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Power Of Secretary Of State To Award Increments To Small Firms

Volume 77: debated on Thursday 18 April 1985

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The Secretary of State may award additional adjustable payments to firms with less than 20 employees for the purpose of financing their statutory sick pay schemes. —[Mr. Kennedy.]

Brought up, and read the First time.

7.30 pm

I beg to move, That the clause be read a Second time.

Although this issue is not insignificant, I appreciate the practical limitations within which Ministers must work and I merely wish to draw attention to a problem which was highlighted by a recent report entitled "Burdens on Business." Any relief from the administrative complexities facing small businesses is welcome.

The Secretary of State's original announcement came as a bolt from the blue for many small business men and the National Federation of Self Employed and Small Businesses. It was proposed to extend statutory sick pay to 28 days. Having had discussions with those affected, the Secretary of State was able to announce relief from national insurance contributions for 12 months from the passing of this legislation. That was in recognition of the extra burdens—[Interruption.] I do not know whether the ringing of Division bells indicates a split in the alliance. I do not know whether the bell tolls for me or for the Minister. We shall see. It is a more musical accompaniment than we are used to.

The relief that the Government announced was welcome. I am now seeking additional relief for small businesses. I am the first to admit that my definition is arbitrary.

In January 1984, my hon. Friend the Member for Gordon (Mr. Bruce) wrote to the then Minister for Social Security inquiring whether the Government planned to extend statutory sick pay from eight weeks to 13 weeks. The Minister replied that he could give an assurance that there were no plans to extend the period covered. I realise that one Minister cannot bind another, but when my hon. Friend the Member for Orkney and Shetland (Mr. Wallace) wrote to the Parliamentary Under-Secretary of State for Trade and Industry in February this year about the extension which had by then been announced and which ran contrary to what the Government said one year earlier, the Minister replied:
"the DHSS maintain that the extension has several advantages. They consider that it will further reduce the overlap of some employers' contributory sick pay schemes with State sickness benefit; further reduce the effect of the anomaly whereby State sickness benefit is not taxable; and finally, produce valuable public expenditure savings together with some savings in DHSS staff. As you will know, a major element of our economic strategy is to control the size of the public sector in order to free resources to the private sector."
The difficulty for small businesses, especially self-employed small businesses, is that the statutory sick pay scheme involves considerable extra paperwork. I have in mind the type of business which is prevalent in my constituency. The absence of a member of staff can leave just one person with all the additional work and the administrative work for statutory sick pay. The arrangements can create a bad cash flow in winter, there can be bureacratic complications, and they can work against the interests of the chronically sick.

I am aware that the Minister might not be able to accept the wording of my new clause. As I said, I would not go to the wall about the level being set at 20 employees. I am merely raising a genuine problem and trying to decrease the administrative burden on small businesses. I suggest reimbursement for the paperwork involved as more than 90 per cent. of small businesses probably have 10 or fewer employees and are run by self-employed employers. Such people would benefit from the new clause.

Two other means of highlighting the problem were suggested to me. One was to draw up bands of exemptions for those who would not have to do the administrative work. Such a system immediately creates anomalies. The other was to exempt all self-employed employers from the statutory sick pay scheme. There are problems with both suggestions, and I do not pretend that mine is perfect. I hope that the Minister will be constructive and express his thinking on this matter.

I listened with interest to the hon. Member for Ross, Cromarty and Skye (Mr. Kennedy), not least through the problems of the bell. As he asked the question, I remind him:

"never send to know for whom the bell tolls; it tolls for thee."
I cannot accept the new clause. The Government are deeply conscious of the importance of not putting extra and unnecessary burdens and controls on employers. The hon. Gentleman was kind enough to refer to the report which has recently been published entitled "Burdens on Business," which makes several important recommendations about removing burdens on businesses, especially small businesses.

This is an area that has been pursued with great vigour by the Government—a campaign in the charge of my right hon. and noble Friend the Minister without Portfolio, who is leading a co-ordinated initiative that the Government will follow up. That examination will include the operation of the SSP scheme. No decisions have been taken at this stage, but I assure the hon. Gentleman that we shall be consulting employers' representatives and others in due course on the matters affecting SSP in that report.

I hope that the House will understand, therefore, that we are not unsympathetic to the case that the hon. Gentleman has advanced. However, some problems arise from the hon. Gentleman's proposition. He set the limit at those firms with fewer than 20 employees. That would cover 80 per cent. of employers, which would be a burden.

The hon. Gentleman may need votes, but our intention is to take a sensible decision about lightening the burden on businesses and getting the balance right.

An employer's major expenditure on SSP is, of course, the amount that he actually pays out. But, as the hon. Gentleman knows, the whole of that is recoverable. The employer simply deducts any SSP he has paid from the total payment of national insurance contributions, or, if necessary, PAYE tax, which he makes to the collector of taxes each month. It is a very simple system, which I believe has worked extremely well.

I founded a small business and operated it before I joined the Government. Therefore, I can confirm that the scheme did not cause anything like the problems that we expected. I believe that that has been the reaction of most businesses, large and small, throughout the country.

We believe that the impact of the extension from eight to 28 weeks will not be anything like as great as some people have suggested. Almost 90 per cent. of all sickness spells last for less than eight weeks and are already covered by the present scheme. The average amount of sickness per employee is only about 10 days per year, so the additional work for most employers will not be extensive.

However, in recognition of the extension of the burden on employers we propose to compensate them for the cost of the secondary insurance contributions that they pay on SSP. That will apply not only to the extended part of SSP, but to the whole period for which SSP is paid. The calculation is that that will be worth up to £60 million a year to employers. That is a very significant concession, and we do not believe that there is a justification for making additional payments to selected employers, depending on their size, who may or may not experience some extra cost as a result of the extension. The proposal is that the compensation payment will operate retrospectively from this month—a full year ahead of the extension. That will help all employers with their costs and it is the fairest course to take.

We believe that the burden has not been as great as was originally feared. The majority of employers have got down to operating the SSP scheme and have found it a great deal simpler than they expected.

While sharing the spirit in which the hon. Gentleman moved his new clause—that we must do all we can to maintain the lightest possible burden on employers, great and small, for the employment benefits of which we are all conscious—I do not believe that there is any justification for going further than the Government have proposed.

I thank the Minister for his constructive response. I was interested to learn that he started out as a small business man who is now in very big business.

In view of his comments and assurances about the Government recognising the burdens on small businesses and the administrative and financial burdens that can result from operating the SSP scheme, I am happy to beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.