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Lord Goodhart: My Lords, in view of my original paternity of Amendment No. 19, perhaps I may ask how the Minister can come up with any figures at all since it depends on the level at which the Government decide what is a small business.

Lord McIntosh of Haringey: My Lords, Amendment No. 19 is not about small businesses; it is about all businesses, large and small. It sets the figure as a percentage of the tax credits paid by the employer, whether the employer has five employees or 5,000.

Lord Goodhart: My Lords, the amendment states:


9.15 p.m.

Lord McIntosh of Haringey: My Lords, I believe that the noble Lord, having accepted paternity of this amendment, ought to have thought a little more about what he meant by "percentage" and by "categories". The same applies to the noble Lord, Lord Astor, who has moved the amendment and taken over paternity. I have made the simplest assumption that there will be some percentage and I have assumed that it applies to all employers. If I had really wanted to, I would have constructed a table, but, frankly, it is not worth the effort. However, to say only that it is £35 million per

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1 per cent of compensation paid makes the case. Amendment No. 20 would cost £60 million; Amendment No. 21 would cost £50 million; Amendment No. 22 would cost £40 million; and Amendment No. 23 would cost £30 million. Therefore, the amounts of money are not insignificant.

Our objection to the amendments is primarily one of principle. As I explained in Committee when similar amendments were proposed, the tax system does not provide, and has never provided, for a direct subsidy or compensation payment to employers who fulfil their obligations in relation to tax. Tax credits will be part of the tax system and the normal tax rules will apply.

As regards the comments about statutory maternity pay, perhaps I may say in parenthesis that it is not part of the tax system; it is a benefit. Tax credits are part of the tax system and it would not be appropriate to introduce an anomaly into that system. There is no reason why tax credit administration should be treated differently from PAYE administration, for which no compensation is paid or has been paid for a period of more than 50 years.

To change the rules here and provide compensation would be the thin end of the wedge because it would be very difficult to draw the line between tax credits and other parts of the tax system. The knock-on effect could therefore be extremely expensive for the Exchequer and for taxpayers generally once the "no compensation" principle had been undermined.

Although I have no direct knowledge, I do not deny that in other countries employers may be compensated for their time; but not in this country. They never have been and no government of any political persuasion have sought to do so.

Amendment No. 23 singles out employers with an annual national insurance liability of less than £20,000, presumably because these will tend to be small businesses which, so the argument goes, will incur disproportionate costs when they pay tax credits through the payroll. While I am on that point, I cannot accept the statement of the noble Lord, Lord Astor, that the burdens of being unpaid tax collectors are ever increasing. The burdens of national insurance contributions and PAYE have not changed for many years. The increase proposed here is minimal and does not involve employers paying the tax credits out of their own pockets.

Amendments Nos. 19 to 22 would go much wider, providing compensation in one case for all employers. However, I accept what the noble Lord said about the provision which could be made in different cases. In the other case, it would provide compensation for up to 500, 100 or 50 employees.

We do not deny that there are some costs, although they must be seen in the context of advantages to employers of an enlarged labour pool as a result of the working families' tax credit and the disabled persons' tax credit. But the way to minimise burdens on employers is surely not to introduce a potentially expensive anomaly into the tax system, which is what these amendments do. A far better approach is to

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continue what we have been doing for the past year: consulting representative employers and payroll providers of all sizes in order to ensure that the details of the scheme meet their concerns and impose minimal costs on employers generally.

When I debated these amendments in Committee, I gave a long list of the fiscal measures which the Government have introduced in recent Budgets to protect and help small businesses. I shall spare your Lordships that list again today. But if anybody thinks that this Government are not concerned about the health of small businesses, they are very wrong indeed, as the noble Lord, Lord Astor, recognised by his use of those very apt quotations from Jack Cunningham's speech.

The amendments do not have any sound basis. They would damage the whole principle on which we have calculated the tax system for a period of 50 years or more. I urge the noble Lord not to press the matter to a Division.

Lord Astor of Hever: My Lords, I am grateful to the Minister for that reply. I take the point of his personal experience in those matters. I am grateful also to my noble friend Lady Carnegy for mentioning the precedent of statutory maternity pay.

The Minister referred to my comments about Jack Cunningham. I said that Mr Cunningham stated that the Government must be more realistic about how much time small businesses must spend in coping with regulation.

Both myself and most small business organisations are not sure that the Government, with the exception of Jack Cunningham, understand fully how onerous and costly it will be for small firms to administer those tax credits. However, I said that these are probing amendments and in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 20 not moved.]

Lord Astor of Hever moved Amendment No. 21:


Page 4, line 7, at end insert--
("( ) for funding the administration cost incurred in paying the credit by employers of less than 100 employees;")

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 22 and 23. In Committee, when I moved similar amendments, the noble Lord, Lord McIntosh of Haringey, accused me of having shot my fox. However, as the noble Lord, Lord Goodhart, pointed out when speaking in support of the amendment, the Government have made it clear that in the other place they will overturn the amendment allowing small employers to opt out. The business community is also expecting that.

Bearing that in mind, and mindful of the fact that the Social Security Select Committee recommended that small employers should receive an additional reimbursement to alleviate their administrative costs, we offer these amendments to the Government as an alternative. They could agree that the funding should apply to employers with fewer than 100 employees, as

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provided in Amendment No. 21, or they may wish to opt for Amendment No. 22, which relates to employers with fewer than 50 employees. However, the Government may prefer Amendment No. 23. There is a precedent for small firms' exemption for employees whose earnings and national insurance contribution payments do not exceed £20,000. Those employers recover 100 per cent of the statutory maternity pay paid out, plus 5 per cent to compensate for administrative costs. My noble friend Lady Carnegy referred to that.

Why should small employers receive compensation for administering SMP but not WFTC or DPTC? Those companies are not charitable institutions and they should not have to sub the Government. As the noble Lord, Lord Goodhart, said in Committee, making small employers act as paying agents would be a serious burden for them, and it is appropriate that the public purse should fund the administrative costs which they have to bear.

While this Government came to office promising an enterprise culture for businesses, the practical effects of so many of their actions have been wholly negative through a combination of administrative and financial burdens. Nowhere is that more apparent than the acute effects on small businesses. Not only do they provide a vital part of the UK economy but they provide also a high proportion of jobs for those who are low-skilled or semi-skilled and who desperately want the opportunity to work.

Recent research by the University of Bath on behalf of the Inland Revenue quantifies the burdens which firms face, despite what we have just heard from the Minister, by administering income tax, national insurance and statutory sick and maternity pay. It also illustrates that these burdens are a significant barrier to job growth in smaller firms. The pattern of compliance costs is highly regressive against smaller employers in that the bottom 30 per cent (by PAYE and national insurance collected) shoulder 75 per cent of the costs. To help them, I beg to move.

Baroness Carnegy of Lour: My Lords, the Minister seemed, in a strange way which I did not understand, to reply to these amendments before they were moved. Perhaps he had not noticed the grouping.

However, that gives me an opportunity to take issue with him on his argument that the reason why the principle applies with statutory maternity pay and cannot apply to this is that this is part of the tax system. It is only part of the tax system in that the Government are giving it to the Inland Revenue to do. It is an earnings supplement. We had this discussion in Committee. If it was a tax rebate, it would be part of the tax system. I do not believe that is merely nit-picking. It is an earnings supplement and is one way of doing it. That is the way the Government have chosen. It seems to me that it is a benefit and not part of the tax system.

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I am sorry that the Minister used that argument. Perhaps it is because it is an Inland Revenue brief and it hopes it will become part of the tax system in due course; I do not know. However, he should not really have used that argument.


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