4. With all the difficulties that it might bring, we consider that contracting out should not form part of the new Government scheme unless it is absolutely essential in order to gain general acceptance for the proposals. The proposed scheme is a modest one and there seems no reason why employers, if they wish, should not have their own schemes additional to, and not as an alternative to,
the Government scheme.
Contributions
5. The Government wishes to allow an employee to withdraw from the scheme at any time with a refund of his own contributions. The employees' contributions must therefore be retained intact and so they would effectively form a provident fund. It would therefore appear necessary for sickness, injury and death benefits to be provided by the employers' contributions. This poses the question whether employers should pay contributions only for those of their employees who elect to join the scheme or whether they should have to pay for all employees, whether members of the scheme or not, by means of a payroll tax.
6. If employers' contributions were paid only for members, there could be pressure from employers to dissuade their employees from joining the scheme; employers might also object to having a liability for contributions which depended on the option exercised by their workers. On the other hand, a payroll tax would mean that contributions were being paid for employees who were not acquiring benefit rights in scheme, but it might be easier to administer and might lead to greater membership of the scheme, since employers would then
encourage it.
7. From the financial point of view, a payroll tax would have the advantage that either the contribution, as a percentage of earnings, could be smaller or else benefits could be larger. It would, however, be impossible to assess the extent of this advantage until it was known what proportion of employees had elected to contribute; even then there would be an element of uncertainty because this
proportion might change.
8. A consequence of the provision of benefits from the employers' contributions, referred to in paragraph 5, would be that it would be difficult to implement the proposal that additional voluntary contributions to secure higher sickness, injury and death benefits should be allowed, unless additional contributions were not refundable. A further difficulty over additional contributions for sickness benefit is that the benefit might become too high a proportion of earnings with the result that there would be no incentive to remain at work, or to return to
2.