The Minister of Public Building and Works (Mr. John Silken):
I beg to move, That the Bill be now read a Second time.
I think that it would be of advantage to the House if I gave a fairly brief indication of the history of this Bill. The Bill follows up the analysis of the Phelps Brown Committee on the practice of labour-only sub-contracting in the construction industry. The committee was set up following discussions in April, 1966, at the then Minister of Labour's National Joint Advisory Council which expressed growing concern at development of abuses in the field of labour-only sub-contracting.
Labour-only sub-contracting is an arrangement whereby a main contractor himself provides the materials and most of the equipment required for a task and pays a sub-contractor to supply the labour and be responsible to the main contractor for the performance of the work. The sub-contractor may himself employ and pay work people, or he may be a self-employed person working under a contract for services. It is by no means a new phenomenon in the construction industry. Most of the canals in the country were built by gang masters who were the labour-only sub-contractors of their day, and the T.U.C. was interested and affected by the abuses in this form of sub-contracting as long ago as the 1890s.
Despite this long history, the fact is that the subject had never been fully investigated before the Phelps Brown Committee reported. The committee's report was published in July, 1968. Comments from the industry were received in February, 1969 and a working party of officials was set up to consult further with the industry and to produce detailed proposals for action.
I wish to pay a tribute to the work of the Phelps Brown Committee. Under its able chairman, it worked under considerable difficulties, but with considerable lucidity. For the first time, it clearly distiguished two separate forms of labour-only sub-contracting. The first was labour-only sub-contracting by firms properly established on an employer-employee basis. The second was labour-only sub-contracting by men who, while operating basically as if they were employed, laid claim to self-employed status.
The distinction between these two forms is crucial. Summing up its conclusions on labour-only sub-contracting, the Phelps Brown Committee said—and I entirely agree:
Where it works best, labour-only subcontracting combines the contribution of the specialist sub-contractor to the organisation of production and the continuity of employment of the worker, with a simple and effective form of wage incentive…At its worst, labour-only sub-contracting produces faulty work by irresponsible men concerned only with wresting the greatest possible gains from the industry in the short run, and unrestrained by their own standards or by the control of management.
It was an admirable analysis of the situation. Different forms of labour-only subcontracting were clearly identified for the first time, and the crucial difficulties of enforcing possible solutions to the problem were revealed.
The purpose of the Bill is to deal with problems liable to arise in the industry when labour-only sub-contracting in the form of self-employment is in competition with normally-employed labour. The growth of self-employment is disruptive of the industry's normal working arrangements and of provisions made by Parliament for taxation and national insurance. First, collective agreements are undermined, and this creates an atmosphere of industrial unrest which all of us must deplore. Second, training arrangements are inevitably weakened. The system of labour-only sub-contracting is damaging to the apprenticeship system. Third, the progress of industry is inevitably stunted by casual employment.
The industry always has needed a more stable structure for development of longterm improvements, for productivity, better site management and effective collective bargaining. In addition, the system encourages the avoidance of tax liabilities and other liabilities to which the rest, the reputable part of the industry, are liable. This is inevitably another source of resentment. The existence of itinerant gangs on this sort of basis militates against safety and endangers the life and in many cases the health of other workers. Finally, there is the question of workmanship, which has been commented on by many people. There was a considerable weight of evidence to Professor Phelps Brown's Committee on the amount of bad workmanship, shoddy workmanship, resulting from the practice.
The committee identified certain substantial advantages associated with labour-only sub-contracting. The Bill therefore does not aim at abolishing the practice as such, but deals with the abuses which have grown up in the self-employed sector. What are these abuses?
Current pressures to adopt self-employed status are mainly of a financial kind. Charges avoided by an employer if his men assume self-employed status include S.E.T., the employer's share of National Insurance and National Health Service contributions, redundancy fund contributions, and payment for annual and public holidays. He is also relieved of the necessity of obtaining employers' liability insurance cover, of contributing to redundancy payments if redundancy occurs, of making wages up to a guaranteed weekly minimum under the national working rules, or paying sick pay. The self-employed man's own National Insurance contribution is, of course, lower than that of an employee. In addition to these legitimate avoidance factors, there is under the self-employed system an opportunity for the unscrupulous to evade income tax.
There are many ways of dealing with these questions. One of them was to impose criminal sanctions. However, we decided at a very early stage in our thinking to exclude the introduction of new criminal sanctions. This would be an inappropriate way of dealing with abuses of this nature, and would inevitably, have placed an intolerable burden upon the police and the courts.
The Phelps Brown Committee's answer to the problem of abuses in the self-employed sphere was to deem self-employed labour-only men to be the employees of the contractors who engaged them. I decided, for reasons which I shall explain later, that a better and less confusing approach was to take steps to induce these men to become employees. Since current pressures to adopt self-employment are, as I have described, largely financial, it seemed to me that any measure to reverse these pressures should operate in the same way.
It was also evident that enforcement should be implemented through existing machinery and would, therefore, have to be concentrated on the person who engages the self-employed sub-contractor, since only he is accessible to the enforcement authorities.
The problems of income tax evasion fall appropriately to be dealt with in the Finance Bill, and my right hon. Friend the Chancellor of the Exchequer, outlined in his Budget speech, the steps he proposed to take for dealing with this. These measure are, of course, intimately related with the proposals in the Bill for dealing with avoidance of liabilities, and it was appropriate that the Bill should be presented at about the same time as the Budget speech was made. This determined the timing of this legislation.
It is not intended that contracts undertaken directly with private clients—I am thinking of the householder—should be affected. The Bill's provisions have been very carefully framed to avoid this. What we are really dealing with is an abuse in a system of work involving labour-only sub-contracting and the main contractor in that relationship. It does not affect the ordinary householder.
The first problem was to identify the people concerned. The Phelps Brown Committee argued the need to identify those who were genuinely in business in the industry, and suggested that a voluntary register of such people should be created. It would not be possible to draw a distinction on the basis of whether a sub-contractor provided labour only, as it would be possible to avoid the intentions of the legislation simply by arranging for a negligible quantity of materials to be supplied. If I, as a labour-only sub-contractor, am asked to provide, say, 50 men and wish to evade the terms of the Bill it would have been possible for me to say, " I will supply 50 men and a yard of plasterboard ", or whatever quantity I wished.
I decided, therefore that the first qualification for admission to the register should be that of being an employer. This seemed to me to identify those contractors who had a genuine stake in the industry. Moreover, anyone who operates as an employer is known to the enforcement authorities, since he is required to make regular returns during the course of his business.
The Phelps Brown Committee proposed that the register should also include self-employed men who were
genuinely in business on their own account.
Hard thought was given to this in consultation with the industry, but the conclusion was reached that no definition could be framed which did not in the last resort involve a purely subjective assessment of the genuineness of a man's business. For example, one test might be whether such a man possessed a builder's yard, but I had the feeling that on the day of registration, unless we were very careful, we might find seven or eight of the more devious members of the industry all owning the same yard. The yard might be said to exist in Blackpool, or Edinburgh when the registration was being made in London, and it would be a matter of considerable difficulty and considerable value judgment to identify the yard. That is only an example. I do not believe in value judgments by officials in a register of this sort. They should simply put down the facts. That was why I decided that no self-employed men should be admitted to the register.
The effectiveness of the legislation rested on this exclusion. The size of the possible problem created by this decision should be significantly limited, however, by the Phelps Brown Committee's own findings, with which we agree, that the genuinely self-employed spend most of their time working directly for clients. In such cases, of course, they would be totally unaffected by the provisions of the Bill.
Self-employed men will, therefore, be unable to obtain registration, and any contractor employing them will incur the liabilities prescribed. This does not mean that self-employment in the construction industry has been outlawed. From now on, it is craft skill and not avoidance of financial liabilities which will be the guiding factor for contractors in the employment of such people.
The second qualification for registration is based on insurance requirements. All those wishing to register will have to be adequately insured against both employers' and public liability, and their public liability insurance will be required to extend to self-employed men working for them.
There are two objectives in requiring this insurance. First, because the premiums will not be negligible, it should go a long way towards ensuring that only those who are genuinely in business in the industry will apply for registration. Second, and most important, it will help to close the " liability gap ". It must be admitted that the Bill does not completely fulfil the recommendations of the Phelps Brown Committee, but it will do much towards ensuring that construction workers are as well able to obtain redress as workers in other industries. It will also ensure that members of the public who suffer injury as a result of construction industry operations will be able to obtain damages.
One of the difficulties that we saw was that these qualifications for registration could not be fulfilled by somebody setting up in business for the first time. For this reason, the Bill will enable a system of provisional registration to be introduced. Great care has been taken to ensure that this will not provide a loophole for evasion.
Registration for a probationary period is to be granted to individuals who wish to operate as sub-contractors in the construction industry, who have, therefore, taken out the required employer's and public liability insurance cover, but who have not yet had an opportunity to fulfil the requirement of having employed somebody. Those who have failed to satisfy the conditions for obtaining full registration at the end of the prescribed period of provisional registration will not be able to register provisionally again for a period of two years. I realise that this seems harsh, but it is intended to prevent contractors from operating on the basis of a series of provisional registrations.
The fee for provisional registration will be substantially higher than that for full registration. But arrangements will be made for contractors to move on to the main register as soon as they are able to do so. I might say, in passing, that there are special provisions for partnerships in Clause 3.
The qualifications for registration are designed to be easily administered and fulfilled by any reputable employer, and that is the test. In most cases, at any rate, they should not incur any new responsibilities. Registration will be simple. It will be done via the regional offices of my Department. Applications to go on the register will normally be made by post, and the register will be maintained centrally. But information and advice will also be available at the Ministry's regional offices, in Scotland and in Wales, so that, if any difficulties arise, contractors and other interested parties will be able to deal with them locally. Regional offices will also be able to help with requests for information about entries in the register. As with the Companies Register, members of the public will be able to obtain information about entries in the register on payment of a small fee.
The purpose of the register is to identify those contractors who have a genuine stake in the industry, are known to the enforcement authorities and are properly insured. It is this basis on which the register has been set up and for this reason alone.
We now come to the problem of the levy. The proposal of the Phelps Brown Committee for dealing with the problems of unregistered contractors—mostly self-employed men—was to deem these men to be the employees of the contractors who engaged them. This appeared at first sight to be an attractive approach since the truth of the matter in fact, if not in law, is that these labour-only sub-contractors are employed in a short-term basis by the contractors who engage them.
It seemed reasonable to operate the enforcement provisions through the contractors, who are accessible to the enforcement authorities. But detailed examination revealed certain deficiencies in the deeming approach. In the first place, I thought that it was unreasonable to deem men to be something which clearly they were not. One may by law deem a moth to be a butterfly, but any lepidopterist knows the difference. In National Insurance, for example, persons with few if any of the attributes of employees would be placed in Class 1. In the construction industry alone, entitlement to unemployment and industrial injury benefits would be dependent only on the class of the National Insurance contributions paid and not on the nature of the contract under which a person worked. Similarly, liabilities would be imposed on the contractors who had none of the rights or attributes of employers.
Apart from these points of principle, deeming would also have led to serious problems of enforcement. One has only to think of the unregistered man who—and this is by no means unusual—would he perpetually shifting into and out of the various categories. If, for example, a carpenter works for three weeks, let us say, directly for a house owner, there is no difficulty. He is in Class 2. If then he works as an employee of a registered contractor, he becomes Class 1. If he then becomes an unregistered sub-contractor, self-employed, again he is Class 1. The variations in his class of contributions increase, change and cause considerable difficulty.
Another method was sought, therefore, to implement the basic recommendations of the Phelps Brown Committee. The most effective measure, without distorting the true situation and the status of men, is to exert pressures which induce men who are not genuinely in business on their own account to move into employment.
It was finally decided to achieve enforcement through the imposition of a levy on any payment for construction work made to unregistered contractors. The rate of levy will be calculated, within an adequate upper limit of 20 per cent., to offset fully any benefits at present obtained from avoidance of the following costs of employment: S.E.T.; C.I.T.B. levy; National Insurance contributions; redundancy funds contributions and payments for annual and public holidays. Since the levy is a proportion, and the benefits of avoidance are virtually fixed, the levy will become progressively harsher as a self-employed sub-contractor earns more.
It is easy to collect since the administrative arrangements will be linked to the normal machinery for collection of contractors' taxes. Moreover, as I have mentioned, the problem of income tax evasion will be covered by the measures to be taken by my right hon. Friend the Chancellor of the Exchequer in the Finance Bill. As the House is aware, the income tax retention is recoverable provided that proof is given. The levy is irrecoverable.
It is intended that the combination of the levy and the tax deduction scheme should make the use of unregistered men as sub-contractors unattractive by comparison with the use of employed labour. The effect should be such that all contractors who are able to do so will wish to register, although I must stress—there has, I think, been a little confusion on this—that there is no compulsion for them to go on the register.
I should, perhaps, at this stage deal with the effect of sub-contracting as it goes down the line, what is known as the cascade effect. The levy is intended to apply to certain classes of contract, not to classes of persons. Its principal application will be to sub-contracts—that is, contracts where the principal party is himself under contract to another party to do the work. The levy, however, will apply at all levels.
If the main contractor, A, engages a sub-contractor, B, who is unregistered, the main contractor will be liable for levy. If, however, the sub-contractor, B, is registered and himself engages an unregistered sub-contractor to help him, the work of B will still be liable for levy, and so on right down the line.
To prevent evasion through contractual devices, the levy will apply whether the contract is to do work, to provide labour to do work or to supervise the doing of work. Main contracts with a client who is also a developer appeared to create opportunities for evasion. For that reason, I decided that it would apply to main contracts—that is, contracts directly with a developer for the work—in cases where it is meaningless to draw a distinction between the developer and the main contractor.
An example of that is the speculative house builder who operates both as developer and as contractor for a building scheme, or a developer who makes a business of promoting buildings for sale or lease and not for his own use or occupation. In such cases, contracts which in normal circumstances would be subcontracts are really main contracts, since the principal party is the developer.
The same situation applies in the case of certain public bodies who operate in exactly the same way—for example, in public housing—and these are also covered by the Bill.
The question arises of what is the normal business of the person in connection with the building which he proposes to erect. I was trying to avoid the situation where a person who builds, say, a housing estate says, " I am not in the construction industry. I will. therefore, give theoretically main contracts to what in normal circumstances would be a contractor and a number of sub-contractors." Of course, he would be caught by this provision.
I did not want to penalise the ordinary householder who wanted repairs done on his own house, or who wanted a house built especially for himself, although it is fair to point out that he will employ a builder who, under this legislation, becomes a main contractor and who will, therefore, fall within the provisions of the Bill.
Why should an ordinary individual who gets somebody who is self-employed to paint his house or do a small job be allowed this means of escaping National Insurance, tax and retention simply because it happens to be done by a private householder rather than a company?
The evidence of the Phelps Brown Committee was that most self-employed people in this situation were genuine and paid their various dues and obligations. What we are trying to counter is a particular abuse. It is in sub-contracting of the sort that I have described that this kind of abuse arises. It does not arise in any such form in connection with maintenance.
I understand the point made by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) and the answer to it, namely, that the householder is not in business and that it is the businessman whom it is sought to catch. For clarification, however, may put a practical example? It concerns the heating and ventilating industry.
The main contractor will probably be the builder. Then there is the heating and ventilating manufacturer, or the engineers to whom the heating and ventilating is sub-contracted by the main contractor. They will sub-contract to, say, the ducting manufacturer, who may himself employ a body of men, whom we are trying to get at, to erect the ducting on the site. Presumably, the ducting manufacturer would be caught by this because he is responsible for engaging the labour-only force to put in the ducting.
Do I understand from what the Minister is saying that the heating and ventilating engineer—in other words, the man higher up—is also caught and has a responsibility as well as the ducting manufacturer?
A point arises which should be made clear. Provided that the next person down the scale with whom one is dealing can produce a registration certificate, one is automatically cleared from looking any further. If A employs B, A does not have to worry about whom B employs. B, on the other hand, is caught in his relations with C, whom he employs, and so on, further down the scale.
To sum up, the levy will be payable by anyone operating regularly in the construction industry and who engages an unregistered constructor to do the construction work.
It is important to get this clear. Is it right to say that wherever one is on the scale, the man below must present a certificate to show that he is all right? If the man below can do this, one is all right?
That is more or less correct.
I do not intend the fees for the register to be high. I expect that, inevitably, there will be a surplus after the cost of administering the scheme has been met. I do not intend that this net revenue should be retained. Powers are taken in the Bill to pay over any such surplus for the benefit of the industry. The Construction Industry Training Board is named in the Bill as the possible recipient, but I have no firm views on this and I would rather consult the industry about the ultimate destination of any surplus.
I do not expect the levy to be large. In a way, the more effective the scheme, the less levy will there be, since the aim is that the industry should employ registered and not unregistered sub-contractors. But any receipts from this source will be paid directly into the Consolidated Fund. The reason is that it is the Revenue which is losing as a result of this practice and it seems right that it should be reimbursed.
It will be clearly essential to have the advice of industry itself on detailed questions of implementation such, for example, as the level of cover to be required under the insurance qualifications. I am glad to say that the unions and the employers' associations have offered their help in dealing with these questions. I have already set up an advisory panel and I am glad to be able to tell the House that it will be meeting for the first time tomorrow morning.
This panel will continue the process of full consultation which has taken place on this issue between my officials, myself and both sides of the construction industry over the past two years. It may be interesting for the House to know that since 25th February of this year 11 groups from the industry, including, if he will allow me to so describe him, Professor Phelps Brown himself, have been consulted within a matter of two or three weeks.
No, they have not yet been included because I have not yet had full advice from the industry generally as to what sort of insurance they would deem to be the minimum adequate insurance.
The aim of my panel is to keep it as informal as possible. A number of members were invited by me and one or two others asked to be allowed to come along. I do not want it to be a formal panel. I want it to be an informal, helpful constructive panel. But I have no doubt that insurance interests will come in later as we progress.
The aim of the Bill is to create a new climate in the industry. I do not expect that the abuses of labour-only sub-contracting will be eradicated overnight. It would be foolish to think so. But this arrangement will no longer afford unfair and unintended advantages over normal forms of employment. I believe that it is up to the industry now to work and to co-operate to ensure the effectiveness of the legislation by encouraging contractors to obtain registration and by working to make it a success.
It is in that spirit that I commend the Bill to the House.
I can safely begin by joining the Minister in his tribute to the Phelps Brown Committee for the hard and skilful work which it put in on this subject.
If those hon. Members who have left the Chamber have left for reasons of mental indigestion that is in no sense a reflection on the Minister's presentation, because I am sure that the House is grateful to him not only for his history but for his detailed explanation of the Bill, and the more so because of the immense complexity of many of its proposals.
Indeed, the industry itself, I am told, is having a good deal of difficulty in probing these complexities despite the fact that it applies to it and it alone. This is a serious matter if Parliament is to continue to pass Bills of this nature, which are so complex that even the experts in the industries concerned find them very hard to understand.
That thought leads me directly to one unsatisfactory feature—or what appears to be an unsatisfactory feature—of the Bill. It is that when the Minister was questioned on 12th November last by the hon. Member for Liverpool, Walton (Mr. Heller) he was asked what discussion he was likely to have with the trade unions and the employers before the Bill was published and he replied:
I hope to have discussions with all responsible sections of the building industry." [OFFICIAL REPORT, 12th November, 1969; Vol. 791, c. 388.]
It was a fair enough reply by any standard. But the guidance that the right hon. Gentleman gave to the Press the
day that the Bill was published, on 16th April, last, in his Ministry's Press notice, was:
The measures in the Bill have been discussed in outline with representatives of the construction industry unions and employers' associations and the T.U.C. and C.B.I. All those consulted approved the form of the legislation proposed and the construction industry organisations have offered their support and assistance in working out the details of implementation.
There is absolutely nothing untrue about that statement, but it might be what the moral theologians would call an economy. This ought to be cleared up because, as I understand, the employers' associations, at any rate, were never shown anything on paper at all. They were not sent any draft consultative documents and when they asked for one it was refused them. As I understand, their leaders were told in outline of the Government's proposals shortly before the Bill was published, but it seems, perhaps—and most of us have seen Mr. Pearce's statement—a little misleading to suggest that they " approved the form of the legislation proposed " because the details which they received were very sparse.
I have seen only garbled reports of what Mr. Pearce is alleged to have said and I am sure that he has been misreported. I have the notes of the interview I had with him with me. I said earlier that I had discussed the matter with 11 groups of people. I obviously could not give them a document in advance of the Bill coming before the House. In answer to a Question from the hon. Member for Maidstone (Mr. John Wells), some months ago, I said that could not possibly show them the Bill. but the general proposals were very well argued and they were informed about them.
Equally, I could not tell them what was to be in the Budget. The hon. Member would not have asked me to do so. However, looking at the notes of the meeting I find that Mr. Pearce made a number of helpful and constructive suggestions, some of which I propose to embody in the regulations when the time comes.
I am very glad that the Minister has made that intervention. To some extent it probably clears up the situation. I appreciate the difficulties about very detailed consultations in Bills of this kind. But I have what is perhaps a personal yearning to see a little more in general, on other kinds of Bills, a situation in which Departments, as far as they can without discourtesy to the House, send out consultative documents, as is done now, for example, to the T.U.C. and the C.B.I., because this, in the end, makes our work here less long and a good deal easier. We have more detail and facts at our disposal.
I do not want there to be any misapprehension. The hon. Member referred to employers' organisations which protested and said that their leaders had not been consulted. Would he agree that the Federation of Master Builders was not one of them, because that body. with myself as an executive, is very delighted at the co-operation of the Minister and the Department in consulting us before the Bill was drafted?
The hon. Gentleman is right in saying that I did not mention his organisation by name. He often protests about this and that, but he certainly did not protest on this issue. Having made that point, which I think has largely disposed of the issue in a non-partisan spirit, I shall deal with the Bill as a whole before pinpointing a few of its weaknesses.
My first comment on the Bill is that it does nothing—I am not disparaging it —to help the industry directly. There is no pretence that it will do so, and I do not think that the Minister presented it in that way. It is a Bill designed to stop tax evasion, and none the worse for that, since we all accept that tax evasion is wrong and unfair to taxpayers. None the less, it should be realised that we have the Bill before us because the Revenue has been unable to collect taxes from an unknown number of building workers.
I say " an unknown number " advisedly, for, although we have a rough total for self-employment of about 245,000, and we know that the number has grown sharply in recent years, we do not know how many of those persons pay their taxes under Schedule D and how many do not. But, be that as it may, because the collector of taxes was unable to fulfil his statutory duty to collect taxes, we now have a Bill which imposes the tax on someone else.
In effect, the Bill says that because lump worker A—I use the Minister's own terminology—has not paid up and cannot be taxed, employer B must pay A's taxes instead. I am not resisting that proposal since there is a loophole here which must be stopped. but it is as well to make clear here and now that that is the intention of the Bill, and, to put it mildly, it is a somewhat novel and rather bizarre proposal. The Bill is a tax evasion Measure, as will be the parallel proposal for a 32 per cent. tax deduction outlined by the Chancellor, which, presumably, we shall see in the Finance Bill.
The accusations and criticisms against self-employment in this industry in the past—as the Minister did, I draw from the Phelps Brown definition a distinction between the bona fide labour-only subcontractor covered by National Working Rule 8 and the gangs of self-employed men—have related also to bad workmanship, to safety problems—this is uppermost in most of our minds—to the decline in numbers as it affects the trade unions, and also to the lack of discipline on sites. For the life of me, I cannot see how the Bill will make a great difference to any of those problems.
Perhaps I may give a specific example. I shall do it rather carefully because, like the Minister, I do not want to put ideas for further tax evasion into anyone's mind. Let us suppose, as the case is now on about 60 per cent. of speculative housing sites in the South of England, that a developer is accustomed to using self-employed labour for, say, his bricklaying work. The men come in on a lump-sum basis, they do the job, and then off they go to the next site.
Under the Bill, it seems to me, the developer will have to take on the responsibility of paying their taxes and contributions by means of the 20 per cent. construction contract levy and the 32 per cent. Finance Bill levy, or not employ them at all; or he can demand that they join a registered sub-contracting firm or form one of their own and get on the register. I think that that is a fair summary of the situation.
The first choice, to shell out, as it were, would obviously be bad economically for the developer, but in an area of desperate labour shortage like the South-East, and because of the declining number of craftsmen, I fear that he may be unable to resist it. The second choice, that of not taking them on at all, may not be open to the developer concerned if he has a job which must be done quickly, and if there is no one else in the area to do it for him. I shall come back to the third choice in a moment. The fourth would take a good deal of time. It may be followed by many old-established gangs, but, although it is possible that they may do it, if they had not been inclined to join unions or if they had not been inclined to work competently as self-employed persons, I find it hard to see why they should do so as a registered firm or partnership working on their own account. Therefore I do not think that the Bill makes much difference there.
Presumably, what the Government hope for is the third choice, that is, that all lumpers will join recognised sub-contracting firms as direct employees. Perhaps they will. Perhaps they will not. But even those who do will still be responsible to site managers and so on just as they were before, although the foreman's authority will, naturally, be somewhat increased, though, perhaps, only marginally. Therefore, safety and good workmanship will not necessarily be improved. It rather depends on the foreman.
As regards unionisation, most established firms are already well known to the district organisers of the unions, and a large number of their direct employees are not unionised now. I doubt that the unions will be much more successful under the Bill than they are numerically now. Men join unions for economic reasons and to defend their interests. Whether these reasons will seem any more compelling after the passing of the Bill, I am not sure. That remains to be seen.
I come now to certain other facets of the Bill which are not wholly satisfactory. First, the question of the register. Obviously, this is a point to which we shall return in Committee, but it is worth starting to consider it now. Phelps Brown sug gested a register, and I support it, but it would be beneficial if we began to think about another name for it. I say that because, as the Minister knows, the Forbes Committee on quality registration is now sitting and is to report, I believe, early next year.
It is proposed that the register under the Bill will be set up in October. I fear that there may well be some confusion in the public mind between the two, and clients may tend quite naturally to think that this register will be a list of good builders, whereas it will be nothing of the kind. This cannot be too strongly emphasised. It will be a list of builders and sub-contractors who have satisfied minimum qualifications in regard to insurance and tax payments. It will say nothing about quality of work. I hope that this will be made clear, if it is not clear already to the general public, when the Parliamentary Secretary winds up.
Now, the proposed fee for the register. The rumour was, certainly until today—I am not sure that the Minister did not say something about it at his Press conference —that it would cost £5 per firm, and registration would have to be renewed annually at a further cost of £5. I suspect that the Minister is open-minded about this, but we should like to hear more about it.
The cost of establishing the register is stated in the Explanatory and Financial Memorandum to be £80,000. If there are about 60,000 organisations on the C.I.T.B. register at present, and assuming that they all join the Minister's register, about £350,000 or more will be raised in fees. Clause 10(3) provides that any surplus may be paid over by the Minister to the C.I.T.B. or " to other specified purposes "—those are the words in the Bill, though at present they are unspecified—and we want to hear a little more about that.
As the register is, in effect, a statutory licence to trade, I see no reason why a firm should have to pay to join it. I hope that the Minister will consider that. If a fee is to be Paid, it should be sufficient to pay for the administration of the thing and, perhaps, no more. Employers already pay large sums to the C.I.T.B. by way of levy, and I imagine that they will not thank the Minister for a second indirect levy of this kind, particularly in the present atmosphere when there has been a certain crisis of confidence in the C.I.T.B. itself. I hope, therefore, that the Minister will look at that point again.
One difficulty in framing legislation of this kind is how to deal with the genuine self-employed tradesman, the local jobbing carpenter, for example, who is in business on his own account. He has, after all, an absolutely essential part to play in society. He is vital in domestic maintenance, and he is already in over-short supply.
The proposal in Clause 2 is that he can get on to the register provisionally, provided that he has a reference supported by an " authorised person ". This may be a Committee point, but it is again a matter where thought should be given now to what an " authorised person " is. Will it be another contractor? Will it be a J.P. or local councillor or anyone who knows the man?
The hon. Gentleman says that it will be his bank manager. I am not sure whether that is an official or an off the cuff reply, but we must know about that.
Many of these people do not belong to any kind of trade federation. There will be the problem of letting them know about the procedure for registration and the need to apply. That is a fairly urgent matter, because the register is to open on 1st October.
I want next to deal with the appointed day for the tax deduction proposals to come into effect. This is stated to be no earlier than 1st April next year. Between 1st October, 1970, and 1st April, 1971, the 30 civil servants—let it not be thought that I am asking for more—engaged on this job will have to register 60,000 building firms. I wonder whether that period is long enough. Can it and will it be done in that time?
I want to know what is to happen to those firms—there must be thousands of them—who are now on fixed price contracts and who will not, without very great difficulty—I do not see how they will do it at the moment—get rid of their self-employed labour between now and April next year. The Minister may say, " Bad luck. You should never have taken them on." But I think that, on reflection, he will appreciate that in many areas there is no choice. That is an anomaly that we shall have to explore carefully in Committee.
One proposal in Clause 2 (1) which is unsatisfactory is that, when the Government are examining whether an applicant to join the register has really paid his tax, they can have details of his tax affairs sent from the Revenue to the Ministry. This may be inevitable— I know that there are precedents—but I believe that it is a feature which should be examined carefully. It is, after all, a kind of invasion of privacy which we should think about very carefully before we finally let it go. I am sure that the Minister will agree with me on that point.
It is clear from Clause 3, especially subsection (2)(b), that a partnership of men cannot be registered unless it also employs the same number of men as there are partners. That clearly seems designed to stop any labour-only gangs registering. While I appreciate the logic of that requirement, I think that it needs to be considered rather carefully.
I understand from builders, whose judgment both the Minister and I know and trust, that there are many old-established gangs working on housing in particular who pay their taxes under Schedule D and their self-employed contributions. I think that where an old-established partnership or gang can substantiate that they have fulfilled all their obligations and can satisfy the Revenue that they are genuinely self-employed and entitled to be taxed under Schedule D, it is at least open to question whether they should still be excluded from the register altogether. The Bill is, after all, concerned with tax evasion, not altering the employment pattern of the industry. Therefore, perhaps we can have a look at that particular matter.
In conclusion, the Government have, in my view, acted a little later than I had hoped—I appreciate the point about it, and I am not going to play party politics over the lateness of their action to deal with a problem which is at worst a danger to the public, at best an irritant to the taxpayer and the Revenue, an embarrassment to one of our great industries, and a source of weakness to the trade unions. To some extent the Government must face the fact that they are, as it were, dressing a self-inflicted wound, because no one can deny that there has been a trend towards self-employment and that what was a trickle has become a stream and is in danger of turning into a flood through the imposition of the self-employment tax.
One way to diminish this problem would be to relieve the industry of S.E.T., of which it pays a quarter of the yield, or at least to reduce the burden of tax falling upon it which is having so many other serious and long-term effects upon an industry which was willing and eager to put to the test the truth of the Prime Minister's pre-election assertion that housing in the new Britain came first. Of course, the industry was never given a chance to do its job. The Government's action over S.E.T. in particular has weakened the industry now and affected its long-term prospects by the fall in the intake of apprentices and built up the problem which we are discussing today.
The Bill may do something to prevent tax evasion, and that is very welcome indeed, but whether it will do much to reduce the danger from bad workmanship or prevent erosion numerically in the trade unions remains to be seen. So far as it goes, we welcome it and will do everything that we can to improve it in Committee.
I am happy to declare an interest. About three years ago I first asked in this House that a register of builders be established in the construction industry. I am also an executive of the Federation of Master Builders, which welcomes the Bill in principle and will try to do what it can, in consultation with the Minister, to ensure that finally it brings about equity and justice for the best elements in the construction industry.
After the Phelps Brown Report there was pressure in this House for much quicker introduction of the Bill than we have had. The industry in general has wanted registration along the lines of the recommendation in the Phelps Brown Report to be introduced as quickly as possible to control the situation.
The Bill has come before the House rather like a reluctant debutante, but nevertheless we welcome it. I know that there have been difficulties in drafting. The simplicity of some of the provisions in the Bill shows that a great deal of work has been involved. The Minister has consulted a number of organisations, and this has taken time. I thank the Minister, on behalf of the Federation of Master Builders, for his courtesy and the consideration that he has given to its proposals put forward to him both personally and through correspondence.
Tributes have been paid to Phelps Brown for the report upon which this legislation is based. It would be remiss of the House not to pay tribute to the Minister and to the various officials in the Ministry who have produced the legislation arising from that report. It must have been at least as difficult to produce the legislation as to collate the facts outlined in the original Report.
The hon. Member for Londonderry (Mr. Chichester-Clark) has instanced the great difficulties that the industry has faced through labour-only sub-contracting and self-employed. I am pleased to echo his sentiments and to say that he perhaps underplayed on this occasion some of those difficulties. I believe that the growth of labour-only sub-contracting and self-employed has almost destroyed the traditional structural fabric of the construction industry. It is not possible to take an estimated 250,000 men out of normal direct employment and put them into these other forms of employment without weakening the direction of the genuine builder and the structure of the trade union movement. The growth of labour only sub-contracting was a great disadvantage for both the operatives and to genuine employers.
Without wishing to be dramatic, I felt that the growth of those forms of employment might be the major twentieth century problem if we took no action to curb it. I could not see why, if avoidance of financial responsibility was to be allowed legally, a genuine employer should remain in existence, or genuine operatives who were willing to accept their responsibilities should continue to do so when great financial advantages were to be gained from not doing so. The example of the construction industry was being followed by manufacturing and other industries, and there might have been a real crisis in industry generally. Something had to be done to stop the rot. It is well we are starting with an industry in which the worst evils have arisen, but I think that if we had not taken action similar circumstances would have arisen in other industries.
The only way in which we can have a constructive industry, be it the building industry or any other, is by supporting genuine employers' organisations and operatives' unions which have a responsibility towards the industry and are prepared to uphold its best traditions. If we destroy the fabric of the industry by making it financially rewarding not to be responsible it will be a great blow, and all genuine people in the industry will accuse the House of allowing a bad practice to continue instead of passing legislation to stop it.
The hon. Member for Londonderry was impatient about the delay in introducing this legislation to the extent of introducing his Private Bill. If he has precipitated the introduction of this Measure by that action, I convey my thanks to him. As I said earlier, I know that there have been great difficulties in drafting the Bill, and I think that we all accept that.
It may seem suspicious to continue this kind of policy link between the Opposition Front Bench spokesman and myself, but I give the greatest weight to the hon. Gentleman's view that we do not want merely a negative Bill which seeks merely to gather taxes and impose levies. If we do not follow the hon. Gentleman's line of reason and make this a positive Bill which will affect the industry beneficially we shall have missed a great opportunity. Most people in the industry, both employers and unions, may conclude that the Bill is designed solely to help the Chancellor of the Exchequer. They must be assured that it is designed to help the industry itself by stopping the rot that has occurred through the malpractices of a considerable section of the industry.
To take up another point made by the hon. Gentleman, I think that the registration fee could be a psychological barrier to which the good firms would object. It must be understood that the registration fee will not be levied only on people who have never accepted their responsibilities. It will be paid by all those who come on to the register, and I assure my right hon. Friend that my federation's view is that the builders who have always paid taxes and levies will be the first to register. This figure of £5 could, therefore, be looked upon as another tax on people who have always fulfilled their responsibilities. I think that the by-products of registration will be so vast that in the interests of getting the industry going, we should ensure that the registration fee is not a psychological barrier.
An example of what I have in mind on the fee, to which perhaps I might draw the Minister's attention is now developing in the gas industry. The Gas Bill, which is now going through the House, provides for a register to help the industry to improve standards, a kind of quality register which the hon. Member for Londonderry thought it would be good for the building industry. It was decided that something had to be done to ensure that there were good standards of gas installation. Therefore there was created the Confederation of Registered Gas Installers, appropriately named C.O.R.G.I. for short.
The ramifications of C.O.R.G.I. will be far more widespread than this register, and it will cost the gas industry a great deal of money. There will be a national council of C.O.R.G.I. and also regional councils upon which there will be representatives of employers and other bodies interested in gas installation. However, because the need for safety and better standards in gas installation services is the first consideration, no fee is payable for registration.
If that can be done for the gas industry, I think that the Government should think again about the proposed registration fee in the Bill, especially as there are provisions for levy payments in any event.
Still on the question of barriers, let me put to my right hon. Friend one which has been raised by a powerful organisldon in the construction industry. He may have had notice of it already. It is claimed that employers in the construction industry are generally opposed to the Bill because it will make them act as tax and levy gatherers on behalf of the Government. The Federation of Master Builders is the largest employers' organisation, and that kind of opposition is not forthcoming from it. The short answer to that allegation is that this legislation will fail if employers become tax gatherers. The real intention of the Bill must surely be to make every employer want to register and to pay his financial responsibilities direct.
I am rather disappointed that a major organisation should have made such an allegation, because it implies two things. First, that employers will have to continue collecting the levy from unregistered sub-contractors; second, that employers will be prepared to use these subcontractors. I hope that, if anything is achieved by the Bill, it is that genuine employers will want to register.
I understand that Mr. Pearce, the National President of the N.F.B.T.E, said that employers were opposed to the Bill because they would have to act as tax and levy gatherers for the Government The simple answer to any major contractor who is feeling apprehensive about this is that he can avoid all the form filling and the gathering of the levy and the surcharge by dealing only with registered sub-contractors Certainly the members of my federation will take that line where possible
One thing about the Bill which pleases me is the possibility of making payments to the Construction Industry Training Board. The board has undergone a great deal of criticism recently and it may be no secret that my organisation has been most vociferous in criticising the levy demanded by the board. That does not mean that we oppose the basic principles of the C.I.T.B. We do not. We support them, but the best way to do this is by being constructive where we can. With so many operatives in the industry avoiding any contribution to the Construction Industry Training Board the onus for supporting the Board has been placed upon the genuine employer, and we are very happy that the Bill will in some way redress the balance while assisting the C.I.T.B.
I want to make one comment, which I hope will be helpful, on the operations covered by Schedule 1. If we are legitimately to collect contributions for the Training Board, Schedule I should cause the same operations as the C.I.T.B., but I see no reference in that Schedule to painting and decorating, whereas in the training board's own schedule of operations these are covered. If we arc to collect levies for the training board we must ensure that those from whom we collect are the people who should be paying the levy.
The major concern of most builders with whom I have been associated—and I have gone round the country in the last few weeks, trying to collect their views so that I can appropriately represent them to the Minister—is that no loopholes should exist. This weekend I went to the Eastern Counties Annual Conference of the Federation of Master Builders and it was made plain at that Conference that while the Federation supported the Bill in principle it wanted to make sure that it bit on the entire industry as much as possible—that there were no evasions through weaknesses in the Bill. If there were loopholes the genuine builder and the genuinely employed operatives might suffer even more because of the extra responsibilities placed upon them by the Bill.
At that meeting it was explained that to some extent a registered builder is having the balance redressed in his favour. He cannot be undercut by " moonlighters " or " gypsies " doing work for local authorities and public bodies, because Clause 11 (3) ensures that anybody working for local and public authorities must be registered. May I add a few other suggestions for tightening up the provisions of the Bill?
Under the 1969 Housing Act the amount of improvement grant allowed to private persons to improve their own housing has been increased from £400 to £1000. That could mean an expenditure of £2,000 in work done on any private house, half the expenditure being covered by public money. I hope that the Government, in conjunction with local authorities, will ensure that this considerable amount of money devoted to repairs and maintenance will be payable only to work done by builders registered under this Bill.
The National House-builders Registration Council scheme attempts to ensure the employment of reasonable methods of house construction, by making certain arrangements, in conjunction with building societies, which have the blessing of the Ministry of Housing and Local Government. Could the position be looked at further, so that only registered builders are employed under the N.H.B.R.C. scheme? Perhaps the Minister will go further, and invite building societies to consider the advance of second mortgages to private clients for the purpose of repairing, renovating or improving buildings, on the understanding that registered builders are employed for the work.
Some hon. Members opposite have hinted that, even if people are self-employed, the Bill should affect them. I believe that their comments are justified. Members of the public require greater protection than do local authorities, who have architects and others to protect them. The private client has generally nobody to protect him. My organisation has said, in evidence to the Forbes Committee on registration, that the private client must be given protection and that the registered builder is at least a step in the right direction. We should also realise it is not only the self-employed one-man band who caters for private clients. Under the Bill at the moment a firm with 20, 40 or 1,000 men doing work for a private client would be exempt from the necessity to register, so long as it does not sub-contract.
If the Minister cannot overcome this problem, will he at least indulge in a publicity campaign, explaining to the people that their interests will be better served if their work is done by registered builders, who would have their various insurance policies and carry out their other responsibilities?
I must stress here that people in the building industry do not avoid taxes legally just because they are labour-only sub-contractors. There is no legal avoidance for such a sub-contractor. He may be a moonlighter, with no fixed address. He may simply dodge his taxation altogether. But there is no legal way in which he can do so. The way in which tax avoidance and the avoidance of other levies takes place is through self-employment. That is the only legal way in which it can be done. Therefore, labour-only sub-contractors work individually as self-employed persons or in working partnerships as self-employed persons, to avoid taxation legally. If we do not bring these people within the ramifications of this Bill and make them responsible for taxes and levies a serious loophole will still exist.
Clause 2(4) and (5) specifically exempts the self-employed from registration. I take it that the Minister means that, having excluded them from registration, they are to be treated as unregistered, and that the main contractors collect from them their various commitments. I understood that that was the intention of the Bill. I question the legality of this and shall be grateful if the Minister will comment. Does the Bill give a person the right to do something which apparently is not legally justified? Does the Bill give a main contractor the right to extract S.E.T., and other levies from self-employed people?
The Chancellor and the training board have said that they are not liable to pay S.E.T. or the levy in certain cases. Secondly, if that is the position I should like to see the Chancellor make these people responsible for certain taxation and a change in the Industrial Training Act, to make these people responsible for paying the training levy. If we do not do that they will be exempt from S.E.T. and the Industrial Training Act will exempt some of them from paying any training levy. Yet we have the Bill treating them as unregistered and allowing main contractors to extract such payments from them. I hope that some explanation will be given on this point because it is of major importance.
I do not sympathise with the approach to the self-employed. At one time the self-employed man in the construction industry was represented by the 30,000 or 40,000 one-man businesses, painting and decorating or doing bits of handiwork. Today " self-employed " means mainly those working on building sites, sub-contracting to main contractors and who would never do this unless it was a way of legally avoiding their obligations.
Two ways in which they have avoided their obligations have been to do with the training levy and S.E.T. Government argument has justified their exemption here. As to the training levy it has been said that a self-employed man has no one to employ and therefore is not liable for the training levy. This great construction industry trains the man who becomes self-employed, and his replacement. I do not see how any man should be able to extract himself from a financial commitment for training his replacement simply by the device of becoming self-employed. I have always thought that they all ought to pay the levy.
My understanding is that at the moment labour-only sub-contractors pay aper capitalevy, through the main contractor to the C.I.T.B. I do not know whether it is enforced. The hon. Gentleman is arguing that there is complete evasion, but if there is thisper capitapayment by the main contractor where labour-only sub-contracting is employed then it is not so.
That is reasonably accurate. This is recent " legislation " by the Construction Industry Training Board but this is only partially trackling the problem. Any self-employed person who does no sub-contract work is still exempt. There are many who cater directly for a client. The small and medium size builder faces his main opposition from those doing work for the small house-builder and he is saying that the loophole for the self-employed must be stopped if genuine builders are to remain profitably in the business.
Then there is S.E.T. The hon. Member for Londonderry described it as " self-employment tax ". I was hoping that it was a Freudian slip—
I can assure the hon. Gentleman that I was concentrating upon his thought. There was a telepathy going between us that was perhaps causing him to say certain things! The Government have exempted the self-employed person from selective employment tax on the basis that they do not employ anyone and are unable to meet one of the main philosophies behind the tax, which is the achieving of efficiency within manpower.
I have made my position clear, as regards the building industry, and as a Labour Co-operative M.P. I do not think that S.E.T. should apply within the construction industry. It has been discriminately applied only to the genuine builders in the industry. Others have avoided it and it has offended against the best people of the industry, in the interests of the worst elements. Let me take the Government's point of view, because it is important that the nettle of the self-employed is grasped once and for all. True they do not employ anyone and cannot achieve efficiency with those whom they manage, but each self-employed man is still a unit of labour and he could perhaps be using his own unit more efficiently if he were with a firm of contractors, working with a team.
He ought to have S.E.T. levied on him and then he can decide whether he could be more efficiently employed within the team. At present within the industry the tax instead of being a premium to ensure productivity is a premium against it. There can be a builder with operatives who refuse to adopt legal avoidance and therefore are all genuinely employed. His overheads, through taxes and levies, is £6 to £7 per man. They may produce £4 or £5 more in output per week than the self-employed person. Yet the self-employed person, because he does not pay his taxes and levies, has a financial advantage over the more efficient team. He is still £1 or £2 better off than the genuine team. This situation has to be tackled if this Bill is to be effective.
Builders and unions whom I know welcome the Bill because they believe it will help the industry regain the stability that it has lost and will bring an end to the worst elements in the industry profiting at the expense of those who are the backbone. I hope that the debate will show that the House is not basically divided on the Bill but is trying to discover the best methods of ironing out some of the anomalies, so that ultimately there will be equity in the industry helping those who for too long now have had to suffer penalties while the worst elements were increasingly favoured. If this House can send out a signal to the genuine people in the industry that it has decided the time is right to redress the balance it will have the support of the construction industry in bringing about the required results and for the first time in many years we will have an industry in which employers and unions who have been seeking to do the best for construction will find their efforts beginning to be rewarded.
Hon. and right hon. Gentlemen on both sides of the House have stressed the ill which is occurring in the construction industry as a result of the practices which this Bill seeks to cure. There is probably not much to be gained by going over that ground. The Bill not so much seeks to plug a loophole which has appeared as to mend a gap in the fences which surround the compartment in which most of us live our lives and pay our taxes and our National Insurance contributions as employed citizens.
It is a gap which has allowed many people to flood through into a nearby compartment where the self-employed exist, those who pay rather less contributions and get less benefit from the Welfare State. It is a compartment which unfortunately has rather weaker fences so that those who seek to abuse the provisions and get away without paying anything at all can do so. Let me consider the position of the person who is genuinely an independent contractor. He has his disadvantages—a lack of security a lack of sick pay or occupational pension. The larger income which he can obtain by being in this category he desperately needs if he is to make proper provision for retirement, sickness and accident comparable with the provisions of the Welfare State.
Thus he is not necessarily financially better off because he has a bigger income at the end of the week or month than others. One of the troubles is that many self-employed persons are imprudent enough not to make the sort of provision which would be made for them if they were employed. Nor do they provide for the consequences of their negligence. The self-employed cover is a very wide class. On the one hand, they can be the poorest casual workers, perhaps not working all the time, but on the other hand they can be the highly-paid craftsmen who will remain self-employed, and perhaps even labour-only self-employed under some circumstances despite the provisions of the Bill. In other walks of life, some of the highest paid in the country, whether consultant surgeons or Queen's Counsel, are also in this status of the self-employed. So this status probably stretches from one end to the other of prosperity, and it will do so despite the provisions of the Bill.
This is an interesting question. I came to the House slightly more recently than my hon. Friend and I was told that I could elect to have contributions paid in one way or another, and so I elected to pay them as an employee. [HON. MEMBERS: " Oh."]
Perhaps I am confusing the position slightly. The answer may lie in the fact that I have another employment outside the House—[HON. MEMBERS: " Ah."]—from which I am grudgingly granted a few pennies and in which I am technically employed. My own case may therefore be slightly different from that of other hon. Members and I will not place too much reliance on that. The fact that hon. Members are self-employed only goes to enhance the reputation of the self-employed or independent contractor as a category.
I let hon. Members speak for themselves.
Perhaps one of the troubles is that our so-called National Insurance Scheme is not a national insurance scheme but an employment insurance scheme. It applies to people who are working in employment, but those who are self-employed within its terms are not covered by it. Not for them the heaven of being unemployed under the present Government, because the) are materially worse off if they are not working for the moment; not for them industrial injuries benefits or earnings-related supplements to other benefits; and not for them redundancy payments if they are no longer needed. None of these things accrues to them. The hon. Member for Liverpool, Walton (Mr. Heller) may be interested in the redundancy point; I hope that he is.
Because the independent contractor does not get these benefits, he pays lower contributions and the Phelps Brown Report stressed how much he could save each week. On the other hand, although he pays lower contributions and is entitled to less benefits, he has a wider range of choice, because he may make private provision if he wishes.
All this being in or out of the Welfare State. being able to choose or not one's benefits, depends on the distinction between employment and self-employment, a distinction which is confused and narrow, a distinction which is set out in a whole schedule to the Phelps Brown Report—I ploughed through it this morning and was still very little the wiser—a distinction which it is often difficult to draw in particular cases.
It may or may not be right to allow people to choose to contract in or out of the Welfare State by being employed or self-employed. It may or may not be right to allow people to be in or out of selective employment tax by choosing to be in a category. But what cannot be right is that the choice between being in or out should depend on so fine a distinction between what in essence are different forms of employment rather than different kinds of category.
If it is right that people should be able to choose whether to pay higher contributions for better State benefits, that is a choice which should be open to all, and if it is wrong that they should be allowed to choose, nobody should be allowed to do so, or perhaps only those who certainly will provide for their retirement or sickness or injury. In other words, the window cleaner and the plumber need industrial injuries benefit more and not less than the bank employee, and construction workers in all categories need unemployment benefit more not less than many classes of shop assistants. Yet the distinction as to whether they get it depends on the very narrow division between employment and self-employment rather than upon whether they work in an industry where they are likely to need the benefit in question.
It is for that reason that I regret that the " deemed " approach was not found more practicable by the Ministry. Perhaps more progress will be made with that in future years. Although entitlements and all these benefits stem not from any idea of social justice or reason, because of them the self-employed under the Welfare State are second-class citizens. They become even more second class under the Bill, because, as the Minister said, the Bill is intended to make the status of employment advantageous against the status of self-employment. Yet I question whether this is the right approach when all sides admit that the category of self-employed will continue to contain highly-skilled craftsmen and other people who must remain independent in the industry.
Surely the right way in which to deal with the situation in the round—and I appreciate that it may not be immediately possible—is to bring into the full ambit of the Welfare State those categories of men, of craftsmen, who will remain self-employed, but who nevertheless should have the benefit of all our Welfare State provisions and not remain second class citizens outside its provisions. Surely the way in which to deal with the ill is to remove the basic distortions which have caused it, and not just stick our finger in the little hole in the dyke and hope that that will mend it, but rather to relieve the pressures which are giving rise to the escaping water.
If that were done, the Minister would not have to distinguish between the various narrow categories, as in the Bill, not between work for contractors and work for private individuals. He would be dealing instead with an industry in which whether a man was technically an independent contractor or technically an employee, the same contributions would be paid and there would be entitlement to the same benefits, and in which, therefore, the category would not depend at all upon the contributions, but on the most advantageous method of work. This is an approach which I commend to the Minister for future consideration.
The Bill treats the symptoms rather than the cause of the ill in the industry. In so far as it treates the symptoms and is likely to be successful, I welcome it and regard it as a great step forward in the direction I want to go, but not until we can think of a more fundamental approach to the whole area over which we extend our Welfare State will we have a lessening of artificial self-employment in this and other industries.
Mr. Eric S. Heller:
I should like first to compliment my right hon. Friend on introducing the Bill. He did so modestly and moderately, but in a way which may not have spelled out the problem which has been facing the building industry for the past decade. The hon. Member for Londonderry (Mr. Chichester-Clark) was also guilty of this fault.
I do not take so pessimistic a view of the Bill as the hon. Member for Londonderry takes. I do not believe that labour-only sub-contracting will automatically be wiped out and, over the years, we may have to block some of the loopholes which will be found. But the Bill is an immense step forward. I share the view of my hon. Friend the Member for Bethnal Green (Mr. Hilton) that it should go from the House that it is not merely a question of dealing with tax evaders, but that this is dealing with a most important problem as a system within the industry. This is an historic Bill and it is an historic day for the industry. The Bill needs strengthening in certain respects, and later I will make some proposals to this end.
It is obvious that we in the construction industry are faced, in the labour-only system, with what I can only described as an evil curse. It has been with us for too long and, in particularly the last decade, it has grown greatly. What the hon. Member for Swindon (Mr. Christopher Ward) proposes would in no way solve the labour-only evil, which needs much more drastic treatment.
I am a member of the Amalgamated Society of Woodworkers, and since the only other building operative in the House happens to be a member of the Government, I will probably be the only true building operative to participate in the debate. My counterpart, representing a Government Department not directly concerned with the Bill, will obviously not be taking part. My union has about 120,000 members. The National Federation of Building Trade Operatives, with which my union is affiliated, contains a total membership of about 409,000. When one realises that there are well over one million workers in the industry, it is obvious that the trade unions still have a long way to go before they have solved the problem of organisation for this industry.
To be more accurate there are about one million workers in the private construction industry, but, adding to them those who work in other construction concerns, the total is about 1½ million.
I said there were well over one million employed in the industry. I will be dealing more closely with statistics later.
There are some other unions in the industry which are not affiliated to the N.F.B.T.O. but they are so unimportant numerically that I shall not refer to them. It is important to realise that the trade union movement is a powerful force in the industry, particularly among craftsmen, and that in terms of representation and organisation, it has a definite point of view on the labour-only aspect. In their evidence to the Phelps Brown Committee, the construction unions pointed out:
Fundamentally, our objection to labour-only sub-contracting and self-employment is that by its very nature it corrupts, leads to indiscipline, destroys morale and fragments the construction processes to the point where management techniques become impossible to implement, and this leads to inefficiency and high costs which, in the long run, are an unnecessary strain on the economy of the country as a whole.
What, in practice, does this pernicious system of labour-only mean? It cheats on holiday-with-pay stamps, National Insurance contributions are not paid—thus depriving the Revenue—income tax is not paid—depriving the Revenue even more greatly—S.E.T. is not paid, and also the C.I.T.B. does not get its proper share in levy payments. Labour-only also leads to inefficiency and had workmanship.
Most important, the labour-only system neglects safety. A worker in Liverpool who was engaged on a demolition project fell from the top of the building that was being demolished and was killed. This sort of thing happens regularly in the building industry. In this case we discovered that he was a labour-only worker and his widow was immediately faced with trying to discover against whom to claim.
I took the matter up long before being elected to this place. I was able to get something done about the safety regulations and the firm in question was dealt with from that angle. However, I was not able to help the widow, who did not receive any compensation. This is just one example of what labour-only means.
It also means negligence in health and welfare matters. In the industry there are not only regulations dealing with health and welfare but standards which the trade unions insist should be applied. This is not done under the labour-only system. Further, labour-only makes an utter mockery of organised industrial negotiations and is destructive to the trade union movement.
Would the hon. Gentleman agree that all the points he has listed, with perhaps the exception of the last one, apply only to abuses of the independent contractor system but would not apply to an independent contractor who was properly insured and who engaged in proper contracts? In other words, is not the hon. Gentleman criticising the system when it is abuses of the system that he should be criticising?
Of course, I am criticising abuses of the system. That is what the Bill is all about. We are dealing with facts, not with high-falutin' theoretical possibilities of dealing with this problem. Let us consider concrete facts and decide how to deal with them.
Hon. Members may be interested to learn of the sort of things that are at present going on in the industry. For example, the labour for the brickwork of a £3½ million power station was contracted out to a company which had precisely £100 capital, and the two men in the firm were Irish joiners. Under the labour-only system, that firm was able to win a contract of that nature. Unfortunately, when a trade union tried to drive this labour-only firm off the site, the National Federation of Building Trade Employers financed the court proceedings on behalf of the two joiners and it was argued that the union was sabotaging the national effort by its action in trying to get these " cowboys " off the job.
Another point was brought home to me at the weekend when I was talking to a bricklayer in my constituency. He said that he had gone to a job near Liverpool which was fairly well manned, there being about 150 operatives on the site. He found that on Thursday and Friday afternoons he was practically on his own. The site was a sort of desert. Everyone disappeared. When he asked where they had all gone, he was told that they had gone to draw their dole. His figures may be exaggerated, but he pinpointed the problem.
That is what has been happening. I have been as great a critic as anyone else of the Government's unemployment policy, but the unemployment figures are inflated because, with the labour-only system, some people have been drawing unemployment benefit whilst at the same time carrying on with labour-only work. We must end that abuse as soon as possible, not only in the interests of the Treasury and of the trade union movement but in the interests of every person who pays his proper taxes.
Today, I asked the Merseyside district secretary of the National Federation of Construction Workers whether in the last period there had been a continuation in the growth of labour-only sub-contracting on Merseyside, and he told me that there had been.
That fact brings me to a very important point in the Phelps Brown Report, because that report, unfortunately, in one respect does not show a proper understanding of what is going on. It points out, for example, that in those areas where there is a high incidence of unemployment, labour-only sub-contracting is very low. The fact is that even in areas of relatively high unemployment we get a growth in this type of work. Unemployment is no longer a deterrent to the growth of labour-only sub-contracting. I understand that on Merseyside certain firms now pay £18 for 1,000 bricks laid. Gangs operate in this way, consisting of two bricklayers to one labourer or four bricklayers to two labourers. That is an indication of the kind of payment that is being made.
The Phelps Brown Report said that between 165,000 and 200,000 operatives were involved, but the figures published in theEmployment and Productivity Gazettefor March, 1970 shows a register of 1,263,000 male construction workers. Taking the two sets of figures together, they show that one-sixth of the operatives are engaged on labour-only sub-contracting. That is a very significant figure, and one that we must make certain does not increase.
Paragraph 335 of the report refers to
…a Ministry of Social Security Survey on sites in the South-East and North-West late in 1967 which found only 13 labour-only sub-contracting employers altogether, all with fewer than 20 employees, but about 700 self-employed persons who were not employers —though not all of these were necessarily labour-only.
that finding underlines the nature of the problem we face.
Paragraph 330 states:
Our own Survey's findings on the extent of labour-only sub-contracting are set out in chapters 5 and 6…The usage varied according to the size and scale of operation of the firm, and was greatest among medium and large firms, half of which were using labour-only at the time of the Survey. Among the firms with more than 300 employees, the proportion using labour-only was about 60 per cent.
A few years ago the trade union movement discussed with employers the problem of the growth of labour-only subcontracting, and from those discussions there emerged working Rule No. 8. That does not mean that the trade union movement was very happy about that working rule—the unions wanted it to go much further—but it was the end product of those discussions.
Many hon. Members who say that they are speaking more or less on behalf of the employers, or expressing their views, tell us, holding the it hands to their hearts, " We are not in "avour of labour-only." If that is the case. why do the employers use labour-only? Why did not that 60 per cent. of employers using labour-only refuse to continue with that form of subcontracting?
Only today I have heard that John Laing, one of our biggest contractors, a firm which has th Runcorn development contract, has only recently dismissed itsbona fideemployees and gone over to labour-only. The Merseyside trade unions are to discuss that matter with those employers next Wednesday. I tell the big employers, " You, too, have a responsibility, and that responsibility is not to indulge in this practice." A very important lead could be given by those firms.
The trade union movement welcomes the Bill, as it did the proposals in the Phelps Brown Report. I want to quote a circular on the Phelps Brown Report sent out by the N.F.B.T.O. to all affiliated unions in January, 1969. It says:
These proposals are aimed at eliminating the worst features of the present anarchical situation. They will make it impossible for the more lawless forms of labour-only subcontracting to be carried on and they will probably have the effect of making it somewhat more difficult for individual workmen to set themselves up as such contractors. It may well be that in the long run it will be in the public interest for the number of small building contractors to be reduced.
This is what I emphasise:
we should make it clear that we fully accept that (i) legislation must be so framed as not to damage the genuine established, specialist trade sub-contractor; but (ii) though we remain fundamentally opposed to the practice of labour-only sub-contracting we recognise that in the present situation the national economy requires that there should be a strenuous effort made to meet the building programme—above all the Government's house-building programme—and we are prepared to accept that in the short term some amount of labour-only sub-contraction under carefully controlled conditions may be a necessary evil.
I have quoted that because I think it important for the country to know that the trade union movement is not being irresponsible on this question. It recognises that there is a problem and that we have to deal with it.
I come to one or two aspects of the Bill itself. The provisions dealing with insurance are excellent. I gave the example of the widow who was left unable to claim compensation. I still think there is some danger in the Bill because on occasion it may be difficult to determine liability. There is still an element of doubt about this. There should be some sort of fund available in the event of people not being able definitely to determine liability. They should be able to claim from that fund. This is an important point which I hope will be taken into consideration.
I do not agree with my hon. Friend the Member for Bethnal Green that we should not have a registration fee, but I agree with him in one sense. If the fee is paid only by decent builders, once again those who genuinely carry out their obligations will be paying and those who do not carry out their obligations will not pay. Therefore, the register should be compulsory. Then it would take in every building contractor of any size. We should make it compulsory for those involved in any way in building work.
Apart from giving definite aid to the C.I.T.B., two other things should be considered. Some of the money gained from registration fees should help to set up an industrial relations school for the industry. This school could take representatives of the work people, shop stewards, trade union officials and representatives of management. It would be of the kind which is highly developed in the United States of America. It could be associated with one of the universities. Perhaps there could be two such schools, one in the North and one in the South. I put this forward as a positive proposal for one way of using some of the money which will come from the fees. Also, selected groups of workers from the trade union side and representatives from management could go to various other countries from time to time to study building methods there, to learn from them and apply them in this country.
Certificates of registration should be made available on all sites on which a registered builder is working. Copies should be available in the main office, at the main works, and on sites. If that were done, it would help to enforce payment of the levy.
Why do we exempt Northern Ireland? I do not say that the hon. Member for Londonderry should not have spoken in this debate, but it seems strange that he should be speaking officially on behalf of the Opposition when the Bill does not apply to Northern Ireland. In Committee I hope that this provision will be eliminated and the Bill will be made to apply to the whole country.
The Bill is a very important step forward. It is not the last word in dealing with the problem of labour-only and it is not the final answer, but it is an important step. It is a necessary step, not only to deal with tax evasion, with holiday stamps and so on, but to ensure that in the industry we may have a proper negotiating machine and know that when negotiations take place it will cater for the whole industry, not merely a part of it. This Bill will help to end the chaos and anarchy which exist in the industry. I think that in the long run it will help towards efficiency in the industry. No one can tell me that labour-only is an efficient way of building houses and other premises. It is the very opposite.
I stress that we should make the register compulsory although that should not be an alternative to the levy. We should have a compulsory register and a levy to deal with those who in some way or other manage to get through the net. A firm could mushroom, as they do in this industry, for a short period and do a particular job. Then by the time the Revenue caught up with it it would have liquidated and gone out of existence. That is one of the dangers with which unfortunately I do not think the Bill deals. A compulsory register would help in that problem.
My hon. Friend will appreciate, of course, that a firm which wants to be registered has to take out an insurance policy. Therefore, mushrooming for a short period would be very doubtful.
I agree. Even so, loopholes will be found. I do not criticise the Bill. I hope that it achieves its worthy aim, but I believe it is important to voice my doubts and say where I believe the weaknesses are. During the war builders in Britain were registered under the Defence Regulations. Many other non-professional bodies are registered. The trade union movement is keen on the compulsory registration of building employers.
I welcome the Bill. It is a great step forward. I hope that it will be strengthened during its passage through the House. I hope, too, that we shall not hear from certain employers that they are all in favour of labour-only subcontracting being dealt with and then afterwards learn that those same employers employ the maximum number of labour-only sub-contractors.
My speech will not be as long or detailed as that of the hon. Member for Liverpool, Walton (Mr. Heller) for the good reason that my knowledge of this subject is not as extensive as his is. The hon. Gentleman's speech was an excellent example of how the House is helped by hon. Members bringing a wealth of their outside experience to debates.
On behalf of the Liberal Party I welcome the Bill, the debate on which has produced an atmosphere of almost uncomfortable amity throughout the House. This is a matter which has concerned my party for some time. We were pleased to hear of the coming of the legislation. Now that it has arrived we support it.
Like the hon. Member for Walton, I hope that the fact that the Chancellor has taken such a great interest in the Measure will not lead people to get a warped view of its purpose. Although it is important to eliminate tax and National Insurance evasion, equally important are the other two matters which the Bill sets out to deal with. The first is the fact that people employed in labour-only contracting organisations may not be properly insured when working and, further, that members of the public are not adequately covered in cases of accidents resulting from the activities of such organisations. The second factor is the comparatively low standard of work which can result from shifting groups of people outside the proper control of management or the trade union structure.
The hon. Member for Walton made an important point about benefits accruing to those who suffer loss, either the loss of a relative or personal loss from working in labour-only concerns. As to minor loss, we have reached the point where there is sometimes a direct incentive for men to opt out of employment in favour of self-employment in fairly unorganised gangs, because the supplementary benefit which can be drawn should hard times arise, even though the stamp may not have been paid, may be just as much as the amount which can be drawn by a more law-abiding citizen who has paid his National Insurance contributions over a period of years.
I disagreed with the stricture which the hon. Member for Walton made on employers for their use of labour-only sub-contracting. The reason for their using such labour is not hard to find. In recent years the impost on employers has greatly increased in terms of the poll tax, which the National Insurance contribution regrettably now is, and the selective employment tax. Therefore, there is a direct temptation for the shortsighted employer to sign on self-employed men and people for whom he has no responsibility in terms of S.E.T. or the employer's share of National Insurance contributions. The increased costs of this in relation to the wages bill must be the reason why employers are tempted to indulge in recruiting such people.
I qualified my remark by referring to the short-sighted employer. I do not say that it is a particularly worthy reason, and I am not sure that it is one which would be given in answer to a questionnaire or to probing. However, I put it forward seriously as one of the reasons for this increase in recent years.
The Minister is one of those Government members who is very fair-minded in presenting a case, but he was open-minded almost to a fault on the question of likely costs to the industry. What are likely to be the administrative costs on the industry? Can we be given a more precise idea of what the Government have in mind as to the registration costs? The industry accepted the Construction Industry Training Board and the levy on a different cost structure from that now prevailing. Some firms, although they welcome the Bill in principle, are a little worried about the possible costs.
I hope that the Bill will have a useful effect on regularising the operation of building firms themselves. Regarding S.E.T., I agree with the hon. Member for Bethnal Green (Mr. Hilton). The Liberal Party has always thought it illogical that the selective employment tax should have been applied to the building industry. In Scotland—and, I believe, over the country as a whole—there are grounds for concern about the number of firms that have gone into liquidation. In Scotland two large firms—Arnott Macleod and Duncan Logan—went into liquidation recently. If the Bill helps to improve effieciency and labour relations, it will be of benefit to the whole public.
Lastly, why have the Government drawn the Bill in such a narrow way? As the Chancellor of the Exchequer has shown such an interest, presumably this is a Bill in which the Government as a whole had an interest. Is it not advisable to end labour-only sub-contracting in all walks of life? Although its biggest manifestation is in the building industry, it is by no means confined to the building industry.
When the Government announced their intention of introducing a Bill such as this, I believe that some of the electricity boards announced that they would abandon the practice of labour-only subcontracting. I know that the Minister has no direct responsibility for other industries, but presumably he was involved in consultations on the type of Bill to be produced. Why will not the Government discourage the Forestry Commission from continuing this practice? I was in correspondence with the Department of Employment and Productivity on this before the Bill was published.
Although I welcome the Bill, I express some disappointment at the fact that it does not extend beyond the narrow confines of Schedule 1. The Government have missed an opportunity to introduce the excellent principle of controlling the spread of labour-only contracting in an industry such as forestry, where it has bad social consequences and where all the arguments which have been advanced in relation to the building industry apply equally forcibly.
This is substantially an anti-evasion Measure—evasion of income tax, of selective employment tax, of social security payments and of conditions of work. From an income tax point of view, this Bill is years overdue but I imagine that the Government have not felt able to erect this rather elaborate anti-evasion apparatus until the need for it went quite beyond the stopping of income tax evasion.
I think it was my hon. Friend the Member for Bethnal Green (Mr. Hilton) who said that he hoped this Bill would not be regarded as principally for the benefit of the Inland Revenue. I think it is desirable that it should be regarded as being for the benefit of the industry as well as for the benefit of the health of taxation and social security administration.
Also, if we are to look at the anti-evasion aspect of the matter, it would be a bad thing if the House were to hound tax evasion higher up the scale and allowed this to continue unabated over a fairly wide area. There is no doubt that there has been a great deal of tax evasion by this system of labour subcontracting. Wherever one or two Inland Revenue people have met together, this point of scandal—for it has been no less—has been freely condemned. I suppose that income tax people tend to be a little cynical—it is an occupational disease—and they frequently say that there are two forms of taxation—pay-asyou-earn and pay-if-you-like. There is no doubt that a great many people involved in this tax evasion operation have not liked to pay and have not paid.
A point which interested me appeared in the Explanatory Memorandum about the effect on staffing which this Bill is likely to have. I see that the estimated staff requirements for administration of the register and the levy in the case of the Inland Revenue Department are 95 in the first year, 90 in the second year and 65 in the third and subsequent years. This, I assume—in fact, I feel sure—relates only to the staff required to operate the register and collect the levy. We may have to wait for the Finance Bill to tell us what the additions to staff will be for the Inland Revenue to deal with the hundreds of thousands of additional tax liabilities. There is no doubt that many people will come into the tax net who have not been there before. That, indeed, is part of the purpose of the whole exercise.
I am a little conscious of the staffing of the Inland Revenue Department, not because I have any direct interest any longer but because I am constantly nettled when I hear people say that Chancellors of the Exchequer have introduced certain proposals in their Budget statements for the benefit of the Inland Revenue. No Chancellor of the Exchequer has ever done any such thing. This Bill and its counterpart in the Finance Bill will certainly impose additional work on the Inland Revenue.
My final point relates to Clause 2, and it was referred to by the hon. Member for Londonderry (Mr. Chichester-Clark). My recollection may be at fault, but I do not remember ever having seen in any Bill before a provision similar to that on the top of page 4 of the Bill which relieves the Inland Revenue of any obligations of secrecy in relation to taxpayers' affairs for the purposes of this Bill, if called upon by an authorised officer of the Minister for information.
One can have different views about the secrecy which the Inland Revenue should observe in matters entrusted to it by taxpayers. One point of view may be that the Inland Revenue should be an all-seeing eye and that other Government Departments should be all-seeing eyes, that anything within the framework of public administration should be freely interchangeable, that information may be passed from one Department to another, and that information supplied for one purpose should be used for another. That is one extreme point of view, that anything which comes within the purview of the State should be used by the State for its legitimate and statutory purposes.
That is not the view that has been taken up till now. Indeed, I believe I am right in saying that even when it would have helped the Inland Revenue to know when people began to draw their retirement pensions so that the Inland Revenue could get busy on bringing them within the tax liability for the year, instead of these matters being left until the subsequent tax year with probably tax arrears attaching to them, difficulties were raised by the Ministry concerned about disclosing to the Inland Revenue information which was in its hands as the responsible Department for the social security schemes.
I believe also—my right hon. Friend the Minister of Public Building and Works will correct me if I am wrong—that various proposals have been made at different times to the effect that details of all Government contracts should be disclosed to the Inland Revenue Department so that the Inland Revenue could keep a tag on contractors who were in substantial business relationship with the Ministry of Public Building and Works, and, indeed, with any other public Departments responsible for contracts, including the Post Office. I believe that all those overtures to be put in possession of knowledge of these affairs have been rejected.
It has been a cardinal principle of public administration that information compulsorily given to one Department should not be used for purposes other than those for which it was given. That has kept everything in watertight compartments—the Inland Revenue never disclosing, and other Departments not disclosing to the Inland Revenue. Indeed, I believe that at the present time if a deserted wife writes to the Department of Health and Social Security asking for the address of her husband, even if the Department is in possession of the address it will not disclose the information, so fastidious are Departments in this respect.
If we look at the top of page 4 it will be seen that to check whether a sub-contractor has been operating a "pay-as you-earn " scheme for a year or more the Inland Revenue may be called upon to disclose the facts. I should have thought that in a matter of this kind, as in similar matters, a declaration, with a penalty for a false statement, would have been enough. It may be that the Minister thinks he is not dealing with people of the highest standards of integrity, and since in many cases he has been cheated on the one hand he fears that he may be cheated on the other and, therefore some kind of discipline must be imposed upon these people which would be resented by more worthy citizens.
I will not associate myself with any implied vote of no confidence in subcontractors but as a principle it is important. The hon. Member for Londonderry thought at first that it might be a Committee point. Then he thought that it was of sufficient importance to mention on Second Reading. I certainly think it is. This is not incidental to the purpose of the Bill; it is a new principle introduced to police the main proposals in the Bill.
The right hon. Gentleman is such an expert in these matters that perhaps he could help me. Does the Inland Revenue staff have any degree of security different from any other civil servants'?
They are forbidden to pass information on to any other civil servant. There is no inter-communication of this kind at all. The fact that each of them may be within the restraints of the Official Secrets Act, or, in the case of the Inland Revenue, a declaration of secrecy, does not give them any licence to disclose information elsewhere. I have made the point and it will have to be justified. A breach of this principle is to be regretted, and if it is to be justified because the type of person we are dealing with may be a little less reliable than the normal range of taxpayers I could give my right hon. Friend a list of other candidates. There are plenty about, and it is astonishing how they exist in groups as though there were a psychological or some other condition attached to particular vocations.
Generally, the Bill is to be desired and is long overdue. Probably its late appearance is due only to the build-up necessary to make it more justifiable than it would have been had it been mainly or only for income tax purposes. Certainly the financial inducements to continue with this type of arrangement have mounted year by year until they are now quite substantial. It will clean up a good deal of the irregularities in this industry. From that and other points of view it is to be welcomed.
The House and the industry fully accept the principles of the Phelps Brown Committee and there is no approval for the worst excesses of labour-only subcontracting. At the same time I did not go the whole way with the hon. Member for Liverpool, Walton (Mr. Heller), who termed the whole of labour-only sub-contracting as an evil curse. While the Minister expressed disapproval of the avoidance of any employers' obligations, the Government have rather forced this on themselves.
This flows partly from the taxation system and partly from S.E.T. For example, in the taxation system there are great differences between the tax position, as regards allowances, of a self-employed man and an employed man, because treatment under Schedules D and E is different. This disposes people to try to become self-employed. The Government have deliberately organised the system in that way. It is not for them to complain if people wish to be self-employed.
Then there is the failure to follow up those who have succeeded in avoiding tax. It is not possible to blame the Inland Revenue for this because the Government have placed such a heavy burden upon it over the last few years and we know that it is fully stretched. In a perfect society it should not be possible for people to be able to moonlight on their income tax obligations.
However, firms are entitled to arrange their affairs so as to make life as easy as possible, within the law. The right hon. Member for Sowerby (Mr. Houghton) spoke of the evasion of S.E.T. and income tax. I think that he was wrong.
Quite proper avoidance. The Government have deliberately said that those who are self-employed need not pay S.E.T., and have, therefore, encouraged self-employment. There is also the matter of the overheads of a firm on the P.A.Y.E. system. It is a heavy burden, particularly for the single employer.
It is not only in the building industry that the labour-only sub-contracting situation arises. It also takes place in the secretarial world. Single employers who wish to employ a secretary frequently find that they avoid a great deal of effort in labour, and incidentally S.E.T., if they employ a self-employed secretary. Life is much easier for them. This touches upon the point raised by the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) about the wider implications of this practice.
Turning to my objections to the Bill, I will deal first with the question of the fee charged for registration. It seems that this is solely to assist the Inland Revenue which will be involved in extra effort.
I see the Minister shaking his head. Of course there are 30 civil servants in his own Ministry. It is principally to meet their costs.
I feel that this is a dangerous precedent for all taxpayers. What is being said is that for a person to achieve the ability to say that he is not required to pay some special and overwhelming liability he has to register and pay a fee for the registration. I accept the registration, but I believe that the fee is an offensive innovation. After all, registration does not imply any warranty of competence. I am not sure whether it implies any protection to the public by way of insurance, though certainly it implies that the firm concerned has taken out an insurance policy approved by the Minister. But does the Minister intend to assume responsibility to the public in the event of something going wrong with that insurance? This is a matter which will have to be considered in Committee, because the insurance elements in the Bill have been rather skated over, in my opinion.
The Minister said that he was not proposing at this early stage to bring any of the insurance interests into consultation, and it occurs to me to ask how much consultation has taken place so far. He said, fairly lightheartedly, that he would take powers to prescribe the limits of insurance; but I think that he will find that difficult. The high peak of third-party insurance on the very big firm will not be identical with that of the small jobbing firm with two or three employees. The Minister will be in difficulty in trying to judge the right limit of insurance, because it will have to be done on the basis of the type of work undertaken. It is obvious that a scaffolding firm will face greater dangers to both its employees and the public than, say, a firm which is engaged on foundation work. The Minister said that he had not been able to cover the insurance gap. He has had a year in which to find a way to do it, and I am surprised that he has not been able to by now. In my view, he should have more consultation with the insurance interests than he has had in the past.
I. am concerned about the genuine self-employed man. I think that the effect of this Bill will be to drive him out of the construction side of the building industry. I have in mind the man who is engaged in carrying out repairs for private householders and is directly employed by them. If he goes near the construction industry, he will find that he has to become an employee of a contractor. I do not believe that he will want to dodge into employment and then out again to self-employment. The result will be that he will not go near the industry again.
Under the Bill a single self-employed individual is not allowed to register. I think that the Minister should consider removing that disability and so allow a single self-employed man to register, with all the disadvantages of registration. That will not encourage a member of the lump, but it will encourage the skilled craftsman to take his part in the construction industry.
The Bill is an awkward way of dealing with a difficult problem. It would have been better if, alongside this solution, S.E.T. had been abolished from the construction industry. In that way, many of the troubles which have been discussed today would disappear.
I support the Bill wholeheartedly, but I want to draw attention to one or two matters in Schedule 1, which defines the scope of the Bill.
My concern arises from the fact that the Post Office has been putting out work to contract which was formerly done by direct labour and that these contracts are being fufilled by labour-only sub-contractors. Where as Post Office employees are opposed to such work being put out to contract, they are even more opposed to the work being undertaken by men who are virtually working at cut rates.
There is a great deal of unfair competition in the lump system which arises from tax evasion and tax avoidance. Post Office employees pay their taxes and insurance contributions only to see work taken from them by men who seem to be able to avoid and evade these responsibilities.
However, that is not the only concern of Post Office employees, because in many cases lump labour leads to dangerous and shoddy work. In the case of the Post Office contracts, it can be argued that the use of labour-only sub-contracting has led to shoddy workmanship and the possibility of danger. Among the work being put out to contract by the Post Office is the building of boxes underneath pavements and roads to house cables. Two disadvantages have been found when the work has been put out to contract. In many cases the boxes are built badly; they leak, and damage can occur to cables. More importantly, in the boxes there are anchor irons which are used to anchor the pulleys for drawing in long lengths of cable. It has been discovered that anchor irons fitted by lump labour come out too readily and create a hazard for the gangs who have to pull in the heavy cable.
I will not dwell upon the point, because it appears that such work will be covered by the Bill. However, I would have preferred to see telephone cable and equipment specially mentioned in Schedule 1 as work forming " part of the land ". I have no doubt that such work is covered, but it would have been better if it had been recognised.
I would also draw attention to the need to add telephone fitting to the third paragraph of Schedule 1. Increasingly, the telephone must be given equal importance to lighting, air conditioning, ventilation, power supply and water supply when one considers the services to be installed in a modern building. I hope that the Minister will consider adding a provision to Schedule 1 to make it clear to Post Office employees that not only cable and box building but all telephone installations in newly-constructed buildings are covered.
I give two if not three cheers to the Bill. We all know the truth of many of the examples given by the hon. Member for Liverpool, Walton (Mr. Heffer) about the various excesses on building sites. I know of sites adjacent to my constituency in Coventry, where I live, about which I had correspondence with the D.E.P. and the Ministry of Social Security 18 months or two years ago and where widescale strafes were carried out by Ministry officers on certain building sites where gentlemen were climbing up trees and jumping over walls and so on. Undoubtedly there has been widespread abuse, apparently in the Midlands and on Merseyside and in London.
I remember that a constituent came to see me in great secrecy in the Central Lobby shortly after my election to tell me of the lump on London building sites and to say that the going rate for a National Insurance card was £5—I think it has now gone up—and that I could have as many insurance cards as I liked at £5 a time. Anything that can cut out such people is good not only for the industry itself but for the vast majority of taxpayers and National Insurance payers. I say in passing that it was one and three-quarter years ago that the Phelps Brown Report was produced. I do not think anyone can accuse the Ministry of rushing into the Bill. Nevertheless, here it is, and we can now have a look at it.
Basically, my first reaction on reading the Bill, and I must confess that it is still partly my second reaction, is that this is a tax revenue enforcement Measure. It will not add some of the positive benefits for the construction industry which I should have liked. One could almost argue that many of these provisions could have been introduced by the Treasury as part of the Finance Bill which we are shortly to see. Be that as it may, there are some aspects of the Bill which ought to be carefully considered in Committee.
I should like to refer first to the registration of firms. As my hon. Friend the Member for Londonderry (Mr. Chichester-Clark) said, there may be wide misconception in the country about the use of the word " registration ". There is already a National House-builders Registration Council, and the Forbes Committee on the subject is sitting. When the hon. Member for Bethnal Green (Mr. Hilton) was speaking, he reinforced this point, because, having said that registration was valuable, he himself fell into the trap by arguing that certain companies and certain sub-contractors doing repairing work should be registered, presumably under the Bill. All that registration under the Bill would mean would be that certain conditions—mostly legal conditions—were satisfied, that the contractor was basically a nice guy and paid his taxes and his National Insurance contributions and so on and had undertaken one or two insurance obligations to outside parties; and the Minister admitted that those obligations might not go far enough.
There is a great danger that many people, not aware of all the nuances and probably not knowing what the lump is, or thinking it something different from what hon. Members know it to be, will become completely confused. One foresees advertisements in the local, provincial, or evening Press to say, " Registered builder, registration number so-and-so, registered with the Ministry of Public Building and Works." This will have a cachet, some sort of guarantee. In fact, such a builder may be the worst in the city and fall far short of the standards demanded by the National Federation of Building Trades Employers. As hon. Members themselves have become confused on the subject, I hope that this is something that will be sorted out in Committee.
Clause 2 deals with the registration fee. I am glad that my hon. Friend the Member for Londonderry, the hon. Member for Bethnal Green and I are in accord about this subject, even though the hon. Member for Walton disagrees with us. If there is to be a registration fee it should do no more at the most than cover the actual costs of registration. In this sort of situation we want positively to encourage good firms, and even those which have not been so good—because in this connection one conversion is worth all sorts of other things—to become registered.
The fee of £5, or whatever the Minister may decide, is not large and will not cripple any firm and no one would argue that it would, but there is one important point of principle the hon. Member for Bethnal Green said that this registration was similar to that proposed in the gas industry. I do not entirely agree, because registration in the gas industry will have much more of an implication of quality than registration under this Bill.
The Minister suggested that a bank manager could be an " authorised person ". This is a matter which will have to be cleared up. An authorised person will be in a position of some responsibility having to justify that a company is abona fidecompany, has been in business for a certain time, and so on.
I should like to emphasise the importance of a comment made by my hon. Friend the Member for Londonderry, although I appreciate that it could strike at the core of the Bill. Clause 3 will include partnerships of self-employed persons even if they have been in existence for many years—and the Minister said that labour-only subcontracting was a historical feature of the industry, not always to the disadvantage of the industry or the country—and had clearly paid their taxes and other dues. It would be a great pity if such partnerships could not even be considered and apparently had to be penalised and equated with the fly-by-night firms, the lump, which we all know about.
There is an aspect of Clause 5 which will require investigation in Committee. I am surprised that no time limit is spelled out in the Bill for the sending of a certificate of registration when an application has been approved. If an application is made to the Ministry it should be approved within a certain time. Individual companies and people could be involved in all sorts of financial loss if they had to wait a long time for a certificate. No doubt that is a matter to be pursued in Committee.
The hon. Member for Newcastle-under-Lyme (Mr. Golding) remarked that the Post Office was mentioned in Schedule 1. The hon. Member for Bethnal Green, with whom I find myself in great agreement, mentioned the absence from Schedule 1 of a reference to maintenance, painting, decorating and so on. The Minister touched on the subject, but it seemed a rather extraordinary omission. I hope that the Parliamentary Secretary will enlarge on that, because some abuses in my part of the world, not all, have involved maintenance, using " maintenance " in the widest sense.
There have been only one or two comments about selective employment tax, and this is not a subject which we should allow to go by default. The hon. Member for Walton gave us some interesting figures about the great increase in labour-only sub-contracting over the past few years. The Phelps Brown Report said that in the five years from 1961 to 1966 it increased by 58 per cent. It is clear from the up-to-date figures given by the hon. Member for Walton that the figures must now be about 158 per cent., and still rising. One of the reasons why we have the Bill at all, not the only reason, is that labour-only subcontracting has been increasing over the past decade or more.
One has only to read what is said in the Phelps Brown Report. Paragraph 399 says:
Our own inquiry showed that rather more large firms had used labour-only sub-contractors for the first time in the year following the imposition of Selective Employment Tax than in previous years. On the whole it seems probable that the previous trend towards self-employment was at least maintained throughout 1966–67, and this is significant at a time when unemployment in construction rose from 2½ to 5 per cent., so that the loss of security involved in a move into self-employment would have come to count for more. We are therefore concerned at the prospect of the inducement to move being further raised by the increase of Selective Employment Tax in September 1968.
That was written in the summer of 1968 at a time when the selective employment tax was 25s. a week and at a time when unemployment in the industry was nothing like as large as now. Since then we have seen selective employment tax go up from 25s. to 48s. a week and unemployment rise substantially.
We can certainly call in aid Phelps Brown to show that up to 1968 selective employment tax certainly had an effect, and the marked increase in the incidence of labour-only sub-contracting since then —notwithstanding that we have had consistently high unemployment in the construction industry over the last year—must fall very largely at the door of the Chancellor of the Exchequer and his predecessor, the present Home Secretary, because they are the real villains of the piece skulking behind the scenes who have largely brought this present situation about.
Certainly, if construction had been treated as manufacturing there would not have been the same high incidence of labour-only sub-contracting, and certainly if selective employment tax were abolished—I do not say it would solve the problem because it would not —that would certainly make the work of the Minister and his Department a lot easier. One remembers arguing this not only with the present Minister but with his predecessor. They had apparently made their various gestures and suggestions to successive Chancellors, so far without effect. One of the reasons why we are debating this issue tonight is that these protestations and messages passed on over the past two years have not been heeded by their right hon. Friends.
The construction industry is going through a very difficult time at the moment. No one would deny that. One has seen output declining in real terms, and the industry has been hit by the general economic measures which the country is facing. It has been hit by a shortage of credit. The smaller builders and construction people have been hit by high interest rates. The operatives—and many of them are highly skilled men—in Merseyside and other parts of the country where there is a desperate need for housing have faced unemployment on a high level.
We have also seen something which should concern all hon. Members—it certainly concerned the hon. Member for Liverpool, Walton—and that is the decline in influence, power and authority of the unions within the construction industry. This is something which concerns me very much. I take the hon. Gentleman's point absolutely. If one wants good collective agreements, productivity bargains and all the rest in an industry which is almost by definition fragmented—as the building industry is—one needs sound and strong management and strong and sound unions. Clearly, over the past few years this changeover to labour-only sub-contracting has hit the unions hard. I wish I could see more in the Bill which would reinforce the unions and bring them back to the strength in which I should like to see them in the construction industry.
I cannot think that the Bill will greatly help the industry. We know it cannot give long-term confidence to the industry, and I also doubt that it can solve the problems of the unions at the moment or perhaps the problems of bad quality workmanship which has been associated with labour-only sub-contracting.
But we must hope that it will, and we must try in Committee and elsewhere to strengthen and improve the Bill because the building and construction industry is one of the great industries in the country. It has been suffering under this evil—the excesses of labour-only sub-contracting are certainly evil—and I commend the Minister for at least, even at this late stage, introducing a Measure to curb those excesses.
The House will remember that last week the Minister firmly rejected any suggestion that there should be a tax amnesty for labour-only tax dodgers. He said that such an amnesty would not be acceptable to the country and I am sure that he is right. Since then, however, the Secretary of the Amalgamated Slaters, Tilers and Roofing Operatives said he thinks that unless something is done to deal with the situation which will arise when the Bill becomes law—as I am sure it will with the support of both sides of the House—then up to 100,000 men, and that is his figure, will be lost to the building industry. They will be unable to register under the terms of the Bill because of their fear of being caught by tax inspectors, Ministry of Social Security special investigators or fraud inspectors from the Supplementary Benefits Corn-mission.
This would create a very serious position in the industry which, as we all know, is not as prosperous as it might be. If these 100,000 building operatives were to be lost, many people would wonder what would happen to the industry as a whole.
I want to make what I hope will be a practical suggestion how this serious situation might be avoided.
Has not the hon. Gentleman come across any of the real tragedies—as I have in my constituency—of men who have taken part in labour-only subcontracting, perhaps for two years and have come to the point where they have been caught up with by various people'? Surely we do not condone a situation where there has been wholesale evasion such as this? That is a problem which has always been there, and it has worried many people.
I am grateful to the hon. Gentleman, because he has taken the words out of my mouth. I do not want to condone it. This is not my object. A tax amnesty is not desirable—and I thought this was obvious from what I said—simply because it would be condoning malpractices which have been going on for many years. But undoubtedly a difficult situation will arise once the Bill becomes law and, without seeking to condone the practice, I should like to offer a practical solution of how it could be dealt with. If the tax inspectors and the special investigators were to attempt to follow up the intricacies of evasion, which have been going on for many years in some cases, with men on construction sites who have been working on a labour-only basis, they would practically go mad.
If a worker has been evading his tax liability under this system and leaves the industry and goes somewhere else, if he becomes an employed worker then clearly the Inland Revenue will ask him where he last worked. He will not have a P 45 to present and therefore the catching up process begins. He can keep out of the clutches of the Inland Revenue only if he continues being self-employed somewhere else.
This is precisely my point. The right hon. Member for Sowerby (Mr. Houghton) has a great knowledge of these matters and I greatly respect his opinion. But I am worried about the very large number of people employed now under the lump who under the Bill will be greatly discouraged from being self-employed, because the advantages of self-employment will no longer accrue to them. What will happen to those men? They nearly all owe large sums of money to the State and the debt which will hang round their necks and will be a millstone for many years to come. They will be afraid to register in case the various inspectors catch up with them and they will be unable to take employment elsewhere, because they will not have a P 45 and if they have not got one no one will have them. If someone takes them on the tax inspector will catch up with them.
But I have a practical suggestion for solving this dilemma which hon. Gentlemen are so anxious about and I am grateful for their help. If each case has to be examined—the 100,000 is not my figure, but there may well be that number—this will take a long time and a great many man-hours in the already overworked offices of tax inspectors and National Insurance inspectors. If, instead of having a detailed investigation of each man's case with all its intricacies, it were possible to devise a scheme under which each man who has been working on the lump were entitled to make a simple declaration that he had been working on the lump for so many years, on that basis his debt to the State could be assessed at so much per year, and this sum could become his debt to the State. If the matter were tackled in that way, instead of each individual sum having to be intricately calculated, and if a man could be told what his debt was and that everything else could be forgiven to him, he could take up employment again from the start, with that debt to be paid off out of future wages.
At present, the 100,000, or whatever the number be, are faced with no alternative because, as I have tried to show, they cannot take regular employment. There is nothing for them, so they will exist on the State in some way or other. If they cannot get supplementary benefit for themselves, their wives and children will be able to do so under our system. But if the debt could be assessed in the way I suggest, the man concerned being told, " You owe that to the State. Nothing else will be held against you, but that debt must be paid off regularly over the years ", the problem facing the industry of being in danger of losing a large number of workers might be greatly ameliorated. I suggest in all humility that something of that sort will be necessary if the work force of the construction industry is not to disappear before our eyes.
In the tradition of the House, I should first declare my interest. I am at present a non-executive director of an international firm of civil engineers and building contractors, and I am a non executive director of a middle-size building company in the North-West.
Having spent 40 years in the building industry—and 10 of them in the House—I fully understand the problem which we are considering. I see it with great clarity, but I see the difficulties, too. One does not have to be long in this place to appreciate some of the problems in framing legislation to deal with difficulties which are none the less clearly recognised. I had the advantage also of being Parliamentary Private Secretary to a Minister of Works, during which time I saw the industry—which I had been in, man and boy—in a rather different light, and, as I say, I appreciated the difficulty of putting into legislative form measures to deal with something which seems simple in industrial life. In that respect, the Minister has my sympathy today.
It is noteworthy that the only two Bills dealing with the construction industry introduced by this Government have been, first, one for building control and licensing and, second, the Bill now before us, which, it is generally agreed, will make no great impact on the industry but is more a tax collecting Measure.
During the passage of the earlier Bill for building control, we on this side stressed how unnecessary it was, and the very fact that it has now been abandoned is proof of that. We warned at that time that the passage of such a Bill would lead to depression in the industry. I blame the Government to a large extent for the 1,000 million bricks at present in stock and the high unemployment and depression in the building industry, for the simple reason that architects during that time just did not get on with designs. We are suffering from that now. The industry considers that the present Government have been deliberately increasing taxation through the special S.E.T. imposed upon it, which, in turn, has increased the problem of labour-only subcontracting.
My hon. Friend the Member for Londonderry (Mr. Chichester-Clark) has stated my party's attitude to the Bill. We do not wish to do anything to stop the collection of taxes. In our view, every citizen should pay his proper share of taxation. But this is a Measure primarily designed—it is so referred to in the various technical publications—as a Bill to deal with labour-only sub-contracting.
The Minister himself referred to it as a Bill primarily to deal with labour-only subcontractors. I hope that the Parliamentary Secretary will tell us why that should be so. I can find no reference to labour-only sub-contractors in the Bill. In Schedule 1 there is clearly set out a division of operations in the construction industry, stating what is included and what is not, and I hope that the hon. Gentleman will tell us more about that.
There has been general agreement in the debate on the need for the Bill, although there has been a difference of opinion apparent on the benches opposite. The hon. Member for Bethnal Green (Mr. Hilton) said that the National Federation of Building Trades Employers took an attitude different from that of his own Federation. We have heard that the president of the National Federation made noises which the hon. Gentleman did not like. I have here the Press hand-out of Mr. Pearce's speech, given, I am informed, at a meeting of the Federation of Painting Contractors at the Kensington Palace Hotel on Thursday, 23rd April. All he said was—I think that this must be the remark to which the hon. Member for Bethnal Green referred—that as presented
…the Bill is purely a measure to ease the task of taxation officials in carrying out their statutory duties, and what is particularly objectionable is that it imposes a fee on all employers in the industry for putting their names on a register which has no object other than of assisting tax collection.
I am not much of a historian, but I recall that there was a time when people paid funds to the Government for the right to collect taxes, though then they were allowed the profit from the tax which they collected.
I believe the general attitude of the National Federation on this matter is that, if the Government want a register of contractors, they ought not to impose on the industry the cost of preparing it.
The hon. Gentleman the Member for Liverpool, Walton (Mr. Heifer) takes an attitude which is really pre-Phelps Brown. In his view, the Government should abolish labour-only sub-contracting altogether, and he is disappointed that the Bill does not go far enough. Several hon. Members have quoted the passage in the Phelps Brown Report which makes clear that there is a role for the labour only sub-contractor, and I shall have a little more to say about that later.
My hon. Friend the Member for Swindon (Mr. Christopher Ward) made an interesting point on the question of the self-employed. The contribution from the Liberal Party was of interest, too, showing that it would support the Bill, though the remark of the hon. Gentleman the Member for Roxburgh, Selkirk and Peebles (Mr. David Steel), that forestry sub-contractors should come under the Bill, was, I thought, a little wide of the mark. Perhaps I might say in passing that, if he studies the Schedules, he will see that if a forest is adjoining a building or a house, it will be caught under Schedule 1. However, the question is one of degree as to how far the forest is related to the house or building.
I appreciate that. I was merely pointing to the difficulty of defining particular operations in this context.
My hon. Friend the Member for Hemel Hempstead (Mr. Allason) came back, very properly, to the question of insurance rates and how the size of a firm could affect them. He will readily understand that it is not only the size of the firm, but also the type of work which has a great bearing on insurance rates.
My hon. Friend the Member for Meriden (Mr. Speed) made a most important point, as did my hon. Friend the Member for Londonderry (Mr. Chichester-Clark), on what is meant by " registered builder ". Hon. Members will recall that we have made many attempts in this House to introduce legislation primarily to increase house-building standards. The last debate on the subject was on 25th November, 1966. Arising from, and encouraged by, that debate, the house-building industry introduced the House-building Registration Council which has made tremendous strides in overcoming any remaining fragments of ferry building.
By its own initiative the industry has introduced a 10-year guarantee on any house by a registered house builder. Many people in the industry are worried because they have no legal right to call themselves registered house builders, but if the Bill becomes law there will be a legal right for anyone who is registered to call himself a " registered " builder. To the general public he could be looked upon as a house builder, " registered ". If so, we would have an anomaly in that one- and two-man organisations, which can be set up under the Bill, would have a greater right to call themselves registered builders than a registered house builder who was able to give a 10-year guarantee covered by insurance. I suggest that it is necessary, between now and Committee stage, for some thought to be given to whether a term other than " register " could be incorporated. If the Bill is to deal with the unscrupulous—it is generally agreed that we are dealing with the unscrupulous—how easy it will be for them to register and become registered house builders. We need to think of another name.
We have had references to labour-only sub-contracting and other forms of subcontracting. It would take too long for me to describe to the House the many forms of sub-contracting which have generally been accepted in the building industry. Those who are anti-labouronly sub-contracting take the view that it creates shoddy workmanship. But the labour-only sub-contractor, particularly in house building, is an essential part of the industry.
The greatest number of houses are built by small- or medium-sized firms. Such a firm could not possibly keep on its staff a permanent glazier. It would not have enough houses to build to keep a glazier full time. It could not possibly keep on its staff a tiler, because there is not enough work. It could not build enough houses in the course of a year to employ such people full time. This is how the subcontracting business started. I am certain that people who are not familiar with the industry cannot appreciate the need for it.
I will tell the House a true story within my recollection concerning something that can be seen by any hon. Member who goes on to the Terrace. The group with which I am connected was to build the exhibition buildings for the Festival of Britain in 1951. One problem was to rebuild the wall from Westminster Bridge to Charing Cross Bridge. There are very few masons left in this country who have had experience of that work. We found, employing four or five different masons, that, because they had not been regularly employed on that type of work, the joints were not perfect. In the end they had to be laid by one man. There was an outstanding mason on that contract. He said that the only way to get the work done in time for the Festival of Britain and of the quality that such a fine structure demanded was to do it himself, which he did. If any hon. Member is interested enough to look at the wall, he will find that it is one of the best constructed in this country. So we must not assume that a labour-only sub-contractor is necessarily a man who would do a shoddy job.
I find it hard to follow the hon. Gentleman. There seems to be confusion here. The hon. Gentleman has mentioned sub-contracting as a form of contracting to a main contractor.Bona fidesub-contractors—glaziers or any other tradesmen—have been in existence for years, and they have a good part to play in the industry. Everybody justifies their existence by their efficiency. I cannot see why the hon. Gentleman is using that situation to distinguish labour-only sub-contractors. What is the connection?
I told the story about the wall because it was directly labour-only sub-contracting. The mason did not supply anything else.
The first point that I want to make on the Bill is that the Minister says that it is primarily to deal with labour-only subcontractors. I am probably quite wrong, but I refer to what the Bill says in Clause 1(2):
References to construction operations are to be taken
(a) except where the context otherwise requires, as including references to the work of individuals participating in the carrying out of such operations
as set out in Part I of Schedule 1, which sets out in some detail to describe the construction industry.
Reference has been made to the wartime regulations—56 A B, I think they were called—which specified precisely what were construction operations. The Bill starts with a similar preamble, but it seems to have got altered in the course of time. As I read it, every contractor who is operating, or likely to operate, as a sub-contractor, be it labour-only or labour and materials, is required, if he wants to avoid the penalties laid down in the Bill to be registered. Is that clear?
I am grateful to the Minister. However, it gets queerer and queerer, because on page 15, line 21, we get this extraordinary statement, considering what has to be registered:
Operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations as are previously described in this Schedule ".
That, to my mind, clearly defines the work of an architect—preparatory to. Are we then to assume that every architect has to register?
The hon. Gentleman says " Oh " something. I am asking the Minister to tell me whether he has or has not got to register. One can think also of the quantity surveyor, the heating engineer, the structural engineer, and all the professional services. I do not see any exemptions. Clause 2 is alleged to exempt, but those people are not exempt under its provisions. Why, therefore, are they not included in the Bill?
There are a number of specialist contractors who come to the industry from time to time. I recall an artist, Mr. Edward Halliday, who had the honour of painting Mr. Speaker's predecessor. He and a small team of his staff painted a mural in a building. Are we to assume that we have to ask a painter whether he is a registered building contractor? If he is not, the building contractor has to deduct the levy because he is working on the site.
The hon. Gentleman's point has some validity, but let us consider his example of a painter. Surely, the painting of a mural is not essential for the construction of the building? It is done after the building is complete. It is not part and parcel of the structure. It is a different matter altogether.
The hon. Gentleman has probably seen the building of a town hall. Surely he is not saying that the mural in such a building is not painted until the building is complete? All I am asking the Minister to do is to tell me where I find these exemptions. One goes on to find references to people hanging curtains. It includes people laying carpets, and doing other ancillary work. The difficulty is that the definition has been too loosely drawn.
The Minister keeps on saying that the Bill refers only to sub-contractors. I cannot find this in the Bill. Perhaps the Parliamentary Secretary will tell us where it is. It has not been considered in that way by members of the Press. It is considered by many people that any firm employing one or two people is liable to be registered. That means that firms with up to 100,000 employees should register.
The Bill properly exempts firms which are operating overseas, but what is meant by " operating overseas "? When a civil engineering or building company is operating overseas it has some men operating in this country to deal with supplies, planning, and so on. Are they to be registered under the Bill?
At the other end of the spectrum there is the sub-contractor who comes from overseas. Hon. Members know that some American firms will allow their equipment to be installed only by an American company. What will be the taxing position of an American firm if we deduct 32 per cent. and 20 per cent? What will be the realistic result? This is a monopoly matter, and the firm will simply add 52 per cent. to the cost.
My hon. Friend the Member for Meriden referred to the secrecy of income tax matters. My hon. Friend is an expert on these matters and I was delighted that he drew this to the attention of the House. This is a worrying aspect of the Bill and seems to be a fundamental departure from established practice. It seems wrong that an employing authority should have the right to ask the Inland Revenue to pass on information which is fundamental to the contract. It is not only a breach of secrecy in the ordinary way, but in a particular way, because it relates to an employing authority.
Then we come to the question of partnerships. Clause 3 presents us with a
most interesting situation. It is the most marvellous bit of drafting that I have read. The hon. Member for Liverpool, Walton has heard of dead men on building sites. Does he appreciate that one part of the Bill is designed specially to deal with a partnership which could lead to dead men? Clause 3(6) says:
Where a person…ceases to be a partner…then, for the purpose of determining whether the condition set out in section 2(5) of this Act is fulfilled in the case of the firm, any person employed by the firm as constituted immediately before the date on which that person…ceased to be, a partner shall be treated as having been employed by the firm as constituted on that date.
How can he be " employed " before the date on which he ceased to be a partner? And if he can, why count him as an employee on the date he ceases to be a partner? Will this be so in all circumstances? He may have died. What is the purpose of that subsection?
The House has taken the view that the Bill ought to go through fairly quickly, but a number of realistic Amendments are necessary. My hon. Friend has offered the Government a quick passage for the Bill provided that they are prepared to see the reasonableness of our arguments and accept the Amendments which we shall put forward in Committee.
I think that we have had a very good debate, with little political content in the speeches. The hon. Member for Folkestone and Hythe (Mr. Costain) seemed to put up a number of Aunt Sallies, simply to knock them down again. If there is any validity in any of the points that he made I think that they would be better debated in Committee, rather than today.
Before dealing with the general debate may I refer to the point raised by my right hon. Friend the Member for Sowerby (Mr. Houghton) and some hon. Gentlemen opposite. I have in mind the 'reference to the Inland Revenue and the question raised by Clause 2(9), which says:
No obligation as to secrecy imposed by Statute ".
The Bill does not create a precedent. The Inland Revenue keeps the affairs of tax
payers secret except where discovery is permitted by an Act of Parliament. I have in mind the Charities Act, disclosure to the Charity Commissioners, the National Insurance Act, 1965, disclosure to foreign Governments where double taxation is involved, and so on. We shall consider this provision again, but I do not think that it creates a precedent.
One or two attempts have been made to make a little political capital out of the effect on the lump system of the introduction of S.E.T. I exonerate the hon. Member for Londonderry (Mr. Chichester-Clark). I can understand his trying to twist our tails a little at the end of his speech.
I concede that there may be grounds for assuming that S.E.T. may have accelerated the nominally self-employed categories in the building industry, but my right hon. Friend made it clear in his statement introducing the Bill that that was certainly not a new problem to the construction industry, and bearing in mind that the whole of the data on which the Phelps Brown Committee Report was based was collated prior to September, 1966, when selective employment tax was introduced, one can hardly ascribe the rise in the nominally self-employed as being consequent upon the introduction of S.E.T.
I would not expect the hon. Member to know the answer at the moment, but it would be interesting to know what the speed of growth of this problem was from 1964—when Working Rule No. 8 came into effect—to the time of the introduction of S.E.T., compared with the period from 1961 to 1964, before Working Rule No. 8 came into existence.
That would be very difficult. We do a lot of estimating. My right hon. Friend has made some estimates. I concede that there may be grounds for assuming that there has been an acceleration consequent to the introduction of S.E.T., but not necessarily consequent upon it. This is not a problem that stems primarily from the introduction of S.E.T.; it was there for a considerable time before that tax was introduced.
I want to try to answer the points that have been made, but it will be difficult for me to deal with them as separate items, because they have been made rather extensively. The argument was raised about the danger of introducing a register. It was said that people may get wrong ideas and will assume that because a builder, a contractor or a sub-contractor is on the register it has a particular significance. It is said that people will assume that the fact of being on the register has a quality content.
As the hon. Member knows, the Forbes Committee is now considering whether it is desirable to have a quality register of this kind in the building industry. We would hope that all contractors and subcontractors will be on the register. That is the primary purpose of the Bill. In that sense there cannot be any confusion. If everybody is a registered builder it cannot be suggested that there is any quality requirement about it. I do not know how we can have a register—do not let us be under any illusion; the Phelps Brown Committee proposed a register—without calling it a register. I do not know what else it could be called. Perhaps we might call it a " Silkin "; but really we cannot call it anything but a register.
The hon. Member for Londonderry asked about the person who would give the reference. He will recall that I said that it could be a bank manager. He asked why we wanted the reference. All we want to establish is that the person making the application to go on the register is a person of reasonable repute. I should have thought that the simple provision made in respect of an application for a passport would be as good as anything else. It is simply a question of the establishment of the repute of the individual—making sure that he lives at a given address, and so on. If we adopt the same principle here as we adopt in respect of an application for a passport I can see no objection. The person giving the reference can be a bank manager, a solicitor, or a person in a similar position.
Figures have been suggested for the registration fee. I can assure hon. Members that in the Minister's view no definite fee has been fixed for either permanent or provisional registration. We require an application fee simply to cover the administrative costs, and in the case of provisional registration we might be inclined to consider a higher figure as part of a sanctions system against a frivolous application for provisional registration.
We propose to set a figure for the registration fee after consulation with the advisory panel that will be formed from members of both sides of the industry and possibly one or two other people. There is no question of our trying to set up a register and impose fees that would be burdensome to the industry. We merely want to cover the cost of administration. Any moneys over and above the administrative costs will be set aside for the benefit of the industry—whether they go to the Construction Industry Training Board or to some other organisation or purpose that the advisory panel suggests.
Why should a charge be made for the cost of administration when that administration is 98 per cent. for the benefit of the tax-gatherer? We might just as well charge the taxpayer the administrative cost of sending in his tax return.
Whatever the percentage, it is also true to say that it will not only be for the benefit of the taxpayer; we are hoping that the Bill will be for the benefit of the industry—for both the workpeople's side and the management's side.
My hon. Friend the Member for Liverpool, Walton (Mr. Heffer) asked whether a certificate of registration should be made available on the site. That question can be discussed with the advisory panel, and if the panel makes a recommendation on it I see no reason why it should not be carried out.
There is a little difficulty about making the Bill apply to Northern Ireland. We shall examine the situation, but we must accept that we could not impose this legislation on Northern Ireland because it might infringe on the rights of the Stormont Government. We should have to have discussions with Stormont before we could make the Bill apply to Northern Ireland.
I accept the point made by the hon. Member for Folkestone and Hythe and the hon. Member for Hemel Hempstead (Mr. Allason) about insurance premiums and the level that they will be set at, in relation not only to the size of the firm but to the size of the job. We have already asked both sides of industry to give us guidance on this. This can be done without any difficulty. With the experience and advice available we shall be able to fix the insurance cover in such a way that there is neither too much nor too little cover for the job we seek to do.
Can my hon. Friend answer the point I raised about the firms which are not registered and which have working for them a workman who is injured or killed and a claim then arises through his widow? This is not covered by the Bill. We are talking strictly in terms of the registered firms.
I will spend a little time dealing with vicarious liability and insurance cover, but I wanted to deal with one specific point. It is all right saying that provision is made in the Bill, but it was the practical difficulties which were illustrated and I wanted to make it absolutely clear that we are not setting ourselves up as insurance experts but will be taking the requisite advice from both sides of the industry.
Does the hon. Gentleman not recognise that an insurance underwriter who has to settle these claims has probably far greater experience than those in the industry, who merely pass the claims on?
This may be so, but there will also be some experience on the part of employers. If we feel that there is any reason why we should consult insurance interests to get advice, then I do not see why we should not do so.
The hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel) asked why this Bill was restricted to the construction industry instead of applying to other industries where there was a similar problem. We are dealing with this industry because we really know some of the answers. I accept that there are other industries where it appears that labour-only sub-contracting is becoming a problem and representations have been made to the Government by various organisations. I hope that once this legislation is on the Statute Book it will constitute a good guide to what should be done in other industries, although I accept that there are difficulties because no industry is identical with another.
Would the hon. Gentleman put this to his colleagues. I am dealing with the Forestry Commission, which is a public body. There is no need for a Bill because the Government are the main employers. It is something that Government policy ought to extend across the range of industry.
I will certainly draw the attention of my right hon. Friends to those remarks.
The hon. Member for Liverpool, Garston (Mr. Fortescue) raised the question of a tax amnesty. However, these people have to go somewhere, and if they leave the building industry they are caught anyway. Since the building industry is their industry there is every reason why they should remain there because they may as well remain in the industry where they can earn some money.
I am anxious for them to be caught but what I am not anxious should happen is that the procedure of catching them and calculating their liabilities should drag on and on for years, as I fear it will do owing to the intricacy of the problems that are set.
The Inland Revenue is pretty wise as to how far it can go and to how long an investigation can take. I do not think it will allow things to go on too long.
A good deal of the discussion has concentrated on the mechanics to be adopted for controlling labour-only subcontracting by the self-employed. The principle that something must be done to deal with the situation and with abuses of the present system is well accepted. It is only to be expected that there will be some reservations about the methods to be used in specific cases. The House is entitled to know where we have departed from the recommendations of the Phelps Brown Committee. The report was a thorough and well-considered study, and we have departed from it only for very good reasons and after a full examination of the issues involved.
The differences between the proposals of the Phelps Brown Committee and the measures put forward here are differences of execution rather than of intention. As my right hon. Friend said, we fully accept the analysis of the problem in the committee's report and the broad outline of solutions proposed. In some circumstances we are obliged to depart from the detailed recommendations.
The first departure arose on the question of admitting to the register as self-employed men who are, to quote the report:
generally in business on their own account ".
This crucial question was raised a number of times this afternoon. Our view is that if any self-employed man were admitted to the register it would have to be on some basis which would not leave loopholes for men who were only nominally self-employed to gain admission. If they could gain admission the whole purpose of the legislation would be defeated.
Several ways of approaching the problem were suggested, and after detailed and careful consideration and discussion with the trade unions and employers' organisations, it became clear that no single test and no combination of tests could provide a clear method of deciding whether a man was genuinely in business. The only possible solution would be to set up a panel to consider each case, with presentation of evidence, investigation by the panel and a determination by the panel in the light of that investigation.
The only direction that could be given to the panel was that it should use its discretion in reaching a decision. This would have meant that the panel would have had to operate rather like a court of law, and it is obviously difficult to accept that sort of arrangement. Not only would it have needed presentation of evidence and investigation but there would have had to be some appeals machinery. We could not have had a panel of this nature, given discretion and an arbitrary power, without allowing the right of appeal. Any other method would, by opening the door to the nominally self-employed, have made effective legislation impossible. It was against this background that the decision was taken to restrict the register to employers.
It is true that that decision may seem harsh, but the consequences for the genuinely self-employed man are worth considering. First, the Phelps Brown Committee found that these men normally work directly for clients. In these circumstances, they would be unaffected by this legislation. Secondly, many self-employed men who are genuinely running a business will, no doubt, find it possible to arrange their affairs in such a way that they can meet the employer qualification. Nominally self-employed men, on the other hand, will not be able to do so. If neither of these circumstances applies and self-employed men wish to work for a contractor, the contractor will either have to take them on as employees or pay a levy of probably about 15 per cent. of payments to them.
My hon. Friend the Member for Bethnal Green (Mr. Hilton) asked whether a contractor would have the right to deduct levy from the payments made to the self-employed man in question. This will be up to the contractor. We do not give him permission to deduct anything. We say that if contractors employ self-employed men in these circumstances, the contractor or sub-contractor will pay the levy himself.
I do not think that there will be any distortion of competition, because every contractor who employs self-employed men will be under the same penalty for so doing. My guess would be that contractors would be prepared to pay the slightly additional amount for genuine craftsmen with specialist skills. I would guess that in these instances the contractor would be prepared to pay the 20 per cent., but not in any other instance.
I am not reassured by my hon. Friend's explanation, because nowhere in the Bill do I find such a provision as that to which he has referred. I simply deduce from the Bill that if a man is unregistered, the contractor who employs him will have certain liabilities for payment but that these will be taken even from self-employed men, and that the levy upon them is to meet certain other taxes and items which people have been dodging but for which I do not find them at present legally liable. That was the point I was trying to clear up.
I am sorry if I did not make myself clear. I referred to the statement by my hon. Friend that it appeared that we were giving permission to contractors to deduct money from self-employed men. The Bill does not say that. It provides that if contractors or sub-contractors employ nonregistered self-employed men in this sense, the contractor or sub-contractor must pay a levy to the Government for so doing. Whether the contractor collects from a self-employed man would be a matter for him, but in that event he would, I think, be in difficulty under certain statutes. We say that a contractor or sub-contractor who employs self-employed men must pay the levy, whatever it may be.
The hon. Member for Hemel Hempstead referred to insurance. This is another matter in which we are not following the recommendation of the Phelps Brown Report. We found that it has not been possible to implement the recommendation of the Phelps Brown Committee to lay employer's liability vicariously on a main contractor in respect of all those working under subcontract to him. This was intended to deal with the case where the employees of several sub-contractors are working on a site and one of them causes an accident.
Unless it can be established which of the men is responsible, it might prove impossible to obtain damages. If the recommendation on vicarious liability were adopted, liability for damages would fall vicariously on the main contractor for whom all the sub-contractors were working as though he were the employer of the sub-contractors and their men. This would apply whether the person who suffered the accident was employed on the site or was a member of the public.
I am advised that vicarious liability in this form is a new legal and insurance concept. Its implications go beyond the construction industry, and detailed study will be required. Some basic problems still need to be resolved; for example, it often happens that there is more than one main contractor working on a site. Indeed, on many jobs which are done in phases there are often a number of main contractors on the site. I am advised that this is a difficulty which we have not yet been able to overcome.
My hon. Friend the Member for Liverpool, Walton asked me to refer to the insurance qualification. While the insurance qualification required for legislation will not completely solve the problems of liability, I think that it will go a long way towards curing some of the deficiencies of insurance in the construction industry. Every contractor who wishes to register—this means virtually all contractors—will be required to take out employer's and third-party liability insurance, and the third-party insurance will also cover the acts of self-employed men who may be working for him. Thus, where self-employed men are working on a site for a sub-contractor, he will be obliged to take out such insurance as to ensure that the actions of those self-employed men are covered by his insurance.
Although the recommendation on vicarious liability is important, I do not think that it is crucial to the success of a scheme designed to deal with the abuses of labour-only sub-contracting by the self-employed. In the circumstances, it has been thought better to go ahead on the present basis rather than delay the introduction of the Bill, and leave the further implications of the vicarious liability proposals to be considered separately by the Departments of State which are involved.
There has been some argument about the possibility of an increase in building costs. Those suggestions are based on misconception of the way in which the legislation will operate. It has been suggested that the administrative expenses of contractors in operating the tax deductions and paying the levy will be considerable. The answer is straightforward. If registered contractors are engaged, there is no liability for levy, there is no liability for deduction of tax and, therefore, there is no administrative cost in this respect. It is our view that, once the Bill is in operation, employment of unregistered sub-contractors will be the exception rather than the rule.
The other possible source of additional cost is the expense of obtaining registration—not simply the fee itself, but the administrative cost entailed even in submitting an application for registration. I assure the House that great care has been taken to ensure that the clerical procedures involved are simple and inexpensive. The fee will be small, and we shall do whatever we can to meet the needs of the necessary administrative costs without imposing too great a burden on the people in the industry.
On the question of insurance, much has been said about the need for contractors to be insured, and I have been asked whether this will place an onerous burden on contractors who will need to carry additional insurance. The insurance that we are demanding for those who go on the register will be of the type in respect of which premiums are already paid by reputable contractors.
On the question of building costs, we should not ignore the positive contribution which the Bill will make. My right hon. Friend has already indicated the wide range of quality of labour-only subcontracting in construction—at its best, a valuable contribution to the industry's working arrangements, but at its worst, in the words of Phelps Brown
faulty work by irresponsible men concerned only with wresting the greatest possible gains from the industry in the short run, and more strained by their own standards or by the control of management.
A number of hon. Members have referred to the National House-builders Registration Council. I have the greatest respect for the work of the council and the improved standards it is creating. I would not have been surprised if there had been, in consequence of the nominally self-employed persons in the building industry, a high percentage of gerrybuilding in this section of the industry.
By preserving the best and eliminating the worst, this legislation will raise the standard of workmanship in the industry and give management an opportunity to improve its organisation and productivity.
The enforcement measures in the Bill will operate through the normal channels for the collection of taxes, and the implementation of these measures will be based on the tax year. This will allow a period for adjustment before the levy, and the tax collection measures announced in the Budget speech will be brought into effect from 6th April of next year. This period should be ample for most contractors to make any necessary arrangements, but those who cannot do so in time will be able to obtain an additional period of grace by applying for provisional registration.
This has been a good debate, although there have been some legitimate criticisms. When everybody is saying that this is election year, I would not have been surprised had there been a more " vicious " attack on my hon. Friends and the Bill. However, most hon. Members have indicated that while they may have some reservations about certain aspects of the Measure they, like the industry generally, welcome it. Both sides of the industry have welcomed the Bill. Both sides of the House have welcomed it. I hope that we shall have the same degree of co-operation in Committee to ensure that the Bill becomes law as quickly as possible.