Clause 174 - Payments to adopters

Finance Bill – in a Public Bill Committee at 2:45 pm on 17th June 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

We welcome the clause ensuring that payments of financial support to adopters are tax-exempt, but the arrangements present certain questions. First, they apply to England and Wales, but what about Scotland? Secondly, we want to know why in clauses 174 and 175 the Government have not included exemption from national insurance contributions. It seems to make sense to have an automatic exemption from class 4 NICs for those previously liable under cases I and II of schedule D, as if self-employed. Foster parents in particular could find themselves liable to penalties. There is a penalty in the order of £100 for failure to register.

We would have tabled an amendment, but there is a problem in that NICs are not to be dealt with through the Finance Bill procedure but should be part of social security legislation. However, I understand that the Treasury has a power under the Social Security Contributions and Benefits Act 1992 to make regulations for accepting class 2 earnings on such terms as it sees fit. I wonder whether the model for class 2 exemptions for adopters and fosterers might be found in the scheme that is available for volunteer development workers.

It would be worth understanding why the national insurance aspect has not been addressed. The solution that I just suggested should have the advantage that adopters and fosterers would have the option to pay class 2 contributions and accumulate benefits if they wished to do so. Crediting them with class 2 contributions would also be a matter for regulation under social security legislation. Generally, however, those credited would have to pay a minimum amount in addition to the amount credited in order to benefit from entitlements. There is a case for addressing that issue for adopters and fosterers, and I look forward to hearing what the Paymaster General has to say.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

The exemption of financial support payments to adopters in England and Wales follows the Adoption and Children Act 2002. Previously, adoption allowances were tax exempt by an Inland Revenue concession. The clause puts the arrangements on a statutory footing and exempts adoption allowances paid under the previous arrangements in England and Wales and the current arrangements in Scotland and Northern Ireland.

Exempting financial support from tax means that the payments are automatically excluded from national insurance. They are not earnings from employment, so they would never be liable to

employer or employee national insurance;, by exempting payments from tax, the legislation ensures that there will be no liability for class 4 national insurance, which is payable on taxable profits.

I believe that I have already covered the point about Scotland. The tax legislation will cover the whole of the United Kingdom, whereas new adoption legislation in particular, following the 2002 Act, now covers England and Wales. That is the purpose of the clause. I hope that the hon. Gentleman is satisfied that we did not forget about national insurance—it has been considered.

Photo of Mr Howard Flight Mr Howard Flight Shadow Chief Secretary to the Treasury

I am delighted that the Minister has put the Government's position on the record. She will be aware that several bodies have asked about national insurance, and it is satisfying to find that the position is as we would wish it without the clauses actually saying it.

Question put and agreed to.

Clause 174 ordered to stand part of the Bill.