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Lord Haskel: Certainly, if noble Lords would like to make any points regarding what I have just said, we could take them now.

Lord Higgins: If we could proceed in that way, I think it would be for the general convenience of the Committee.

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Perhaps I may therefore refer to a number of points arising from the noble Lord's remarks. I am not quite clear to what extent the changes that he now proposes as a result of the Chancellor's Budget will require an amendment to the Long Title--as I understand it, it is possible to make such an amendment in this Chamber. These matters would seem to be somewhat outwith the title as it stands.

As I understand it, the noble Lord proposes to make some further changes involving amendment of the financial resolutions that will appear in another place. In Committee in the other place those were made available. Is the noble Lord saying that these changes in the financial resolutions will eventually appear, I suppose, when the Bill returns to another place, on the basis of the amendments that have been made?

The confusion arises since, to a considerable extent, the Government now propose to introduce into the Bill a number of changes which might be regarded as budgetary matters. They may not, strictly speaking, be budgetary matters--although almost everyone now regards national insurance contributions as a tax, technically speaking that is not the case.

That said, it would seem that the Government propose to introduce at a later stage a number of amendments which are fairly wide of the Bill as it stands, but do not propose to introduce corresponding amendments in relation to the appeals procedure; they are apparently to be introduced in some other legislation. Will the Minister say whether that will be primary legislation or by order? By what means will these repercussions from the Budget changes, which have been announced, be subsequently introduced? They are not to be introduced in this Bill, although they affect appeals. I think I got that right; it is a little complicated.

It may well be that a number of people outside have studied carefully the changes made in the Budget and are producing highly sophisticated and complicated suggestions; and it might be to the general good that they are accepted. However, they were not expecting to have the measures introduced along with this Bill immediately after Easter. Have the Government already put out a press release about these matters which will at least alert the outside interests, some of which may be affected quite significantly and may have sensible suggestions to make with regard to the way in which the proposals might be implemented--under this Bill or otherwise? If the Government have not issued such a press release, are they considering whether to do so?

The Committee will appreciate that I am saying all of this straight off the top of my head, apart from a brief letter which the noble Baroness courteously sent me. However, I had not quite realised what the Government were going to say this afternoon. As I say, I am suffering slightly from culture shock, but will endeavour to adjust myself to the circumstances.

Earl Russell: Perhaps I may express my sympathy with the noble Lord, Lord Higgins, in relation to the culture shock that he is experiencing, both as a recent Member of the other place and as a former Treasury Minister. But there is a clear procedural distinction

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between taxation and national insurance. I think it is understood that national insurance, right back to 1911, is treated in this Chamber just like any other legislation. I should have thought, subject to correction, that it is therefore within the words of the Long Title:

    "to make further provision with respect to social security".

I take the noble Lord's point about a press release, and hope that that may be done. My noble friend Lord Thurso, for example, might well have wished to be present had he known that this matter was coming forward. While I thank the Minister and her department for their great care in keeping us notified as to what was being done, inevitably they could not send that notification to every Member of this place, any more than I was able to send it to every Member on my Benches. Therefore, a press release might be useful.

The procedure obviously is confusing, though I believe it to be for the convenience of the Committee. Because this House is sovereign over its own procedure, it can do things, if there is general agreement, that it is for the convenience of the House that it should. I believe that it is, but I have listened extremely carefully and taken note of the points made by the noble Lord, Lord Higgins.

Lord Higgins: Of course I understand the distinction that the noble Earl makes between taxation and national insurance contributions, although I was making the point that that distinction is becoming increasingly blurred. We also have to take into account the fact that the Inland Revenue will now be involved in supervising the collection of contributions.

Earl Russell: That is a point of substance, on which I hope we may collectively take advice.

Lord Goodhart: Perhaps I might add to what my noble friend Lord Russell said but from a substantive rather than a procedural position. We do not welcome everything in the Budget, but we strongly welcome the proposals for changing national insurance contributions. Indeed, they move in the direction of proposals which we have made in the past. We shall therefore support them when they are introduced into the Bill at a later stage.

I have not had a chance to consider in any detail the income tax treatment of shares liable to forfeiture, but I suspect that we shall also support that proposal.

As far as concerns contribution appeals, this matter is raised by the amendments in my name, Amendments Nos. 21, 22, 30, 42 and 52 which have been grouped together for discussion later this evening. It may be convenient to discuss those matters at that time because they will clearly be extremely relevant to those amendments.

Lord Haskel: I thank Members of the Committee for their comments. This is an unusual procedure. We are trying to carry this out in a way which gives noble Lords the maximum amount of warning. These matters can be discussed at Report and Third Reading when the appropriate amendments are brought forward.

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The press release was part of the Budget package and this proposal was announced in that press release. It may be helpful to identify that part of the Budget package which is relevant.

Lord Higgins: I am grateful to the noble Lord. What he says is absolutely right, but I do not believe that it was said in the press release that the proposal would be incorporated in this Bill. Perhaps it did; if so, I am unaware of it. It is the shortness of notice which is the problem. Outside interests will suddenly find in a couple of weeks' time that this has appeared in legislation. I fear that this may not receive much publicity unless some formal statement is made to alert people to what is happening.

7.15 p.m.

Lord Haskel: We shall look into the question of a formal statement. Some of these points will go out for consultation. The fact that consultation takes place alerts outside interests to what is happening.

As the noble Lord said, some amendments regarding appeals are down for consideration later this evening and my noble and learned friend the Lord Advocate will discuss the matter at that time.

The noble Lord asked whether we expect primary legislation. We are exploring what is needed. Although it was said in the Budget Statement that the Government wish to align tax and national insurance collections as far as possible in order to reduce the load on employers and to reduce administration costs, the detail of how that will be done is currently being worked out. When that is done, the appropriate amendments will be brought forward. The Inland Revenue will be involved in the collection, and that changes the position. They will take over full responsibility from April 1999.

No change is required in the Long Title of the Bill, which takes care of these amendments.

Most of the issues raised by Members of the Committee will be discussed when these points are brought forward at Report or Third Reading. Noble Lords may benefit from reading the Statement in Hansard, because it was rather complex.

Perhaps I may move on to speak to Amendments Nos. 12, 15, 55 and 100. Amendment No. 100 introduces a new clause on directors' liability for national insurance contributions. Amendments Nos. 12, 15 and 55 are consequential to the introduction of the new clause.

The Government are determined to act against the problems caused by directors and others who abuse the national insurance system. Clause 61 introduces one measure in the new penalty regime to be operated by the Contributions Agency, a new criminal offence of fraudulent evasion of national insurance with a maximum penalty of seven years' imprisonment. This will be used only in the most serious cases, where tens of thousands of pounds of national insurance contributions have been deliberately misappropriated. But this alone is not enough.

The National Insurance Fund loses about £150 million per year when companies go into insolvency with national insurance debts. A good portion of these are related to the

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so-called phoenix set-ups, where one company is put into insolvency only for a replacement company to rise from the ashes almost immediately. A recent analysis by the Contributions Agency of company directors who have been associated with three or more insolvent companies identified some 850 individuals. The loss to the National Insurance Fund as a direct result of the actions of these 850 directors alone is at least £26 million. The end result is that employees may have problems claiming their benefits. Contributions which have been collected from employees' pay have to be credited and benefits paid out on the strength of contributions which the fund never receives. The Government propose to take action to make culpable directors personally liable for national insurance debts where the failure of their company to pay is due to serious negligence or fraud on their part.

Let me offer an example of the type of rogue we are determined to pursue. "A" Ltd. was a one-man company which invested in land and buildings. Its director had other companies, as well as running a farm in a self-employed capacity. Funds appeared to circulate between the businesses on loan. On successfully completing a property deal, "A" Ltd. had sufficient funds to vote this director £1 million as remuneration. He took £600,000 out of the company immediately and in the company's records reflected a provision of £400,000 for tax and national insurance contributions. This amount was never paid over to the collector. The money was apparently used for other purposes. "A" Ltd. then went into creditors' voluntary liquidation and there were no funds available to pay any dividend to the creditors. I am sure that the Committee will agree that this is the kind of abuse which must be dealt with.

This is how the measure will work. Where a company owes a national insurance debt which it fails to pay in full, and the failure to pay is due to the negligent or fraudulent behaviour of any or all of the directors, it will be possible for the debt to be transferred to those directors personally.

A small, specialised, highly trained body of staff will fully investigate the facts. They will decide whether negligence or fraud is involved and, if so, which of the directors are culpable. A decision as to the degree of culpability in each case will be made.

The total debt, which includes any associated penalty and interest, will be apportioned between the culpable directors in proportion to their degree of culpability without taking account of each individual's ability to pay. Thus no "innocent" director will be pursued simply because he has not disposed of his assets.

There will be a full right of appeal both against the decision that a director has behaved negligently or fraudulently and whether the apportionment was reasonable. That is the purpose of Amendment No. 100. As it is a new clause and quite complicated, my noble friend Lady Hollis arranged for an additional note to be made available from today in the Printed Paper Office.

Amendments Nos. 12 and 15 prevent a decision to transfer a debt to a director under the new Section 120A from being "supersedable" under Clause 11. By "supersedable" I mean a decision which replaces a

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previous decision. Superseding is not appropriate as it operates in a different way from the review provisions of Clause 10. The review provisions operate to replace the earlier decision in its entirety from the date of that earlier decision whereas the superseding provisions are designed to take account of a change in circumstances so that the later decision supersedes the earlier one from a given date rather than replaces it in total from the date it was originally made. In superseding there is the possibility of two valid decisions existing side by side. That is not appropriate in these cases.

I hope that both this Committee and legitimate businesses will welcome a measure aimed at dealing with the unscrupulous minority of directors who abuse their positions and ignore their responsibilities. This measure poses no threat to honest, hard-working businessmen. I beg to move.

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