National Insurance Contributions Bill

My Lords, I express my support for the Bill which, as my noble friend said, is intended to deter employers from using schemes to avoid paying national insurance contributions on the rewards from employment. Whether, if the Bill is passed, that objective is achieved remains to be seen. The tax avoidance planning industry—it is an industry—seems to employ some of the brightest individuals in the country, which speaks volumes about our priorities and culture. No doubt, as one loophole is closed, able minds will continue to seek to open others, as has already happened following previous legislation in this field by the Government. The battle to persuade a small section within society to pay its fair share has been long running and it would be highly optimistic to believe that the Bill brings an end to the saga, despite intended powers to close down avoidance schemes, introduce national insurance contributions liability effective, if necessary, back to December 2004 and extend current disclosure rules to cover national insurance contributions avoidance schemes. However, it is a battle that should continue to be waged, as what is going on is clearly a slap in the face for the overwhelming majority of employers and employees who pay their fair share. I understand that the latest information available shows that a relatively small number of individuals have received considerable bonuses as a means of avoiding paying their fair share of tax and national insurance contributions. Apparently, a few hundred employers are engaged in the use of schemes on the rewards from employment whose purpose is simply to avoid income tax and national insurance contributions. I gather that it is estimated that the measures in the Bill will, if successful, result in additional national insurance contributions running to a few hundreds of millions of pounds per annum. National insurance contributions avoidance on a significant basis is usually associated with annual bonuses paid to a small number of highly paid employees and directors, especially in financial services. The financial services industry is a major employer and, as a result of its internationally recognised expertise, brings considerable earnings and other significant benefits to this country. However, that does not mean that some of its practices and parts of its culture should go unchallenged. Last July, I read an article that commented on how often individuals and firms in the financial services industry failed to manage conflicts of interest and chose to better themselves at the expense of their clients. The article then referred to a theory that the root of the problem was that rewards are too great, finance as a whole was insufficiently competitive and made excessive returns and that that had made possible the accumulation of huge wealth and let loose a culture of uncontrolled greed that eventually distorts judgment. The author of the article in the London Evening Standard was the City columnist of that paper—hardly an unsympathetic commentator. He concluded by saying that, whether the theory on the root of the problem was true or not, unless firms genuinely embraced ethical behaviour so that nothing else was tolerated, they must in time destroy the credibility of the whole sector. I do not think that avoidance schemes on the scale and of the kind that the Bill is intended to end are ethical, even though they may currently be legal. National insurance contribution avoidance schemes either reduce the amount of money available for further improving the National Health Service and funding contributory benefits or mean that the overwhelming majority who are not engaged in avoidance have to pay more than they otherwise would to make up the shortfall resulting from the actions of a small minority. It is rather like taking from the less well off, including in this context what is sometimes referred to in the media as middle England, to provide money for the well rewarded: there is nothing very ethical in that. In significantly reducing national insurance contributions, avoidance can result in a better competitive situation cost wise for those who are not paying their fair share, in comparison with the overwhelming majority who do. Once again, there is nothing very ethical in that. Addressing that problem, as the Bill seeks to do, will help to restore a level playing field and to encourage proper competition. If we value the goal of a fairer society, we need to address a situation where a small number of those employers or employees who are already well off decide to use their financial clout to pay one of the major accountancy firms to produce contrived and elaborate avoidance schemes of the kind being targeted by this Bill. What is happening in this area, where it seems that almost anything goes, is in marked contrast to what happens at the minimum wage end of the employment market where the numbers involved in the avoidance schemes covered by this Bill are likely, shall we say, to ““be limited””. I do not have the figures for 2005, but the annual survey of hours and earnings estimates for April 2004 showed that 227,000 jobs were held by people aged 22 and over with pay less than the adult national minimum wage of £4.50 per hour. While it does not automatically follow from that statistic that 227,000 people entitled to the minimum wage were being paid a lower rate, a study undertaken for the Low Pay Commission suggested that there was a high level of minimum wage underpayment in parts of the clothing and restaurant sectors. The incidence of non-compliance with the minimum wage found in investigations arising from complaints continues to be high at around 40 per cent, although no one knows the extent of undetected non-compliance. The last report from the Low Pay Commission referred to concerns that were expressed to it that no prosecution cases for non-compliance had been brought by the Inland Revenue. The commission also noted the weakness of the deterrent to non-compliance and contrasted it with the fact that interest is payable on any arrears of company or individual tax. It recommended the introduction of interest charges payable on arrears arising from minimum wage underpayment and financial penalties for seriously non-compliant employers. Any movement in the national minimum wage is normally made only following a detailed report by the Low Pay Commission. Its recommendations, reflecting the composition of the commission, seek to reflect not just the interests of the low paid but also those of employers. Yet many employers do not seem to carry out even a remotely comparable rigorous, open and transparent exercise to that undertaken on whether the national economy and companies can and should afford a few extra pence per hour for the least well off, when it comes to the very much more substantial, and well above average, improvements that now seem to be made each year in the remuneration packages of those in the board room. In addition, in a small number of cases, particularly in relation to bonuses in the City, there are ever more contrived tax and national insurance contributions avoidance schemes designed to increase further the already highly attractive financial position of those employers and employees involved. Although I do not often agree with the City columnist of the London Evening Standard, in this case the thrust of his comments were well directed. If we are to move closer to the goal of a fair society, we cannot allow situations to go unchallenged under which a small minority of the very well rewarded are able to avoid their obligations to society to the detriment of the overwhelming majority. I support the Bill and only hope that it achieves its intended objectives.