INDUSTRY (SELF-EMPLOYED PERSONS) (Hansard, 26 March 1968)

§ Mr. E. S. Bishop (Newark)

After over nineteen hours sitting in the House I am still glad to have the opportunity of raising the subject of the abuses of self-employment in industry. In recent months the gnomes of Zurich have been rightly blamed for their ignominious activities, but here in Britain equally damaging activities have been taking place without much publicity. I refer to those aspects of self-employment in industry where workers have found a way of hiring themselves direct to an employer or through an agent, and through what is really a fiddle increasing their income by evading much of the legislation passed by Parliament for the protection of society in the last half century.

I believe that if this practice grows—and it has been increasing—we may find workers in many industries and in commerce becoming "self-employed". There is little to stop workers giving their notice to their boss and then working at the same job, in the same place, but with higher pay, for when one is not an employee the network of legislation such as that concerning hours of work, conditions affecting health and safety, training, payment during sickness, compensation, redundancy and the need for trade union representation no longer applies, and the employer no longer has to pay S.E.T., so that with the higher 1498 rates of S.E.T. this will be a greater temptation.

The practice, which is at present widespread in design and drawing offices, could spread to clerks, shop workers, tradesmen, engineers and many other grades of workers, for already some building workers, designers, inspectors, technicians and professional workers are among the "self-employed". I will briefly define the various classes of employment. There is the employee, who works for an employer and who is protected by legislation regarding the hours he works, the conditions under which he is employed, and by trade union agreements, and who is covered by many Acts of Parliament regarding contracts of employment, redundancy, sickness benefit and much else.

There is the draughtsman or designer or technician who works for a contract office which employs workers and hires them out to work in drawing offices of firms for an agreed rate; they are continuously employed, their employer paying their National Insurance contribution, and statutory provisions apply. They are covered by national and local agreements.

Contract designers or draughtsmen are used by firms when they have an urgent need for extra staff whom they may not wish to employ permanently, although some contract men are employed for long periods in firms. Many are trade unionists.

On 17th July, 1956, Sub-Committee E of the Select Committee on Estimates asked the views of the then Ministry of Supply on a paper submitted by the then Association of Engineering and Shipbuilding Draughtsmen—now the Draughtsmen's and Allied Technicians' Association. The paper concerned the trade union view regarding the use of draughting agencies and contract workers in engineering. The Ministry view was that it concerned the main employer of such labour, and in the absence of evidence of abuse, or that excessive additions to the cost of Government contracts was being incurred, it would not interfere in the exercise by a firm of its own discretion.

Trade unions accept that consulting firms employ workers who have a specialist knowledge of a particular aspect of engineering, and that such employees are 1499 employed on normal staff conditions. Some contract firms employ staff in their own offices, and that is considered by trade unions to be better than sending employees out to work for the firms to which their employer is contracting, and there are trade union agreements for many such contract technical workers.

But with self-employed workers the position is very different, and it is thought that the great majority of self-employed draughtsmen and technicians are not really self-employed but are, in effect, bogus. Apart from supply of their own drawing instruments, they work in an office provided by an employer, using the employer's drawingboard and other equipment, and being subject to office conditions which have been provided as the result of trade union activity over the years; but they are not eligible to become trade unionists because technically they are their own employers. They work for an hourly rate of pay, and their discretion in what they do for their employer is not unlike that of any other employee with whom they work.

What are the anomalies? Some employers, being short of technical workers, or wishing to evade the obligations they should, socially and morally, accept, avoid the consequences of statutory legislation which Parliament has seen fit to pass during half a century. Self-employed men are not paid for sickness or holidays, and get no superannuation. They are not covered by Acts affecting contracts of employment, or the Redundancy Payments Act, or the Industrial Training Act. They can work unlimited hours, and in conditions not controlled by the Act, and they can undermine the work of trade unions by avoiding the obligations of collective bargaining and the regulation of salaries. S.E.T. apparently does not affect their real employer, and it also appears that the prices and incomes legislation does not affect them, as they are not employed in the usual way by an employer. Self-employed workers can get Income Tax rebates, sometimes claiming allowances for travelling, for the services of a member of the family who, it is claimed. acts as a secretary, for a domestic telephone, and for the use of their home as an office which they classify as business premises.

There are, of course, genuinely self-employed people, including doctors and 1500 authors, and others who may work from their homes, and, of course, there are consultants who are also self-employed.

But possibly most seriously such people working as so-called self-employed technicians within an office where other workers are organised can cause tensions and the disruption of normal working arrangements. Employers are sometimes willing to pay 30s. an hour or more to self-employed men because it does not commit them to pay more to other staff, and, of course, the employers are not loaded with the social and industrial obligations they bear to employees.

Self-employment is a threat to the trade union movement, without whose assistance industry could not function efficiently, or make progress. It is incompatible with the objectives which Parliament has for working within industry. It leads to a lowering of technical standards, self-employed workers owing no allegiance to their employer. And, of course, bad feeling is created with other workers. In 1966 there was the strike caused at the English Electric Company's factories at Whetstone and Rugby, which was finally settled with the firm accepting an agreement to use only contract firms whose conditions of employment were confirmed as acceptable to D.A.T.A. and the unions.

Self-employed persons are not eligible for trade union membership. There are agreements or understandings with a number of firms including Rolls Royce, Marconi, British Oxygen and other firms, but in the last year there were estimated to be 90 firms in London and the South-East area using self-employed men. The practice is also applicable in South Wales, Lancashire, the Midlands, and the North.

Since my election to Parliament in 1964, I have been seeking to eliminate this kind of abuse. I am aware that the Phelps Brown Committee is looking into other aspects of self-employment which is particularly applicable to the building industry.

Early in 1966, I was told in reply to a Parliamentary Question to the Minister of Labour that he would deprecate any attempt to deprive employees of rights against their will, but claimed that the question of whether or not a person was self-employed could only be finally decided by an industrial tribunal or court 1501 of law when a claim arose. But trade unions are reluctant to act as informers.

I have tabled more Questions on the subject from time to time, and on 8th March, 1966, I led a deputation to the Minister of Labour to express, with members of other trade unions who are in the House, our concern at the growth of self-employment. In February of last year, I sought the opportunity to lead another deputation to the Minister, but was told that D.A.T.A. was also seeking an interview on the subject, and in fact such a meeting was held with the union and the union's views were received sympathetically.

I have also urged Ministers in charge of Government Departments employing self-employed labour to stop the practice. I have been told that it is not Government policy to encourage abuses, but I have good reason to think that the practice continues.

I am sure that the Minister is sympathetic to the case that I have outlined. However, we seek not only sympathy but action to remove the abuses. I know that the Parliamentary Secretary cannot look into the aspect of tax evasion, or give guarantees that no Government Departments will employ, directly or indirectly, bogus workers of the category that I have outlined, and that Departments like the Ministry of Defence and the Ministry of Public Building and Works will not employ them or give contracts to their suppliers, which permit their employment.

However, I hope that the Minister will urge his right hon. Friend to make it clear that he feels strongly that the abuse of self-employment is so deplorable and such a menace to good industrial relations and the good order of industry that he will urge his Government colleagues to get their brooms ready to sweep the practice away. I hope, too, that he will consider how the statutory legislation for which he is responsible can be reviewed in its operation so as to end self-employment which is not genuine, and ensure that the S.E.T. and prices and incomes legislation which allows evasion will be checked for loopholes.

I warn the Minister that this is a menace which is growing and can cause great harm to our industrial society, 1502 whose workers and whose trade unions and managements are anxious to foster the harmony essential to progress and productivity.

§ The Joint Parliamentary Secretary to the Ministry of Labour (Mr. Roy Hattersley)

Not for the first time, my hon. Friend has done the House a service by drawing its attention to the effects and abuses of self-employment in industry.

I want to begin by putting in perspective the range and nature of the problem. According to the findings of the 1966 Census of Population, there are in Great Britain about 1½ million self-employed people, half a million of whom are themselves employers of labour. It is right to say that the abuses which go on are principally to be found amongst the million or so self-employed people who employ no other workers.

In 1951, this group represented about 5 per cent. of the working population. By 1961, the proportion had fallen to nearer 4 per cent. Between 1961 and 1966, it appears to have remained static at about 4 per cent. Evidence obtained from the National Insurance returns suggests that, since 1966, there may have been some increases, particularly in the construction industry. Overall, however, the increase has been slight.

It is important to bear in mind that, in some activities, self-employment is certainly legitimate and probably a desirable system. My hon. Friend referred to doctors and others, and the use of agencies to meet peak demands in a factory which, throughout the year, has an uneven workload.

However, my hon. Friend went on to draw a distinction between this and what he rightly described as bogus self-employment, and he called attention to the abuses involved in that system. He was in fact referring to attempts to evade social liabilities by changing the status of the employment without changing the nature and character of the work. He was rightly referring to those occasions when a man goes on doing the same job that he has always done, or takes a job which has previously been performed by an employee, yet by describing his task as self-employment obtains real or imaginary benefits for himself and for the company in which he works.

1503 It would be wrong for me to pretend that some of the advantages so obtained are not very real indeed, especially from a short-term point of view. But despite these financial advantages, it is important to bear in mind that there is, in general, no evidence of a massive shift towards self-employment. I believe that massive shift has not taken place for three reasons. The first is that a majority of employers are anxious to meet their social obligations. The second is that trade unions are determined that they should do so. The third is that the benefits, obtained through avoiding the payments associated with the direct employment of labour, are not as great for the individual company as they may first appear and for the individual employee they may be non-existent.

Let me list the financial advantages which might, and indeed do, accrue by such a transfer. They appear substantial. For a man earning £20 a week, in some industries the transfer of status may mean for his company and for himself a combined saving of between £3 or £4–15 to 20 per cent. of his total wage.

For the individual it may make some difference to the amount of Income Tax he is liable to pay, and Schedule D taxes are certainly more difficult to collect than P.A.Y.E. His National Insurance contribution as a self-employed person will be less by 28s. than the total of what he and his firm would have to pay if he were employed directly. In terms of Selective Employment Tax liability, the difference for the firm, if it is not eligible for refund, may now be 25s. It will soon be 37s. 6d. as a result of the increase in rate announced in the Budget. The Industrial Training Board Levy, which in engineering may be 2½ per cent. of the wage bill, is avoided. The company also avoids the contingent liability of its share of payments under the Redundancy Payments Act and payments in lieu of notice under the Contracts of Employment Act. It may also avoid payment of wage rates and fringe benefits which have been determined by the normal negotiating machinery in the industry.

But it is important to balance against these apparent advantages the disadvantages of self-employment. The first and most obvious is the loss of benefit that a man who chooses self-employment will undoubtedly suffer. He loses his unemployment benefit. He loses his 1504 industrial injury benefit. He loses his redundancy payment. He loses the security offered by the Contract of Employment Act. He loses the earnings related supplement to sickness benefit and the graduated portion of the National Insurance retirement pension. He will lose the protection of a union and the security of a steady job. The company loses the stability that flows from properly negotiated wage agreements.

My hon. Friend has naturally, because of his personal associations, referred to problems of self-employed draughtsmen. It is important to remember that for draughtsmen, on most occasions, one of these financial advantages will not be offered to a company which chooses self, rather than direct, employment. Most draughtsmen are in manufacturing and there is, therefore, no question of saving Selective Employment Tax. Indeed, since the House of Lords decision on the Reliant Tool Company, contract drawing offices doing work for manufacturing companies are equally entitled to the refund.

But it can be, and indeed is, argued that such financial advantages are to be obtained in the construction industry. It is because of the general need to examine this aspect of employment in that industry, as well as the more general issues, such as the casual nature of construction employment, that my right hon. Friends set up a year ago the Phelps Brown Committee to inquire into the use and engagement of labour in construction with particular reference to labour-only sub-contracting. Its report is expected this summer.

My hon. Friend's union urged that the inquiry might be extended to examine self-employment outside the building industry. While such an extension was not possible, we were able to assure that union that evidence from it would be taken by the Committee. We also promised the union that we would ensure that the present regulations governing the position of the self-employed would be enforced. I ought to make it clear that no company or individual can obtain for its workpeople, or for himself, self-employed status simply by a declaration that an employee, or he, has become self-employed.

There is a legal distinction between a contract of service, and a contract for 1505 services. The criteria which determine under which of these headings work-people should be classified are concerned with the degree of detailed control the management has over its employee, and the nature of the relationship between an employee and an employer. A self-employed person must be working virtually on his own initiative, and under his own supervision.

When an employee is not genuinely self-employed by these rigorous criteria, he is not entitled to the advantages associated with that status. The Inland Revenue has drawn the attention of its tax inspectors to the need to examine claims of self-employment with special care. The Ministry of Social Security, through the recent enactment of the Public Expenditure and Receipts Act, has strengthened the power of its inspectors in obtaining information from labour agencies, and has, in the recent past, mounted major surveys at construction sites to check the level of compliance with National Insurance registration.

1506 In short, the Government's attitude is clear. Where self-employment is genuine and beneficial, we insist on its right to continue, but where it is bogus and intended simply as a method of evading responsibility, we are determined that unjustified benefits should not accrue. The opportunities for this sort of thing obviously vary according to the employment practices of different industries. The construction industry, in which there is so much casual employment is clearly open to it, and in this industry self-employment seems to be increasing markedly. We are awaiting the report of our inquiry to know what remedies we must apply to this potentially dangerous situation. For the time being we can see the potential dangers. When the report is at our disposal, I think my hon. Friend will see that we will act with dispatch and determination to end what I reiterate is a potentially dangerous industrial situation.