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Lord McIntosh of Haringey: Is the noble Lord suggesting the issue of a relationship between the lower earnings level and the pension?

The point I seek to make is that we are maintaining the link between the level at which people start to pay contributions and the level at which they stop. The lower earnings level has always been linked to the level of the basic retirement pension on the principle that someone who contributes at the lower earnings level should have their income maintained at the same level in retirement. Surely that is fair.

I wish to correct something I said a moment ago. I talked about the stakeholder pension with reference to the £9,000 when I meant the state second pension. I did not mean the stakeholder pension.

The noble Lord and I will have to thrash out this issue in private between now and Report stage. I am sure that it is my fault but I do not think that there is a meeting of minds here.

Lord Higgins: I am by no means sure that it is the noble Lord's fault. It may equally be mine. I agree with him. The right course to adopt is to read carefully what he said, if necessary seek further clarification, and return to the matter on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 130 to 136 not moved.]

Schedule 9 agreed to.

Schedule 10 agreed to.

20 Jul 1999 : Column 910

Clause 70 [Earnings of workers supplied by service companies etc.]:

Lord Higgins moved Amendment No. 137:


Page 74, line 36, leave out from ("worker")") to ("and") in line 40 and insert ("would have been an employed earner of a business carried on by another person to which he provides services ("the client") had he contracted direct with the client,")

The noble Lord said: At Second Reading, I pointed out that the Bill was four or five Bills included under a single piece of legislation. Consequently it was difficult to deal in any depth at Second Reading with the component parts. One of the component parts now appears as Clause 70. I think that it would be appropriate, and probably easier at this stage rather than later to cover some of the points which one would normally have raised had their been a proper Second Reading opportunity as regards this clause.

Clause 70 appears as a result of a statement made by the Chancellor in the Budget. A press release on 9th March 1999 is headed,


    "Countering avoidance in the provision of personal services".

It states:


    "The Chancellor today announced that changes are to be introduced to counter avoidance in the area of personal service provision. This move underlines the Government's commitment to achieving a tax system under which everyone pays his fair share".

We are entirely in favour of everyone paying their fair share. It would be wrong to suppose for one moment that we are in favour of unjustified tax avoidance. That is not the situation. However, it has become very clear that the way in which the Government propose to introduce the proposals has widespread repercussions. Clause 70 is included in this Bill whereas in our view there is a strong case for it to be in the Finance Bill.

In that context, one is bound to refer to what happened at Report stage in another place. Because the Government sought to time proceedings on amendments, which we discussed earlier, where there was likely to be a government Back-Bench rebellion, this clause appears to have been slotted in at that stage for that purpose. In the event, the move was completely unsuccessful and the rebellion achieved the appropriate publicity. It is also the case--one of the following amendments points it out--that the clause seems to have been inserted at an inappropriate point in the Bill. We have suggested changes in the order of clauses in that respect.

One can debate this issue at several different levels. The first is the straightforward, party-political level including the operation of spin doctors and the Whips, to which I referred earlier. The more important issue is whether the measure will receive adequate scrutiny. I pose a simple question to the Minister. Why were these clauses introduced at Report stage in another place and not in Committee? One of the problems with this House being a revising Chamber is that we could knock out this clause, but the Bill would go back to the other place where it would be debated on the Floor of the House under a tight time schedule. Indeed, the original Bill was guillotined in the other place and there was no adequate opportunity to table a series of amendments that would

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have improved the Bill, as could have been done if the measures were being considered in Committee upstairs in the other place.

Secondly, there is a series of issues in relation to the effects that these measures will have on the economy. Widespread representations have been made by many outside bodies that suggest that the effect on the economy is likely to be bad and may affect our competitive position. Alternatively, those affected by the clauses will go abroad to be able to operate efficiently.

Thirdly, there is the question of the relationship between the Treasury, especially the Inland Revenue department, and the Department of Social Security. As I suggested earlier, there is a strong case for these clauses to appear not in this Bill but in a Finance Bill. Of course, it can be argued that traditionally national insurance matters are a matter for the DSS, but we have only recently moved the whole of the Contributions Agency from the DSS to the Treasury. So that argument seems very thin, to put it mildly. Now that the Contributions Agency has been taken over by the Treasury there is no reason why the legislation should not follow. There are related issues as to where the proceeds should go--to the Consolidated Fund or to the National Insurance Fund--but those are not difficult to deal with.

The next set of issues arises from the process of consultation. The other place was not able to consider a full regulatory assessment--certainly not in Committee, for the reasons that I have mentioned--before the Bill left there. We now have in front of us a regulatory assessment that deals with some of the points, but the reality is that there have been inadequate consultations on these proposals. The clauses were rushed through at the last minute in the other place and I have been inundated with complaints about their adverse effects on a range of British interests.

Finally, there are many arguments to be made about the effects that the clause will have on the definition of who is an employee. I understand that there is considerable case law on that point. The Bill may make much of that case law obsolete and much of the uncertainty that was removed by the evolution of that case law may be resuscitated.

I understand that the Government propose to introduce a so-called control test to determine whether a person is an employee or a genuine limited company. That test will turn on whether the client has a right of supervision, direction or control over the tasks that are being undertaken by the person. That test sounds nice and simple, but in reality it will be very difficult to administer. In contrast, the existing law--the leading case is Market Investigation Limited v. Ministry of Social Security, 1969--suggests that the more accurate definition of "employee" should be used.

The amendment seeks to make the previous definition applicable, in particular that of an employed earner. Perhaps I may spend a moment on a simple-minded example. The problem with the idea of control, supervision and so forth is not realistic. Let us suppose that I employ a plumber who is a limited company.

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I may give him clear instructions as to what he should do. I want to supervise his work as regards ensuring that he does not wreck the furniture, the extent to which he should continue and the extent to which I can control him. The fact that I do so does not make him my employee. I am employing a limited company and to that extent the definition which the Revenue seeks to use is inadequate and dangerous.

A more relevant point is that the Chancellor of the Exchequer complained that an individual could work for, say, a bank on a Friday and suddenly reappear on a Monday as a limited company consultant, thereby hoping to benefit by avoiding national insurance contributions and so forth. The crucial issue is how many clients the individual has. If in those circumstances he has only one client, one may reasonably say that we should not approve of such a device. However, many of the representations we have received have suggested that when changing to a limited company the benefits in tax and national insurance contributions are a great deal less than the Chancellor appears to suppose.

More generally, one has received complaints from the London Chamber of Commerce and Industry, the British Chamber of Commerce, the CBI, the Institute of Directors, the National Association of Pension Funds Ltd, the Law Society and, on technicalities, from the tax faculty of the Institute of Chartered Accountants. All those bodies have provided strong arguments against the Government's proposals. None of them is concerned to promote tax avoidance, but they are extremely worried about the effect that the measure will have. Therefore, we hope that the Government will rethink the issue and put forward a more sensible solution. Their present proposal is likely to be damaging to the economy. The amendment seems to us to solve some of the problems identified by the bodies I have mentioned. I beg to move.


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