Child Support, Pensions and Social Security Bill

– in the House of Lords at 8:50 pm on 22nd May 2000.

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House again in Committee.

Clause 62 [Loss of joint-claim jobseeker's allowance]:

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security 9:07 pm, 22nd May 2000

moved Amendment No. 176A:

Page 68, line 12, at end insert--

("(3A) The Secretary of State may by regulations provide in relation to cases to which subsection (2) would otherwise apply that joint-claim jobseeker's allowance shall be payable in a couple's case, during the whole or a part of so much of the prescribed period as falls within paragraph (a) or (b) of that subsection, as if one or more of the following applied--

(a) the rate of the allowance were such reduced rate as may be prescribed;

(b) the allowance were payable only if there is compliance by each of the members of the couple with such obligations with respect to the provision of information as may be imposed by the regulations;

(c) the allowance were payable only if the circumstances are otherwise such as may be prescribed.").

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

Amendment No. 176A corrects a drafting error in the Bill. It provides for hardship payments to be made to couples who would have been entitled to a joint-claim jobseeker's allowance but for the application of a community sentence sanction to both members, or a community sentence sanction to one member and an employment-related sanction to the other. In those cases, we wish to ensure that JSA hardship payments can be made, as would be the case in the event of both members of the joint-claim couple being subject to employment sanctions. In cases where one member of the couple is subject to a community sentence sanction the Bill, as drafted, already allows for both reduced rate payments of JSA and hardship payments to be made; in other words, it is entirely benign.

It has always been our intention that joint-claim couples who are subject to community sentence sanctions should have the protection of hardship payments. But the Bill as drafted does not achieve our intention. This amendment puts into place powers similar to those in Section 20B of the Jobseekers Act, which enables hardship payments to be made to joint-claim couples in the event of both of them being subject to an employment sanction.

We intend to use these powers to make regulations that will enable hardship payments to be made to members of joint claim couples along similar lines to couples who are subject to employment sanctions. I beg to move.

On Question, amendment agreed to.

Clause 62, as amended, agreed to.

Clause 63 [Information provision]:

[Amendments Nos. 177 and 178 not moved.]

Clause 63 agreed to.

Clause 64 [Loss of benefit regulations]:

[Amendments Nos. 179 and 179A not moved.]

Clause 64 agreed to.

Clause 65 agreed to.

Photo of Earl Russell Earl Russell Liberal Democrat

moved Amendment No. 180:

After Clause 65, insert the following new clause--

:TITLE3:("Payment of benefit

:TITLE3:Manner of payment of benefit not restricted to automated credit transfer

. In section 5(1) of the Social Security Administration Act 1992, at the end of paragraph (i) there is inserted ", but the regulations may not require automated credit transfer to be the only manner of paying a benefit.".").

Photo of Earl Russell Earl Russell Liberal Democrat

On Amendment No. 180 I decided, after a little thought, that I ought to declare an interest. My local post office, Brondesbury Post Office in Kilburn High Road, was moderately severely damaged in a fire several months ago. The builder's yard which was the source of the fire is now more or less repaired and just about ready to open again. There is no sign even of any preparatory work on the repair of the post office.

A number of my neighbours are now speculating that the fire may have been used as an excuse to withdraw the services of that post office. Since those services were already under such pressure that on many occasions the queues out of the post office stretched across the road and blocked the pavement, it is doubtful whether the neighbouring sub-post offices, which are some way away, could take the strain. Since that causes me moderately strong feelings, I felt it was proper for me to declare an interest.

It also reminds us that, though we are primarily concerned with rural post offices, we should never forget that the same strains which are placed on rural post offices are often placed on post offices in unfavoured areas which also happen to be urban. Those problems deserve equal consideration.

The effect of Amendment No. 180--it is one moved by my honourable friends in another place--is to preserve the right to receive benefit at a post office rather than having to transfer to ACT. The present legal position, according to my honourable friend Mr Kirkwood, who was chairman of the Select Committee, rests on regulation 21 of the Social Security Claims and Payments Regulations 1987. That requires payment by ACT to be a consensual act; in other words, it cannot happen unless both parties agree. The purpose of the amendment would be to make it require primary legislation to reverse that. It would not make it irreversible; but it would mean that it could only be reversed by a measure which could be brought before Parliament on which we would have an opportunity to vote.

As my honourable friend Mr Kirkwood remarked, if the Government were to repeal that regulation without providing a new income stream for the Post Office, that would have the effect of killing the sub-post offices. There has been a good deal of speculation about what is the Government's intention. I think that it is likely that the Government's intention has changed somewhat behind a smoke screen. I should like to know a little more about that as we go along.

What worries us is that the Department of Social Security says that it has plans to save £400 million by the switch to ACT. As we understand it, that sort of saving would not be achieved unless the switch were very nearly total.

Not for the first time, I express misgivings about the effect of the Change programme--the 25 per cent reduction in administrative costs--on the working of the Department of Social Security. At the time, Mr Peter Lilley expressed the view that that change filled him with despair. I understand very well why Mr Lilley said that, and I think that this may perhaps be an example of the despair he then felt.

The importance of the Post Office in any small community is immense. Over the Easter Recess I had some opportunity to listen to voters. I found that the issue of the Post Office, along with the issue of rural buses, ranked on a level with pensions among those issues which caused concern among the electorate. This is something to which, in a democracy, we really must listen.

I am reminded of a story dating back to the golden age when Hugh Fraser was owner of Harrods. He was visiting a remote Scottish village and was taken to the village shop. The woman who ran the village shop asked him what he did and he said, "I've got a shop too". She started asking him questions about its size and the range of goods it stocked, and her face started to drop like a stone--until it suddenly lit up and she said, "Och, but ye'll no have the Post Office"! That is a real example of what the Post Office actually means in a small village.

For a great many people on benefit banks are not a particularly adequate alternative. The services of banks are not really designed for people who are on benefit. I remember one story which came to me from CAB sources, which puts this in a nutshell. A woman on income support had got used to running down her bank account to the last few pence at the end of each week. They miscalculated her account, calculated that she had gone into overdraft and imposed a £10 overdraft charge on her. She wrote and protested at this. They admitted the error, but then charged her £10 for writing her the letter in which they admitted that they were in error. She therefore went back into overdraft and, having no overdraft facility, was unable to buy any food.

That is why banks are not designed to be suited to people on benefit. Any community banking facility that may be laid on in any future arrangement for the benefit of people who want to have a bank account would have to take account of such needs.

I understand that the Government are now considering new schemes and new possibilities, but we do not yet know what those are. An amendment which has been tabled to the Postal Services Bill, on which the noble Baroness, Lady Byford, may have more to say, states that the Secretary of State "may" provide a scheme which will provide alternative facilities. I reread that amendment about five minutes ago, probably for the 10th time. I cannot say that it is extremely clear to me exactly what the Secretary of State may do. He may do something in particular; he may do it very well or he may not. I remind the Minister of the debate we had a few moments ago about the importance of doing something while the Bill is in this House. When there is not a Bill before us, we do not have any purchasing power.

It may be that this scheme will be perfectly adequate. I hope so. The Minister deserves the benefit of a favourable interpretation on that. On the other hand, I am sure that she understands the importance of the principle of belt and braces, although I cannot follow the noble Lord, Lord Rix, and claim that this is something of which I have some professional knowledge!

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security 9:15 pm, 22nd May 2000

Not only the noble Earl, but most women do not have such professional knowledge either.

Photo of Earl Russell Earl Russell Liberal Democrat

I thank the Minister for that point, though it is now rather more normal than it was for women to attend this House in trousers, and I am glad to see it!

However, as regards the main principle, we should like an assurance that we have some purchase on the situation, just in case the scheme does not work out as we would wish. Ministers are at the mercy of events at all times. So an intention that is perfectly good now might not prove to be so good after the next economic blizzard--indeed, one day, this year, next year or sometime in the future, there will inevitably be another. Therefore, we need this security. We can achieve that either through the amendment tabled in the name of the noble Lord, Lord Higgins, or through this one. We may even achieve it through some composite amendment upon which we may agree in the future. But, one way or another, we need the purchase. I beg to move.

Photo of Lord Higgins Lord Higgins Conservative

It has been a constant theme of our debates that matters which normally fall under the social security remit are being taken over by the Treasury. This is yet another example of the Treasury carrying through its policy regardless of the social consequences.

There are two amendments in this group. Amendment No. 180, which the noble Earl just moved, suggests that,

"the regulations may not require automated credit transfer to be the only manner of paying a benefit".

If that were to be accepted, the noble Earl suggested that primary legislation would be needed to alter the situation.

Our amendment, Amendment No. 181, is rather different and tackles the problem from the other end. It says that the system will be all right,

"providing that the regulations ensure that payments may continue to be made by the same method as that employed on the date of commencement of this Act".

In the light of this debate, we may, as the noble Earl suggested, wish to get together and decide what the best format would be. But that will depend on the Minister's forthcoming answer in which she may persuade us that this is no longer necessary.

In our view, the decision by the Government to move to a system of automated credit transfer threatens the future of at least one-third of sub-post offices; indeed, the number may be something over 18,000. A substantial part of the revenue of post offices derives from the income that they receive as a result of dispersing various social security benefits. The previous government made a suggestion for overcoming this problem in a form that would--it was hoped--help to maintain the sub-post office network while, at the same time, facilitating the payment of cash through the post office. The Government abandoned that so-called "Horizon Project", but we remain totally unclear and puzzled about what they propose to put in its place.

I have some sympathy with the views expressed by the noble Earl on the question of banking services. He suggested that they are not suitable for many people on social security benefits. In some ways, banks are not suitable for people generally. Some years ago when I was chair of the Treasury Select Committee, we carried out an investigation into bank charges. The then chairman of Barclays Bank appeared before us and managed to sustain a defence of his position for some two hours. However, right at the end of the process, we asked him how he made sure that he received payment of those excessive charges. He replied, "We've already got the money". That was rather typical of the attitude that was prevalent at that time and which, to some extent, is still prevalent now.

In reality, many people who receive social security benefits are not well suited to arranging their financial affairs through banks which, as the noble Earl rightly pointed out, may well impose quite heavy charges on them. Indeed, in the context of someone on income support, that may prove to be quite a substantial amount of the income that he or she receives from the Government. Some people are not used to working through the banking system and have a real preference for receiving their money in cash; for example, from the "order book", which is frequently used. However, as has already been pointed out, the proposed new system will also have an effect on the whole structure of post offices and the important role that they play in the communities which they serve. Indeed, my noble friend Lady Byford may wish to say more on the subject.

We seek a response on two matters this evening. There have been a number of exchanges at Question Time and on other occasions across the Floor of the Chamber with regard to the Government's position on these matters. First, it appears to be difficult to get across to the Minister people's worries on this issue. People rightly want to receive their benefits in cash. The Minister has said that they will continue to receive them in cash. However, she has not at any time explained how this is to be achieved. We are ever hopeful that she will tell us this. The Government have considered this matter for a long time. It is no good just saying that benefits will be paid in cash without saying how that will be achieved.

Secondly, I understand that post offices are under a legal obligation to fulfil their universal service obligation with regard to certain services, for example, registered post and the delivery of parcels weighing up to 20 kilos. We are not at all clear whether post offices will fulfil that universal service obligation if their number is significantly diminished. It clearly is not just a question of fulfilling that universal service obligation at one point. Post offices must fulfil that obligation over a reasonable geographical spread of the country.

I also seek clarification on my next point. I understand that in responding to a recent debate in another place the Minister concerned seemed to indicate that there was to be some form of compensation or alternative payment to post offices to enable them to continue to survive. Generally speaking, post offices comprise small businesses and the people who run them may well have invested their life savings in them. However, if the Government's present proposals are implemented, and these amendments, or something like them, are not accepted, people who run post offices may no longer be able to continue in business and may suffer considerably as a result. These are not unimportant issues. We hope at the very least for some clarification from the Minister this evening. We hope to be given a helpful response.

Photo of Baroness Gale Baroness Gale Labour

The noble Earl, Lord Russell, remarked on the immense importance of small post offices. I think we all agree with that. However, the Government regard as outdated the present method of payment of benefits by order books and giro cheques. We must consider new and more secure methods of payment. The payment of benefits by automated credit transfer will not begin until 2003. Some fears have been expressed with regard to the Government's proposals. Some people fear that they will be unable to collect their pensions or benefits from the post office. However, this fear has been addressed. The Government will ensure that people who wish to do so can collect their benefits and pensions at the post office and can receive payment in cash. Another fear is that rural post offices--

Photo of Lord Higgins Lord Higgins Conservative

Has the noble Baroness any idea how that will be done?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I am happy to try to spell that out to the noble Lord in due course. I do not think that it is reasonable to ask someone other than myself that question at this point.

Photo of Lord Higgins Lord Higgins Conservative

I do not understand why that is the case. The noble Baroness, Lady Gale, has asserted that payment will be made in cash. I asked the simple question: how will that be done? I think that is a reasonable question to ask someone who is asserting that all will be well.

Photo of Baroness Gale Baroness Gale Labour

I repeat that those who wish to receive their benefits in cash will receive them in cash. I am sure that my noble friend the Minister will explain how that will be done.

Another fear expressed is that rural post offices--and also post offices in isolated areas--will close as a result of the new measures. However, that will not occur because post offices will still act as access points for the collection of pensions and benefits. The benefits of the new method far outweigh any disadvantages. For example, ACT will clearly assist in the elimination of fraud. The flexibility as regards the collection of payment will also assist people. Many thousands of people already use this method. The Government's proposals will bring about a more efficient and secure system of payment and, by the time that it is fully implemented, it will be seen as a sensible measure. I believe that these are practical proposals fit for the 21st century.

Photo of Baroness Byford Baroness Byford Conservative 9:30 pm, 22nd May 2000

I thank the noble Earl, Lord Russell, and my noble friend Lord Higgins for their amendments. The Committee will be relieved to hear that I shall not go through all of the arguments that I put forward earlier in Committee. However, there are some issues that I wish to raise at this stage.

Both noble Lords are right to refer to the role that post offices will play in the future payment of benefits. Although the Minister was nodding her head and saying, "Yes, they will be paid in cash"--which I accept--that is not part of my argument. However, I shall return to that issue later.

I, too, acknowledge that although the problem concerns predominantly rural areas, some urban areas are also feeling the squeeze, if you like, as far as concerns payment of benefits.

Earlier in Committee, I referred to the fact that some 2 million people are "unbanked". The Minister acknowledged that. We also discussed the kind of system there will be and my noble friend asked how people will receive their money. I hope that the Minister will enlarge upon that matter when she responds. I have offered her little morsels in an attempt to extract from her how payments will be made, and painfully, painfully, painfully, we seem to be getting there.

In fairness to the Committee, I should say that, following our last debate, the Minister wrote to me on 16th May. In her letter she stated that,

"The precise means of doing so will be a matter for the Post Office and the banks. However, we expect available options to include withdrawing money through a bankcard"-- which is something my noble friends may not know--

"being swiped through the new 'Horizon' computer terminals currently being installed in post offices".

If that is so, my first question to the Minister is how does that differ from the system proposed by the previous government. I suggested that payments would be made by means of a Smart card, but the Minister denied that. However, her letter states that there may well be a "bankcard". Call it what you will; it seems to me that we are going back to the previous government's proposals and starting all over again. Perhaps the Minister will bring me up to date when she responds.

There are, of course, cost implications involved in such a system. It was suggested originally that the system proposed by the previous government was too expensive. This Government wish to do away with books and giros and so on, but obviously people will need some form of identification. We perhaps reached this stage previously in Committee. Members of the Committee were asking how people would identify themselves in order to receive cash, a facility that the Minister said would still be available. Perhaps the Minister will be able to clear up that query when she responds; I am still a little unclear. There will obviously be cash implications if a bank card is going to be used and, if books are no longer required, it may make a difference to one or two of the amendments which have been tabled today. We may wish to consider that matter and come back to it at the next stage.

Perhaps I may move on to one or two other matters. We discussed social banking provision for some of the 2 million "unbanked" people. Several questions arise from that. First, what do the Government think will be the cost? Secondly, who will bear that cost; who will pay it? Will it be the Government, the Post Office or the banks--or all of them? Certainly it was mentioned in the correspondence that I have received recently from Barclays Bank that one of its people is arranging a presentation, and that in that presentation he quite rightly refers to the cost of such provision, saying:

"The potential cost to banks of opening and operating these accounts is an interesting question. We certainly do not expect to make any profit from them, indeed a loss is a real possibility".

It was agreed that an average balance of around £1,000 a year is needed to make a bank account profitable. Clearly, we would not expect to see that level of credit balance maintained by the kind of people about whom we are talking. He acknowledged that there is a cost, and someone must bear that cost somewhere along the line. Perhaps the Minister will touch on that point when she comes to reply.

Since my previous contribution on the first day of Committee I have had a letter from the Alliance & Leicester stating that it had noted my mention of increased or compulsory ACT. The Alliance & Leicester has been lobbying the Government very hard against that as it greatly impacts on Giro and the POCL's commercial objectives. As two of the major banks have expressed concern on this matter, I hope that the Minister will be able to say that something has happened since the previous debate.

Other noble Lords have referred to the fact that people need to have access to cash. I have been looking at the Select Committee report on the rural White Paper, although I do not expect the Minister to have seen it or indeed to have studied it. On page 18 of the report the committee referred to benefit payments through post offices. The committee stated:

"The Government must move rapidly to reconfirm that individuals will continue to receive benefit payments through the Post Office and that any loss of income to the Post Office brought about by the changing pattern of payments should be offset by additional opportunities to gain custom".

Indeed, during our exchanges two weeks ago, the noble Baroness stated the other advantages. I accept that. The committee went on to state:

"We fear that if they do not do so there will be a loss of some rural post offices".

This is a matter of great concern. It is not just my concern. It is a concern to those who will draw the payments and to the banks and others involved. It is an important issue and one where there is uncertainty. I should like greater clarification from the Minister when she comes to reply.

Perhaps I may pose some questions to the Minister in summing up my thoughts on the issue. If recipients do not wish to have their payments made through banks, how will they be paid? Will they be made through the card, or do the Government have other options in mind? If recipients have such an account and then run up an overdraft, what will the position be? Will the Government cover them? Is the social bank to be limited to the payment of welfare benefits, or will recipients be allowed to develop their bank account into a normal bank account, whereby some will be in credit and others will have overdrafts? For those who want to claim in that way and may not want to receive payment through the post office, how will those who do not qualify to be banked get over the whole question of being banked?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I do not understand that last question. The noble Baroness asked how, if people are not qualified to be banked, they will be banked. Who would not qualify to be banked, apart possibly from a bankrupt?

Photo of Baroness Byford Baroness Byford Conservative

I thank the noble Baroness. I know that several people have applied to banks to be banked and the bank will not bank them. Therefore, they are not clients because the bank will not take them on as a risk. With the new measures put forward by the noble Baroness, that will not be a difficulty. Currently, banks do not take on everyone who applies for banking facilities. That is what I was trying to convey, perhaps not very well for which I apologise. How will the Government deal with the whole question of homeless people who apply for banking facilities or come to the social bank?

My next point touches on what my noble friend said earlier. At the moment, post offices handle all of these welfare benefits. Is it the intention of the Government that sub-post offices, part-time post offices, Crown post offices or even newly created post offices will deal with them? Will there be universal coverage? Again, I should like some clarification on that point. Lastly, will the Government forbid banks to charge at any time for the provision of basic banking services? Obviously, when banks offer services, most people are charged for that work.

These are important practical issues. I accept the Minister's assurance that claimants will be able to draw cash from post offices. However, for Members on these Benches and, indeed, on the Liberal Democrat Benches, questions still remain as regards the nitty-gritty of the arrangements. When I raised this matter two weeks ago, I was told that the Government were waiting for the PIU report. It was due to be published at Easter. That date slipped to May and I understand that publication may now be delayed until June or even September. Given the issues raised in our earlier debates on war pensions, I feel that this is another area where we wish to be absolutely clear on the detail before the Bill leaves this House.

Some noble Lords may wonder why I worry so much about these basic issues. I shall repeat what I said two weeks ago on the matter. When families get into difficulties, in particular when they break down, mothers left caring for children feel more secure when they know that they can go to the post office to claim their cash benefits. That is extremely important to them. Although it has been suggested that a form of social banking will be established for the whole family, some mothers will be hesitant about arrangements where the facilities for collecting cash for themselves and their children are moved to a joint bank account. It may be that at that moment their partners are people whom they do not and cannot trust in that respect. I urge the Government to consider this carefully.

I appreciate that the arrangements are not due to come into effect until 2003. However, as my noble friend mentioned earlier, post offices are small businesses and those who manage them need to plan for the future. I do not doubt the Minister's sincerity in her assurances that universal coverage will be achieved, but it is important to be clear on what will be put in place for small post offices during the intervening period. It has been suggested that subsidies will be paid. The Minister has already mentioned that provision. However, when I had discussions with a group of sub-postmasters two weeks ago, it was clear that, although they were pleased to learn that a subsidy would be paid, they knew that that would only be a short-term, stop-gap measure. Can the Minister enlarge on future plans for small post offices?

Sub-postmasters have also expressed concern about the management of the new systems by local authorities. Local authorities vary and may well interpret the regulations differently. What criteria will be set out to determine which post offices should receive the subsidy?

This is a complicated area and I apologise to the Minister for having put so many questions to her. However, she has kindly moved a step further forward since this matter was last raised by saying that the Government are considering the issue of a bank card. Perhaps she can take us even further tonight.

Photo of Baroness Pitkeathley Baroness Pitkeathley Labour

We are debating two issues here: first, that of benefits being paid by automatic credit transfer; and, secondly, the future of rural post offices. The two are not necessarily inter-related, although, as the former chair of a rural community council and the current president of one, I am fully aware of the problems faced by rural post offices.

As regards the issue of ACT, we need to understand how matters are progressing in this area. I believe that every year half a million people are choosing to transfer to this method of receiving benefit payments. Although many of the points made by the noble Baroness, Lady Byford, as regards access and so forth are without doubt true, so, too, is the issue of fraud and the cost of making giro payments. I seem to remember that half my working life as a social worker was spent chasing the giro that had not been paid, the giro that had been sent to the wrong address, or the payment book that had gone astray, with equal distress for the kind of families referred to by the noble Baroness. As I understand it, no one is to be forced to have his or her benefits paid by automatic credit transfer. I remember being in the Gallery of the House of Commons and hearing the Prime Minister say that this would not happen and that people could continue to be paid weekly or monthly as they wished.

As to the question of post offices--to which I feel a strong commitment, given my connection with the rural community council--I do not think that we should be too circumscribed in our view of the future of rural post offices or post offices in isolated areas. Given the opportunities that are opened up by electronic links, post offices can be the source of information for communities through e-mail, the Internet and so on. We should be unwise to take too limited a view; namely, that a change in the method of benefit payment would automatically have the effect on post offices that some noble Lords have suggested. We should think of the other opportunities that are being opened up to them at the same time.

Photo of Lord Hylton Lord Hylton Crossbench 9:45 pm, 22nd May 2000

The noble Baroness, Lady Pitkeathley, has opened up a fascinating prospect for existing post offices and sub-post offices in the electronic age. That will take some time to become effective and to present a real source of income for those who are presently running those post offices. I take the view that we cannot afford to lose any more sub-post offices, certainly not in rural areas, and to some extent in urban areas. That is why I support the general principles of both amendments. I strongly agree with many of the points made by the noble Baroness, Lady Byford.

In the part of Somerset where I live, we have already lost a large number of post offices. Those that continue are often hanging on by the skin of their teeth and working on the narrowest of margins. The sub-postmaster's salary is often critically important.

Perhaps I may comment on the social uses of post offices, which go beyond their immediate functions and utility for the payment and receipt of benefits, for example. In my village we have a church and a pub, but we have no post office. The post office used to perform functions which neither the pub nor the church can effectively perform, because post offices are more accessible. You do not have to belong to the drinking set, or the religious set. They offer much more neutral ground and are valuable for that reason.

I understand that it is already possible, where towns qualify for the single regeneration budget, for credit unions to be promoted under that heading. Besides being valuable in their own right, they could spill over from a given town to its neighbouring villages. That could also provide a form of work in which those who are currently sub-postmasters could be effectively and usefully engaged. I hope that in this critical interim period, when we are trying to preserve the post offices that we have, the possibility of working credit unions into the whole scheme of things will be examined carefully by the Government.

Photo of The Bishop of Hereford The Bishop of Hereford Bishop

I rise briefly to express strong support for the principle which I believe lies behind both amendments. However, I am not sure that the wording of either amendment meets the problem. The amendment of the noble Earl, Lord Russell, opens up the possibility that payment may not be by automated credit transfer, but it is not beyond the Government's ingenuity to think of another method of payment that is equally unacceptable. Simply to outlaw that particular means of payment is not wholly safe. If we are not talking about "belt and braces", perhaps the noble Baroness prefers "elastic and safety pins".

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I cannot believe that the right reverend Prelate teases us at this late hour.

Photo of The Bishop of Hereford The Bishop of Hereford Bishop

I apologise. The amendment in the name of the noble Lord, Lord Higgins, is also a hostage to fortune since we do not know when the legislation will come into force. Therefore, there is something amiss with both amendments. The principle behind them which has been eloquently expressed is that we must have cash payments not only for the benefit and peace of mind of people of very modest means, who depend on post offices and are used to operating a totally cash economy, but also for the benefit of the post offices themselves. The noble Lord, Lord Hylton, pointed out the critical importance of a post office in rural areas. If cash payments are not made the money is not recycled over the counter in the payment of council tax, water rates, television licences, telephone and electricity bills, the stamps on which people depend, and so on. People receive their cash in benefits and pay it back over the counter which is business for the post office. It is also business for the shop which is frequently integrated with the small post office. There is a critical economic mass which depends on those cash payments. We should like to receive an assurance from the Minister that cash payments will continue beyond 2003 indefinitely for those who want them. If we must have a card, can it please be referred to as a post office card without the word "bank"?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

The last suggestion of the right reverend Prelate is excellent and I commend it to my colleagues. Post offices play a vital role in the community, especially in rural areas where there may be few other shops or services. As the right reverend Prelate said, payments in cash may be essential in order to keep afloat whatever other services are available. They are also particularly important for elderly people.

The noble Lord, Lord Hylton, interlocked the debate with credit unions and made some interesting comments. My understanding is that in the UK about 500,000 people are involved in credit unions. That represents about 1 per cent of the population, compared with about 30 per cent in the United States. Credit unions tend to be based on the workplace; that is, people in work in a reasonably tight area. Therefore, perhaps they have not translated as well into rural areas. The noble Lord did not mention the alternative of LETS--labour or time exchange schemes--which may perhaps be more appropriate in rural settings.

To return to post offices, my noble friend Lady Pitkeathley made the point very well that the post office has been in decline for years. Over the past 25 years some 20 per cent of the network has closed. Each year some 500,000 people, either through a death or coming new to the service, choose not to be paid through the post office but by ACT; in other words, each year that number of people decide not to use the post office. One thinks of the two major universal benefits which reach almost all families, retirement pension and child benefit. Just under 50 per cent of new pensioners, who are obviously the backbone of the post office network, choose to be paid by ACT, and 54 per cent of new child benefit applicants receive their payments through ACT. That is not surprising because 93 per cent of those who are retired have either a current or savings bank account, as do 98 per cent of the employed, 84 per cent of the unemployed, 87 per cent of those who receive child benefit, and so on. I could continue the statistics.

This means that benefit and pension recipients already vote with their feet. Even if the DSS did nothing whatever the post office network would continue to shrink, and probably at an accelerating rate, across the country. That is why I hope the Committee will accept that this problem is independent of the actions of the DSS. It is important that whatever the DSS does in no way accelerates that decline but that post offices, it is hoped, see this as an opportunity which will keep them afloat for the decades to come. That is why we are taking steps to protect the network. For example, we are investing nearly £500 million in the Horizon system which will computerise post offices.

The noble Baroness, Lady Byford, asked whether it will be universal. Yes, every post office will be online over the next year even if they are not on electricity. We shall do more if necessary. For example, we have added a new clause to the Postal Services Bill in another place which would allow a subsidy to be paid should it be needed. That is the point of the word "may". It is an important move showing the good will of the Government towards post offices and a recognition by Government of the importance of post offices to rural and deprived inner-urban communities.

However, I should like to argue strongly--the more I engage in debate on the issue, the more persuaded I am of the Government's position on this--that we shall not do the Post Office or the taxpayers any favour by continuing with order books and giro books. They are outdated, expensive to administer and open to fraud. We have to find a new way forward. The Government will do what they can. But the Post Office also must take responsibility and help to find new business. It must stop treating this as a threat and start treating it as an opportunity. One such opportunity is the universal bank which I shall describe more fully in a moment.

In addition, post offices may well have, I hope, a role in delivering government services by becoming a government gateway for all central and local government services through a single point of access. There are many other opportunities for diversification.

Amendments Nos. 180 and 181 are designed to retain the current paper-based method of payment. It would mean that people would be able to continue to opt for payment by giro book and order book from 2003 rather than have benefit paid directly into their bank or building society account.

We have announced that payment by automated credit transfer will be the norm for paying benefits from 2003. The transfer to ACT will be completed by 2005. However, those who wish to continue to collect their cash at post offices will still be able to do so before and after the change in 2003. We should remember why we are making the change. The current system belongs to the days of ration books. If we were starting again today no one would invent a system where one has a book of paper which can be taken by anyone, changed by anyone, used at only one outlet--it cannot be used if an individual goes away on holiday, or stays with a daughter 50 miles away--and which can be easily mislaid and damaged. If we sought to change from a payment card of some kind--I shall describe it later--to a paper-based system which anyone can manipulate fraudulently, where one carries an order book and queues for an hour or 40 minutes waiting for it to be stamped--an order book which anyone can use and which can easily be lost and so on--and where one has to take out the entire amount whether or not one wants it, the Committee would be in uproar. No one would now invent that system as a method of paying benefit. Its days are long past. The issue should have been tackled a long time ago.

Peter Lilley stated on 12th April:

"I recognised that the process of distributing benefits by order books was one of the most costly, inefficient and fraud-prone ways of delivering money".--[Official Report, Commons, 12/4/00; col. 62WH]

Across the world, the equivalent of the DSS is using ACT to deliver its benefits. France, Germany, Italy, Spain and other countries are either required or heavily encouraged to use that form of payment. It is safe, convenient and efficient. It uses tried and tested technology already chosen by over a third of recipients of benefits to access their accounts. It reduces the cost. We should not be embarrassed by that. Every ACT transactions costs only a penny compared with the overall costs of 54p every time an order book foil is presented and £1.36 per giro cashed. One cannot argue that we should continue to spend £1.36 as taxpayers rather than 1p a transaction in order to keep small businesses afloat. There may be need--we have the powers under the Bill--for a targeted subsidy, but not a generalised subsidy through an expensive method of payment such as we currently have. It also makes the system more secure against fraud.

Photo of Lord Higgins Lord Higgins Conservative

I am grateful to the noble Baroness for allowing me to intervene. The noble Baroness refers to a targeted subsidy. It is implicit in that remark that the Government have in mind a certain number and spread of post offices; otherwise I do not see how they will target the subsidy.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

By "targeted subsidy" I meant that if, for example, one has an expensive method of paying benefit, all post offices, postmasters and sub-postmasters receive some of that through form of income. They may need it or they may not in order to keep the system afloat. I repeat that the powers taken in the Postal Services Bill indicate that we recognise that some post offices may need particular help--and in that case, the Government and POCL will reflect on that--as opposed to the generalised help of paying through a costly, inefficient and fraud-prone system. I meant nothing more specific than that.

At this stage, I do not have information to show whether the subsidy may be necessary and if so what its size or criteria may be. Such issues will be developed in subsequent discussions with POCL if and when the need arises.

Photo of Lord Higgins Lord Higgins Conservative 10:00 pm, 22nd May 2000

Surely, when the noble Baroness uses the word "necessary" it is implicit that the Government have a view on whether they want to keep a certain number of post offices in business. I understand that that will be the object of the subsidy.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

No Government can guarantee that any form of subsidy will keep all the existing network afloat. After all, each year we have seen the closure of 200 post offices. As the noble Lord will know, half of all postmasters and postmistresses are over the age of 50. Often, it is a late-stage career run alongside a pension. If when that person decides to take full retirement no one is willing to take over the post office, or if it has been cross-subsidised from the person's pension from a previous job, the post office may fold. It is not necessarily a responsibility of government to equate that.

The Government have made it clear that they want to see the post office network protected and, in terms of services, enhanced. I do not want to be drawn into a discussion on where, how much, if, when, to whom, what numbers and by what criteria any possible subsidy may go. I was trying to assure the noble Lord and the Committee that, by taking the power in the Postal Services Bill, the Government have gone a long way towards meeting some of the real, understandable concerns that have been represented to us by sub-postmasters.

A second advantage of the new system will be to tackle fraud. We lose more than £100 million a year from the instrument of payment fraud. Giro and order books are lost, stolen and manipulated. In 1998-99, there were some 800 million encashments by order books and giro. That is the size of the activity and it is easy to see how it can lend itself to simple forms of expensive fraud.

The move to ACT also helps to promote financial inclusion. That was mentioned by the noble Baroness, Lady Byford. Having a bank or building society gives people access to a wider range of services, such as direct debit facilities, which make it cheaper to pay bills. For example, you can save up to £50 a year on utility bills. It also gives people access to mainstream borrowing facilities.

I ask your Lordships to take the point seriously. Encouraging people to remain with a ration-book system for accessing their benefits means that they can access almost no other financial services. If you want to write a cheque to pay a bill, you have to use a friend to do so. If you want to cash a cheque that has been sent to you, you have to go to a cheque changing shop and perhaps lose 5 or 10 per cent of its value. If you want to buy an item--perhaps to replace a bed or cooker--by instalments, you cannot use direct debit. You may instead have to buy through a catalogue at APR rates of 20 per cent or more. That is to say nothing about having to have recourse to pawn shops and money lenders.

I have seen all the research on this subject--there have been about four pieces in the past 18 months--and it shows a huge unmet need for secure, inexpensive and accessible financial services for those who are currently "unbanked", to use the noble Baroness's phrase, from paying bills to obtaining insurance.

On numerous occasions, we have made it clear that people will still be able to collect their cash at post offices both before and after the move to paying benefits by ACT in 2003. Three possible routes will enable people to collect their cash and they are not mutually exclusive. The first is network banking. Horizon, the programme to install online computer facilities, will be completed by the end of the year. It will offer potential for the Post Office to extend its arrangements with the high street banks. It has a solid foundation on which to build, only 5 per cent of rural parishes currently have a bank branch. Most major banks have between 1,500 and 2,000 outlets compared with the Post Office which has more than 18,000 outlets and in 50 per cent of parishes. The Post Office already has arrangements with Girobank, the Alliance & Leicester, Lloyds TSB, Barclays and the Co-operative Bank--and I believe that it is also talking to NatWest at the moment--to provide the banking facilities for them as their agent. That has enabled network banking, with all its associated services, to return to rural areas where the banks disappeared years ago.

The second mode of payment is cash machines. The Post Office has announced that some 3,000 cash machines will be installed by the end of 2001, many of them in rural post offices. In many rural areas, residents must now travel miles to the nearest town in order to draw cash and they spend it there, rather than, as the right reverend Prelate said, in the local village.

Thirdly, the development of a universal bank, which I mentioned earlier, could be available to all the 18,000 post offices currently in the network. Therefore, that is far more generous in its scope than the current banking facilities offered by the main clearing banks in this country.

The vast majority of benefit recipients--as I said earlier, over 80 per cent--already have access to a bank method and increasingly they are choosing that method for payment to be made. Equally, the development of a universal bank through the Post Office could offer an alternative. Effectively, it would be a post office bank for those who are apprehensive about using more traditional banking facilities. However, we recognise that some people will simply be unable to use ACT. For those people we are considering what alternative, simple, electronic money transition systems, which could also be accessed at post offices, may be commercially available.

The primary method that we are considering is payment through a universal bank by virtue, as the noble Baroness described, of the equivalent of what she and I might call a Switch card. A Switch-type card or a banking card could be used to access money at the Post Office's universal bank and, what is more, unlike now, to have access to it at any post office in the country. One could draw as much or as little of one's benefit as one wished, unlike the current order book system under which one must draw all the benefit. It would be infinitely more convenient, infinitely cheaper and infinitely safer.

The noble Baroness asked what would be the difference between a bank card and the original smartcard that was envisaged. As I understand it, the original smartcard had to be abandoned because it drew on expensive new technology, was three years behind contract and was many millions of pounds over budget. However, I believe that the proposals for it would have encoded, so to speak, the money available on to the card. It would have drawn money from the card rather than the card being used to gain access to a Post Office account.

How would such a card be acquired? As I said, we would expect people to use a bank card. If they did not already have one, they would obtain one by using exactly the same method of identification as they do now when establishing their entitlement to benefit in the first place. They might use information from a driving licence, a local authority red card, a passport, a birth certificate, a wage slip or trade union membership card; in other words, under these proposals the type of identification that sets up their benefit entitlement in the first place and delivers them the order book should be sufficient to establish their identity in order to acquire a bank card which will then allow them to access money from their account held by the Post Office into which their benefit is paid.

I hope that that answers the noble Lord's questions. As I say, many people will use the 3,000 machines; others will use their own banks through the Post Office's proxy; and others, I believe, will have access to or will use the universal bank.

I was asked about bank charges. We recognise that people expect to be able to withdraw their money without incurring charges for doing so. We are discussing that issue with the banks in order to ensure that that happens. I do not believe that questions were raised about payment patterns. Therefore, I shall leave that matter today.

Some Members of the Committee have been concerned about security; for example, when money has to be paid by a third party because someone is frail or disabled. As now, people can make power of attorney arrangements, they can arrange a third-party mandate with a bank, or they can provide another person with a signed letter of authority. That is not very different from cashing an order book now.

I do not deny that a number of details must be sorted out, but the move to ACT is still three years away. One reason that we have taken time on this matter is to ensure that all the necessary arrangements are in place and comfortable.

I was asked by the noble Lord, Lord Higgins, about the universal service obligation. As I understand it, the universal service obligation comprises daily mail deliveries to every postal address, a uniform tariff rate for inland mail and a nationwide network of post offices, but this has not been specified in terms of numbers. The Government will establish access criteria for post office counter services in the light of the PIU report and consultations with interested parties.

It has been accepted in the other place that ACT is an appropriate way forward or, as an alternative, a universal bank with access through a bank card or the equivalent to a switch type card, provided we can ensure that people can obtain cash as and when they need it in the way most convenient to them. I repeat that, every year, we are losing 500,000 people to ACT methods. ACT methods have been running since 1983. I am not aware that they have generated any problems. Post offices have traditionally relied on the elderly and so on for paper book, ration book payments. That generation is leaving us and the new generation coming through is preferring to use ACT. We have to move to an efficient and secure method of paying benefits. It is extraordinary that we would conceive that people would wish to continue using order books and Giros.

Part of the difficulty is that people who are not banked do not know what they lose out by not being banked. One of our responsibilities is to encourage post offices to take advantage of the opportunities that this will provide to meet their concerns.

I hope that I have answered all the questions that have been raised. If the noble Baroness wishes to intervene and press me on any questions that I have not answered, I am very happy to do so. This is not a party political issue, it is something that we are all concerned about. I have spoken with my honourable friend in the other place, Mr Alan Johnson, the Minister responsible for this provision in the Postal Services Bill. I have provisionally set up an all party peers' meeting during the afternoon of Thursday 7th June, which is in the week when we return after the Whitsun Recess, at which there can be a full and frank discussion before Report stage. He will be in a position to give far better reassurances to Members of your Lordships' House about issues associated with the post office network as we see it in the future. At that meeting--which I shall of course put on the all-party Whips and circularise to Members--Members of your Lordships' House will be able to press the Minister himself in far greater detail than I can possibly answer tonight.

He will also give information about the PIU report. People will be paid in cash--they will have a very simple method of acquiring that cash if they do not go through ACT, existing banks or machines--through a universal bank. I hope that, as a result of what I have said, your Lordships will agree to withdraw your amendments tonight and seek to press my honourable friend at the meeting on the details. Of course, if, as a result of that, your Lordships are still not satisfied with the replies the Government are seeking to offer, then your Lordships will, I am sure, come back at Report and Third Reading. In the light of that, I hope your Lordships will feel able to withdraw their amendments.

Photo of Baroness Byford Baroness Byford Conservative

I do thank the Minister for the detail in which she has gone into matters. I take the latter point first. She has suggested that we might meet with Alan Johnson, which is very kind of her, but the afternoon she has chosen is actually the afternoon of the Committee stage of the Postal Services Bill in this House. If it is, could we please have another date, because we cannot be in two places at once?

The Minister said that, obviously over the years money has been lost through the use of Giro and books. For those using ACT, if I remember correctly--and I do not have my Hansard with me--I thought the response her honourable friend Mr Alan Johnson gave was that his understanding was that there were no direct fraud losses from ACT. What did he mean by the use of the word "direct"? Does that suggest that there have never been any frauds using the other payment method or is it just that they cannot be identified?

Secondly, I am grateful to the noble Baroness for her explanation in relation to the use of the smart card or the Post Office card. If a third person is collecting for someone else, that would need to be very carefully supervised because I suspect that that is sometimes the point at which fraud creeps into the system.

I turn to the question of costs, which may be slightly outside the noble Baroness's brief. Who will meet the costs in relation to those people who are unbanked? Will it be the Government, the Post Office or the bank? I have not had an answer to that.

The same relates to the use of the switch card. The Minister said that using the old-fashioned books is an expensive method. But there will be a cost arising from the new cards. Will the Minister give us an indication of those costs? If that is not possible, we shall have to carry forward that matter to the next stage of the Bill. But those are practical issues which the noble Baroness has not yet answered.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security 10:15 pm, 22nd May 2000

Perhaps I may try to help the noble Baroness. On the point of "direct" fraud, what I assume that my honourable friend was saying, in terms of ACT, was that the process--that is, the method of payment--had not produced fraud. That does not mean that people may not have inappropriately acquired benefits into their accounts through fraud but that has not been done through the process; that is, the direct payment method has not itself engendered fraud. That is the difference. There may be fraud which is not through the payment method but by manipulation of the benefit system; for example, people claiming benefit while working.

Secondly, the noble Baroness asked me whether it is possible to run up an overdraft and I did not reply to that question. Unless the proposals change, no cheque book is envisaged. Therefore, it will be impossible, under the universal bank method, to run up an overdraft in that way.

The noble Baroness asked me how people who are not banked at present will be so in the future. At present, such people are not receiving benefit in the form of the Post Office acting as an agency for other banks. In future, they will receive their benefits through the universal bank and they will have a card. The only difference for those people is that they will have a Post Office card rather than a book. In that sense, they will be in the same position as they are now but there will be a more secure and convenient method of payment.

Photo of Baroness Byford Baroness Byford Conservative

I accept what the Minister says but the provision of that card will cost money. We are getting rid of a book, which costs money, but it is to be replaced by a card, which also costs money.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

Clearly, the DSS has paid and will continue to pay for the costs of the payment of benefit. Some of those negotiations will be part of what the DSS and POCL will be discussing over the next year or so. But we are determined that nobody who receives payment through the universal bank method will receive a reduced benefit in the form of a bank charge by virtue of that method of payment. That seems to me to be the important issue.

Homeless people too will have better protection than they have at present. The identification of people who have information in evidence to set up their entitlement to benefit, including homeless people who are eligible for income support or whatever, will serve them to acquire a bank card, a Post Office card, on which to draw their benefit. The advantage for them is that they can use their card at a range of post offices and will not just be tied to one. I hope that I have now answered the noble Baroness's questions.

Photo of Baroness Byford Baroness Byford Conservative

I am grateful to the noble Baroness for her extremely good attempt at doing so this evening. I shall read Hansard with interest but I thank her for her answers.

Photo of Lord Higgins Lord Higgins Conservative

The first point that one needs to make is that the report of the Trade and Industry Committee, published last September, seems to be rather at variance with what the Minister said this evening. In its report it said that the image presented of a flood of new entrants opting for ACT is exaggerated. Most pensioners are not, in fact, opting for ACT.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I was very clear in saying that it was the new pensioners. Something like 50 per cent of new pensioners and something like 54 per cent of new people coming into child benefit use ACT. I tried to suggest there was a generational cohort effect. I also pointed out that 93 per cent of all pensioners have either a current or a savings bank account.

Photo of Lord Higgins Lord Higgins Conservative

If the noble Baroness had allowed me to finish, it would have been apparent that what she has just said is also inconsistent with what the report said, which was that fewer than one in 10 income support recipients elect for ACT and that fewer than one in three of new benefit recipients opt for ACT. The fact remains that for a variety of reasons most new benefit recipients still opt for cash in hand from a post office and that choice must be respected. Clearly, there is some dispute about the figures.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I am talking about child benefit and pensions as being the two universal benefits. Indeed, it is likely that many people, particularly young people receiving JSA or, in some cases, loan parents on IS, do not use that method and disproportionately use the post office payment method.

One, not exactly shocking, but slightly surprising fact that may be more familiar to the noble Lord, Lord Mackay, is the number of people who have a bank account when they are employed but when they become unemployed choose not to use it. One can speculate on the reasons for that. Instead they prefer to be paid cash in hand through order books. One may wonder about that.

Certainly, the statistics that I gave the noble Lord were about retirement benefit, new entrants to retirement pension and new entrants to child benefit. Taking the current state across all the population, that is partly a generational thing.

Photo of Lord Higgins Lord Higgins Conservative

We shall need to go into the statistics further, other than across the Floor of the Committee. My impression still is that the situation portrayed by the Minister is exaggerated. Be that as it may, I believe that the Committee would be grateful if the Minister could clarify the distinction between the system that the Government abandoned and the system they now propose. As I understand it, the only difference is the distinction between a smartcard, on which all the data are embedded, and a Switch card which does not have the data on the card but allows the data to be read once it has been through the slot. I believe that is the only difference between the two systems.

The noble Baroness has enlightened the Committee a little on how the cash is to be paid. We shall need to read carefully what she said. No doubt, we can clarify that in the way that she has described--in a meeting. However, like the noble Baroness, Lady Byford, the date suggested is not convenient for me, but no doubt something can be sorted out. It would certainly be helpful to have that clarified over the table, so to speak.

One crucial point, as far as the post offices are concerned, is that estimates suggest that there will be a loss of something like 40 per cent of existing post offices. The Minister has said that they will consider a subsidy as needed. I am not clear about the purpose of that subsidy.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I do not know from where the noble Lord produced the figure of 40 per cent of post offices. He may be confusing that with 30 to 40 per cent of the revenue of some post offices being derived from the payment of social security benefits. I was about to intervene because I was unsure whether the noble Lord meant what he said.

Photo of Lord Higgins Lord Higgins Conservative

It was a slip of the tongue. What does the Minister suppose will be the reduction in post offices if there is no subsidy? What does she envisage is the purpose of the subsidy?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I cannot go into that. In the recent Bill in the other place a power has been taken by the Government to pay subsidy if they believe it appropriate; in other words, they may pay subsidy. That would be a matter of negotiation with POCL, and so on. The intent behind it is simple: I believe that we all share an appreciation of the importance of the post office, particularly in rural areas and in deprived inner urban areas, as the centre for offering cash and other facilities to local people. The Government, no more than the previous administration, do not wish to see that network shrink. That does not mean to say--as I tried to say earlier--that individual post offices may go on to close and not be re-opened when someone running it retires because it has not been possible to cross-subsidise it.

One other power may be of interest to the noble Lord. I understand that in the Postal Services Bill extra powers are given to POUNC--which I believe will be renamed as the post office users council--to take on board, to query and to interrogate the need for any local post office closure. So we actually strengthen the ability to ensure that the post office network, as far as is possible, remains to serve the communities which are so heavily dependent upon it.

Photo of Earl Russell Earl Russell Liberal Democrat

Usually having the first amendment after dinner is by way of being a penance; but tonight, for the benefit of those who perhaps had to hurry their dinner, we provided the Committee with a sandwich. The noble Lord, Lord Higgins, and I, supplied the bread; the noble Baroness, Lady Byford, supplied the meat--and very good meat it was too and I shall read it with a great deal of care; the noble Lord, Lord Hylton, supplied the butter; the noble Baronesses, Lady Gale and Lady Pitkeathley, supplied the mustard; and the right reverend Prelate supplied the salt.

Photo of Earl Russell Earl Russell Liberal Democrat

I can assure him that it has in no wise lost its savour; and the Minister provided the fire at which we have been very gently toasted.

Let us react for a little while to the toasting. I understand and hear what the Minister says; that is, that people will remain able to collect their cash at post offices. But that assurance can be valid only in so far as they can find any post offices. That is the central weakness in the Minister's position. It is a further weakness in her position that, while she is responsible for the delivery of benefit, she is not responsible for the survival of the post office network. Here we have something where the acid of the change programme has perhaps corroded the joining up of government, such joining up as previously existed.

I am not certain that the Minister recognises it as a responsibility in these proposals to ensure the survival of the post office network. She talked of post office customers voting with their feet. I do not believe she realises quite how persuasive a canvasser the Treasury can be when it gives its mind to it. Every year the Treasury renegotiates with the Post Office a contract for the delivery of benefit. Every year there is a downward pressure on that contract--of course there always is with anything that the Treasury negotiates.

That has had the effect--certainly in post offices in my part of London and I believe in many others--of increasing the waiting time at post offices, to the point where the pressure to consider another system has become rather intense. So the voting with the feet may have happened to feet which have been quite heavily guided. Once again I remind Ministers that they should not assume that "efficiency" is actually efficient.

The Minister asked post offices to stop treating this Bill as a threat. It is of course difficult because, as the noble Baroness, Lady Byford, pointed out, they are small businesses and must plan their future. If small businesses are to stop treating this as a threat, they need something in this Bill which will enable them to be sure that they have a secure future for which they can plan; otherwise the uncertainty will drive them out of business. It is a bit like an argument as to whether to repair the library, or whether there is no need to repair it because we are going to build a new library shortly. That may be true. But it is no good if, in the mean time, the rain comes in and destroys all the books. So if the post office network crumbles before the Government have come up with an adequate replacement, there is not going to be any easy recovery. That is why some reassurance is necessary now, at this moment, before any more closures take place. These closures have reached the point where they are creating a situation of real danger.

I do not know whether the Minister has seen a report in the Independent today, based on a press release from my honourable friend Mr Webb. He has discovered that the Minister's colleague Mr Rooker has sent out a letter to sub-postmasters, objecting strongly to them trying to persuade people to get their benefits through the post office rather than transferring to ACT. I cannot feel that my honourable friend was in any way wrong to use the word "threat" in relation to that letter. This sort of thing does rather encourage post offices to feel that they are under threat. If the Minister wants to persuade them that they are not, she will have some quite hard work to do.

I must thank her very warmly indeed for the offer of the meeting with Mr Johnson. That is a truly welcome offer, subject to the point made by the noble Baroness, Lady Byford, about the date. The absence of all those involved in the Post Office Services Bill would clearly very much weaken anything we were able to do; but I am sure that it will prove possible even in the busy timetable of Ministers to find another.

It is possible that we shall be reassured about the Government's long-term intention. Government long-term intentions, however, do change in the light of events, usually economic circumstances. There is still a case to be considered about the need for a long-stop to be put into this Bill. Even if I were absolutely perfectly reassured, therefore, while I would be putting a case in very different terms, I might not necessarily cease from putting a case.

The Minister made a great argument about the cost of £1.36 per taxpayer. That is not only a cost of delivering benefit; it is also a cost of delivering a post office facility, which is the real heart of communication in many communities. I wonder whether, when one takes that into account, it might be cheap at the price? This is where it is important that preserving the Post Office is not her departmental responsibility. One wonders whether it carries the weight in the equation which perhaps it should.

I am also very struck by the contrast between the Minister's answer this time and her answer to the previous amendment. In the latter answer she was putting forward--I do not believe that she will think this an unfair description--a very strong communitarian morality, in which some people see an authoritarian tinge. On this amendment she was putting forward a case about post offices which involves the risk of dissolving the cement which holds together a spontaneous, natural community.

Those two arguments make rather uncomfortable bedfellows. Yet the mere fact that they are uncomfortable bedfellows creates a certain rather uncomfortable logic in putting them together. If you destroy the spontaneous sense of community, you may well be under temptation to create it artificially by Government authority. It really does not work. If it is not there spontaneously, Government cannot make it.

However, that is not a problem which I would for one moment suggest addressing in the Division Lobbies at this time of night. For the time being, therefore, and subject to discussions with the noble Lord, Lord Higgins, about the text of a future amendment, I beg leave to withdraw this one.

Amendment, by leave, withdrawn.

[Amendment No. 181 not moved.]

Photo of Lord Goodhart Lord Goodhart Liberal Democrat 10:30 pm, 22nd May 2000

moved Amendment No. 182:

After Clause 65, insert the following new clause--

:TITLE3:TEMPORARY ENTITLEMENT TO INVALID CARE ALLOWANCE ON DEATH OF PERSON CARED FOR

(" . At the end of section 70 of the Social Security Contributions and Benefits Act 1992 (invalid care allowance), there shall be inserted--

"(11) The Secretary of State shall make regulations in respect of persons who cease to be in receipt of invalid care allowance as a result of the death of the person in respect of whose care the allowance has been claimed.

(12) Regulations under subsection (11) shall set the condition for the award to be satisfied for a period of eight weeks from the date on which that person ceased to be in receipt of invalid care allowance.".").

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

This amendment deals with the situation of somebody who is in receipt of invalid care allowance, where the person who is receiving the care dies and the invalid care allowance therefore stops.

The level of care required in order to qualify for invalid care allowance is very substantial and there are therefore likely to be very considerable physical demands on the carer. What is more, the person who is being cared for is likely to be closely related to the person providing the care. The person being cared for may be a parent, a child, a spouse or a partner of the person providing the care. Therefore, in addition to the physical demands of caring, there is likely to be a considerable emotional drain on the person providing the care, who, almost inevitably, will be distressed by the fact that he or she is having to provide the care.

As a result of this situation, the blow to the carer when the person being cared for dies is likely to be very severe. Indeed, this will be a great emotional loss in most cases. The person providing the care is likely to feel that he or she has, in a sense, lost all purpose in life when the person being cared for--who has, in effect, been the centre of his or her life--dies. In those circumstances, surely what the carer needs is a break--a holiday if one can be found--or, at the very least, the chance to do a little thinking about the future, which will be very different from the past.

Carers do not want--nor should they be asked--to rush immediately from the deathbed into the process of looking for a job or claiming means-tested benefits. Therefore, surely carers ought to be entitled to a kind of respite break; that is to say, a few weeks' rest. We propose eight weeks in the amendment, which in the circumstances is hardly substantial. We believe that these carers should be entitled to a few weeks' break in which to pull themselves together, think about the future and recover from the immediate aftermath of their loss, without having to go to the jobcentre or to the benefit office to claim benefit. During that time, they will be able to bring themselves to think about what the future holds for them. Surely the eight weeks that we suggest is a minimum that ought to be provided for former carers. We believe that this is a necessary requirement if we are to regard ourselves as a properly compassionate community towards those who will find themselves in a very difficult and painful situation. I beg to move.

Photo of Lord Astor of Hever Lord Astor of Hever Conservative

We on these Benches have considerable sympathy with the proposed new clause, as outlined so clearly by the noble Lord, Lord Goodhart. We do not believe that the cost of this proposal would be very high. We probably all have experience of the problems attached to the winding-up of the estates of parents or relations. Genuine problems are encountered by bereaved carers and this proposal would provide a breathing space for them at a distressing time.

The Minister in the other place was sympathetic to the amendment and said that the Government would look at the matter in the round. I therefore look forward with some hope to hearing the Minister's reply.

Photo of Baroness Pitkeathley Baroness Pitkeathley Labour

I, too, should like to speak in support of the amendment. I never forget the carer who once said to me, "We're expected to go from the graveside to the jobcentre". I believe that the death of someone for whom you have been caring, especially if the situation has gone on for some years, is most distressing. I am sure that my noble friend the Minister will do her best to look sympathetically at this proposal.

We are all aiming to enable carers to get back into the workforce so as to help them both financially and emotionally. Sometimes they will need such a period of time in order to get themselves geared up for seeking new employment. I remind the Committee that there is a precedent for the eight-week breathing space, as it were, in that the carer premium on income support extends for eight weeks beyond the death of the cared for person. That too may encourage the Minister to look sympathetically on the amendment.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

Amendment No. 182 would extend the period of entitlement for all recipients of invalid care allowance to eight weeks after the death of the person being cared for and in respect of whose care ICA was being paid. As the Committee is aware, I have a great deal of sympathy with the intention behind this amendment. I hope that I may respond to it in terms of the Government's agenda of the National Strategy for Carers--Caring for Carers--which was published last year. In that report the Prime Minister said that,

"Carers are among the unsung heroes of British life" and that they,

"should be properly recognised and properly supported".

I believe that the entire Committee would share that view.

The national strategy made clear the Government's intention to do this and, among the many positive initiatives that they introduced, stated that they would,

"keep under review how financial support can best meet [carers'] needs".

Clearly, therefore, the Government are committed to taking forward a review of the financial support available to carers. In doing this, however, we must take account of the work currently being done to prepare our White Paper response to the Royal Commission on Long Term Care, which we hope to publish later this year. I can, therefore, confirm that the financial assistance given to carers is currently under careful consideration, and, as and when we have specific proposals to make, we shall, of course, consult the carers' representative groups.

I turn to the amendment itself. I was not quite sure where the noble Lord, Lord Goodhart, stood as regards the differences within groups of carers, as the group of carers which the amendment seeks to help is small, though none the less deserving of consideration because of that. Bereavement is a universally difficult time, and family finances have to reassessed. However, the benefit system already provides the kind of protection he seeks for many carers whose need is greatest, in particular for those on low incomes and those who have lost a spouse--those who move from being a carer to going to the jobcentre.

About half of all carers who receive invalid care allowance also receive income support and the carer premium, which is the increase paid specifically for people entitled to ICA. Those who would not receive it would tend to be the wife who is married to a working husband caring for either her mother or his mother. As a result of being married to someone who is in work, she would not be eligible for income support. However, if she were the only daughter, or the daughter looking after her mother as a full-time unwaged job and she therefore received ICA topped up with income support, under the current rules she would receive the eight-week rollover. The eight-week rollover is already given to those in financial need. However, it is not given to those whose emotional stress may be no less difficult but who do not have the same level of financial need because they are not dependent on the benefit system.

As I say, about half of those carers who receive the carer premium, IS and ICA will continue to receive the rollover for eight weeks after the responsibility ends. In addition, during this eight-week period they are also exempt from the need to be available for and actively seeking employment in order to qualify for IS. This gives them time to adjust. Therefore the amendment would not help them.

In addition, a quarter of all carers who receive ICA are looking after a spouse. Again the woman in that situation would not normally receive income support on top of her ICA because the man would receive the benefits, for example, IB or whatever. Any top-ups would be paid to the man. When a spouse dies, bereavement benefits are usually paid promptly--within a few days of the claim being made. As such payments are made in preference to ICA--in the sense that one is not paid twice for the same contingency--an ICA run-on would be of little or no material assistance for those carers either, because normally such a person would then qualify for widow's benefit, which would displace the ICA.

For those who are most vulnerable and in greatest need, therefore, their income is already protected, despite the loss of ICA on the death of the disabled person for whom they have been caring. The amendment would, in practical terms, help only those carers whose income is over income support level. There are, of course, priorities in terms of expenditure here. Nevertheless, whether or not this is a well targeted proposal, I hope that I have made clear that, in broader terms, the Government are aware of the need for adequate financial support for carers. They are also aware of their existing commitment to keep this under review in the context of longer-term care issues and the need to address the concerns of carers in the round.

I do not feel that I can ask the Members of the Committee to take it from me today that we shall be specifically revisiting this matter, but, in the light of the fact that we are producing a White Paper in response to the Royal Commission, in which a range of issues will be covered--I am not party to that review but I suspect that issues such as financial support for carers and respite care and so on will be explored--I hope that the noble Lord will feel able to withdraw his amendment.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat 10:45 pm, 22nd May 2000

I am grateful for the support that the amendment received from the noble Lord, Lord Astor, and the noble Baroness, Lady Pitkeathley. Although I accept, as the Minister pointed out, that not everyone who is a carer will necessarily lose income as a result of the ending of the invalid care allowance, this is a substantial problem--not least for those who are not formally married but who have partners, either of the opposite sex or of the same sex.

I am grateful that this is one of the issues which will be considered during the course of the consultation on the White Paper. We shall have to consider whether to bring this amendment back again in the light of what has been said today, but, for the time being, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Earl Russell Earl Russell Liberal Democrat

moved Amendment No. 183:

After Clause 65, insert the following new clause--

:TITLE3:INCAPACITY BENEFIT: CARERS

(" .--(1) In paragraph 2 of Schedule 3 to the Social Security Contributions and Benefits Act 1992 (contribution conditions for short-term incapacity benefit), at the beginning there shall be inserted "Subject to paragraph 2A below".

(2) After that paragraph there shall be inserted--

"2A. A person shall be taken to satisfy the contribution conditions for short-term incapacity benefit mentioned in paragraph 2 above if, throughout the last two complete tax years before the relevant benefit year, he has been precluded from employment by responsibilities at home.".").

Photo of Earl Russell Earl Russell Liberal Democrat

In moving the amendment, I should begin by offering an apology to the noble Baroness, Lady Pitkeathley. She may remember that in a particularly moving speech during the Welfare Reform Bill, when we were discussing the tightened contribution conditions for incapacity benefit in Committee, she pleaded for an exemption from these contribution conditions for those who had given what were perhaps the last years of their life in which they would have been capable of regular work to the task of caring for someone unable to care for themselves. I think that the Minister heard that speech with a certain degree of cautious sympathy. I hope that she will not dispute that description. I thought at that point that an amendment was probably in progress which might have been accepted at a later stage of the Bill--but, of course, we ultimately knocked that clause out. You cannot amend words that are not there, and when the Bill came back from another place it contained no concession to the noble Baroness, Lady Pitkeathley. I hope that she will understand what moved us to go ahead and knock out the clause. It is a regret, which I felt at the time, that it was not possible in those circumstances to give a hearing to the very powerful case she had made.

We do not want to discourage those involved from caring for sick or elderly relatives. There is an argument of common humanity here--and that argument is not to be dismissed. There is also a very strong argument from the point of view of the Treasury. I do not know what is the latest update of the figure of the amount of money which carers save the Treasury. When I first came into this House it was £24 billion; since then I have seen it quoted as £30 billion. It may have gone up again. I thank the noble Baroness for confirming that that is the latest figure.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I am grateful to the noble Earl for giving way. He is making a speech which centres essentially around carers as we more conventionally understand them in terms of recipients of ICA. But, of course, his amendment, which concerns HRP, obviously involves essentially the carers of children--that is, parents. Do I understand that the noble Earl is concerned only with ICA recipients as opposed to other kinds of carers? I should tell him that my response is predicated on the second of those.

Photo of Earl Russell Earl Russell Liberal Democrat

I thank the Minister for that contribution. The arguments have some point in common. It is not only the old who need to be cared for; the need to care for those who need it is one which must fall somewhere.

Those who are undertaking it cannot, at one and the same time, be in the labour market. So if they are out of the labour market because they are doing something else which is necessarily in the public interest, which someone else would probably have to be paid to do, possibly out of public funds if they did not do it, a case for the exemption from the contribution conditions is quite a strong one. I beg to move.

Photo of Baroness Pitkeathley Baroness Pitkeathley Labour

Far be it from me to disagree with the noble Earl, particularly in view of his most gracious apology about a previous Bill, but a great many carers do combine paid work with caring. It is one of the main features of the National Carers Strategy to enable those carers better to do so.

Photo of Earl Russell Earl Russell Liberal Democrat

I appreciate that "superwoman" exists, but not every woman can rise to it.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

Perhaps I may add to my noble friend's contribution. Seventy-five per cent of all married women work and more than 60 per cent of married women with children work.

As we have heard, this amendment relates to the contribution conditions for incapacity benefit. There are two contribution conditions for entitlement to IB. Currently the first condition requires a person to have actually paid a certain amount of contributions in any one tax year. But from April 2001, provisions in the Welfare Reform and Pensions Act will require contributions to have actually been paid in one of the past three income tax years rather than in any tax year. We believe that that is reasonable. The purpose of IB is to provide a replacement income for people who previously had earnings from work and have become incapable of work due to illness.

The way this contribution condition works at present means that a person who has had no contact with the labour market for many years would still qualify for IB as long as they had paid the minimum amount of contributions in just one year. We do not think it right for that to continue, which is why the Government pursued the matter last summer.

The second contribution condition for IB requires contributions or credits equivalent to 50 times the lower earnings limit in both the past two tax years. That condition is unchanged. People will continue to be able to satisfy the condition by credits alone.

The amendment before us would represent a significant departure from the current arrangements. It would allow tax years during which people are unable to work because of caring responsibilities at home to count towards satisfying the contribution conditions for IB. As drafted, the amendment refers to the first contribution condition. People unable to work because of caring responsibilities at home would be deemed to have satisfied the first contribution condition regardless of whether they have ever paid any contributions at all. We believe that it is reasonable to expect people who have been in a position to work to have made at least a modest contribution in order to get a contributory benefit.

We do recognise that some people who have not had an opportunity to pay contributions should be able to qualify for IB. We are protecting the position of carers who have not paid contributions in the past three years. Carers include those caring for children with severe disabilities--children who attract either the higher or the middle rate DLA component. They can use credits to qualify for IB provided they have paid contributions at some point. From April 2001 we are making special provision to allow entitlement to IB for disabled young people who have never had an opportunity to pay contributions; in other words, those who in the past would have gone on to severe disablement allowance. But people who have responsibilities at home have not necessarily been prevented, other than by their own choice, from working to a greater extent and paying contributions. After all, we are talking about a contributory benefit. Such people would not qualify at present and extending IB to them, regardless of their circumstances, would therefore represent a significant breach of the contributory principle.

The Government fully support the wishes of those, for example, who want to remain at home and care for their children when they are very young. But it does not follow that if people choose to stay at home to look after their children rather than combine looking after their children with a part-time job they should have access to a contributory benefit which is intended as an earnings replacement for people who have been in work and would still be in work were it not for their illness.

After all, many people do combine childcare responsibilities with work and do earn enough to qualify for IB. The minimum amount of contributions required equates to earnings of just £1,650 in a period of 25 weeks or less. The benefit is not therefore confined to those who are in well-paid jobs. The minimum wage will bring many more part-time workers, in particular women, above the earnings threshold for benefits--the lower earnings limit--which is around 18 hours a week at the minimum wage. I think that the essential point raised by the amendment is how far should the benefits system provide earnings replacement benefit for those who have not been in recent employment, who have not paid contributions and who have made other choices.

I hope that, on the basis of what I have said, the Committee will agree that our contribution conditions for IB strike the right balance and that the noble Earl will withdraw his amendment.

Photo of Earl Russell Earl Russell Liberal Democrat

I suppose that I should have guessed that nothing on earth is more difficult than to argue against the Department of Social Security's filing system. One can argue against natural justice, common sense and useful effects, but one cannot argue against a ministry's system of classification. It seems to be written in tablets of stone, although I am inclined to think that that would be understating the case.

When the Minister invokes a point of principle, she should perhaps think twice about the actual effects of such a point of principle. If the effects of a principle are not good, one should go back and wonder whether that principle is correctly defined. However, I do not think that we shall be able to get very far with that tonight. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 66 agreed to.

Schedule 6 agreed to.

Clause 67 agreed to.

[Amendment No. 184 not moved.]

Schedule 7 agreed to.

Clauses 68 to 70 agreed to.

Photo of Earl Russell Earl Russell Liberal Democrat

moved Amendment No. 185:

After Clause 70, insert the following new clause--

:TITLE3:BENEFITS PAYABLE TO CERTAIN SINGLE CLAIMANTS UNDER THE AGE OF 25

(" . Regulations 3, 4 and 5 of the Housing Benefit (General) Amendment Regulations 1996 (the "amending regulations") are hereby revoked, and in consequence thereof Regulations 10, 11 and 12A of the Housing Benefit (General) Regulations 1987 shall have effect as if the amendments contained in the amending regulations had not been made.").

Photo of Earl Russell Earl Russell Liberal Democrat

I move this amendment with the support of the LGA, the ALG, the Child Poverty Action Group, Mencap, Centrepoint, NCH Action for Children, Barnardo's, Crisis, CHAS, the Churches National Housing Coalition, the National Homeless Alliance, the National Rent Deposit Forum, the Chartered Institute of Housing, and the Children's Society. That is not a negligible list. It represents the collective wisdom of most of those who work in the field.

The effect of this amendment would be to abolish the single room rent restriction for housing benefit for those under the age of 25. That provision restricts young people to housing benefit at a level which is supposed to be appropriate for the rent of a single room in a given area. However, I include the word "supposed" advisedly, because the level of support is very rarely sufficient.

The provision was introduced in 1996. The Minister and I both said that it would be a disaster. When one makes such a statement, one always watches to see whether it was in fact true. In this case I think that we were optimistic. The effect has been even worse than both of us then supposed. The policy rested on a fundamental misapprehension of the nature of the housing market.

I think that I am correct in saying that the intention behind the policy was, first, to encourage people to shop around and to trade down to property perhaps more appropriate to their income. It was felt that housing benefit was sustaining an artificially high level of rents. Secondly, it was hoped that, in some cases, it would induce landlords to reduce the level of their rents. Thirdly, it was hoped that it might lower the level of market rents overall. It has done none of those things.

A large body of research has been done on this subject, a certain amount of which I have in front of me. However, I need rely only on the research done jointly by the DETR and the DSS. That seems very clear in its findings. Tenants who considered this possibility found that it was not an option, because there was simply nothing cheaper to be found in their immediate area. I know that the Minister will not dispute this so I do not think I need bother with finding the page.

The research concluded, perfectly correctly in my opinion, in line with all other research on the subject that the system would not work unless there were rents available in the area that were within the limit of the single room rent. In most of the areas studied--now a considerable number--that is simply not the case. Whether that is inherent in the principle of the thing, or whether it is simply that those who are working with the Treasury necessarily fix the rents which they allow too low, I should not care to say. But since, if it is the second, I do not expect it to change, I doubt whether the point is material.

In only 13 per cent of cases cited in the DETR research were people able to negotiate any reduction of rent with their landlord. Of the remainder, 96 per cent were left to pay a shortfall in rent themselves. The shortfalls were substantial: in a few cases they could even be up to £50 a week. Twenty per cent of those people met costs out of borrowing; 81 per cent met them out of benefits. The Minister will have noticed that there is a small overlap in the figures. I do not think it ought to cause any surprise; it is not particularly mysterious. Twenty per cent of those involved in the survey were found to owe debts of over £500. On income support or JSA, debts of over £500 are pretty considerable. We need to know a good deal more about the level of debt on benefit than we do at present.

The provision has been no more popular with landlords than it has been with tenants. The extent of agreement on the single room rent between the landlord interest and the tenant interest is one of the most striking things about it. On the whole, landlords do not reduce rents. In the northern city surveyed in the DETR research, 33 per cent had stopped letting to single people under 25. In the inner London borough surveyed, 25 per cent had stopped doing so. Those are pretty considerable figures in a market where supply was already not on the plentiful side.

A great many more have moved out of the housing benefit market altogether, and a certain number have even moved out of the private rented market altogether and have sold the property. That was particularly clear in the Centrepoint survey of the single room rent in Devon. But since I failed to lay my hands on that around midnight last night, I shall not quote figures from it. The Minister and I have been over this course before. She knows about it as well as I do. So we are seeing a diminution in supply in a market where supply was already particularly thin.

When this matter was debated in another place, we were encouraged to hope for something from the Green Paper. The words of the Green Paper are not strong enough to be described as weasel words--"mice" might be more appropriate. With the leave of the Committee, I should like to read a fair part of what the Green Paper has to say on the subject. It is not very much. It states:

"A stable home provides a secure foundation from which to find work, and Housing Benefit should help provide this environment. A number of commentators believe that the Single Room Rent restriction ... is making it difficult for young single people to access and maintain accommodation. For example, critics say that landlords are refusing to rent to under 25s".

One wonders whether "a number of commentators" should read "all commentators". If there is a commentator who says anything else I should be very interested to hear from him or her. The nearest one gets to a suggestion is in the next paragraph. Whether these words even amount to a suggestion is perhaps grammatically open-minded:

"One option to consider is to broaden the definition of the Single Room Rent so that a range of rents for shared accommodation is used (e.g. shared houses, flats and bedsits) instead of the current restrictive one room non-self contained accommodation definition".

I suppose that that might be a little better than nothing. It is true that it would deal with one of the big points made at the time, which was that there was simply not enough accommodation for single people under 25. But the whole proposal was based on an entire misapprehension of the nature of the housing market, which is why it did not work. It was believed that it was a demand-led market in which housing benefit pushed up the level of rents. First, that grossly underestimated the shortage of private rented accommodation, especially at the cheap end of the market. The private rented sector has been in decline since 1919. We cannot afford to let it go much further. There are some needs, especially those involving considerable mobility, which cannot satisfactorily be met in any way.

Secondly, I believe that landlords' costs were grossly underestimated. Private landlords, as distinct from registered social landlords, are not charities; they are not in business for purely philanthropic motives. Therefore, if we require them to take a rent on which they do not make a profit there is no good reason why they should stay in business, and a great many of them do not.

Thirdly, I believe that the policy grossly underestimated the amount of profit that landlords could make out of selling their property and investing the capital in equities. In the present state of the housing market that point is even truer than it was before. After all, if a landlord can double his income simply by selling his property, doing no work and investing the money, why should he go on with the troublesome business of repairing and maintaining it and dealing with disputes between tenants when he can make a great deal more money by doing nothing at all? One cannot expect private business to be simply a philanthropy. Therefore, the policy failed because it was fundamentally misconceived.

By now it is clear that we cannot expect people to go on meeting large amounts of rent out of their income support or JSA. That will be even truer if the kind of conditionality of which the Minister spoke earlier becomes a normal part of the payment of benefits. It means that people who are caught by that conditionality will be instantly evicted. That will mean either a very large disorderly crowd on the streets or a considerable addition to public expenditure. I simply do not see how people can be kept in good health while they pay their rent with large chunks of income support. If housing benefit does not meet the full rent we are in very great trouble. The Minister said in relation to the 1997 Bill--I welcomed her comment--that she still accepted the principle of the 1986 Act that income support should not be used to meet rent. I hope that the noble Baroness can tell the Committee that in the course of the Government's review of housing benefit that principle will continue to hold. If not, we shall all be in very deep trouble. That includes private sector landlords as well as the rest of us. There is not much of the private sector left. We cannot afford to play fast and loose with what there is. If we lose it, replacements will cost us all a great deal more. I beg to move.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I shall respond to the voices around the Chamber tonight! Amendment No. 185 seeks to remove the rent restriction rule--the single room rent--which applies to most young people under 25 years of age living in the deregulated private rented sector.

Perhaps I may respond to the noble Earl's point about income support. We believe that income support is what people should live on. Housing benefit should be available to meet housing bills of a reasonable level as defined by the rent officer. The noble Earl asked whether there was any expectation that income support should be asked to pay housing bills. I take it that he was not saying that he would not consider any possible suggestion that one might embed into income support an additional allowance to cover part of the housing bill with some element of discretion. That is one of the proposals being floated in discussions. The noble Earl's point was that if any such housing benefit were to be embedded into income support, it must be additional to, and not eating into, current levels of income support. It is a view which he and I have expressed over the years.

The single room rent restriction was not of our making. I do not want to give the impression that it was a success or without fault. The available research, some of which was quoted by the noble Earl, is clear on that. We undertook to keep the single room rent restriction under review when we came to office. We acted swiftly to remove its extension--I think that it would have been dire and monstrous--to single people under the age of 60. It would have produced a situation where a widow, for example, was required to go into a house without even self-contained accommodation.

The noble Earl made reference to the bulk of research evidence which suggests among other things that young people are placed at a disadvantage when seeking to rent accommodation because landlords feel that they will be unable to pay the rent if they are dependent on housing benefit. Let me reassure the noble Earl that we have considered carefully all the research evidence so far available. We understand the concerns but we need to look at the range of options so that people claiming HB are not in a better position than those who have to pay the rent from their own resources.

The noble Earl's amendment would run contrary to this. For example, under the noble Earl's amendment, a single young person who is unemployed would be able to claim housing benefit for a one-bedroomed flat whereas someone on modest wages would be unlikely to afford such accommodation and would almost certainly be sharing accommodation in that situation. I do not think that it is unreasonable to expect young people to share accommodation provided that they are not particularly vulnerable or have special needs--for example, those who are care leavers, the severely disabled or the like. I do not think that it is unreasonable that young people should share accommodation.

My difficulty is that local authorities have discretion with government funding--it is a matter I have raised previously with the noble Earl--to provide additional financial help with rent to those who are in most need. For example, they could exercise their discretion if they chose to help those they believe should live in independent accommodation. To my distress, many authorities are simply not spending anywhere near the money allocated to them by central government. We want to encourage them to do so, and have recently issued revised guidance to explain the nature and intent of the discretionary scheme.

We have the exceptional hardship scheme but at present, although government are allocating nearly £20 million a year, only £8 million or so of that money is being taken up by local authorities. While Hillingdon is spending virtually every pound allocated to it by government to meet the problems, some of which have been outlined by noble Lords, Hackney is spending only a tenth of its allocation. While Stoke-on-Trent is spending well above its allocation, Blackburn is spending only a sixth of it. Leicester and Stratford-on-Avon are spending all of their allocation aimed to help to meet the problems of hardship under housing benefit restrictions whereas my own authority, Norwich, is spending only a fifth of it; and Oxford is spending not a penny. I know that that is a high rental area because my family lives there and I have to help with the rent. Yet local authorities are not taking advantage of a government scheme designed to help people in such need.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat 11:15 pm, 22nd May 2000

I am grateful to the Minister for giving way. Perhaps she will find that the change of control that recently took place in the Oxford City Council may lead to a different outcome.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

Even more that the dissemination of useful information in your Lordships' House will have all authorities, irrespective of party colour, taking advantage of additional resources placed by government to allow them to meet the need.

I have studied the figures and there is no rhyme or reason why of two authorities in adjacent areas one will spend not a penny of the allocation while the other will spend every penny. It is entirely discretionary, but it seemed to us the proper way to respond to the problem in the interim period before we finally determined in the light of the consultation exercise how we take the Green Paper forward.

We inherited a problem. We responded by making our discretionary hardship scheme more generous. Local authorities have not availed themselves of that money, even though it was meant to be bridging finance until the Government's proposals have been formulated in the light of response to the housing Green Paper. The money is available to local authorities, but they are not using it. I hope that with your Lordships' help they will.

Instead of going down the route proposed by the noble Earl, Lord Russell, we have suggested in the housing Green Paper that one option to overcome the barrier to young people obtaining accommodation is to broaden the definition of the single room rent so that it includes a range of rents for shared accommodation--shared houses, flats and bedsits--instead of the current definition which limits it to the average rent for one room which is not self- contained. We need to understand how that will work in practice, which is why we are seeking views. We also need to understand how landlords will react to the situation and whether the option will provide young people with accommodation at an affordable price, giving them the security and decency of accommodation they need in order to take up employment.

The Green Paper has raised a range of issues. We are considering the responses and reach our decision in the light of those. In the meantime, we have made available the bridging finance in order to overcome some of the hardships caused. I hope that the noble Earl will understand that I cannot give firm commitments beyond that, except to say that we are looking carefully at the responses to the housing Green Paper and we take the research very seriously, as he would expect. I hope that in the light of my comments the noble Earl will feel able to withdraw his amendments.

Photo of The Bishop of Hereford The Bishop of Hereford Bishop

Perhaps I may ask the Minister to clarify the discretionary money. I understand that care leavers are exempt from a single rent restriction up to the age of 22. They are deemed to be vulnerable and may well need self-contained accommodation. However, between the ages of 22 and 25 no such protection is provided, except presumably the discretionary money at the disposal of local authorities. What happens to those local authorities which are spending all the discretionary money but in which vulnerable care leavers may be in that position and for whom no money is available? Is it possible that some specific exclusion may be made for vulnerable care leavers between the ages of 22 and 25?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

That is a point well taken. I have all the figures from local authorities and see that those which are spending every penny from the exceptional hardship scheme are few. The total expenditure is about 40 per cent across the country. Therefore, almost all local authorities have head space to meet the need which exemplifies the groups for whom the money was intended.

Last year we sent out a circular on housing and council tax benefit, A35/99, because we were worried about local authorities failing to take up the resource. It clarified the conditions that must be satisfied: for example, housing benefit must be calculated under the local reference rent or single room rent rules; there must be a shortfall between that and the maximum rent; there must be some housing benefit payable to him; and he would suffer exceptional hardship. However, it goes on to state that "exceptional" should be taken to mean "out of the ordinary". Paragraph 10 states:

"That is not the same as 'very unusual' and criteria cannot be set that can only rarely be met. Nor should a claimant be ruled out because someone in similar circumstances would suffer similar hardship. That could mean that both of them would be in exceptional hardship".

Paragraph 12 states that local authorities must consider each case individually and should not devise groups of claimants who, by their very nature, experience hardship. A young person, for example, with special dietary needs may be unable to cut back on essential expenditure in quite the same way and should not be refused such a scheme. In other words, first, there is head space for most local authorities to meet the needs. Secondly, the Government were at great pains to say that "exceptional" should be unusual; that is, not so rare that it never happens, but simply "not normal".

Therefore, one would never say that all students, by virtue of being students, would suffer hardship and thus would be eligible. However, one could say that a student with, for example, a physical disability or a problem with access or who needed extra heating or whatever, might very well be deemed by the local authority to come within this qualification. I am concerned by the fact that the resource was put in place through recognition by government that hardship could be created because of the operation of the single room rent, yet local authorities have not availed themselves of it while we consider our way forward on the responses to the housing Green Paper.

Photo of The Earl of Listowel The Earl of Listowel Crossbench

Before the noble Baroness sits down, perhaps I may ask her to clarify one further point arising from what she has just said. What about young women who are pregnant and approaching the birth of their child who wish to move into more appropriate accommodation which they might be able to afford once the baby is born? If they wish to move into that accommodation three months or so before they are entitled to, because it is more than a single room rent will they be able to do so under this arrangement?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

By my definition, they would certainly be eligible for payments from the exceptional hardship scheme if the local authority so devised. I am not sure whether they would qualify as an exempt group. I stand to be corrected on that, but I believe that at the moment they do not qualify as an exempt group as do care leavers. However, in my view, the type of situation that the noble Earl described would merit serious consideration by a local authority for an exceptional hardship scheme.

Photo of Earl Russell Earl Russell Liberal Democrat

I thank the Minister very warmly for that reply and for being, I believe, as helpful as she possibly could be. Again, I express my gratitude for what was done for those aged over 25 with regard to the single room rent. I am sure that the Minister remembers, as I do, a good many private conversations on that subject. I shall not repeat them.

I am also grateful to her for again publicising the existence of the hardship money. That is important and it needs to be repeated. However, granted that there is no apparent logic in what she describes, it is easier to be logical in the allocation of an adequate budget than in the allocation of an inadequate budget. Many local authorities believe themselves to have an inadequate budget. In handling an inadequate budget, one must select priorities in a way that will always be illogical. Therefore, possibly if the Government were able to give a slightly more generous interpretation than they have yet done to the phrase "crude and universal capping", as used in their manifesto, we might see a little more progress on this matter.

I thank the right reverend Prelate and the noble Earl, Lord Listowel, for raising the issues of care leavers and pregnant women, both of which I should have liked to raise myself but I felt that I had trespassed on the patience of the Committee long enough. These two issues can easily be, as it were, chipped off the monolith of the single room rent and altered even if the policy were to be unchanged. Were that--I hope not--to be the case, I hope that those two bits might be chipped off it.

I am not altogether convinced by what the Minister said with regard to people in work having worse accommodation than those on housing benefit. After all, a great many people in work are now on housing benefit. In the London Borough of Kingston a new police constable receives housing benefit. I believe that by raising questions such as those, the Minister simply draws attention, first, to the level of wages, which is outside our purview tonight, and, secondly, to the more general problems of the housing market. Those are questions which I think all of us in all parties need to think about a good deal more fundamentally than we yet have done.

Obviously we are not going to solve the problems of housing by fundamentally non-market solutions. Equally obviously, we are not going to solve them by pure market solutions in a market working as it is. Every taxation provision, every legislation provision, all of these are things that influence the market. We should wonder whether the market is actually balanced correctly as it is at the moment because it certainly is not delivering any very substantial supply of rented accommodation at the lower end of the market while, at the same time, we have a flood of money going into the upper end of the housing market, especially in the London area, which is creating a very considerable distortion and absorbing capital which might be more productively invested elsewhere.

This again is not a question which I think the Committee would wish me to pursue at this time of night. I merely give notice that I think all of us, including myself, need to go away and think about it. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 71 and 72 agreed to.

[Amendment No. 186 not moved.]

Clause 73 [Contributions in respect of benefits in kind: Great Britain]:

Photo of Lord Higgins Lord Higgins Conservative

moved Amendment No. 187:

Page 74, line 36, at end insert--

("( ) Nothing in this section shall apply to any childcare provision by the employer, which shall be exempt from Class 1A contributions.").

Photo of Lord Higgins Lord Higgins Conservative

My Lords, the clause which this amendment seeks to alter is one which has obvious implications as far as the Budget is concerned and raises our usual dispute as to whether a particular measure should be implemented by the Department of Social Security or the Treasury. It also raises the question whether everything which is taxable ought to be NICable. The Government are somewhat in disarray as far as that is concerned.

Amendment No. 187 actually seeks to do something which the Chancellor of the Exchequer said he was going to do in the Budget: to encourage employers to help employees with child care, all provision in kind will remain exempt from employer class 1A national insurance contributions when these are extended to other employee benefits from April 2000. This matter was raised on the same amendment in another place and, despite the fact that it did what the Government said in their Budget they were going to do, the Government went through the Lobbies to vote it down. My understanding is that they are now proposing to do this by regulation, which does seem a rather strange series of events.

In all events, the noble Baroness, with her customary courtesy, sent me, I presume in draft, the various regulations relating to some of these matters. I am minded of the comment by the noble Baroness, Lady Castle, either at our last meeting on this Bill or the one before, where her secretary read out the totally incomprehensible piece of legislation and Lady Castle replied, "Read out the explanatory notes" and her secretary replied, "That is the explanatory note". The explanatory note to these draft regulations which the noble Baroness has sent me runs to three closely typed pages. Even so, I have to say that, as an explanatory note, it is not a great help. For example, the explanatory note says at one point that regulation 8 substitutes regulation 47 of the principle regulations (direct payment of class 1A contributions). As an explanatory note, I defy anyone to understand what on earth that means and, if we are going to have explanatory notes--and they can sometimes be very useful--simply referring to other legislation without actually saying what the principle legislation does is such-and-such and this does something else is really not very helpful.

None the less, I am grateful to the noble Baroness for this and no doubt she will tell us that they are now prepared to accept the amendment which we have in front of us this evening, at any rate in principle.

The other aspect which, even at this time of night, is worth raising is that Amendment No. 188 states:

"Nothing in this section shall apply to any healthcare provision by the employer, which shall be exempt from Class 1A contributions".

We are saying, as regards whether something taxable must be NIC-able, that if it is not so in the case of childcare it should not be so in the case of healthcare.

In replying to this matter in Committee in another place, the Minister, Mr Rooker, said that of that £225 million which this stealth tax will raise--and he seems to think that a stealth tax is something which people dealing with this kind of legislation understand, rather than that the public at large do not understand--£17 million which is raised as a result of not exempting healthcare provision by an employer will go to the National Health Service.

In answer to an intervention by Mr Pickles, who asked whether that is extra money, Mr Rooker replied that of course it is extra; it is £17 million new income. It is true that it is £17 million new income but I have looked in vain to discover where that national health provision has been increased by £17 million. I do not believe that it has but no doubt if I am wrong the noble Baroness will tell me where that extra £17 million for the National Health Service, which is to result from the Government coming into that money by not exempting healthcare provisions from NICs, is going to turn up. I do not believe that it does and I look forward to hearing from the noble Baroness where it is to be found. I beg to move.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat 11:30 pm, 22nd May 2000

On these Benches, we start from the proposition that the tax base for NICs should be the same as the tax base for Schedule E income tax. If that is not the case, as past history has shown, there is a real chance of tax avoidance through the use of devices some of which, like payment in gold bars, are completely absurd and indefensible. Some, like the use of company cars, may originally have had some justification but have reached the level at which they distorted the economy and basically, people were being forced to take company cars whether they needed them or not simply because it was a more tax-efficient way of paying income.

Therefore, in any case the test must be that there should be a presumption against exempting from NICs anything which is taxable for Schedule E.

Against those tests, Amendment No. 187 has some justification. It is extremely difficult to see any justification for Amendment No. 188. The special position as regards childcare has already been recognised to some extent by virtue of the fact that in-house childcare facilities provided by an employer for employees are not taxable. The value of the childcare provided is not taxable under Schedule E and, therefore, it would be logically indefensible to make that subject to NICs.

Of course, a great deal of childcare is provided outside the employer's property and much of it in a way where the cost of it must come out of taxed income. Nevertheless, childcare is in a special position because, of course, it is impossible for many people, particularly women with children, to take employment at all unless childcare has been provided. That has been recognised by the extremely generous childcare allowances which are provided in the working families' tax credit. Therefore, I understand entirely, and indeed would support, the principle behind Amendment No. 187.

Amendment No. 188 seems to be in a different position. After all, there is such a thing as the National Health Service. Many businesses provide payment of subscription to private health providers as part of the employment package. There is nothing wrong with that and in many cases it is in the interests of the business to do so because it ensures that key employees are able to get treatment at times most suitable to the employer.

I speak as the father of a son who recently suffered a serious knee injury playing football. Luckily the cost of his treatment was met through the private health insurance taken out by his employer. He was able to get immediate treatment at a time that suited both him and his employer.

Nevertheless, it seems that if that is part of the employment package provided by an employer for the employee, it is difficult to see why the employer should not be required to pay Class 1A contributions, given that it is recognised by the Government that it would not be sensible to take the further step of going the whole hog and making these subject fully to Class 1 contributions. Therefore, while we support Amendment No. 187, we are unable to support Amendment No. 188.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

That was such a comprehensive speech and as I believe that I agree with every word of the noble Lord, Lord Goodhart, I almost wonder whether I need to reply to him. Perhaps I had better not just say, "Ditto, ditto".

Photo of Lord Higgins Lord Higgins Conservative

In that context, what view does the noble Baroness hold about a company providing flu injections, given the crisis in the health service last year?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I do not have a view on that at the moment. I am sure that when I contemplate it, I shall have a view and I shall then be delighted to share it with the noble Lord, Lord Higgins.

Clause 73 is a further step towards the alignment of tax and national insurance contributions (NICs). The clause provides for the extension of Class 1A NICs--the shorthand commonly used for national insurance contributions--to cover, from April 2000, benefits in kind such as private health insurance, beneficial loans or use of a company yacht. It means that in future employers will pay NICs on all benefits in kind that they provide which are subject to income tax. The Class 1A NICs charge will be based on the taxable value of the benefit in kind, so that there is parity of treatment between cash and non-cash earnings.

That change, announced by the Chancellor in his 1999 Budget, was recommended by Martin Taylor in his report The Modernisation of Britain's Tax and Benefit System. As we have heard, the Opposition's amendments aim to remove two types of benefits from liability to Class 1A NICs: childcare benefit and the provision of private medical insurance.

First, I shall deal with Amendment No. 187 where there is little difference in the Committee in terms of the desired outcome. This March, in the Budget, the Chancellor announced one exception to the simple rule that what is taxable is also NIC-able. He said that, to encourage employers to provide childcare to help their employees, Class 1A NICs will not be charged on the value of any in kind childcare arranged by the employer. That will, of course, be welcomed by employees. It will not involve the employer in any greater effort than recording the value of the provided childcare in a different box on the P11D form with which they are familiar.

That has been done to encourage employers to help employees with children by providing more childcare facilities. Having been heavily involved in the WFTC Bill, it is quite clear that apart from getting an immediate family relative to care for a child, the childcare most favoured by people moving into the labour market is workplace nurseries, or employer-funded childcare of the sort that is congruent with the person's working hours.

Employers who organise places in commercial nurseries, arrange for a childminder, provide a workplace nursery or provide childcare vouchers will not pay Class 1A NICs. As the noble Lord, Lord Goodhart, said, that precisely fits the working families' tax credit scheme.

In spirit, therefore, Amendment No. 187 is the same as the Chancellor's announcement. We appear to differ only on the best way to deliver the necessary legislation. We believe it is preferable to set out the definition of childcare in regulations so that everyone is clear what is and what is not covered.

The noble Lord, Lord Higgins, knows well that it is traditional in relation to the NICs scheme for the primary legislation to be rather wide, but encompassing regulation-making powers. The details are properly set out in regulations. The Delegated Powers and Deregulation Committee recognised that in relation to the provisions in this Bill. The detail can then be amended if need be without unnecessarily taking up parliamentary time as to the type of childcare and so forth. Amendment No. 187 is therefore unnecessary. If we have not already done so, we will send a copy of the regulations to Members of the Committee indicating to what they apply.

However, like the noble Lord, Lord Goodhart, the same argument does not apply to Amendment No. 188. At the core, childcare removes a barrier to work; private healthcare is part of the remuneration for work. That is the distinction the Government draw. I am sure it is one that the noble Lord, Lord Higgins, understands. Excluding private healthcare from Class 1A would undermine one of the main purposes of introducing Class 1A NICs; that is, to bring closer together the NICs' treatment of cash and non-cash earnings. The speech made by the noble Lord, Lord Goodhart, both tonight and at Second Reading, was exactly right when he said treating some form of perks as NIC-free distorts the system of wages and salaries. The extension of Class 1A will reduce that distortion.

I also agree strongly with the view expressed by the noble Lord, Lord Goodhart, that there is a significant difference between the two amendments. As I say, childcare is provided to remove obstacles; to help employees with children cope with work and family responsibilities, whereas private healthcare is regarded as part of the remuneration.

Photo of Lord Higgins Lord Higgins Conservative

I wonder if I may pursue a point to which the noble Baroness did not give an answer earlier. Does she think that flu injections given by a company ought to be chargeable to NICs on that company, given the clear beneficial effect and reduction in the cost to the National Health Service which would have resulted had flu been more widespread last winter? Would it not be a good idea to encourage that and not to penalise it in the future?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I hope to receive some advice which I can share with the noble Lord in a moment or two. It is only large firms that can afford to offer their employees many and various benefits in kind. Rather than subsidise those large firms at the expense of small firms and their employees by minimising NICs they pay on benefits they provide, we prefer the level playing field approach and at the same time putting more money into the NHS where it is most needed.

Members of the Committee may not be aware that NICs are equal to 0.9 per cent of the value of all benefits subject to Class 1A NICs, and that percentage will go towards funding the NHS. In other words, in response to an earlier question raised by the noble Lord, Lord Higgins, that £17 million extra is the statutory percentage of each NICs class passed to the NHS. So it is not a question as to how the NHS is going to spend it; it is simply part of the tithing of the NICs percentage that goes direct to the NHS.

Photo of Lord Higgins Lord Higgins Conservative

It may be more convenient for me to interrupt the noble Baroness. Where does that extra £17 million appear in the Government's provision for the National Health Service? The crucial question is whether the £17 million is extra for the National Health Service. Where does it appear in the government accounts that we are going to spend an extra £17 million on the National Health Service? Does the noble Lord wish to intervene?

Photo of Lord Higgins Lord Higgins Conservative

With respect to the noble Lord, it is not a different Bill. The matter came up at Committee stage in another place and we were assured that it was an extra £17 million. I was simply saying, as I said earlier, that I do not believe that that is so.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

As I understand it, and if I am wrong of course I shall write to the noble Lord, whenever the NICs scheme is altered and more revenue is raised as a result of these measures, a statutory percentage of that 0.9 per cent passes to the NHS, neither more nor less; that represents £17 million in this case and therefore that goes across. That is my understanding of the situation but, if I have misled the noble Lord, I shall of course write to him.

The noble Lord also asked whether flu jabs were taxable and therefore NIC-able. They are indeed taxable, and therefore NIC-able. Such small amounts, however, are usually wrapped up by the firm in a PAYE settlement agreement, which is therefore to the mutual convenience of all concerned.

The costs have been detailed in the regulatory impact assessment; it falls only on employers; it is about the alignment of taxes and NICs, the alignment of cash and non-cash benefits, and greater fairness between big and small firms, with no obvious financial gain to the Treasury. I hope that, for all of those reasons, and above all because one should not be distorting the system by seeking to evade proper NICs and taxable payments by going through the benefits-in-kind route, the noble Lord will withdraw his amendment.

Photo of Lord Higgins Lord Higgins Conservative 11:45 pm, 22nd May 2000

As the Government propose to implement what my amendment does by way of a statutory instrument, then of course I am prepared to withdraw it. I have sympathy for those members of the Labour Party who were forced to go through the division lobbies to the contrary effect only a short time ago.

As far as the second amendment is concerned, I look forward to seeing what information the noble Baroness manages to ascertain with regard to the question of the National Health Service.

Amendment, by leave, withdrawn.

[Amendments Nos. 188 to 191 not moved.]

Photo of Lord Higgins Lord Higgins Conservative

moved Amendment No. 192:

Page 76, line 26, leave out ("with 6th April 2000") and insert ("on 6th April of the year after the date of commencement of this Act, or, if this Act comes into force on various dates, the earliest of those dates,").

Photo of Lord Higgins Lord Higgins Conservative

This is the final amendment we are debating this evening. It refers to the question of timing.

Effectively, it seeks to amend the clause on page 76 of the Bill which suggests that all these changes in National Insurance contributions shall come into effect with effect from 6th April 2000. In other words, it is a piece of retrospective legislation.

I am not sure to what extent anyone was informed in advance that this was going to be the case. It would seem more reasonable, however, not to backdate it and make it retrospective but to ensure that it happens next April rather than at the present time, and indeed for some weeks past. I beg to move.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

The clause fulfils the 1999 Budget commitment to introduce an employer's NICs charge on all taxable benefits in kind from 6th April 2000. As Royal Assent to the Bill will be after that date, introduction of the charge will be backdated to 6th April. These amendments would prevent that from happening. It would be necessary to postpone the implementation of the extended Class 1A NICs scheme for a year.

Benefits provided from 6th April this year will attract a Class 1A NICs charge, which will be due to be paid to the Revenue by 19 July 2001. We do not believe that this will cause problems for employers. They were all sent the guidance booklet, enabling preparation for the change to be made.

To delay implementation now would mean that all the preparatory work already done by employers would be wasted and there would be confusion over the date the provisions take effect. Many of the details of the Class 1A charge, particularly the emoluments exempted from liability, will be in regulations, so they must also become operative from the beginning of the tax year.

Is that enough for the noble Lord? I can continue with the answer but, given that employers are expecting to operate this scheme, we see no virtue in changing the dates.

Photo of Lord Higgins Lord Higgins Conservative

I have one simple question. Is it the case that they may already have prepared or indeed submitted their payroll returns and will now have to alter them?

Amendment, by leave, withdrawn.

[Amendment No. 193 not moved.]

Clause 73 agreed to.

Clauses 74 and 75 agreed to.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

moved Amendment No. 193A:

After Clause 75, insert the following new clause--

:TITLE3:LIABILITY OF EARNER FOR SECONDARY CONTRIBUTIONS: GREAT BRITAIN

"( .--(1) In paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits Act 1992 (prohibition on deduction or recovery of Class 1 contributions), sub-paragraph (2) shall be omitted.

(2) After that paragraph there shall be inserted--

"Prohibition on recovery of employer's contributions

3A.--(1) Subject to sub-paragraph (2) below, a person who is or has been liable to pay any secondary Class 1 or any Class 1A or Class 1B contributions shall not--

(a) make, from earnings paid by him, any deduction in respect of any such contributions for which he or any other person is or has been liable;

(b) otherwise recover any such contributions (directly or indirectly) from any person who is or has been a relevant earner; or

(c) enter into any agreement with any person for the making of any such deduction or otherwise for the purpose of so recovering any such contributions.

(2) Sub-paragraph (1) above does not apply to the extent that an agreement between--

(a) a secondary contributor, and

(b) any person ('the earner') in relation to whom the secondary contributor is, was or will be such a contributor in respect of the contributions to which the agreement relates, allows the secondary contributor to recover (whether by deduction or otherwise) the whole or any part of any secondary Class 1 contribution payable in respect of a gain that is treated as remuneration derived from that earner's employment by virtue of section 4(4)(a) above.

(3) Sub-paragraph (2) above does not authorise any recovery (whether by deduction or otherwise)--

(a) in pursuance of any agreement entered into before 19th May 2000; or

(b) in respect of any liability to a contribution arising before the day of the passing of the Child Support, Pensions and Social Security Act 2000.

(4) In this paragraph--

'agreement' includes any arrangement or understanding (whether or not legally enforceable); and

'relevant earner', in relation to a person who is or has been liable to pay any contributions, means an earner in respect of whom he is or has been so liable.

Transfer of liability to be borne by earner

3B.--(1) This paragraph applies where--

(a) an election is jointly made by--

(i) a secondary contributor, and

(ii) a person ('the earner') in relation to whom the secondary contributor is or will be such a contributor in respect of contributions on share option gains by the earner, for the whole or a part of any liability of the secondary contributor to contributions on any such gains to be transferred to the earner; and

(b) the election is one in respect of which the Inland Revenue have, before it was made, given by notice to the secondary contributor their approval to both--

(i) the form of the election; and

(ii) the arrangements made in relation to the proposed election for securing that liability transferred by the election will be met.

(2) Any liability which--

(a) arises while the election is in force, and

(b) is a liability to pay the contributions on share option gains by the earner, or the part of them, to which the election relates, shall be treated for the purposes of this Act, the Administration Act and Part II of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 as a liability falling on the earner, instead of on the secondary contributor.

(3) Subject to sub-paragraph (7)(b) below, an election made for the purposes of sub-paragraph (1) above shall continue in force from the time when it is made until whichever of the following first occurs, namely--

(a) it ceases to have effect in accordance with its terms;

(b) it is revoked jointly by both parties to the election;

(c) notice is given to the earner by the secondary contributor terminating the effect of the election.

(4) An approval given to the secondary contributor for the purposes of sub-paragraph (1)(b) above may be given either--

(a) for an election to be made by the secondary contributor and a particular person; or

(b) for all elections to be made, or to be made in particular circumstances, by the secondary contributor and particular persons or by the secondary contributor and persons of a particular description.

(5) The grounds on which the Inland Revenue shall be entitled to refuse an approval for the purposes of sub-paragraph (1)(b) above shall include each of the following--

(a) that it appears to the Inland Revenue that adequate arrangements have not been made for securing that the liabilities transferred by the proposed election or elections will be met by the person or persons to whom it would be so transferred; and

(b) that it appears to the Inland Revenue that they do not have sufficient information to determine whether or not grounds falling within paragraph (a) above exist.

(6) If, at any time after they have given an approval for the purposes of sub-paragraph (1)(b) above, it appears to the Inland Revenue--

(a) that the arrangements that were made or are in force for securing that liabilities transferred by elections to which the approval relates are met are proving inadequate or unsatisfactory in any respect, or

(b) that any election to which the approval relates has resulted, or is likely to result, in the avoidance or non-payment of the whole or any part of any secondary Class 1 contributions, the Inland Revenue may withdraw the approval by notice to the secondary contributor.

(7) The withdrawal by the Inland Revenue of any approval given for the purposes of sub-paragraph (1)(b) above--

(a) may be either general or confined to a particular election or to particular elections; and

(b) shall have the effect that the election to which the withdrawal relates has no effect on contributions on share option gains in respect of any right to acquire shares obtained after--

(i) the date on which notice of the withdrawal of the approval is given, or

(ii) such later date as the Inland revenue may specify in that notice.

(8) Where the Inland Revenue have refused or withdrawn their approval for the purposes of sub-paragraph (1)(b) above, the person who applied for it or, as the case may be, to whom it was given may appeal to the Special Commissioners against the Inland Revenue's decision.

(9) On an appeal under sub-paragraph (8) above the Special Commissioners may--

(a) dismiss the appeal;

(b) remit the decision appealed against to the Inland Revenue with a direction to make such decision as the Special Commissioners think fit; or

(c) in the case of a decision to withdraw an approval, quash that decision and direct that that decision is to be treated as never having been made.

(10) Subject to sub-paragraph (12) below, an election under sub-paragraph (1) above shall not apply to any contributions in respect of gains realised before it was made.

(11) Regulations made by the Inland Revenue may make provision with respect to the making of elections for the purposes of this paragraph and the giving of approvals for the purposes of sub-paragraph (1)(b) above; and any such regulations may, in particular--

(a) prescribe the matters that must be contained in such an election;

(b) provide for the manner in which such an election is to be capable of being made and of being confined to particular liabilities or the part of particular liabilities; and

(c) provide for the making of applications for such approvals and for the manner in which those applications are to be dealt with.

(12) Where--

(a) an election is made under this paragraph before the end of the period of three months beginning with the date of the passing of the Child Support, Pensions and Social Security Act 2000, and

(b) that election is expressed to relate to liabilities for contributions arising on or after 19th May 2000 and before the making of the election, this paragraph shall have effect in relation to those liabilities as if sub-paragraph (2) above provided for them to be deemed to have fallen on the earner (instead of on the secondary contributor); and the secondary contributor shall accordingly be entitled to reimbursement from the earner for any payment made by that contributor in or towards the discharge of any of those liabilities.

(13) In this paragraph references to contributions on share option gains by the earner are references to any secondary Class 1 contributions payable in respect of a gain that is treated as remuneration derived from the earner's employment by virtue of section 4(4)(a) above.

(14) In this paragraph 'the Special Commissioners' means the Commissioners for the special purposes of the Income Tax Acts."

(3) In section 6(4) of that Act (persons by whom Class 1 contributions are payable), for the words from "paragraph 3" onwards there shall be substituted "paragraphs 3 to 3B of Schedule 1 to this Act."

(4) In paragraph 8(1) of Schedule 1 to that Act (general regulations), after paragraph (c) there shall be inserted--

"(ca) for requiring a secondary contributor to notify a person to whom any of his liabilities are transferred by an election under paragraph 3B above of--

(i) any transferred liability that arises;

(ii) the amount of any transferred liability that arises; and

(iii) the contents of any notice of withdrawal by the Inland Revenue of any approval that relates to that election;".

(5) In section 8(1) of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 (decisions to be taken by officers of the Inland Revenue), after paragraph (i) there shall be inserted--

"(ia) to decide whether to give or withdraw an approval for the purposes of paragraph 3B(1)(b) of Schedule 1 to the Social Security Contributions and Benefits Act 1992;".

(6) In section 10 of that Act of 1999 (regulations about varying or superseding decisions), at the beginning of subsection (1) there shall be inserted "Subject to subsection (2A) below,", and after subsection (2) there shall be inserted--

"(2A) The decisions in relation to which provision may be made by regulations under this section shall not include decisions falling within section 8(1)(ia) above."

(7) In section 12(4) of that Act of 1999 (appeals to be heard by General Commissioners), after "Subject to" there shall be inserted "paragraph 3B(8) of Schedule 1 to the Social Security Contributions and Benefits Act 1992 (which provides for appeals under that paragraph to be heard by the Special Commissioners), to".").

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I would like to move Amendment No. 193A and speak also to Amendment Nos. 198ZA, 200A, 200B and 202A.

I deeply regret and would like to apologise to the House for the lateness of tabling this amendment. As a Government, we have tried not only to reduce the total number of amendments tabled but, where they have been tabled, to do so well in advance or at all stages of Committee, so I very much regret that it should be at such late notice.

Noble Lords may be aware that, following the Chancellor's Budget statement, the Financial Secretary has been engaged in a period of consultation with employers to provide a technical solution to a problem that has arisen in relation to National Insurance contributions on share option gains--

Photo of Lord Higgins Lord Higgins Conservative

I am sorry to interrupt the Minister, but could she just repeat the numbers in this grouping? She very courteously sent me a note on this group of amendments, but I understood that she was going to move amendments on Report.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

No. I am moving Amendment No. 193A and speaking to Amendments Nos. 198ZA, 200A, 200B and 203. The Government have given an undertaking as far as they can not to introduce new material on Report which, therefore, is not available for full discussion. That is why I consulted noble Lords as much as I could over the weekend. I contacted the noble Lords, Lord Astor and Lord Goodhart, and said that I was very sorry that we were tabling such amendments late. I apologised for that fact but I thought that, on balance--and bearing in mind that these measures are welcomed by industry--it was more helpful to noble Lords to table them for tonight to enable discussion to take place, rather than leave them to the Report stage.

Obviously, I tried to reach the noble Lord, Lord Higgins, over the weekend. I am sure it was my fault that I was unable to do so. However, perhaps I may suggest to him that he allows me to move and to speak to those amendments. I hope that the noble Lord will not be unhappy about any aspects of them but, if he is, I shall be more than happy to set up a meeting with officials to enable him and the noble Lord, Lord Goodhart, to discuss the implications of the amendments in greater detail. Thereafter, if the noble Lord, Lord Higgins, wishes to return to the matter by tabling clarifying amendments, so to speak, on Report, he will be entitled to do so. Can I suggest that to the noble Lord as the possible way forward?

Photo of Lord Higgins Lord Higgins Conservative

I do not want to delay the Committee at this late hour and I am happy to ensure that legislation is dealt with appropriately. The very courteous message that I received from the noble Baroness provided me with information on these clauses, but my clear understanding was that they would be moved on Report. I was a little surprised by what has just happened. As of this morning, the grouping information that I received did not appear to include these clauses. It was obviously remiss of me. I should have realised that they had subsequently been tabled. But I am not sure when they were tabled.

As I say, I do not want to make a great fuss about this. It is simply that we were rather taken by surprise because the Minister is not doing what we understood she said she was going to do.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

In the letter that I faxed through to the noble Lords, Lord Astor and Lord Goodhart, I asked whether they wished to see the amendments at that time, and said:

"I very much regret that these amendments were tabled at such short notice, but I thought that this was preferable to delaying tabling the amendments until Report".

I wonder whether--

Photo of Lord Astor of Hever Lord Astor of Hever Conservative

There may have been a breakdown in communication here. I had understood that the amendments would be tabled but that the debate would take place on Report. I also understood that the Minister would provide officials to brief us between now and that time, with the general debate taking place at Report stage. That was the tenor of our discussion on the telephone.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

If I was going to table them on Report, they would not normally have been tabled at this stage. Indeed, I would not have been running around during the weekend telling noble Lords that I was tabling these amendments. I did so because we were doing precisely what we had sought not to do; namely, tabling amendments at quite short notice. I was very anxious that noble Lords should have the benefit of that information. I certainly sent the identical letter to both the noble Lord, Lord Astor, and the noble Lord, Lord Goodhart. Obviously, I tried to reach the noble Lord, Lord Higgins, but through no error on either side--he was perfectly entitled to be away--I was unable to reach him. I give way.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

I am grateful to the Minister. From my point of view, although I had not thought about this in very great detail, I should say that my assumption was that if these amendments were to be tabled today, they would, in accordance with normal practice, also be moved today. That was my assumption.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

As I say, it is the Government's fault, so to speak, that these amendments are tabled so late. I do not like that situation. However, I hope that the noble Lord will allow me to explain the amendments. As I say, I am happy to offer the noble Lord a meeting with officials to discuss matters. He may return to the matter at Report stage with amendments either to clarify or to seek to amend the Government's proposals.

I say in my defence that employers are pressing us on this matter. I believe that the measure is broadly regarded as entirely benign. Therefore I hope that the Committee will allow me to cut corners, so to speak, on introducing it tonight.

Photo of Lord Higgins Lord Higgins Conservative

I am perfectly content for the noble Baroness to proceed as she has suggested. If she wishes to proceed with her explanation now, that is fine. We shall then consider the matter further at Report stage.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

I am grateful to the noble Lord for those comments. At least I can now "bank", so to speak, the sketch of what we propose to do.

Since 6th April 1999, gains made by employees when they exercise share options granted after 5th April 1999 are subject to Class 1 NICs, unless the share options are awarded and exercised under an Inland Revenue approved scheme or the shares acquired are not readily convertible into cash.

The Committee may be aware that under accountancy rules companies are required to make a provision in their accounts for the anticipated NICs liability on share options based on the market price of the shares on the date that they prepare the accounts.

Many companies have informed us that while they can plan for NICs on regular pay, it is more difficult for them to plan for NICs on share option gains, particularly where the share price is volatile, as it is in the high growth sector of the economy, such as the new Internet companies. The exposure to so unpredictable a NICs liability could put at risk these companies' investment strategies and even make some companies technically insolvent. The unpredictability of accounting provisions is a severe worry to employers. As a result, a number of these companies are now questioning their investment plans for the UK and have told us that they might consider moving jobs elsewhere.

Class 1 NICs consist of a primary contribution, which is payable by the employee and a secondary contribution which is payable by the secondary contributor, which, in most circumstances, is the employer. Current social security legislation provides a statutory bar to prevent employers from recovering any part of their secondary Class 1 liability from the employee. This amendment strengthens that protection for the employee but at the same time introduces an exception for NICs arising on share option gains.

The amendment does three things. First, it allows employers and employees to reach an agreement that a secondary contributor (usually the employer) may recover some or all of the secondary NICs in respect of rights to acquire shares from the employee. Secondly, and as an alternative, the employer may make an application for approval of an election to the Board of the Inland Revenue. If approval is obtained, the employer and employee can jointly elect to transfer all or some of the liability to pay the secondary NICs on the share option gain to the employee. Elections can be made only after the Inland Revenue has given its approval to the form of the election and the accompanying arrangements for securing that the NICs liability transferred to the employee is paid.

We shall introduce the ability to transfer the liability to the employee to overcome accounting difficulties for companies that report in the United States which would otherwise arise if the employer simply recovered the NICs. This flexibility has been provided in response to requests made to us during the consultation period.

Thirdly, the proposed amendment strengthens the existing statutory bar that prevents the employer recovering any part of the secondary NIC in respect of all forms of earnings (subject to the new exception for share options). It extends protection to the employee by ensuring that the person liable to pay the Class 1A NICs (on benefits in kind) or Class 1B (on pay-as-you-earn settlement agreements) cannot recover his liability from the employee.

I emphasise that this amendment seeks to put in place a solution that a number of companies have requested and we are meeting those requests. I should also add that the Government have consulted widely on the solution and it is clear that many of the companies that we have spoken to will welcome it. I can assure the Committee that the employer may only transfer or recover his liability from the employee if the employee so agrees.

The merits of the solution are such that it completely eliminates the unpredictability of the charge to the company and it moves the liability to the person with funds to pay for it. We believe that it is needed to attract business and jobs to the UK and to help UK companies compete in the global market. It goes towards meeting the Government's aim of a fairer national insurance system by ensuring that NICs are paid on share options and not treated more favourably than other kinds of remuneration.

As I said, I am very happy to expand on that to Members of the Committee, either by letter or by meeting. Given that explanation, I hope that the Committee will accept this measure and these amendments. I beg to move.

Photo of Lord Higgins Lord Higgins Conservative 12:00 am, 22nd May 2000

It is helpful to have that on the record. No doubt we shall wish to consider the matter between now and Report stage. A number of thoughts immediately occur to one--for example, does the Revenue refund the money if the share option goes, in the jargon, under water? However, I leave that to another occasion. We appreciate what the Minister has said.

Photo of Lord Goodhart Lord Goodhart Liberal Democrat

Who are we to interfere in an agreement reached between the Government and employers? I can see the problem outlined by the Minister. I am prepared to give her the benefit of the doubt that this is the right way of dealing with it. The legislation is extremely complex and quite impossible to take on board in the time available to do so. No doubt if there are problems, we shall be briefed before Report stage by those who have an interest in making changes to the legislation.

On Question, amendment agreed to.

Clause 76 [Contributions in respect of benefits in kind: Northern Ireland]:

[Amendments Nos. 194 to 198 not moved.]

Clause 76 agreed to.

Clauses 77 and 78 agreed to.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

moved Amendment No. 198ZA:

Insert the following new clause--

:TITLE3:LIABILITY OF EARNER FOR SECONDARY CONTRIBUTIONS: NORTHERN IRELAND

(" .--(1) In paragraph 3 of Schedule 1 to the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (prohibition on deduction or recovery of Class 1 contributions), sub-paragraph (2) shall be omitted.

(2) After that paragraph there shall be inserted--

"Prohibition on recovery of employer's contributions

3A.--(1) Subject to sub-paragraph (2) below, a person who is or has been liable to pay any secondary Class 1 or any Class 1A or Class 1B contributions shall not--

(a) make, from earnings paid by him, any deduction in respect of any such contributions for which he or any other person is or has been liable;

(b) otherwise recover any such contributions (directly or indirectly) from any person who is or has been a relevant earner; or

(c) enter into any agreement with any person for the making of any such deduction or otherwise for the purpose of so recovering any such contributions.

(2) Sub-paragraph (1) above does not apply to the extent that an agreement between--

(a) a secondary contributor, and

(b) any person ('the earner') in relation to whom the secondary contributor is, was or will be such a contributor in respect of the contributions to which the agreement relates, allows the secondary contributor to recover (whether by deduction or otherwise) the whole or any part of any secondary Class 1 contribution payable in respect of a gain that is treated as remuneration derived from that earner's employment by virtue of section 4(4)(a) above.

(3) Sub-paragraph (2) above does not authorise any recovery (whether by deduction or otherwise)--

(a) in pursuance of any agreement entered into before 19th May 2000; or

(b) in respect of any liability to a contribution arising before the day of the passing of the Child Support, Pensions and Social Security Act 2000.

(4) In this paragraph--

'agreement' includes any arrangement or understanding (whether or not legally enforceable); and

'relevant earner', in relation to a person who is or has been liable to pay any contributions, means an earner in respect of whom he is or has been so liable.

Transfer of liability to be borne by earner

3B.--(1) This paragraph applies where--

(a) an election is jointly made by--

(i) a secondary contributor, and

(ii) a person ('the earner') in relation to whom the secondary contributor is or will be such a contributor in respect of contributions on share option gains by the earner, for the whole or a part of any liability of the secondary contributor to contributions on any such gains to be transferred to the earner; and

(b) the election is one in respect of which the Inland Revenue have, before it was made, given by notice to the secondary contributor their approval to both--

(i) the form of the election; and

(ii) the arrangements made in relation to the proposed election for securing that liability transferred by the election will be met.

(2) Any liability which--

(a) arises while the election is in force, and

(b) is a liability to pay the contributions on share option gains by the earner, or the part of them, to which the election relates, shall be treated for the purposes of this Act, the Administration Act and Part III of the Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999 as a liability falling on the earner, instead of on the secondary contributor.

(3) Subject to sub-paragraph (7)(b) below, an election made for the purposes of sub-paragraph (1) above shall continue in force from the time when it is made until whichever of the following first occurs, namely--

(a) it ceases to have effect in accordance with its terms;

(b) it is revoked jointly by both parties to the election;

(c) notice is given to the earner by the secondary contributor terminating the effect of the election.

(4) An approval given to the secondary contributor for the purposes of sub-paragraph (1)(b) above may be given either--

(a) for an election to be made by the secondary contributor and a particular person; or

(b) for all elections to be made, or to be made in particular circumstances, by the secondary contributor and particular persons or by the secondary contributor and persons of a particular description.

(5) The grounds on which the Inland Revenue shall be entitled to refuse an approval for the purposes of sub-paragraph (1)(b) above shall include each of the following--

(a) that it appears to the Inland Revenue that adequate arrangements have not been made for securing that the liabilities transferred by the proposed election or elections will be met by the person or persons to whom it would be so transferred; and

(b) that it appears to the Inland Revenue that they do not have sufficient information to determine whether or not grounds falling within paragraph (a) above exist.

(6) If, at any time after they have given an approval for the purposes of sub-paragraph (1)(b) above, it appears to the Inland Revenue--

(a) that the arrangements that were made or are in force for securing that liabilities transferred by elections to which the approval relates are met are proving inadequate or unsatisfactory in any respect, or

(b) that any election to which the approval relates has resulted, or is likely to result, in the avoidance or non-payment of the whole or any part of any secondary Class 1 contributions, the Inland Revenue may withdraw the approval by notice to the secondary contributor.

(7) The withdrawal by the Inland Revenue of any approval given for the purposes of sub-paragraph (1)(b) above--

(a) may be either general or confined to a particular election or to particular elections; and

(b) shall have the effect that the election to which the withdrawal relates has no effect on contributions on share option gains in respect of any right to acquire shares obtained after--

(i) the date on which notice of the withdrawal of the approval is given, or

(ii) such later date as the Inland revenue may specify in that notice.

(8) Where the Inland Revenue have refused or withdrawn their approval for the purposes of sub-paragraph (1)(b) above, the person who applied for it or, as the case may be, to whom it was given may appeal to the Special Commissioners against the Inland Revenue's decision.

(9) On an appeal under sub-paragraph (8) above the Special Commissioners may--

(a) dismiss the appeal;

(b) remit the decision appealed against to the Inland Revenue with a direction to make such decision as the Special Commissioners think fit; or

(c) in the case of a decision to withdraw an approval, quash that decision and direct that that decision is to be treated as never having been made.

(10) Subject to sub-paragraph (12) below, an election under sub-paragraph (1) above shall not apply to any contributions in respect of gains realised before it was made.

(11) Regulations made by the Inland Revenue may make provision with respect to the making of elections for the purposes of this paragraph and the giving of approvals for the purposes of sub-paragraph (1)(b) above; and any such regulations may, in particular--

(a) prescribe the matters that must be contained in such an election;

(b) provide for the manner in which such an election is to be capable of being made and of being confined to particular liabilities or the part of particular liabilities; and

(c) provide for the making of applications for such approvals and for the manner in which those applications are to be dealt with.

(12) Where--

(a) an election is made under this paragraph before the end of the period of three months beginning with the date of the passing of the Child Support, Pensions and Social Security Act 2000, and

(b) that election is expressed to relate to liabilities for contributions arising on or after 19th May 2000 and before the making of the election, this paragraph shall have effect in relation to those liabilities as if sub-paragraph (2) above provided for them to be deemed to have fallen on the earner (instead of on the secondary contributor); and the secondary contributor shall accordingly be entitled to reimbursement from the earner for any payment made by that contributor in or towards the discharge of any of those liabilities.

(13) In this paragraph references to contributions on share option gains by the earner are references to any secondary Class 1 contributions payable in respect of a gain that is treated as remuneration derived from the earner's employment by virtue of section 4(4)(a) above.

(14) In this paragraph 'the Special Commissioners' means the Commissioners for the special purposes of the Income Tax Acts."

(3) In section 6(4) of that Act (persons by whom Class 1 contributions are payable), for the words from "paragraph 3" onwards there shall be substituted "paragraphs 3 to 3B of Schedule 1 to this Act."

(4) In paragraph 8(1) of Schedule 1 to that Act (general regulations), after paragraph (c) there shall be inserted--

"(ca) for requiring a secondary contributor to notify a person to whom any of his liabilities are transferred by an election under paragraph 3B above of--

(i) any transferred liability that arises;

(ii) the amount of any transferred liability that arises; and

(iii) the contents of any notice of withdrawal by the Inland Revenue of any approval that relates to that election;".

(5) In Article 7(1) of the Social Security Contributions (Transfer of Functions, etc.) (Northern Ireland) Order 1999 (decisions to be taken by officers of the Inland Revenue), after sub-paragraph (i) there shall be inserted--

"(ia) to decide whether to give or withdraw an approval for the purposes of paragraph 3B(1)(b) of Schedule 1 to the Contributions and Benefits Act;".

(6) In Article 9 of that Order (regulations about varying or superseding decisions), at the beginning of paragraph (1) there shall be inserted "Subject to paragraph (2A) below,", and after paragraph (2) there shall be inserted--

"(2A) The decisions in relation to which provision may be made by regulations under this Article shall not include decisions falling within Article 7(1)(ia) of this Order."

(7) In Article 11(4) of that Order (appeals to be heard by General Commissioners), after "Subject to" there shall be inserted "paragraph 3B(8) of Schedule 1 to the Contributions and Benefits Act (which provides for appeals under that paragraph to be heard by the Special Commissioners), to".").

On Question, amendment agreed to.

Clauses 81 and 82 agreed to.

Schedule 9 [Repeals and revocations]:

[Amendment Nos. 198A and 199 not moved.]

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

moved Amendments Nos. 200 to 201:

Page 140, line 41, column 3, after ("170(5),") insert ("in the definition of "the relevant enactments",").

Page 147, line 8, column 3, at end insert--

("In Schedule 1, paragraph 3(2).")

Page 147, line 28, column 3, at end insert--

("In Schedule 1, paragraph 3(2).")

Page 148, line 30, at end insert--

("1998 c. 14. The Social Security Act 1998. In Schedule 7, paragraph 32.")

On Question, amendments agreed to.

Schedule 9, as amended, agreed to.

Clause 83 [Commencement and transitional provisions]:

[Amendment No. 202 not moved.]

Clause 83 agreed to.

Clause 84 [Short title and extent]:

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

moved Amendment No. 203:

Page 88, line 14, leave out (" 78") and insert ("Liability of earner for secondary contributions: Northern Ireland").

On Question, amendment agreed to.

Clause 84, as amended, agreed to.

House resumed: Bill reported with amendments.

House adjourned at seven minutes past midnight.