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House of Lords Offices: Select Committee

The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move the first Motion standing in my name on the Order Paper.

Moved, That the Select Committee on the House of Lords Offices be appointed and that, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees be named of the Committee:

L. Brabazon of Tara, L. Brougham and Vaux, E. Caithness, L. Carter, L. Colwyn, B. Darcy de Knayth, L. Dean of Beswick, L. Dholakia, L. Dixon, L. Harris of Greenwich, L. Henley, B. Hilton of Eggardon, L. Hunt of Wirral, L. Irvine of Lairg (Lord Chancellor), B. Jay of Paddington, L. Mackay of Ardbrecknish, L. Marsh, B. Nicol, Bp. Oxford, L. Renfrew of Kaimsthorn, L. Rodgers of Quarry Bank, B. Seccombe, B. Serota, L. Strathclyde, B. Thomas of Walliswood,

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L. Tordoff, V. Ullswater, L. Weatherill, L. Williams of Mostyn.--(The Chairman of Committees.)

On Question, Motion agreed to.

Procedure of the House: Select Committee

The Chairman of Committees: My Lords, I beg to move the second Motion standing in my name on the Order Paper.

Moved, That the Select Committee on Procedure of the House be appointed and that, as proposed by the Committee of Selection, the following Lords together with the Chairman of Committees be named of the Committee:

B. Anelay of St. Johns, L. Browne-Wilkinson, L. Burlison, L. Burnham, E. Caithness, L. Carter, L. Denham, E. Ferrers, L. Gladwin of Clee, B. Gould of Potternewton, B. Hamwee, L. Harris of Greenwich, L. Henley, L. Irvine of Lairg (Lord Chancellor), B. Jay of Paddington, L. Mackay of Ardbrecknish, L. Mackay of Clashfern, B. Rendell of Babergh, L. Rodgers of Quarry Bank, E. Shannon, L. Skelmersdale, L. Strabolgi, L. Strathclyde, L. Tordoff, L. Weatherill, L. Williams of Mostyn, B. Young.--(The Chairman of Committees.)

On Question, Motion agreed to.

Social Security Contributions (Transfer of Functions, etc.) Bill [H.L.]

3.33 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, I beg to move that the Bill be now read a second time.

I am sure that noble Lords listened with great interest to the Chancellor's Budget Statement in another place on 17th March this year. Some of the measures to reform welfare announced in that Statement led to the changes to the structure of national insurance

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contributions that noble Lords debated in the Social Security Act earlier this year. Amidst these more eye-catching measures noble Lords may recall that the Chancellor announced that the Contributions Agency is to transfer from the Department of Social Security to the Inland Revenue in April 1999. That transfer is provided for by the Bill before us today. Noble Lords may recall that we debated in the Social Security Act powers authorising expenditure in preparation for the transfer.

First, I would like to remind noble Lords of the context in which we are working. We have set out the key principle underlying our welfare reforms--work for those who can, security for those who cannot. With the New Deal we are making the biggest ever investment by government in jobs and training. This is changing lives and providing opportunities--by next April 300,000 people will have benefited.

We are introducing the working families' tax credit and the disabled person's tax credit so that every family working full-time will be guaranteed an income of at least £190 a week, and up to 1.5 million hard-working families will be better off as a result.

We are also reforming the structure of national insurance contributions to make work pay. We are removing the NICs "entry fee" and raising the threshold at which employers begin to pay NICs to the level of the single person's tax allowance. These changes will increase the incentives for the low paid to work and for employers to offer them jobs, without adversely affecting their entitlement to contributory benefits.

Many noble Lords will think of the Department of Social Security in terms of paying benefit to groups such as the unemployed, disabled people and pensioners. But the Contributions Agency and the system of national insurance contributions have been an important part of the department's existing work. The focus of this work is very different--principally towards employers, employees and the self-employed. These are much the same groups as the Inland Revenue deals with. Indeed, the Inland Revenue already collects 94 per cent. of NICs alongside PAYE tax.

In our Green Paper on welfare reform we stressed the importance of a modern system of delivering government which is flexible, efficient and easy for people to use. Too often government is designed in ways which best fit our bureaucratic structures, not which best meet the needs of the people who deal with us.

There have already been moves to bring the Inland Revenue and the Contributions Agency closer together. Noble Lords may recall the joint working programme between the two departments that was launched in 1995. This programme has led to a number of benefits such as the joint annual pack for employers and a single leaflet and registration form for the newly self-employed.

But joint working can take us only so far. Employers and individuals still need to deal with two separate departments. There is no single focus for employers to discuss improvements in process across tax and NICs. To bring out the real benefits for business and individuals we need to bring the two organisations together. Bringing the Contributions Agency and the Inland Revenue together is a good example of the way

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this Government are redesigning their services to deliver policies more effectively and to deliver a better service to taxpayers and contributors. That is what this Bill does.

Bringing the Contributions Agency and the Inland Revenue together will have many advantages. It will reduce the burdens on businesses and individuals as they can sort out taxes and contributions through a single organisation. It will help the two departments share experience, knowledge and skills, so making better use of resources, helping fairness in taxation and national insurance contributions and combating avoidance. It will enable the two departments to combine their efforts on customer service. It will give business and other representative bodies one focus for discussion of improved legislation, procedures and guidance, and so, over time, make it easier to achieve a gradual alignment of the tax and national insurance contributions rules.

The major benefits to business will come from aligning over time the tax and NICs rules. But some earlier benefits arise from bringing together delivery of the two systems in one organisation. Information on NICs will be available in Inland Revenue tax inquiry centres--to be renamed Inland Revenue inquiry centres. Tax and NICs leaflets will progressively be brought together from next April. And the process for making a complaint against theh Inland Revenue or Contributions Agency will be unified from next April.

It is estimated that there could be a loss of around 200 jobs countrywide in the combined organisation as a direct result of the transfer. Newcastle will remain an important site for government employment. The recently announced project to redevelop the Longbenton estate will go ahead as planned and the Inland Revenue sees Longbenton as one of its strategic sites for the future in the new combined organisation.

The transfer has been welcomed by representative bodies. In its October 1998 Budget submission the Institute of Directors welcomed,

    "the transfer of the Contributions Agency to the Revenue and the planned transfer of national insurance policy to the Revenue".
And the British Chambers of Commerce said that,

    "the merging of the Contributions Agency and the Inland Revenue has our full support and we look forward to working with the merged organisation over the forthcoming year to investigate the possibilities for aligning the PAYE and NICs systems".

I am sure that some noble Lords will be looking to this Bill for signals as to the future direction of tax and benefits policy. Let me therefore make clear at the outset what the Bill does not do. It makes no changes to the structure of NICs. It does not affect the tax or NICs yield, nor benefit expenditure. It has no effect on individuals' entitlement to contributory benefits. And it makes no changes in pensions policy.

Instead, the Bill provides for a technical transfer of functions--of the Contributions Agency to the Inland Revenue and of policy responsibility for collecting national insurance contributions to the Inland Revenue and Treasury. Over time these transfers will reduce the burdens on business and take a first step towards removing the technical differences between tax and NICs rules that employers fear will trip them up.

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However, this Bill does not itself provide for any major legislative tax/NICs alignment (subject to one point which I shall come to shortly). We can best work on that with representative bodies once the organisations are brought together. Our priority in the short term is to bring the organisations together to deliver a better service to employers, employees and the self-employed.

The Bill paves the way for long-term improvements. Perhaps I ought first to explain why a Bill is necessary to transfer the Contributions Agency to the Inland Revenue. As I am sure noble Lords are aware, most machinery of government moves between government Ministers are implemented by an Order in Council under the Ministers of the Crown Act 1975. That option was not available in this case. The Inland Revenue is a statutory board, not a department headed directly by a Minister. That means that it is not covered by the Ministers of the Crown Act 1975. So we need a Bill to transfer the operational functions of the Contributions Agency to the Inland Revenue.

We could then have transferred NICs policy functions to the Treasury under an Order in Council. But that would have left a Bill solely concerned with the operational functions. We concluded that that would be unsatisfactory since no single piece of legislation presented to Parliament would make our intentions clear. So the Bill contains the explicit provisions for the policy transfer as well. We need a Bill also because we are proposing some changes as well as the transfer of functions. I shall return to those.

It may help noble Lords if I start with an overview of the Bill before going on to describe what the Bill does. Part I of the Bill provides for the transfer of both operational and policy functions. It also deals with the use of those operational functions by the Inland Revenue. Part II of the Bill deals with the new arrangements for decisions and appeals, which I shall discuss shortly. Part III deals with the supplemental issues around the transfer.

Turning to Part I dealing with the transfer of functions, the first task of the Bill--in Clause 1 and Schedules 1 and 2--is to provide from an appointed day for the transfer of the operational functions of the Contributions agency to the Inland Revenue. The Chancellor has announced that that will be in April 1999. The Contributions Agency is an executive agency of the Department of Social Security and is responsible for the collection and recording of national insurance contributions which are paid into the National Insurance Fund. In addition, the Contributions Agency carries out a number of functions which are related to the collection of national insurance. These include employers' recoveries of statutory maternity pay and statutory sick pay and the administration of contracting-out of the state earnings related pensions scheme. These operational functions are all to be transferred to the Inland Revenue.

The second task of the Bill--in Clause 2 and Schedule 3--is to provide for the transfer of policy responsibility for national insurance contributions and the management of the National Insurance Fund to Treasury Ministers and the Inland Revenue from an

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appointed day. Policy responsibility for other areas administered by the Contributions Agency--statutory sick pay, statutory maternity pay and contracting-out--will remain with social security Ministers.

The next task is to ensure that the Inland Revenue has the necessary powers to collect and run national insurance contributions. Clause 3 therefore brings national insurance contributions within the care and management of the Board of Inland Revenue. I ought to sound a note of warning here. I know that many representative bodies are hoping that bringing national insurance contributions within this concept of care and management will give employers the opportunity to make simplifications in their record-keeping. However, payment of national insurance contributions builds entitlement to certain social security benefits. So, in exercising its duty of care and management over national insurance contributions, the Inland Revenue will bear in mind its duty to the contributor. So the Inland Revenue will expect employers to keep accurate records of individuals' contributions in the same way as the Contributions Agency does now.

Clause 4 and Schedule 4 deal with the powers of inspectors. There is scope for confusion between "tax inspectors" and "Contributions Agency inspectors", appointed under different law and with different roles. Today we are focusing on the latter category.

I know there has been concern among some representative bodies and employers that this Bill will provide for a levelling up of enforcement powers. Here I can reassure noble Lords. The powers of enforcement in the Bill simply provide officers dealing with National Insurance with the same powers as they have now. The one change that I expect noble Lords to welcome is that the offence of delaying or obstructing an officer for contribution purposes will cease to be a criminal offence and will instead attract a civil penalty. This will align with existing tax sanctions.

Clauses 5 and 6 deal with the use of information by the two departments to enable them to continue their business. Clearly the Department of Social Security will still need contributions information in order to pay benefits and to fight benefit fraud. So existing information flows will broadly be maintained.

Noble Lords will rightly want to be reassured that the transfer will maintain and build on work to improve the security of the national insurance system. It may be helpful if I take a few moments to explain what the situation will be after April 1999. The Department of Social Security will retain policy responsibility for the allocation and security of national insurance numbers, including checking identity. In practice this will mean that the Inland Revenue will be responsible for allocating and registering NI numbers and the DSS will specify the standards of security to be maintained. These specifications will ensure that at least the current best practices to verify identity are followed. A new service level agreement on national insurance number security between the DSS and Inland Revenue will be in place prior to the transfer to ensure that the necessary levels of security are met.

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The current procedures aimed at preventing fraud will be followed by the Inland Revenue. Applications for NI numbers will continue to be rigorously checked and activities to validate numbers already in the system will continue to be undertaken. Our Green Paper on fraud, Beating fraud is everyone's business, envisaged more data-matching in future to tackle benefit fraud. This Bill does not provide for that. Those are proposals that we shall bring forward in due course.

I turn now to Part II of the Bill, dealing with new decisions and appeals processes. I mentioned earlier that we were making one significant step towards tax/NICs alignment in the Bill. Noble Lords will recall that in the debates on the Social Security Act 1998 we considered new arrangements for making decisions and handling appeals on national insurance contributions. The Government gave an undertaking to review and revise this in the light of the transfer of the Contributions Agency to the Inland Revenue--I believe under legitimate pressure from the noble Lord, Lord Goodhart.

The first change we are making is a straightforward one reflecting the transfer. Contributions Agency staff will become officers of the Board of Inland Revenue from April 1999 and so the Bill provides for Inland Revenue staff to be responsible for making decisions on national insurance contributions, statutory sick pay and statutory maternity pay. Some decisions currently made by the Contributions Agency--on national insurance credits and home responsibilities protection--will continue to be made by the Secretary of State for Social Security, but the Inland Revenue will undertake the operational functions on behalf of the Secretary of State.

The second change relates to the appeals process. Noble Lords will be pleased to hear that, following the undertaking we gave to the House and to the noble Lord, Lord Goodhart, on the Social Security Act 1998, we have considered the appeals process further and have decided that, in the light of the transfer, it would be more appropriate for appeals on national insurance contributions, statutory sick pay and statutory maternity pay to be heard by the tax appeal commissioners. In many cases the same issue will arise in both a tax and NICs case--for example, a question over whether someone is employed or self-employed.

As for income tax, we envisage that the more straightforward cases may best be heard by the local general commissioners, with the most important and technically demanding cases being heard by the special commissioners in the first instance. The Bill reproduces tax provisions for elections for appeals to be transferred to the special commissioners.

Most appeals about decisions on entitlement to statutory sick pay and statutory maternity pay raise questions about a person's employment status and their average weekly earnings. There are relatively few such appeals and we believe that the tax appeal commissioners are in the best position to decide those issues. In the very small number of cases where medical issues are raised, the commissioners will be able to hear medical advice.

Bringing the appeals process together will have distinct advantages for contributors and taxpayers, as well as for employers, since they will only need to deal

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with one appeals system. I am sure that this change will be welcomed by tax practitioners, such as the Tax Law Review Committee. I hope that the noble Lord, Lord Goodhart, will be able to welcome this change in principle, although I am sure he will want to look at the detail carefully in Committee.

So Part II contains the necessary detailed changes to bring appeals about national insurance contributions, statutory sick pay and statutory maternity pay within the jurisdiction of the tax appeal commissioners. Appeals against decisions on national insurance credits, home responsibilities protection, contracting-out issues and social security benefits will be to the social security unified appeals tribunals, once the provisions of the Social Security Act 1998 are in place.

I now turn to the miscellaneous and supplemental provisions in Part III, on which I do not need to spend much time. Part III deals with the supporting arrangements for the transfer, such as providing for the transfer of property and liabilities and for the continuity of contracts. But there are three points I should mention.

Clause 19 is a technical accounting provision which puts right a defect in the Pension Schemes Act 1993 as amended by the Pensions Act 1995. It has always been intended that rebates to money purchase pension schemes contracted-out of the state earnings related pension scheme should be paid from the National Insurance Fund. Unfortunately an oversight in the Pensions Act 1995 means that these can only be paid from money provided by Parliament, not from the National Insurance Fund. This is a slip that I and others in your Lordships' House should have picked up at the time. Clause 19 corrects this.

As noble Lords will have seen, we have had to make some judgments about the most appropriate home for some functions around the margins of the Contributions Agency's business. It is quite possible that in the light of operational experience, or your Lordships' warnings in due course, we may need to make some adjustments. Clause 22 provides the flexibility to make these adjustments at the margins by Order in Council, as is normal for machinery of government changes, rather than returning to the House with a Bill.

Clause 23 deals with arrangements in Northern Ireland. Noble Lords will know that Northern Ireland has its own social security scheme and its own National Insurance Fund, which runs in parallel with, and maintains parity with, the Great Britain scheme. National insurance contributions operations in Northern Ireland are managed by the Contributions Unit, part of the Northern Ireland Social Security Agency, although, as in Great Britain, the bulk of NICs are collected by the Inland Revenue alongside tax.

Maintaining the contributions records of Northern Ireland contributors and much of the "back office" work is already done by the Contributions Agency in Great Britain on behalf of the Northern Ireland Social Security Agency. Clearly it would make no sense to leave Northern Ireland out of the new arrangements for NICs envisaged by the Bill, so we intend that the Contributions Unit should transfer to the Inland Revenue at the same time as the Contributions Agency.

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Paragraph 10 of Schedule 2 to the Northern Ireland Act 1998 excepts NICs and related matters from the legislative and executive authority of the new Northern Ireland Assembly. Under the powers in Section 86 of that Act, policy and operational matters in respect of the matters excepted by Paragraph 10 of Schedule 2 are planned to be transferred, by Order in Council, to the Secretary of State for Social Security on the appointed day for the Assembly to take up its powers. Clause 23 of the Bill allows for these functions to be transferred on from the Secretary of State to the Inland Revenue and the Treasury at the same time as the corresponding functions for Great Britain. It does so by an Order in Council. It would have been possible to provide for this second transfer on the face of the Bill. However, since essentially we are talking about replicating line by line the provisions of this Bill but in terms of Northern Ireland legislation, this would have added half as much again to the length of the Bill, and perhaps much to the length of our discussions, while adding little to the clarity of our intentions.

In conclusion, transferring the Contributions Agency to the Inland Revenue is good news for employers. The Bill allows that to take place. But I hope I have explained that the Bill and the transfer from April are only the start of the process. This Bill is not the vehicle for major alignment of tax and national insurance contributions. We want to work through that in consultation with representative bodies. Instead, this Bill is about a safe landing of the Contributions Agency within the Inland Revenue and about making sure that the Contributions Agency can operate within the Inland Revenue from next April. That will provide a platform on which we can build service improvements and gradual alignment of tax and NICs over the forthcoming years. The Bill paves the way for a better delivery of the tax and national insurance systems. I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Baroness Hollis of Heigham.)

3.56 p.m.

Lord Higgins: My Lords, the House will be grateful to the Minister for the explanation she has given of what is clearly a very complicated Bill. Since it is our intention on these Benches to approach the opposition to the Bill in a constructive context, perhaps I may begin by congratulating the Government on the publication of a volume of explanatory notes, itself bigger than the Bill, which will be of help to the House in carrying out that task. That is a relatively new innovation which is to be welcomed. I make only one point on it. The notes on the financial provisions of the Bill appear in the explanatory notes. They are usually printed in the Bill itself, although not formally part of it, and I hope that that practice will continue. It is perhaps a little inconvenient to have them separated from the Bill.

Since some of the measures in the Bill affect ordinary company pensions--though the Minister spent little time on that matter--I should declare an interest in that I am the chairman of a company pension scheme.

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The Minister stressed that the Bill is helpful in terms of combating fraud. That is certainly a matter in which she will have our support. At the same time, I am a little suspicious of any Bill which is described as "technical". One can often find in the details a number of things which may be sinister rather than technical. In that context, I am a little puzzled about the motivation of the Bill. The costs involved are not inconsiderable-- £16 million one year, £17 million the next, £4.8 million the next, and so on--and savings are slow to come through. In terms of government efficiency, that does not seem a very good deal. As the Minister pointed out, though with a rather interesting Freudian slip, 200 jobs will be lost. I suppose that one might look at it more from the point of view of the Treasury and the Inland Revenue and say that 200 jobs will be saved.

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