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Ms. Short : But I have a copy of the federation's letter.
Mr. Newton : The hon. Lady must be referring to later representations. Those I have seen were dated 6 November, and it was not until 8 November, at the time of the autumn statement, that I gave details of the national insurance contributions re-rating proposals. The reduction for employers is rather larger in both percentage and absolute money terms than I indicated at the time of my original uprating statement. Once I had refined the detail, the final proposals were more generous than those signalled at the time that I announced the SSP proposals.
It may be that certain interests have not yet been able to take into account, to the extent that I would obviously want them to do, the advantages to employers of the reductions that are to be made in national insurance contributions, which will total about £250 million--quite a significant sum, taken over all.
There is no doubt that the interests of small employers in particular should be taken into account, and I have sought to do so. Considerable strides have been made in recent years in improving the presentation of guidance on statutory sick pay, which has done a great deal to increase understanding of the scheme among small employers in particular. Moreover, the development of software packages for those employers with computer payrolls--I accept that this is not true of all employers, but it is true of a growing number--has further eased any operational difficulties which may originally have been experienced.
Earlier in my remarks, I referred to the growth of occupational sick pay coverage which had occurred during the 1970s. Since statutory sick pay was introduced in 1983, and occupational sick pay coverage has continued to grow. At first, coverage was more selective--that may emerge later in the debate--and tended to apply to white collar rather than to manual workers. Gradually, as the expansion of occupational sick pay schemes continues, they have become more comprehensive.
Mr. James Wallace (Orkney and Shetland) : When the former Secretary of State, the right hon. Member for Sutton Coldfield (Sir N. Fowler) introduced the Social Security and Housing Benefits Bill on 23 November 1981, he said that the latest available estimate was that 90 per cent. of full-time employees were in some sort of occupational sick pay scheme. I think that the latest estimate that the Minister has given was 91 per cent. --after a survey done for his Department in 1988. From 90 per cent. to 91 per cent. does not seem to be a great increase in coverage.
Mr. Newton : Certainly the coverage of occupational sick pay schemes is substantial. For example there has been a tendency to bring more part- time workers into such schemes and for schemes to provide more comprehensive coverage. As a result, many of those groups who are sometimes adverted to as people who have missed out in these developments, have been increasingly included.
As I was about to say--this is the point that the hon. Member for Orkney and Shetland (Mr. Wallace) was referring to--research carried out for the Department by an independent organisation, IFF research, in 1988 showed that about 20 million of the work force, or 91 per cent., as the hon. Gentleman said, work for employers with occupational sick pay schemes. As I have said on a number of occasions, for example during the uprating--
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Ms. Short rose--Mr. Newton : May I finish the sentence before the hon. Lady intervenes again?
That figure reflects the fact that there is a growing acceptance by employers of their greater responsibility for covering short-term sickness among employees, which in my view is right and proper.
Ms. Short : We know that the Secretary of State chose the words in the uprating statement carefully--91 per cent. of the work force work for employers who provide some occupational cover. That does not mean that 90 per cent. of the work force are covered, as the hon. Member for Orkney and Shetland should know. Most low-paid, part-time, short-term workers are not covered. Nearly half the workers in the private sector are not covered. To talk as though 90 per cent. are covered is misleading. At best, probably only half the population are covered.
Mr.Newton : I think that the hon. Lady will find that the figures are higher than that. I hope that I always choose my words carefully. I have no desire to mislead anyone. It is certainly the case that 91 per cent. of employees work for employers with occupational sick pay schemes. As I was seeking to tell the hon. Member for Orkney and Shetland, in practice the schemes have become more comprehensive over the years, and fewer people are now excluded from them. That is the best assessment that we can make.
Mr. Michael Meacher (Oldham, West) rose--
Mr. Newton : I shall gladly give way to the hon. Gentleman, but first, it may be helpful if I complete the next part of my speech. A particularly striking feature of the report--commissioned in 1988--is the growth in coverage in manual occupations. That has grown from 62 per cent. of employees in 1974 to 88 per cent. in 1988--only 5 per cent. behind coverage in non-manual grades, at 93 per cent. The report also indicates that the majority of schemes--83 per cent. in the private sector--top up SSP to full basic pay, and that, overall, nearly three quarters of all employees receive their full salary when sick. That is a very encouraging development, and it clearly demonstrates the extent to which employers have increasingly accepted responsibilities in the field of short-term sickness.
Mr. Meacher : The Bill is premised on the view that occupational sick pay is wide and is increasing. Will the right hon. Gentleman face up to the point made by my hon. Friend the Member for Birmingham, Ladywood (Ms. Short)--that 44 per cent. of private-sector schemes do not offer occupational sick pay and that 55 per cent. of private employers who employ fewer than 10 employees do not have an occupational sick pay scheme? The 90 per cent. figure that he keeps quoting is totally irrelevant and grossly misleading. Does he accept that there can be no justification for the Bill when that premise simply does not exist?
Mr. Newton : I do not accept that for a moment. The figure of 91 per cent. of employees working for employers who offer occupational sick pay schemes could not be said to be less than striking for almost any other sector. In some of the electoral matters with which the hon. Gentleman and I are concerned, 90 per cent. would be regarded as extremely high. Employers who do not offer what could be
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described as an occupational sick pay scheme may continue to pay employees for a significant time when they are sick.Nothing that I have said could be described as misleading. If anything, the way in which the hon. Gentleman is trying to minimise employers' improved acceptance of their responsibilities on short-term sickness among their employees is far more misleading than anything that I have said.
Mr. John Battle (Leeds, West) : I am grateful to the Secretary of State for giving way, because this point is crucial. If the Government are saying that they will change the basis of national insurance because 91 per cent. of people have cover, we must be clear about that figure, because we profoundly disagree with it. The only person covered by a workplace occupational sick pay scheme may be the managing director, and none of his workers may receive any benefit. A workplace may be covered, but not as many people as the Secretary of State is suggesting, on whom he is basing his argument.
Mr. Newton : I draw some encouragement from such a line of argument. If the hon. Gentleman can produce a significant number of examples--I am tempted to say, if he can produce one--of occupational sick pay schemes that are confined to the managing director, I might give some credence to his argument, but I doubt that he could find a single such scheme, let alone a significant number.
Dame Elaine Kellett-Bowman (Lancaster) : Is my right hon. Friend aware that, in agriculture for example, a sick pay scheme cannot be confined to one member but must be given to all members of staff?
Mr. Newton : I note what my hon. Friend says, and I am grateful to her. The trend has undoubtedly been towards wider coverage of groups who previously might not have been part of an occupational sick pay scheme, and we have borne that point in mind.
Mrs. Alice Mahon (Halifax) : This problem is of deep concern to me, as I represent a constituency which, because of the changes to industry, is now a small-firm economy. Has not the Secretary of State missed a golden opportunity to consider employers who employ fewer than 10 people and to give some real statistics? Let us have the truth. Like Labour Members, the right hon. Gentleman knows that many employees are not paid SSP when they should be. Has any research been conducted into how many employers do not pay SSP? The right hon. Gentleman's case is flawed, and there is little statistical evidence to back up this nasty little Bill.
Mr. Newton : Occasionally, as in every part of the social security system, the rules do not work perfectly. A great deal of effort was put into improving the guidance and assistance to employers to help them to operate the system. One aspect of the reimbursement arrangements does not work well. In some circumstances, employers fail to claim what theoretically they are able to claim. People have the right to go to the Department of Social Security if they feel that they are not receiving their full entitlement. In certain circumstances, the DSS will take steps to make sure that they do. I do not pretend that the system works perfectly in all cases. I do not pretend, either, that the administration of the social security system, through the DSS, works
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perfectly in all cases. It is incontrovertible, however, that the statutory sick pay scheme is working a great deal better than most Opposition Members forecast at the time that it was introduced. Moreover, it is working a great deal better than it did in the early days. It has settled down and, by and large, is working very well.Mr. Paul Flynn (Newport, West) : This report, which was debated at some length during the proceedings on this year's Social Security Bill, has been thorougly discredited by the Government. It does not reach the conclusion that the Minister reaches. It states that the majority of occupational pension schemes are very poor compared with the statutory sick pay scheme. Only 19 per cent. of private sector schemes provide cover for the full six months. Many of the other private sector schemes exclude trainee workers. In such dangerous industries as mining and construction, where a statutory sick pay scheme is needed, fewer than 50 per cent. of firms offer any sick pay scheme whatsoever.
Mr. Newton : I have already said that occupational sick pay schemes are widespread, that their breadth and coverage has improved in recent years and that the statutory sick pay scheme as a whole has worked well. It seems to me to be right that employers should accept greater responsibility for short-term sickness among those whom they employ. The Minister for Social Security and Disabled People is sitting beside me. I ought therefore to point out that, when demands on Social Security Ministers are high, we ought to do more for the long-term sick and disabled, for the less well-off pensioners on income support and for those who need help with residential and nursing care. It is right, when we consider how to use social security money, to consider our priorities. That is at the core of my argument.
Mr. Tony Favell (Stockport) : If I may refer to occupational sick pay schemes in the public sector, in particular to civil service and local government schemes, there have recently been a number of horrendous reports of people regarding days off for sickness as though they were extra holidays. Can the Minister say whether the Bill will help to combat that abuse?
Mr. Newton : I had not intended to refer to that issue ; I feared that it might inflame the hon. Member for Oldham, West, who is fairly easily inflamed. My hon. Friend may have in mind something to which I had decided not to refer--a recent Audit Commission report suggesting extraordinary levels of above-average absence through sickness in a number of London boroughs. I do not wish either to add or to detract from what the Audit Commission says, or to speculate about the reasons for it, or to suggest what the effect upon the Bill might be. However, my hon. Friend may seek to intervene in order to comment further on the matter.
I was seeking to say something about the pattern of occupational sick pay schemes. Obviously, I recognise that not everyone is covered ; we have debated that point in the last few minutes. Under some schemes, some new employees may have to serve a qualification period before becoming eligible for occupational sick pay. A typical qualifying period for short-term sickness cover is three months. However, it is worth remembering that half of all private sector schemes--this follows on from some of the points made by Opposition Members--have no exclusion
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clauses at all. All employees in those schemes are covered from day one, regardless of length of service, job grade and so on. As I have said, where there is a qualifying period, it would typically be about three months--perhaps, in some cases, six months-- which is substantially less than the qualifying period for state sickness benefit. To receive state sickness benefit, in broad terms--I will not go into all the complications of the national insurance rules--it is necessary to pay contributions for two years, whereas large numbers of those in occupational sick pay schemes qualify for benefit from day one, and the great majority within three or six months.Ms. Short : Will the Secretary of State help all of us by giving his best estimate of the proportion of the working population who are covered? I do not want him to give the House these false figures relating to employers who cover some of their workers. What proportion of the British work force are covered by an occupational sickness scheme?
Mr. Newton : I have given the hon. Lady the best information that I can give, drawn from the survey that we conducted. If my right hon. Friend the Minister for Social Security and Disabled People can add to that, he will certainly seek to do so later in the debate. What is unarguable is that a substantial proportion of the British work force are covered by occupational sick pay schemes.
There is one other point that I should make. I am not quite sure whether the hon. Member for Ladywood is going to raise the question of those who are earning less than £46 a week, and are therefore below the lower earnings limit at present. If she is including those people in her reference to the proportion of the British work force, hers is a pretty poor point. Admittedly, they do not qualify for statutory sick pay, but in many cases they have deliberately chosen not to enter the national insurance system, and therefore would not qualify for state sickness benefit either. In effect, they have made a choice to stay out of the area of coverage for short-term sickness.
I would be interested to know whether the hon. Lady's implicit attempts to argue that point include those people who are in the work force, but have quite deliberately chosen to keep their earnings below £46 a week in order to stay clear of the national insurance system. We know that a lot of people do that, but that is a decision for them. I am not willing to accept that they should be included in the hon. Lady's statistics to somehow undermine the validity of what I am saying about the growth in coverage of occupational sick pay schemes.
Ms. Short : I am happy to answer the Secretary of State. It is my view that we should extend the coverage for sickness and so on to part-time workers, as well as full-time workers. However, I think he knows that that is not the point that I am making. He keeps quoting the misleading statistic that 90 per cent. of the British work force work for employers who offer some occupational sickness scheme. That could include a tiny number in management positions in a very big work force : the right hon. Gentleman knows that. I am referring to the people within the national insurance scheme, which is being whittled away. I am not referring to those who work very short hours ; that is a separate issue. Will he give the House
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his best estimate of the proportion of the work force who are covered? I doubt that it is half, and I do not want him to mislead the House and say that the figure is 90 per cent.Mr. Newton : I do not think that I could be accused of having misled the House ; I have no intention of doing that. It is clear that the proportion is very substantial. If my right hon. Friend the Minister for Social Security and Disabled People or I can give the hon. Lady any further help on that point later in the debate, we will.
It is a striking fact that so large a proportion of the work force--more than 90 per cent.--work for employers who have occupational sick pay schemes. It is incontrovertible that the spread of those schemes--which formerly excluded rather more people than they do now--has been substantial, and that a sizeable proportion of those in employment are either covered by occupational sick pay schemes or work for employers who, as a matter of practice, will go on paying them--often full pay--for some period when they are sick.
Mr. Meacher : I repeat that this is the absolutely key, hinge point of the Bill. Does the right hon. Gentleman accept, and has his Department not briefed him--I am sure it has--that the IFF survey, to which he refers, involved a sample which was over-stratified in favour of large companies? Large companies are more likely to provide occupational sick pay, but there has been a reduction in their number and a huge increase in small companies with fewer than 20 or even 10 employees. It is precisely because they were under-represented in the survey and they do not offer occupational sick pay that the survey is so fallacious. Is the Secretary of State not therefore basing the whole Bill on a fallacy?
Mr. Newton : No, I am not. There are a number of interrelated points in the argument and we are arguing on one narrow front. The hon. Gentleman will remember from my uprating statement that we are undertaking a variety of steps here, all of which have some relationship to his point. Yes, there has been a large and welcome development of small firms. As I have often said, many of them will have employees who are paid less than £175 a week--or £185 a week, as it will be from next April--at which point they get into the full range of employers' contributions. Those firms are getting a proportionately larger reduction in their employers' contributions. Equally, a significant number of employees of small firms will qualify not for the higher rate of statutory sick pay but for the lower rate. The lower rate was fully uprated in line with prices precisely because, as I said in my uprating statement, it was more likely to go to employees whose employers were not providing occupational cover.
The package as a whole includes the changes in the reimbursement arrangements, what has been done with the rates of SSP, including the full uprating of the lower rate, and the reduction in national insurance contributions, which is worth some £250 million to employers as a whole. While I am not in any way seeking to dismiss the hon. Gentleman's point about small employers, that very point has been carefully taken into account in the package of proposals with which this measure--the only one in the Bill which requires such legislation--is associated.
Employees who do not yet have any occupational sick pay cover tend to be people in low-paid or part-time
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employment. As I have said, it is precisely for that reason that the uprating proposals provided for a full uprating of the lower rate of SSP, which is what those groups are most likely to receive. The summary to the sick pay report, which we have just been discussing--I stress that it was carried out by an independent research company--concludes :"Looking to the future, the level of cover is likely to increase further, as employment continues to shift towards industries with more generous schemes (i.e. service and new manufacturing industries) ; traditional differentials between manual and non manual grades are further eroded ; and as part of the continuing improvement in terms and conditions of employment".
It is on that record and prospect, derived in part from the report but by no means only from it, that we are seeking to build. The proliferation of occupational sick pay schemes now means that, for the great majority of those in work, the rates of SSP bear little or no relation to the amount that they receive when sick. It is right that the Government should take account of that in the future development of the scheme and in considering the distribution of available resources within the social security budget as a whole. Let me now outline the proposals for the restructuring of statutory sick pay which I announced to the House during my uprating statement on 24 October. As has become clear from our exchanges over the past few minutes, the proposals contain two elements. The first comprises the reimbursement arrangements for employers, which are the subject of the present Bill. The second relates to the changes in the rates and earnings thresholds for SSP.
I should make it clear that the latter will be covered in a separate SSP uprating order and will be debated in the House, with the main benefit uprating package, in due course. It would perhaps not be proper for me to anticipate that debate, although it is right--again, as our exchanges have clearly shown--to refer to those changes during this Second Reading debate, because they form part of the general restructuring of SSP.
As hon. Members know, there are two rates of statutory sick pay. At present, the lower rate goes to those employees whose average weekly earnings are between £46 and £125--£46 being the lower earnings level at which national insurance contributions become payable. As I explained to the hon. Member for Ladywood, I propose to increase that rate, in line with the full retail prices index amount of 10.9 per cent., from £39.25 to £43.50--an increase of £4.25 a week. That is in recognition of the fact that those in low-paid or part-time employment are less likely to have occupational sick pay cover when they fall sick.
At the same time, I propose that the dividing line between the two rates, which, as I have said, is set at £125, should be increased to cover the whole range of earnings bands within which employers pay the lower rate of contributions. At present, that covers employees earning less than £175 a week, with an increase to £185 from April 1991 under the proposals that I announced for the re-rating of national insurance contributions following the Chancellor's autumn statement on 8 November. I propose to leave the higher rate of SSP unchanged this year at £52.50. Subject to parliamentary approval, the changes will take effect from 6 April 1991 and I made it clear in my uprating statement that they will reduce public expenditure by about £100 million in 1991-92.
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As I have said, this is not perhaps the proper parliamentary occasion on which to discuss those proposals in detail, but I must stress that the vast majority of employees will face no reduction in the total payment that they receive when sick. That is because of the way in which occupational sick pay under employers' schemes interacts with SSP.It may help if I explain just how the reimbursement arrangements work. Each month, employers deduct from their regular remittances of national insurance contributions to the collector of taxes the gross amount of SSP that they have paid to their employees. If the total contributions due amount to less than the SSP paid, the employer can similarly adjust his payment of PAYE tax. Should the total of both national insurance contributions and tax be insufficient to allow full recovery, the employer can either wait until the next month's payment to recover the balance or apply to the Inland Revenue for a direct refund.
In addition, since April 1985--some time after the scheme came into operation--an employer has also been able to recover, by deduction from his remittances of national insurance contributions, an amount by way of compensation for the cost of the national insurance contributions payable on SSP itself. That amount is fixed each year and, at present, is 7 per cent. of the total SSP paid.
Having explained the reimbursement arrangements--I hope with reasonable clarity--let me outline the provisions in the Bill. All the substantive provisions are in clause 1. Clause 1(1) reduces the amount of SSP that employers can recover in the way that I have described from 100 per cent. to 80 per cent. Clause 2(2) enables that percentage to be varied by order. Clause 1(3) brings to an end the additional 7 per cent. compensatioin rate. The first of the two remaining subsections enables regulations to be made to cater for rounding to the nearest penny, and the second makes the consequential amendment to the Social Security Act 1975 relating the transfer of funds between the Consolidated Fund and the national insurance fund. Clauses 2 and 3 deal with consequential and supplementary matters and are in the standard format that appears in most Social Security Bills. I do not propose to deal with those clauses in detail, but I want to make two points.
The first point relates to subsection 3 of clause 2, which contains a power to make transitional regulations. Hon. Members may like to know that the intention is for those to provide that all payments of SSP made before 6 April 1991 will continue to be subject to 100 per cent. reimbursement plus the 7 per cent. compensation, even if not recovered from remittances to the Inland Revenue until after that date. Payments of SSP made on or after 6 April will be recoverable at the new 80 per cent. rate, and no additional compensation will apply.
The second point relates to subsection 2 of clause 3, about commencement. As I have just made clear, it is intended that the provisions will come into effect from 6 April 1991. If there are other points about the fairly elaborate detail of those two clauses that hon. Members wish to raise, my right hon. Friend the Minister for Social Security and Disabled People will try to answer them when he replies.
As the explanatory and financial memorandum to the Bill explains, the change from 100 per cent. to 80 per cent. reimbursement will result in public expenditure savings of £181 million in 1991-92, rising to £190 million and £197
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million in the following two years. In addition, the ending of the 7 per cent. compensation rate will increase income to the national insurance fund by £71 million in 1991-92, £75 million in 1992-93 and £78 million in 1993-94.Mr. Peter Thurnham (Bolton, North-East) : To what extent will that be offset by the reduction in national insurance contributions, or is that the net figure?
Mr. Newton : My hon. Friend has raised a good point. That is the total of expenditure saving plus additional income as it were or reduced outgoings to the national insurance fund, which, as my hon. Friend will see from the figures, amounts to about £250 million.
Mr. Newton : If we add £181 million to £71 million, it amounts to £252 million.
Ms. Short : What if we add together the £197 million and the £78 million?
Mr. Newton : The hon. Lady is adding up the figures for the following years. I am happy if she does that, and if need be, we can set out the three-year figures. However, inevitably they will be subject to uncertainty, because many variables are involved. The figures given are the best efforts that could be made at the time. I believe that the easiest figure to concentrate on at the moment is the combined total of the saving in public expenditure, plus the increased revenue to the national insurance fund, which is of the order of £250 million. As has been noted, that takes no account of the reduction in national insurance contributions, which itself is about £250 million. I said in my uprating statement that it would be more than £200 million. When I gave the details on 8 November, the figure was larger than I had signalled in my uprating statement. In practice, the reduction announced on 8 November is about £250 million.
I do not mean to pretend that there is or can be a direct equivalence for every employer between their reduction in national insurance contributions and the additional amount that they might have to pay for statutory sick pay. However, it is clear from my figures that the offset is substantial when we consider employers as a whole in respect of the reimbursement side of the package.
Mr. Wallace : The Secretary of State has presented a package to the House including the measures in the Bill, the reduction in employers' insurance contributions and the freezing of the higher rate of SSP and the change in the threshold. With regard to the last factor, is there a further £100 million saving to the Treasury? As a package, is there a reduction in public expenditure of £100 million? If that is the Treasury's gain, whose loss is it?
Mr. Newton : I hope that it was clear in my uprating statement and in everything else that I have said that the figures I have given in response to my hon. Friend the Member for Bolton, North-East (Mr. Thurnham) and to the hon. Member for Ladywood relate to the public expenditure saving in the Bill together with increased national insurance revenue, which is not a saving in public expenditure in the Bill as against the reduction in national insurance contributions. None of that embraces the £100 million to which I referred a few minutes ago, arising from
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the fact that the higher rate of SSP is not being uprated and from the change in the thresholds. That is absolutely clear and I would not wish to risk misleading anyone about it.As to who has gained, my uprating statement included significant increases in benefit for those in residential care and nursing homes, an improvement in income support for less well-off pensioners, and last Wednesday the House debated a Bill which will steer significant additional money over the next two or three years to the long-term sick and disabled. I do not run away from the fact that Social Security Ministers must face priorities in the way in which they spend and use money. This Bill is part of an assessment of where the weight of state resources should be directed to achieve the best value for the taxpayers' money.
Mr. Richard Alexander (Newark) : Taking the package as a whole, and in view of today's figures, the National Federation of Self Employed and Small Businesses believes that many firms will have to pay up to £11 a week more for up to 28 weeks. If that is the case, it is a matter of concern. Will the Secretary of State deal with that concern?
Mr. Newton : I will refer to examples later against the background of the fact that, while the maximum extension of SSP following changes made around 1985 is now 28 weeks, the average spell of sickness is probably about three weeks. We must take account of the likely expectation and experience and of the reduction in national insurance contributions. I will give some examples shortly which should ease my hon. Friend's anxieties and should also significantly ease the anxieties of the National Federation of Self Employed and Small Businesses, which has not perhaps yet had the fullest opportunity to digest the reduction in national insurance contributions that I announced on 8 November.
Many of the early comments on the proposals have, not unnaturally, centred on the effect on employers. Before I refer to that, I want to refer briefly to the implication for employees and to emphasise that the changes in the Bill--I am not here talking about the other £100 million, for which there could be slightly different arguments--have no direct effect on employees. Their entitlement to particular payments remains entirely unchanged by the change in reimbursement and compensation arrangements for employers.
I am aware that it has been suggested in some quarters that it will in some way disadvantage disabled people by making employers less willing to take them on. Exactly the same was said when SSP in its present form was first introduced, and on the occasion of earlier changes, such as extending the period for which SSP is payable. I believe that those fears proved groundless in the past, and I see no reason to suppose that they are any better founded now. Indeed, we do not expect any change in the pattern of employment of people with disabilities as a result of these changes.
In general, people with disabilities do not have bad attendance records. Their records are likely to be as good as, if not better than, average. The 1984 general household survey showed that half of all people with disabilities in work took fewer than five days a year off work for sickness or treatment, and that, over a five-year period, half of
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them had not had a spell of sickness or treatment lasting a month. Consequently, there is no reason to suppose that employers' SSP liability for them would be any greater than for the average employee.My right hon. Friend the Minister for Social Security and Disabled People shares my view that there are many other factors of far greater importance in determining job opportunities for disabled people. Both the Department of Social Security, and perhaps even more importantly the Department of Employment, have developed numerous policies to seek to promote the employment of people with disabilities. Those opportunities advanced in this House only four days ago when we debated the disability working allowance proposals in the Bill that we discussed on Wednesday, which we are hoping to bring into effect in April 1992. That will certainly have more effect on the encouragement of disabled people to work and on the scope for them to work than will the proposals that we are discussing to day. I come now to some of the points raised by my hon. Friends about the position of employers under the Bill. It is important to see its proposals in the context of the reductions in national insurance contributions, to which I shall shortly refer, and which go a long way towards offsetting any additional costs arising from the reduced recovery arrangements.
Hon. Members who were here when SSP was introduced in 1983--I confess that I was one of them ; I think that I was the Under-Secretary serving on the Bill--will recall that employers' organisations argued strongly in favour of the sort of arrangements that we have now.: I would not want to disguise that fact. Their view was entirely reasonable at the time, especially as the scheme was new and an untried departure. After detailed discussions, the Government agreed to provide for the 100 per cent. recovery system.
It is equally and eminently reasonable for us to have taken a fresh look at the system, now that we have nearly a decade of successful practical experience of the scheme and in the light of other developments in and demands on the social security system--that is what we are doing in practice. In particular, we have examined the implications of full reimbursement for employers with occupational sick pay schemes.
Because SSP can be offset against occupational sick pay liability, and because employers can get back all the SSP they pay, in some cases that reduces the amount of sick pay that employers would othewise pay anyway under their own schemes. So in some cases--I do not say in all--the 100 per cent. recovery arrangements provide a positive financial advantage for employers. Now that SSP is well bedded in, it is reasonable that we should examine the extent of that and whether it is right to retain it in its present form. I know that some employers have argued that it is not the employers' place to provide short-term sickness cover for their employees. As I said earlier, and in my uprating statement, I do not agree. That flies in the face of what has been happening : a growing number of employers accept that it is their responsibility to be concerned with short-term sickness among their employees. I recognise that it is not always so easy for smaller employers to provide the sort of cover that employers in major companies provide, but many of them do so for short-term, if not for long- term, sickness. Provision of occupational sick pay is now the norm, not the exception,
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and as I told the hon. Member for Ladywood, when smaller employers do not operate formal schemes, they often make discretionary payments or continue full pay for short periods of sickness. We cannot quantify that as well as the hon. Member for Ladywood or I would like, but it does show that the hon. Lady was overstating what we might call the occupational sick pay gap.Mr. Christopher Gill (Ludlow) : Will my right hon. Friend give particular consideration to the thousands of small firms that have been established under this Government's tenure of office? They will be especially affected by the legislation and they would like to think that the Minister will give them some consideration. They will be somewhat taken aback by these proposals.
Mr. Newton : I hope to do precisely that by giving some illustrative examples of what the position would be for a given number of employees earning the sort of sums that we might be discussing, taking account of the reduction in national insurance contributions that they would experience at the same time. I hope that that will be useful.
Somewhat different considerations apply in relation to the 7 per cent. additional compensation rate, which was introduced as part of the legislation which extended SSP from eight to 28 weeks. It was intended to compensate employers for the cost of the national insurance contributions that they pay on SSP. This part of the arrangements has been of only limited success. Despite wide publicity, as many as a quarter of employers do not claim it. Furthermore, in the interests of simplicity, it is available on all SSP paid, even when the total SSP is below the lower earnings limit, and so will not have attracted national insurance liability in the first place. I hope that I carry the hon. Member for Ladywood with me.
Now, the lower rate of statutory sick pay is £39.25 a week. The lower earnings limit is £46 a week. No national insurance liability arises on £39.25 a week, therefore, yet the current compensation arrangements compensate employers for a payment that they are not making. So this part of the arrangement is not very satisfactory ; it has not been working well ; and the justification for at least part of it is far from clear.
Ms. Short : My understanding is that part of the reason for the compensation was the administrative burden associated with reclaiming-- especially for small firms. The Minister is talking as though he is recovering money, but are firms no longer to be compensated for the burden of administering statutory sick pay?
Mr. Newton : When the arrangements were first put in place and subsequently modified, a whole variety of arguments was advanced. Employers certainly mentioned the administrative problems that they might be caused, but most of them have discovered that the problem is much smaller than they had thought. Whatever the rationale behind the system at the time, this part of it has not worked very well and has no clear justification. It would certainly be difficult to see its justification in a case in which all the employees concerned were paid the lower rate of statutory sick pay, none of which attracted national insurance contributions. This is certainly not a tidy or defensible arrangement, and although I would not have tried to disturb it for its own sake, we thought it right to do so when drawing up the wider package of changes that I have just described.
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Mr. Favell : Is the number of days off taken for sickness increasing or decreasing?
Mr. Newton : I cannot answer that off the cuff, but I shall ask my right hon. Friend and provide what information we have at the end of the debate.
It is important to put the hundreds of millions of pounds that we have been discussing in perspective. The amount involved in the reduction to 80 per cent. reimbursement from what is in effect, if not in legal terms, 107 per cent. now, is about £250 million in the coming financial year. That must be compared with total labour costs in the British economy of about £300 billion. We are talking about little more than 0.05 per cent. of total labour costs in the economy as a whole. We cannot dismiss it on that ground, but it is important to recognise that we are talking about a small sum in relation to the total cost of which it forms a part.
The implications for employers generally will be fairly small. The precise effects will obviously depend on the level of sickness experienced in a work force, but as I said, it should be remembered that, although SSP is payable for 28 weeks, the average spell of sickness lasts for only three weeks, and 90 per cent. of sickness is over within eight weeks. Crucially, whatever the gross effect of the Bill's changes, the net effect will be significantly smaller, perhaps in some case completely eliminated by the significant reduction in employers' national insurance contributions which will come into effect at the same time and are an important part of the context in which the Bill must be seen.
As a result of my annual review of the level of the national insurance fund and the prospective demands upon it, I found it possible to reduce the standard rates of national insurance payable by employers. I propose reducing the standard rate payable by employers from 10.45 to 10.4 per cent. More importantly, I propose to reduce the lower rates, which are currently 5, 7 and 9 per cent. in respect of employees earning up to £175 a week, to 4.6, 6.6 and 8.6 per cent. respectively.
Those changes will reduce employers' costs by about £250 million and, as I said in response to interventions, they are likely to be especially helpful to employers, often smaller employers, whose employees are among the less highly paid. For example, for an employee earning £70 a week, the employer's national insurance contribution will reduce by 28p a week. For an employee earning £120, the reduction will be 48p, and for an employee on £170, it will be 68p.
Those sums may seem small, and it seems sensible to give one or two illustrations of how the SSP and contribution changes interact. Let us look at a small employer with five employees each earning £170 a week. If one of them receives three weeks SSP in the year, which equates to the present average duration of sickness, the extra cost to the employer in SSP would be £82.41, assuming that he makes good the difference between the higher and lower rates of SSP with occupational sick pay. The employer would be making an annual saving on his national insurance contribution liability of £176.80, making him £94.39 better off.
I have taken a case in which only one employee had three weeks off, and that could be said to be an unduly favourable example. If the same employer had two members of his work force of five on three weeks' sickness in a year, he would still make a saving on additional SSP
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against reduced national insurance contributions of £11.98 a week. If an employer with 20 employees all earning £170 a week had four of them off sick for three weeks each, his average saving would be nearly £400--or, to be precise, £377.56Ms. Short : If some firms gain, it inevitably means that others will lose.
Mr. Newton : The hon. Lady does not need to prompt me about matters that I intend to put to the House in the interests of a properly balanced debate.
The examples that I have given are reasonable illustrations of what will happen to smaller employers, but by definition they cannot represent the position of all employers. I agree that for some employers with rather higher-paid employees, and especially those immediately above the level that takes them into the standard rate of national insurance contributions- -what will be the 10.4 per cent.--the position may not be quite like that which I have described. There is no way in which I can say that no employer will have some additional modest costs as a result of the proposals.
What I am seeking to do meets the main thrust of the arguments presented by my hon. Friends about smaller businesses and the National Federation of Self-Employed and Small Businesses. I am trying to show that it is entirely credible to suppose, in the light of the effect of national insurance contribution reductions, that some of the hasty comments by smaller employers are unlikely to be borne out in terms of additional burdens upon them. Some may find that they are better off. I note what the hon. Member for Ladywood said. I certainly do not want to give the impression that employers will always come out on top. My earlier macro-figures, the micro- figures that I gave within the last few minutes and what I said about the £250 million entitle me to say that, overall, any increase in employers' costs will be relatively modest.
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