New Clause 4

Pensions Bill – in a Public Bill Committee at 6:45 pm on 19th February 2008.

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Transitional assistance

‘Before implementing Part 1 of this Act, the Secretary of State shall publish his proposals to provide transitional assistance to small employers in implementing the legislation.’.—[Mr. Waterson.]

Brought up, and read the First time.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 7:00 pm, 19th February 2008

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

This new clause relates to another promise that I hope that I can get the Minister to redeem—perhaps I will have more luck with this one. It is about some transitional support and assistance for SMEs—small and medium-sized enterprises—for the introduction of personal accounts.

In its brief on the subject, the CBI makes the point that while the regulatory impact assessment for the Bill sets out clearly the likely total cost to British business of implementing personal accounts, the cost falls disproportionately on smaller firms. While the average cost of contributions is 0.6 per cent. of all labour costs, it is 0.5 per cent. for large employers and 0.9 per cent. for smaller firms. For some, the cost would be as high as 2.5 per cent, which is a significant chunk out of the bottom line. The CBI also makes the point that employers, particularly smaller employers, have a limited capacity to absorb the cost.

The Minister will be aware that the CBI, along with other organisations that I will mention in a moment, has set out its suggestions as to how to deal with that. It says that the best way to ensure compliance and to minimise economic pain is to ease the burden on smaller firms by allowing them more time to adapt. It talks about three basic principles: there should be a limited period to help firms to adapt, with assistance phased out after that period; the scheme should be simple for employers to understand and administer, and claiming should be simple; and there should be no perverse incentives that could adversely affect the growth of small business. The CBI says that a potential solution would be its own proposal for the design of the scheme, which would involve refunding a proportion of the mandatory contribution made to employees’ personal accounts for exempt schemes. That would mean that employees would be saving at the same rate, but the firm would have a little more breathing space in which to adapt.

The British Chambers of Commerce makes similar points. It has five proposals: a reduction in the first five years of employers’ national insurance; a flat rate lump sum payment to cover costs associated with implementation; repayment of ongoing employer costs in administering the system; the creation of a special training and education budget for business organisations, which is also seen as a necessity by other business organisations; and the allocation of a Government budget for communicating the changes to the business community so that it is clear that companies that have to pass on increased employment costs to their customers have done so because of the new pensions system.

In his evidence, Mr. Mike Cherry from the Federation of Small Businesses also made some important points about the federation’s concerns for smaller businesses and mainly, in fairness, about information and education. That, of course, will be disproportionately important for the smaller employer who has so much else to cope with. In his oral evidence, Mr. Cherry said:

“What concerns us considerably is the cost, as well as the administrative impact, that it is likely to have on the smallest employers.”——[Official Report, Pensions Public Bill Committee, 17 January 2008; c. 67, Q88.]

Finally, it is worth touching on the excellent and detailed work of the Engineering Employers Federation, particularly that of Mr. David Yeandle, who we all know well. It has put together a submission and a very detailed appendix to its written evidence about the case for supporting small firms and a possible model for doing that. That is all set out in great detail in the appendix and certainly bears further reading by members of the Committee.

All those things are designed to help the Government to reach the most satisfactory solution. I do not think that there is any question that Ministers are aware that the situation has to be addressed. I am sure that their finest minds have been working on it—perhaps even one or two Ministers have as well. I am looking forward to perhaps a glimpse from the Minister of what they have in mind.

Photo of Danny Alexander Danny Alexander Liberal Democrat, Inverness, Nairn, Badenoch and Strathspey

I wish to speak briefly in support of the objective behind the new clause: to ensure that the provisions for transitional assistance are clear, particularly to small businesses. The Minister has made clear in his evidence, and at other times, that he considers the matter to be of some importance. It has been clear from the evidence that we have heard from small business organisations, and from conversations that I have had with small employers in my constituency, that there needs to be a sense that the Government understand the problems and hurdles that they will have to overcome to implement the Bill: both the financial costs that will be borne, and the significant time costs to employers, particularly small employers, of having to get their heads around the implications for their businesses.

The point was made to me at a small car saleroom that I visited in my constituency that keeping track of pensions legislation takes up considerable time at a management level. The manager told me that he would rather spend that time managing his business. It is important that the Government understand the problems that small businesses will face in implementing legislation that will benefit their employees. That is why I hope that the Minister will say more about his proposals for supporting small business in the transition to implementing the Bill. The hon. Member for Ochil and South Perthshire—I believe that he is a member of the Federation of Small Businesses—made clear in the evidence session that the matter was of concern to him, so transitional assistance for small businesses is considered important on both sides of the Committee. It would be helpful if the Minister could illuminate us further about his plans.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I agree that the co-operation of employers and their support for the changes, particularly the introduction of personal accounts, are critical. It is therefore important that we continue to engage with organisations such as the CBI and FSB to ensure that we keep employers supportive of a project that will involve some extra burdens for them. It is envisaged in the December 2007 impact assessment that it will cost micro-employers—the smallest employers—an average of £200 to implement the Bill’s  provisions. That will cause small employers some concern, but it is manageable.

The new clause asks for a level of financial support for smaller employers. I join in the praise of Mike Cherry of the FSB and David Yeandle of EEF, and I am grateful to them for the work that they have done in drawing the matter to our attention. We will consider it with an open mind in the coming couple of years, but now is not the time to make a decision on it. We need to examine the detail of how we see the implementation of the personal accounts regime happening, and we will listen with care to advice from the Personal Accounts Delivery Authority about how it will be implemented and the precise issues that will face small employers, particularly micro-employers. We want to be in a position to identify how we can best provide assistance.

We are providing some assistance at the moment by phasing in the personal accounts regime and ensuring that it is introduced in a way that enables employers to measure the impact on their budgets with care. It will be phased in over three years. Only 23 per cent. of firms with fewer than five employees currently offer pension provision with an employer contribution, compared with more than 60 per cent. of firms with more than 50 employees. The key firms to work with are the small ones to ensure that we keep them on board. We are conscious of the problem and are still listening to the employers’ organisations. We are aware that they have requested some sort of financial contribution, but we are not in a position to take a view on whether that, or another way of providing assistance, is the best way of helping them.

I assure Committee members that the Government will continue to listen to representations. We are not in a position to take a decision today or in the immediate future. We need a more detailed picture of how PADA will develop personal accounts and we need to know the precise implications for micro-employers so that we can make judgments about the best way of providing them with further help.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am grateful to the Minister because he has said what the employers’ organisations and I wanted to hear. He said that he will continue to engage with them at ministerial and official level, that these matters will be tackled at some point, that he has an open mind about the different options, and that those options will be worked through in the next year or two until we find a solution. I am very happy with that, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

I have been most impressed with the constructive way in which the debate has gone this afternoon and this evening. I feel confident that we might beat the programme motion and finish before the end of the week. I look forward to seeing members of the Committee on Thursday morning.

Further consideration adjourned.—[Mr. David.]

Adjourned accordingly at twelve minutes past Seven o’clock till Thursday 21 February at half-past Nine o’clock.