HC Deb 04 July 1966 vol 731 cc211-22

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Charles R. Morris.]

12.14 a.m.

Mr. T. W. Urwin

(Houghton-le-Spring): It is with a good deal of pleasure that I welcome this opportunity, despite the lateness of the hour, to raise the subject I seek to put before the House. When I looked at the Notice Paper this morning, I anticipated having to do so at about breakfast time, and am glad that I have not had to detain my hon. Friend who is to reply until then.

I wish to draw the attention of the House to what I personally consider—and it is an opinion certainly held within the industry—to be the scourge of the construction industry. It is the system of sub-contracting. This insidious practice is tragically contributing to fragmentation and creating greater inefficiency within an industry which is at the heart of the Government's drive towards modernisation of industry and social expansion.

If we look briefly at the history of labour-only sub-contracting it will be seen that several factors have contributed to the present situation. Immediately after the war there was a very serious shortage of skilled craft labour, coupled with artificially low wage rates and the reluctance of building employers to introduce bona fide incentive bonus schemes, in accordance with the agreement concluded at national level in 1947. All of these factors have assisted in providing a ready-made spawning ground for a growing array of adventurers. The disparity in wages within the industry is being intensified because of the present system.

In order to contract labour, particularly over the last few years, employers have been in fierce competition with each other, and to attract the labour required, they have offered substantial under-the-counter payments, in addition to nationally negotiated wage rates. Even this aspect of the situation has been lessened, because in many cases these conditions of employment have been superseded by recourse to what we know as labour-only sub-contracting.

Under this system, the main contractor, having successfully tendered for building work, engages one, and frequently several, labour-only sub-contractors on an undiluted piece-work basis, on the premise that these men become self-employed and independent contractors. The main contractor is thereby the employer only in name. It is true that many of the larger contractors in industry now only lend their name to the contract which they have secured. In this extremely mobile and' highly casual industry, still undermanned and notably deficient of skilled craftsmen, this invidious system permits and encourages the use of semi-skilled or even unskilled labour to supplement the skilled men available. The average labour-only sub-contractor has few, if any, scruples and it can readily be understood that there can be a serious diminution in standards of workmanship, with subsequent disastrous consequences for a consumer.

Equally abhorrent is the fact that this type of employment provides to the unscrupulous the opportunity of cheating the public by the evasion of statutory responsibilities. Here I would quote the instance of the Construction Industry Training Board, responsible for raising the training levy. In 1965 it circularised 45,000 labour-only sub-contracting firms for assessment purposes. Responses were varied, and indicated very clearly the anarchic state of the industry and certainly of this particular section of it. In the case of 15,000 of those 45,000 firms, forms were returned to the Dead Letter Office of the General Post Office, the intended recipients being untraceable. Another 16,000 have so far not deigned to reply to the circular. Seven thousand more claimed that because of self-employment or being in partnership as self-employed persons, they were not liable to pay the training levy. Seven thousand more forms were returned by employers who claimed that their wages bill was below the minimum of £5,000 per annum and, therefore, they were also entitled, according to their claim, to exclusion. Only 647 out of the total have conceded their liability to contribute to the Construction Industry Training Board by levy.

Additionally—and this exercise emphatically underlines the possibility of participation in other evasion—these people can, and do, avoid payment of National Health Insurance contributions. They frequently fail to take out employers' liability insurance policies against accidents. They ignore their responsibilities under the Redundancy Payments Act, 1965. The liability for payment of Income Tax on an annual assessment basis instead of, as hitherto, on the P.A.Y.E. system is also subjected to considerable abuses.

In similar fashion, the joint industrial agreements in the construction industry are rendered nugatory. Safety, health and welfare regulations are either ignored or treated with impunity. The labour-only sub-contractor makes no contribution to the future of the industry because of the non-inclusion of apprentices in his gang—a veritable burden on the industry.

Every trade union office in the construction industry—and I speak with a good deal of knowledge having regard to my previous experience as a full-time officer for a trade union in the construction industy—has literally been inundated with claims from members against these buccaneers for recovery of wages which were not paid at the time when, quite frequently, the sub-contractor has absconded and taken with him the money that was negotiated with the main contractor.

Mr. Alfred Morris

(Manchester. Wythenshawe): Parasites.

Mr. Urwin

They are all parasites. Holidays-with-pay stamps frequently not applied to the holiday-with-pay stamp card, unpaid National Insurance stamps and unpaid Income Tax to the Inland Revenue—these are the problems with which trade union officers have been, are being and will continue to be faced under this system of labour-only sub-contracting.

It was against this background that the Amalgamated Union of Building Trade Workers, fierce opponents of this unsocial system, recently sought by industrial action to abrogate a labour-only contract at a power station contracted to the Ministry of Power. I hesitate somewhat to raise this issue because of the danger of infringing the rather delicate rules of order. Let me say briefly that the part of this contract for constructional work was let to a national firm of great repute. Despite assurances from the local trade union officers that sufficient labour could be supplied on a direct employment basis, the firm chose to operate exclusively on a labour-only system.

The construction company, with labour-only sub-contractors involved, was then engaged for a portion of the work. The sub-contracting company was formed only after the main contract had been let to the main contractor, a typical example of mushrooming, as we describe it in the construction industry. This firm, whose owners are a husband and wife, with £500 capital, with their home as their registered office, was engaged in the kind of practice which operates in so far as labour only is concerned. An industrial dispute was declared, as a result of unsuccessful efforts of the union concerned officially and legitimately to terminate this sub-contract. They were rejected by the firm.

An injunction was sought, and refused by Mr. Justice Lawton. On appeal, Lord Denning and Lord Justice Diplock, by what I consider to be somewhat weird interpretations of the 1906 and 1965 Trade Disputes Acts, reversed the previous decision and granted the injunction.

I mention this merely to highlight the situation which now developed in so far as sub-contracting is concerned. These judgments, as in the case of Rookes v. Barnard, appear to open the door to further attacks on the rights of trade unions to protect the interests of their members. Most certainly they are hostile to the A.U.B.T.W. in its offensive against labour-only sub-contracting. Backed by the force of law and the prospects of greater escalation of subcontracting as a result of the ultimate introduction of the Selective Employment Tax, these brigands must be relishing the prospect of an even greater bonanza in future.

This is by no means a trivial matter, as it is estimated that there are already some 250,000 men, equal to one-sixth of the labour force, currently employed on this basis in this great industry. Neither the industry nor the country can afford, for moral, social or economic reasons, to see a growth of this unpleasant system.

Because of the failure of the union, gallant as has been its efforts, to control this system by industrial methods, I call upon my hon. and right hon. Friends in the various Ministries concerned to address themselves, perhaps a little more urgently, to the task by exercising more statutory control, and thereby participating in a restoration of order out of the chaos which now exists.

My hon. Friend the Parliamentary Secretary, I know, is fully cognisant of the difficulties which are inherent in this situation, and I ask her to convey to my right hon. Friend the Minister of Labour, whom I hope to see back in his place quickly after his illness, the deep concern which is felt, and to suggest to him the possibility, through the National Joint Advisory Council, where, I know, he has made great efforts to resolve this matter, of finding an acceptable solution of this problem. May I further suggest to him that it may be opportune to consider further the possibility of the introduction of legislation to apply control over this veritably monstrous practice. This would inevitably be essentially a long-term solution.

Hitherto, labour-only has been largely confined to housing. This may spread quite rapidly into civil engineering and other large building contracts. Here I turn to what I describe as the building Ministries—of Education, Power, Health—the big spending Ministries, and suggest to my hon. and right hon. Friends in those Ministries that they consider with the Minister of Labour the possibility of introducing into future contracts clauses which will prohibit the use of labour-only sub-contracting, and insist on the employment on direct labour of workers nominated and directed by those Ministries.

I should like to leave my hon. Friend sufficient time to deal with the matters which I have raised, in the full knowledge that I have her sympathy, and, I am sure, that of my right hon. Friend the Minister of Labour, in dealing with this very important aspect of the construction industry.

12.29 a.m.

The Parliamentary Secretary to the Ministry of Labour (Mrs. Shirley Williams)

I should like first to thank my hon. Friend for raising this subject, a very important one, of which he has a very great deal of knowledge and a very great deal of experience. I might point out also that, at this late hour, it is unusual for such a substantial audience of hon. Members to be in the House, and that exemplifies the importance of the subject to many people concerned with the construction industry.

The practice of labour-only subcontracting normally takes one of two forms, of which the first is the form of employment by labour-only sub-contracting employers, and, until recently, that has been the more usual form. The form which is growing rapidly at present is that which consists of gangs of men who sub-contract for labour only on a self-employed basis, and that presents, if anything, even more difficulties than the first form.

My hon. Friend will bear me out when I say that it is most marked in the South-East and other regions of acute labour shortage, and it is more common in the construction industry than in any other, though it has occurred in the engineering industry as well.

If I may, I should like to look at some of the specific points raised by my hon. Friend. He mentioned the disparity in wages, and we must recognise that that can be inflationary in its effect. The disparity in wages is possible because many of the fringe and supplementary benefits available to employed men are not made available to self-employed men or those on labour-only contracts. In consequence, the difference is made up by additional payments, which can be both inflationary and lead to ill feeling in the industry.

My hon. Friend referred to standards of workmanship which are alleged to be very poor in labour-only sub-contracts, and he also referred to the fact that in certain cases tax is evaded. A more common form is where men described as self-employed claim expenses which are not available to employed men who otherwise are doing the same work. That leads to a strong feeling of injustice between men engaged on identical work and in identical conditions in all other respects.

My hon. Friend also referred to the implications of the judgment in the Emerald case. He will not expect me to discuss that at length tonight. Suffice it to say that we are aware of the concern that it has caused in the trade union movement. It has been raised and evidence about it has been given to the Royal Commission on Trade Unions, and I hope that the Royal Commission will be able to look at the implications of the case in the consideration which it gives to trade union law.

My hon. Friend spoke about the effects of labour-only sub-contracting on the industrial training levy, and the fact that it is very difficult to get an effective levy paid by a labour-only sub-contractor, in particular a self-employed labour only sub-contractor. He gave an impressive list of figures which show how few firms are liable to pay the levy. The Construction Industry Training Board is now looking at ways of dealing with the problem—ways which I hope that we shall be able to make more specific to hon. Members before long.

On the problem of tax evasion, it is worth telling my hon. Friend about the constructive steps being taken. Last year, the Board of Inland Revenue authorised tax inspectors for the first time to call for special returns from all contractors employing labour-only sub-contractors and making payments of over £100 to them, the aim being to find out whether evasion is occurring. My hon. Friend will be glad to know that the evidence resulting from the study will be available in the autumn of this year. Another study has been done by the Ministry of Pensions and National Insurance into the evasion of National Insurance contributions, with particular reference, in the case of self-employed men, to compliance and classification. Once again, the evidence will be available to hon. Members at a fairly early stage, and certainly not later than the autumn.

One of the most serious aspects of the problem is the effect on the organisation of the trade union movement itself. There are those of us who feel strongly that in the construction industry, as in some others which have been plagued by the casual nature of the trade, it is important as far as possible to move on to a more secure type of employment which gives a man the certainty of permanent and steady work throughout his lifetime and can therefore justify him in acquiring greater skills. Many of us feel that the long-term solution for this industry should be along the lines which have occurred in other industries which were equally plagued by the casual nature of the job. This is a highly organised industry. The effect on the trade unions of the growth of labour-only sub-contracting is certainly a serious element of it, as it means that those who come under labour-only sub-contracting, and particularly those who are self-employed, are not governed by nationally negotiated agreements and the general conditions and standards in the trade.

My hon. Friend also referred to the lack of supervision for safety. This is a very serious aspect of the problem because, as my hon. Friend knows, nobody who is listed as self-employed has protection under the Factories Acts. This is an industry which suffers from a very high accident rate, and one of the particularly difficult aspects is applying high safety standards. At the moment my Ministry is engaged in a detailed inquiry into construction sites with regard to safety, and one, of the particular objects is to discover what provisions are made by large employers of labour-only sub-contractors for accident prevention and how far this is able to be carried out. I hope, again, that we will be able to make this information available to my hon. Friends who are interested in this subject.

My hon. Friend said that the question had been raised with the National Joint Advisory Council with particular relevance to the position in construction. At the last meeting of the Council there was a full discussion on all aspects of labour-only sub-contracting, in which the representatives of both employers and unions took a full part. The position at the moment is that the Ministry has been asked to pursue some of the inquiries I have mentioned and to report back to the Council at the earliest possible opportunity, and this will be done

The T.U.C. at the N.J.A.C. suggested that there should be an independent inquiry into the problem in construction. My right hon. Friend pointed out that such an inquiry should look at the wider question of labour-only sub-contracting and should look at the broader problems of the casual nature of the industry, at the need for training in the industry, at the provision of a stable pattern of employment, and at the efficient use of labour in the industry. I think that my hon. Friend will be with me in suggesting that a wider inquiry would be very useful, provided that it could look closely at the problems that we are discussing tonight.

I should perhaps mention one or two more specific steps which are being taken. Manpower working parties of Little Ned dies in building and civil engineering are looking at the broad problem of casual working, and a sample inquiry is going ahead into the nature and extent of casual working in the industry This is being done on behalf of the Ministry of Labour and the Ministry of Public Building and Works, the results of which should be available in the autumn This is supplemented by a survey of operative skills which was undertaken by the Building Research Station, starting in June, 1964, and ending in March the following year. The results of this should be available shortly.

My hon. Friend may be interested to know that my Ministry is intending to hold informal discussions with trade unions and employers in construction on the question of a wider independent inquiry to which I have referred. I should also mention, because my hon. Friend mentioned the question of Government contracts, that the Ministry of Public Building and Works recently sent out a circular to all those firms which contract for Government construction contracts under the Ministry of Public Building and Works, designed to prohibit the use of self-employed labour-only sub-contractors.

Broadly, we are pressing ahead with trying to get the basic information which we must have before we can decide what further steps should be taken. My hon. Friend will be aware that we need to carry with us a number of people in the industry who are not contractors, and he will also be aware of the difficulties that arise from labour-only sub-contracting. I think that my hon. Friend will be interested to know of the first steps which have been taken in this respect.

My Ministry is encouraged to see that the President of the National Federation of Building Trade Employers, Mr. L. G. Pearson, said recently that there were very unfortunate consequences of self-employed labour-only sub-contracting. I think that not all employers take this view, but he made the point strongly that nobody should use labour-only subcontracting to evade his responsibilities to his men. My hon. Friend will be aware, in respect of redundancy payments, that it was made clear by the Ministry of Labour that responsibilities under this—falling under the first type of labour-only sub-contracting—would have to be carried out, and that it would not be possible to dismiss men and reemploy them as a method of evading responsibilities under the Redundancy Payments Act.

I want to point out that there are difficulties involved in legislation on this subject—although there is no reason for suggesting that such difficulties should not be got round. Both sides of the industry are well aware of these difficulties. and a section of the trade union movement—not the including the union referred to by my hon. Friend, the A.U.B.T.W.—is moving towards a system of meeting these by agreement, introducing a new rule into the general working rules of the industry. This is fairly effective in its application to those employers providing direct labour only but does not deal with the second type of case, the self-employed labour-only sub-contractor.

There is another way forward which has recently been taken by the A.U.B.T.W., namely, the agreement with Tersons, an important construction firm, under which the firm agreed that it would not use self-employed labour-only subcontractors. This is one way to push forward in dealing with this problem.

I end by saying that this is an industry which requires large-scale reconstruction, where we need to get to grips on a much greater scale with the requirements of the industry, and in which provision must be made for much better training. There are difficulties here with the labour-only sub-contractors. This is an industry where we need to get on to a basis of permanent work as far as possible, and where we need to provide an incentive for employers to use the best methods not only in getting labour but also in improving conditions in the industry. It is in the light of these long-term requirements that I say that my Ministry and the other Ministries to which I have referred are very well aware of the problems raised by my hon. Friend. I repeat that I am grateful to him for raising the subject on this occasion.

Sir John Hobson

(Warwick and Leamington): I do not know whether the hon. Member for Houghton-le-Spring (Mr. Urwin) is satisfied with the reply of the Minister, which seemed to consist largely of saying that everything would he inquired into, and that we would even have an inquiry into what the inquiries should discuss.

There was one question that I wanted to ask. In the course of his detailed and interesting speech the hon. Member stated that the Selective Employment Payments Bill would increase the amount of labour employed on labour-only subcontracts, particularly where individuals only were concerned. I wanted to ask the Minister whether it was not a fact that that Bill is bound to have the effect, in many trades and industries—more especially in the construction industry—of making it even more advantageous to employ a host of individuals on a subcontracting basis of labour only, particularly where individuals are concerned. Because they will be self-employed the contractor or sub-contractor will pay no Selective Employment Tax under Clause 42 of the Finance Bill. Those employing organised union labour on the one hand will pay the tax and get no refund, whereas the labour-only sub-contractors will pay no tax at all. This will increase the pressure in many trades—including the construction industry—for this device to be extended—

The Question having been proposed after Ten o'clock on Monday evening, and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at sixteen minutes to One o'clock.