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Lord Astor of Hever: I understand fully the reasons for the amendment ably moved by the noble Lord, Lord Goodhart. I wish to speak to Amendment No. 33, and in particular to Amendment No. 44, which aim to lift the burden of administering WFTC from small businesses. The Government have admitted that the WFTC will impose both administrative and financial burdens on business. The draft regulatory impact assessment of the provisions in the Bill estimates that the WFTC will cost employers £103 million a year with non-recurrent set-up costs of £43 million. Approximately a quarter of these recurrent costs are estimated to fall on businesses employing fewer than five employees. Businesses have expressed concern at this added administrative cost to their pay rolls as employers will have to bear the burden of distributing it.
In its budget submission, the CBI pointed out that the administration for the credit will be a new burden for companies and the cost will be significant in particular for small companies which are always hardest hit by red tape and will be specifically affected by compliance costs. The Inland Revenue said that smaller firms are more likely to pay low wages and are, therefore, likely to be disproportionately affected.
TaxAid has serious concerns about the ability and willingness of small firms to deliver the new tax credits because of the additional compliance burdens imposed on them. It envisages delays and errors in implementing payments and completion of forms by employers.
At Report stage and in the Third Reading debate in another place the Government conceded that employers who do not deduct PAYE and national insurance contributions from the pay of any of their employees will be exempt. I am aware that the Minister addressed exemption for small employers in her letter to my noble friend Lord Higgins. The noble Baroness said that exempting employers with one to four employees would eliminate about two-thirds of employers currently operating PAYE. That is exactly the point. Exempting small employers would remove at a stroke a huge chunk of the regulatory burden that the Government are about to impose.
In her letter the Minister also said that it would be difficult to apply a small firm's exemption. But all that would be needed would be an extra box on the notice to the employer that tax credits were to be paid. A small employer would tick that box to say that he was exempt and send the notice back to the Inland Revenue. The Revenue would then pay the tax credits. Given that the notices would be sent out at least 14 days before the first amendment falls due, this should allow the Revenue enough time to realise that it would have to continue to pay tax credits directly.
We suggest that the provision should be widened to lift the burden of administering the WFTC from small businesses with a threshold related to the number of employees. Amendment No. 33 proposes fewer than 20 which appears to be a figure recognised by the Government. Under the new fairness at work Bill companies employing fewer than 20 are not required to have statutory trade union recognition.
Amendment No. 44 allows small companies employing fewer than 20 people a period of two years to give them more time to prepare themselves for change and allow many practical difficulties to be ironed out before they are brought within its scope. This will not interfere with the broad scheme proposed by the Government. But we are concerned that tax credits are being introduced with limited time for consultation and no opportunity to carry out any local pilot exercises which would help to ensure that they work in practice.
Small businesses have been submerged under a welter of time-wasting and cumbersome regulations from the Government and the European Union. They are now being asked to become the delivery mechanism of the welfare state. What they should be doing is creating wealth and providing jobs. In their manifesto the Government said that they would help create successful and profitable businesses and would bring in new measures to help them. I therefore hope that the Minister will give serious consideration to these amendments and
As the noble Lord, Lord Goodhart, said in moving the amendment, there are a large number of small firms. To do as the amendment proposes would substantially undermine the principles on which the Bill is based. I should not be surprised if the Government were to reject the series of amendments.
I understand that assistance will be available to employers who ask for it and that employers will not be expected to be other than an agent for the Inland Revenue. The employer will have no role in assessment. All he does is what the Inland Revenue tells him to do on the basis of the information that the Revenue has.
It seems to me that small firms should welcome the Bill. As has been said, often it is small firms which complain that they cannot afford the high wages. The tax credit system provides them with a form of wage subsidy. The taxpayer will be assisting them through the tax credit system to pay lower wages than they might otherwise be pressurised into paying. Without it, particularly if unemployment declines, there will be greater pressure to pay higher wages. So small employers should be grateful for the system of tax credits. I believe that there is no case for exempting small employers from the provisions of the Bill. I hope that the Minister will reject the amendment.
I begin with an acerbic remark (which is not deeply within my nature). I am opposed to Amendment No. 44. It appears to be the tactic of the Opposition to say, "We do not like such-and-such a Bill. But if it is to go ahead what we would really like"--I refer to the House of Lords Bill--"is to postpone its operation until some date as far in the future as possible". If we are to go ahead with this Bill, which I strongly support, it makes extremely good sense to do so sooner rather than later.
Secondly, the noble Lord, Lord Astor of Hever, referred to the crushing burden of bureaucracy. What has most damaged small firms in this country has had nothing to do with bureaucracy or red tape; it has had to do with monetary policy. Under the previous administration, we saw a massive rise in bankruptcies, far in excess of anything seen in this country since the Second World War. Noble Lords on the Opposition Front Benches should be congratulating my right honourable friend the Chancellor for the great improvement in monetary policy, which will be beneficial to small firms.
It is about time that the small firms of this country--the few which are not very good--realised that it is not difficult to produce a modern, systematic approach to keeping accounts. The idea that they are still using pen and paper and cannot run a firm using even the most elementary computers also horrifies me. Therefore, I do not find the administrative argument compelling.
However, I wish to reflect on two other issues. First, my noble friend Lady Turner pointed out that, in general, the policy is beneficial to small firms because it enlarges the labour pool from which they can draw. Secondly, the noble Lord, Lord Goodhart, failed to deal with one aspect of the incentive issue. I was taken aback, and I am sure he will speak again. I considered that the argument on size was decisive; namely, that if a firm has 10 employees, on this analysis it would opt out. However, according to the amendment tabled by the Official Opposition, the number would be 20. Whichever, it is, the number is low. I was concerned, first, because the number of employees fluctuates and it was not obvious how the analysis of the noble Lord, Lord Goodhart, dealt with that. I listened carefully, but I was lost.
The second problem related the incentives. We hope that small firms will be successful and become larger. Indeed, by definition, all large firms were once small. We do not want someone to say, "If I get one more person who might be eligible for this benefit, I had better not employ him." The last thing we want to do is to devise a system which gives an artificial disincentive to the firms.
I have no idea what my noble friend will say, but I believe that the amendments are not helpful to small firms. In particular, they might reinforce administrative incompetence and one should go to great lengths precisely not to do so. One should say, "This is an opportunity for you to improve the way in which you run your business".
Lord Skelmersdale: Of course the Bill is an opportunity for small employers--indeed, any employer-- paying at or near the minimum wage. To a great extent, it extends many moons beyond that point. That was discussed last week and on Second Reading. However, just because the Inland Revenue rather than the employer pays over the money for WFTC does not make it a greater or lesser benefit to small firms. It is a benefit to small firms anyway. Therefore, the argument put forward by the noble Baroness, Lady Turner, goes out of the window.
The noble Lord, Lord Peston, said something which shook me rigid. Has he not noticed that he is in the House of Lords and has been for a considerable number of years? We are hamstrung by convention and rules into not dividing against the Second Reading of government Bills, except on rare occasions. This was not one of those rare occasions. Therefore, however much one disapproves of a Bill--and I disapprove of it fundamentally, as I have made clear a number of times--the only option left to us is to improve it in such ways as we can. It is to be hoped that that can be done by argument and occasionally taking the bull by the horns and going through the Division Lobbies. That may or may not be the case today. It is not a matter for me. Although it is impossible to make what I regard as a bad Bill better, it is within our remit to make a bad Bill less bad. I hope that that will be the case.
I do not regard Amendment No. 29 as the most important on the Marshalled List today. The amendment tabled by my noble friend Lord Astor on agricultural workers in scope covers all casual and part-time workers. For reasons which he, I and other Members of the Committee will be able to discuss, it offers a stronger case for exempting them from payment through the wage packet. Nonetheless, contrary to what the noble Lord, Lord Peston, said, many small employers operate on a hand-to-mouth basis and in a total spin as regards the Inland Revenue and national insurance contributions. I have no doubt that inspectors have to visit such firms more often because their accounts are in a muddle. Any extra burden is bound to put their accounts in a greater muddle and that is a bad thing.
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