation, the gross figure for the regulatory impact of the legislation is cited as £575 million a year, if one adds up the highest estimates. The Government say that there could be offsets of £209 million a year against that figure—£196 million of those offsets are extremely optimistic, but let us give them to the Government. In short, according to the Government's own regulatory impact assessment, we are discussing about £400 million of extra cost.

We are being asked to believe that the important part of the cost imposed on small businesses will amount to some £400,000, so it is not worth exempting small business—although it will cost the Government a mind-blowing £39 million to deal with the problem, it will save small businesses only £400,000. I know that anything that this Government run is considerably less well run than it would be in the private sector—productivity is a far bigger problem in the public sector than the private sector—but it is difficult to believe that they are so monumentally incompetent that they would spend £39 million to save £400,000 a year. I put it to the Minister that the truth of the position is that a bigger element of the £575 million that the Government have identified will be attributable to small business, and that it would therefore be a useful saving for small businesses in implementing the measure to transfer the work burden from them to the Treasury in cases in which small businesses would like that to happen.

I understand that my hon. Friend the Member for Epping Forest and other hon. Friends have in mind an opt-in system, which means that if by any chance the Government are right and there are no real costs to the measure for small businesses, those small businesses would be happy to administer the measure themselves and the Treasury would not be troubled. However, I suspect that the measure will involve substantial cost. It would be a very good idea for small businesses for the Treasury to do the work, if we discover that the cost estimates are far from adequate.

It is fundamental that a Government who claim to believe in deregulation should set out accurate and detailed costings that have weight and carry credibility both with this House and with those outside who are interested in such matters. This is yet another example in which the regulatory impact assessment is on the whole vague and incredible. Where the regulatory impact assessment is specific, it comes up with some very large numbers, which the Government have passed by and cannot explain. We should not ignore the £390 million cost which the regulatory impact assessment states that the Government must pay, which means that the total cost of the measure taking the Government cost and the net private sector cost in the RIA will be around £800 million.

The Government must remember that they have no money of their own. They have only the money that they collect from us as individuals and from the business community, so the £390 million of so-called Government cost is also a cost on business and individuals who work for those businesses, just as much as the £400 million cost is a direct charge on the private sector.

I urge the Minister to think again. If he will not, and if he remains inclined to tell hon. Members that he does not want new clause 1, will he please explain when we will have proper figures for the costs and a proper off-set under the terms of the Prime Minister's policy?

Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform) 1:45 pm, 18th January 2006

It is a pleasure to follow my right hon. Friend Mr. Redwood, who, like every other speaker in the debate, supported new clause 1. I trust that the Minister will make it a full house and I look forward to his contribution on that basis.

New clause 1 is an eminently sensible provision. I do not often associate the Prime Minister with being eminently sensible, but it follows his original idea last year of a one-in, one-out approach to regulation, to which hon. Members have referred.

The background to the new clause is crucial. The administrative costs of the regulatory burden are especially important to the smaller employer. All hon. Members recognise that, for a smaller business, the costs are disproportionate to any perceived benefits. Conservative Members support the principle of the Bill, which aims to get the right balance between work and families. That is not questioned. The debate is about how to strike the balance and why the Government's original promise that they would seek to cover the administrative costs aspect of the deal has changed. That is at the heart of the new clause.

The administrative burden is already becoming difficult for small businesses to bear. The Federation of Small Businesses has highlighted the fact that each small business has to put aside an average of 28 hours a month to comply with Government information requirements and regulations. Given that, according to Government figures—we shall trust them for the purpose of this exercise—there are some 4 million small businesses, that is bad not only for the individual enterprise but for the productivity of the United Kingdom's economy. It cannot be right that so much time is spent on dealing with Government requirements and not on generating wealth.

Let us imagine what those businesses could achieve without losing that time. They could spend it generating prosperity and especially in employing new people or to generate new products and services. As Mr. Weir highlighted, that time is also lost to the families of those who run small businesses. If we are to be fair and balanced in ensuring that we help families, we cannot ignore the rights of the self-employed mother and father.

The payroll burden is of especial concern to smaller businesses. Other hon. Members dealt with the administrative burden, so I shall not allude to it in detail. However, there is also the difficulty in a small family business of employers, who may know their staff well, having to ask the difficult questions about relationships that are essential if they are to run a payroll system properly. That is often ignored and overlooked. My hon. Friend Mr. Jackson eloquently highlighted that we must not forget that those who run small businesses have families. That is a key point.

Let us consider new clause 1 and why I support it. I hope that the Minister can provide some thorough replies to my questions. First, I believe that the burden should be lifted on a quid pro quo basis. Is it no longer the principle that one regulation should be removed for another? The new clause would achieve that and I am therefore interested in the Minister's reply to that question.

Secondly, the point has been made, especially by Norman Lamb, about cash flow. As politicians, we often assume that the most important monetary aspect of a business is profit, and we are wrong. The most important aspect for small businesses is often cash flow. If cash flow is negative, sooner or later, there will be no small business. That point is often forgotten, so I want to stress it. A direct payment scheme will free up significant cash flow in small businesses and may be the one thing that prevents them from going out of business. I hope that the Minister will bear that in mind.

Thirdly, let us consider the controversy about costs. To refresh my memory, I read what the Minister told us in Committee. For the benefit of hon. Members who did not serve on the Committee, I shall quote him. He said:

"I said that the costs of the direct payment scheme were estimated to be up to £75 million in set-up costs and £50 million in annual running costs . . . the benefits for employers were estimated to be around £1 million per year, of which only £400,000 would accrue to small employers."—[Official Report, Standing Committee A, 13 December 2005; c. 52.]

Does the Minister really mean that small businesses can do something for £400,000 that costs the Government £50 million annually? Where does the figure of £38 million come from? What is the difference between that and the figure of £50 million?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

Norman Lamb used the figure of £38 million when he explained the application of new clause 1 to 50 people.

Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform)

That reaffirms my concern because of the difference between an apparent benefit of £1 million to employers, who can clearly run the scheme for that sum, and £50 million, which the Government have to spend on running it instead. Even if we put aside the £75 million of set-up costs, we are still considering an extraordinary difference in efficiency. As my right hon. Friend the Member for Wokingham said, that tells us an enormous amount about either the extraordinary efficiency of the private sector and why we should support it or the extraordinary inefficiency of the Government. Or perhaps it tells us something else: that the Government do not wish to engage in the process, are embarrassed by the promise that they appear to have made and therefore accentuate a difference that is not quite what the Minister claims.

I am interested in the Minister's explanation of the illogic of a position whereby one organisation can spend £50 million on administering something that many other organisations, which, one would assume, would be a little less efficient because there are many of them, can do for only £1 million. That is illogical and I hope that the Minister can enlighten us about that in his usual fashion.

My final point, which is of especial concern to business representatives, is to ask why the Government have reneged on what businesses regard as a promise. In all my talks with various business organisations—the Forum of Private Business, the Federation of Small Businesses or the CBI—they were crystal clear months ago about the fact that they had an agreement with the Government. Their phraseology was that the Bill was "part of a package" and they were willing to support it on that basis. They have changed their position because it appears that the package is no longer available. They perceive that the Government have reneged on it.

We have seen what was written in the Labour party manifesto. Business has been given some assurances and now we find a different settlement. When the Minister responds, will he tell us exactly what he or the Secretary of State agreed with business representatives, especially the CBI, so that we can better understand why they feel so aggrieved?

Fairness is at the heart of the new clause, which tries to ensure that we can allow families who work for small businesses to have a sensible balance in their lives, with the quid pro quo of ensuring that the smallest businesses that are run by people who have families can have some of the burden lifted. People in business believed that the Government were making that promise. The purpose of the new clause is to fulfil it.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs) 2:00 pm, 18th January 2006

I thank Norman Lamb for tabling new clause 1. It was not unexpected, given the extent to which we debated the issue in Committee, and there are strong views among the Opposition parties, who have come together to support the new clause and clearly wanted to pursue the matter further. Those views were emphasised by the CBI, which wrote to my right hon. Friend the Secretary of State just before Christmas withdrawing its support for the Bill because the direct payment issue had not been resolved to its satisfaction. Understandably, a number of Opposition Members spoke in support of the new clause today, but in raising the issue of regulation in general, as Mr. Redwood did, they lost sight of the balance that we are trying to achieve in the Bill and of the issue of direct payment. We consulted fully on the Bill, and sought the opinions of a range of organisations in the business community and the voluntary sector, as well as of stakeholders on whom the measure will impact. In fact, the Government were congratulated on the consultation and on the time that we took before introducing the Bill.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Does the Minister accept that, as a result of the consultation the employers' representatives to whom the Government talked supported our approach? The paper by Her Majesty's Revenue and Customs says:

"In the face of the mixed response from employers,"— that is a reference to the fact that there is support for the Bill among small business, but not among larger employers—

"their representatives suggested Direct Payment should be optional".

That is precisely what the new clause seeks to achieve. The paper says:

"Such a scheme could be developed."

Does the Minister therefore accept that the representatives consulted by the Government support what the new clause is trying to achieve?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

No, I do not. I shall come on to the work of the Committee later.

Mrs. Laing said that it was a question of balance. I agree. We must consider what provides value for the money for the taxpayer when administering the system. We made it clear at the outset that we are committed to delivering the work and families legislation in a way that strikes the right balance between the needs of children, families and employers. We looked at a range of issues that affect employees and employers. At the time of the 2004 pre-Budget report, we made a commitment to consider the possibility of direct payments as a way of easing the administration of leave and pay. After careful consideration, we concluded that the scheme would be out of proportion to the benefits accruing, representing neither good value for money for the taxpayer nor a significant saving for employers. Hon. Members asked about costs and it was estimated that set-up costs would be up to £75 million with annual running costs of £50 million.

Those costs should be contrasted with an estimated net benefit for employers of about only £1 million a year. A figure of £38 million was mentioned, but if we accepted new clause 1, which applies to employers with 50 employees or fewer, HMRC's analysis would be relevant. I accept that hon. Members wish to question the figures as they try to make their case, but those figures were widely available. In the CBI response, no one questioned the figures or the detail, nor did they offer alternative figures to explain why the direct payment scheme would work. There would not be any net benefit for the taxpayer or, indeed, small businesses. As for the cost to business of the whole Bill, the majority of costs fall on the Government, as the Treasury reimburses business for statutory maternity, adoption and paternity pay at 92 per cent. for large businesses and at 104.5 per cent. for smaller businesses. As the right hon. Member for Wokingham said, that is worth about £390 million a year. Small businesses will bear only a small proportion of the costs of the Bill. For example, of the £29 million to £43 million net cost to business of extending maternity and adoption pay, small businesses will pay only £1 million to £8 million.

We have taken the problems for small businesses into account. I do not think that there are differences between us on whether the self-employed or small businesses are affected, but we must achieve the right balance. We are not starting from scratch, as we already have statutory maternity and paternity pay. The principle of the Bill has been accepted by all parties. I raised an article in today's Financial Times with Mrs. Laing. I accept that she has not had time to read it, but it suggests that the Opposition have changed their view on paternity leave and fathers taking time off when their child is born. In earlier debates, however, she backed what we are trying to achieve.

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

May I reiterate that, whatever impression has been given, we support the basic principle of the Bill? Fathers should be allowed to take time off when their children are born.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I accept that the hon. Lady is sincere and I accept the view of Mr. Jackson that the Labour party does not have a monopoly when it comes to political parties caring about employees and working conditions. The proof of the pudding, however, is the action that is taken. The Opposition talk about attacking business where necessary, but the article gives the impression that, in this instance, paternity leave may not be appropriate.

Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform)

The Minister says that the proof is in actions, not words, but the business community clearly understood that there was a one-for-one package. Why, therefore, did the Minister not back his words with actions?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

In Committee, as I hope to show later, I discussed areas in which the Government are helping business by trying to support it—

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

The hon. Gentleman may attack the CD-ROM proposal, but we have regular meetings with small businesses to look at what can be done. We have set up Employee Direct, particularly for small businesses, to see what can be done about the burden of regulation and to try to make sure that we ease it.

In the context of direct payments, much has been made of the cost of such payments. In its response, the CBI attacked us, saying that we were trying to hide the figures. That is the not the case—the figures are on the website and have been placed in the Library. HMRC took a great deal of advice from a specially convened advisory group of payroll experts who were representatives of both large and small employers, payroll bureaux and software developers. HMRC's own analysts also carried out extensive analysis that was published on its website when the 2005 pre-Budget report was published.

Having given the House the headline figures, which demonstrate why a direct payment scheme would neither offer good value for money for the taxpayer, nor offer employers the savings that they might have hoped for, I will briefly explain why, even if we opted for a direct payment scheme employers would still be left with administrative responsibilities.

Photo of Nigel Dodds Nigel Dodds Opposition Whip (Commons), Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Treasury)

Given the doubts expressed today about the costs and the burden on small businesses in particular, can the Minister give the House an assurance that if the new clause is not accepted—I sincerely hope that it will be—he will keep the matter under review? If the costs are much greater to small businesses, will he look at the provisions in new clause 1 again and revisit the matter?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I am happy to give the House an assurance. The Government do not think that the direct payment scheme, given the cost both of setting it up and of its administration, is appropriate. However, regulations will flow from the Bill and we will have to consult with small businesses on regulations on additional paternity leave and so on. The hon. Member for North Norfolk rightly pointed out that the figure of 104 per cent. related to the national insurance contribution. We will consider whether we need to change the position as to who can access the 104 per cent. We will also consider how we can further relieve the burden on small businesses, but I do not want the House to run away with the view, which understandably comes from the Opposition, that because we are not providing direct payments, we are not prepared to consider the burdens on businesses, particularly small businesses. In the context of the Bill, I have tried to outline where the burden on small business lies.

Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform)

Is not the Minister embarrassed that what would cost £1 million if run by business will, it appears, cost £50 million if his Department runs it? Is not that an embarrassing statement in terms of the protection that he and his colleagues are meant to provide to the public purse?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

No, I am not embarrassed, but I understand why the hon. Gentleman is trying to distort—that might be too strong a word—the position. The effect on certain small businesses that have written payrolls rather than more technologically developed ones is complex, and that has been included in our calculations.

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

If we accept the Minister's calculation of what the provision would cost the Government or the taxpayer to administer, will he accept that £400,000 is not a realistic figure to put on the cost to small businesses? It is not just a question of how many stamps are required and how many letters they post but of the time and the additional burden involved. Surely the overall cost for small businesses must be far greater than £400,000.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I am prepared to accept the word of the payroll experts and the experts at Revenue and Customs who have come up with those figures. The time involved in administration is incorporated in those figures.

Even if cost were not an issue, there are other issues relating to direct payment that would increase administrative responsibilities. In many instances, the scheme would add new responsibilities for employers, which I am sure is not what Members want. I therefore hope that Members will allow me a little time to explain why the Government believe that the actuality of a direct payment scheme, as well as the burden of costs, would not benefit employers.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Does the Minister accept that, even though there are some new burdens in passing information over, even the Government's regulatory impact assessment accepts that those are less than the saving that would be made? The RIA assesses it as a small saving of £1 million, but those burdens are still less.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

I fear that, however eloquently I try to explain the position in relation to direct payments, Opposition Members have already made their minds up. They have decided that they want this scheme and, no matter what explanation I give, they will push for it to be developed. I ask them to bear with me a little further.

A direct payment scheme would add new responsibilities for employers. Because statutory maternity pay and other payments listed in the new clause are wage replacements, which are subject to the full range of payroll deductions and paid net, direct payment would mean Revenue and Customs becoming a temporary payroller for SMP and other statutory payments to employees of potentially any employer in the country, taking off the full range of payroll deductions. Employers would not, however, lose all their current tasks and responsibilities in relation to those payments. For example, they would remain responsible for making earnings-based contributions such as employers' national insurance contributions and employers' contributions to occupational pension schemes. They would also continue to be responsible for completing periodical returns such as the employer's annual return. Many employers also provide occupational maternity and paternity pay on top of the statutory minimum, which is something that the Government welcome. Handing responsibility for statutory payments to the Government would still leave such employers with the responsibility of making those occupational payments, in addition to having to pass on new information to Her Majesty's Revenue and Customs.

For a direct payment scheme to work properly for both employers and Revenue and Customs, a potentially complex two-way information exchange would be necessary, which, as I have pointed out, would impose new burdens on employers. HMRC would require detailed information to be provided by employers to high standards of accuracy and to tight time limits in order to take on that function, and employers would still need information from HMRC to fulfil their obligations and to take back the payroll at the end of the direct payment period.

During the work and families consultation, many people, including the ad hoc advisory group of payroll experts, pointed out that such complex information exchanges could not realistically take place without error. Dealing with the consequences of errors would fall to the employers as a new burden, as employees would in the first instance turn to their employers for an explanation. Of course, the errors would also affect the employees concerned.

Given the cost of a direct payment scheme, it does not represent value for money for the taxpayer, which is why we have not moved forward with such a scheme. The administration of such a scheme would not benefit businesses, particularly small businesses.

Photo of Mark Prisk Mark Prisk Shadow Minister (Business, Enterprise and Regulatory Reform) 2:15 pm, 18th January 2006

The key word in the new clause is that companies "may" transfer responsibility. Such companies can make their own sensible assessment as to whether it is right in their circumstances. No compulsion is involved—the new clause would merely allow them to make that transfer. Does the Minister therefore accept that companies are better able to judge that than he is?

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

With due respect to hon. Members, the bulk of the reason for their position is that the CBI has withdrawn its support for the Bill because of the issue of direct payments—[Interruption.] It is important to see direct payments in the context of the whole Bill. The CBI and most employers' organisations support the principles of the Bill, as do all political parties.

Because of the costs involved, we not believe that a direct payment would represent value for money for the taxpayer. It would not provide the benefits that hon. Members claim, not only because of the costs involved but because of the administration of the scheme. The issue of cash flow was raised with regard to small businesses, but small businesses can apply for funding upfront in relation to the administration of schemes. Throughout the process, we have consulted small businesses and the business community about how to deal with the issue.

I am unlikely to be able to change the view of Opposition Members, given the positions that they have set out. I hope that they will take in good faith what the Government have said about the costs of a direct payment scheme and that they understand that such a scheme would not work for the reasons that I have given. I hope that the hon. Member for North Norfolk will withdraw the motion.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Liberal Democrat Members are not satisfied with the Government's response and will seek to divide the House on the new clause. The Minister says that our whole position is driven by the CBI, but it is long-standing Liberal Democrat policy and part of our election manifesto. I am delighted that Conservative Members added their names to our new clause and that the CBI supports Liberal Democrat policy, which seems an entirely good thing. We are not responding to any change of position from the CBI—our position has been the same throughout, and we tabled such a proposal in Committee, as the Minister knows.

I repeat that we strongly support the Bill, which provides new rights that are thoroughly welcome and will help in achieving a better work-life balance for families. As the Conservative spokesman mentioned, however, it is important to ensure that there is confidence in the changes and reforms introduced, and that the Government bring business with them. The Government must acknowledge that they have a problem. For example, it is not good that the CBI has withdrawn its support, because the Bill ought to be a package of proposals around which everyone can unite. The Government have lost that big tent, to coin a phrase, and they ought to be thinking about how they can recover that position.

Mr. Prisk just reiterated a point that I, and others, have already made: this is all about giving employers a right. They might seek to transfer responsibility to the Government if they considered that that was in their interests. Self-evidently, the new clause is directed at the employers who would benefit most in terms of cost savings.

I want to deal briefly with what has been described as the incredible disparity between the assessed cost of the Government's running the scheme—50 million quid—and the assessed savings for employers—£1.1 million. That is based on the regulatory impact assessment. I support the RIA process in principle, but we need to be clear about the severe limitations imposed by the way in which such assessments are conducted. They tend to be self-serving, in that they are prepared by the Departments that seek to benefit from them. Her Majesty's Revenue and Customs obviously does not want an additional responsibility, so self-interest is involved in the delivery of an assessment that is discouraging from the point of view of employers.

We should bear it in mind that many small employers still make their calculations manually. It seems incredible to me that the saving to employers should amount to only £1 million, while it would cost the Government £50 million to operate the scheme on an automated basis. That simply does not make sense. We believe—as, I think, do the Conservatives—that the employers' costs have been underestimated, and the Government's costs have been overstated.

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Scotland)

Is this not yet another illustration of why we need an independent body to assess the quality of regulatory impact assessments? The House would then be better informed of where the true figure might lie.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

I entirely agree. There must be an element of independence in the RIA process, for, without it, the figures simply cannot be robust enough. There should also be a reassessment once the regulation has been introduced. Perhaps the Minister will confirm that that will happen. He said that he would keep the matter under review in response to an intervention, and, a year on, we ought to establish what the actual costs have been.

A number of factors have led us to conclude that this assessment is wrong. I heard what the Minister said at the end of his speech, but I still believe that, for many employers statutory maternity and paternity pay has cash flow implications which could be avoided if the payments were made directly by the Government. We should also bear in mind the time taken away from wealth generation. The time spent on completing a manual declaration could be spent on making money—generating wealth for the business. I bet that the assessors did not calculate that loss adequately.

Photo of Gerry Sutcliffe Gerry Sutcliffe Parliamentary Under-Secretary (Trade and Industry) (Employment Relations and Consumer Affairs)

The assessors did take account of those figures, but the Government are taking a number of other measures to help small businesses improve their payroll systems and are considering better ways of giving them information. The hon. Gentleman must accept that. He is speaking out of context.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

In that case, I welcome it, because the Minister is a good friend. [Laughter.] That has clearly caused a lot of trouble. I had better move on.

A simplistic exercise could be undertaken at a desk in Whitehall to calculate the total cost to employers, but such an exercise would not take account of the time involved. Imagine a small business with a manual payroll system and one boss, man or woman, trying to run everything: trying to keep the money coming in, and at the same time having to deal with additional administrative burdens. I do not think that the RIA takes adequate account of that either.

Mr. Weir made a good point about the cumulative effect of one regulation after another. Others pointed out that business people have families themselves, and must often do the work late at night or at weekends when they too could be improving their work-life balances. There is another important point, which has not been mentioned today but which should be borne in mind. Members of Parliament may have staff who take maternity leave. I face the delightful prospect of two staff members' taking maternity leave this year. [Interruption.] There is nothing further to be said about that. There is no scandal. There is no skeleton in my cupboard.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Busy in North Norfolk, yes. One is in London and the other is in North Norfolk. [Laughter.] I am getting myself into trouble here.

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Perhaps I can help the hon. Gentleman. Perhaps he should get on with discussing new clause 1.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

I am grateful for your guidance, Mr. Deputy Speaker.

My point is that we Members are compensated for the cost of having a member of staff on maternity leave. The cost of replacement staff is paid by the Fees Office. People who run their own businesses are not compensated in that way and must incur an additional burden in paying for replacement workers.

If the Minister is intent on rejecting the new clause, we will press it to a vote, but in any event I urge him to look again at the percentage repayment. As he has conceded, the 104.5 per cent. for small businesses does not compensate them for the administrative burden. When he intervened on my speech earlier, he accepted that they should be compensated. The Government ought to act according to their words, and increase the amount given back to employers.

Photo of Eleanor Laing Eleanor Laing Shadow Minister (Women and Equality)

Has not the Minister demonstrated that the Government simply do not understand how small businesses work? It seems that they are about to reject a new clause that has the support of everyone else in the House.

Photo of Norman Lamb Norman Lamb Shadow Secretary of State (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

One does get that impression. The only Member to speak against the new clause was the Minister. He was on his own: not a single member of his party supported what he was trying to do.

We will press the new clause to a vote, because the Government have not stuck by their promise to help small businesses introduce the system. We ought to be bringing small businesses with us, and the Government are failing in that regard.

Question put, That the clause be read a Second time:—

The House divided: Ayes 212, Noes 292.

Division number 128 Orders of the Day — Work and Families Bill — New Clause 1 — Administration of statutory leave payments

Aye: 212 MPs

No: 292 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly negatived.