HC Deb 25 July 1969 vol 787 cc2345-56

4.30 p.m.

Mr. Peter Archer (Rowley Regis and Tipton)

I am grateful for this opportunity, partly because, as a lawyer, I confess to a feeling of guilt. My right hon. Friend will know that it is not often I feel the necessity of apologising for the legal profession, but it is true that in dealing with some of these matters we have continued to hold fast to concepts which were evolved in a very different age.

The legal textbooks deal with industrial relations under the heading "master and servant". That is outdated for a number of reasons, not least because it fails to take account of practices which, to those who know them, are everyday matters, particularly the practice of management contracting with a person not for services but for the carrying out of a complete piece of work in return for a specified fee.

This is not even a particularly modern evolution. In the part of the country where my constituency is situated, the Black Country, it has been known at least since the eighteenth century. In coal mining districts it was widespread under the title of the "Little Butty" system, and it persisted well into the twentieth century. It is well known in the iron firms, and for a long time it has been known in the building and construction industry. The Royal Commission on Labour in 1894 had complaints from trade unions associated with the building industry about labour-only subcontractors of whom it was said that, having no reputation to lose, they paid low wages, used inferior materials and scamped their work.

I hasten to add that those who made the complaints insisted, as it is only right that I should insist this afternoon, that it was not true of every self-employed independent contractor. There are many who have perfectly legitimate reasons and who carry out their work quite satisfactorily in this form, but even then there were all too many of whom complaint could be made.

But the practice has become much more widespread of late, particularly in the building and the construction industry, for a number of reasons which were examined in some detail by the committee under Professor Phelps Brown which reported in July, 1968. One group of reasons reported by the committee was rather disturbing. These reasons relate to a method of securing for oneself an almost illicit exemption from the financial contributions which the rest of us are called upon to tear.

It is a way of evading selective employment tax; it is a way of evading paying a substantial proportion of social security contributions; it is a way by which the employee can pay Income Tax under Schedule D instead of under Schedule E so that he pays a year in arrears and gains 12 months' virtually tax free bonanza.

These matters were examined in some detail by my hon. Friend the Member for Newark (Mr. Bishop) in a debate in the House on 26th March, 1968. I do not propose to attempt to embellish what he said on that occasion, but this is an example of what has become almost the national pastime of calling things by fancy names in order to beat the Chancellor of the Exchequer.

There is a feeling abroad among people who are otherwise honest and unselfish that there is one person who is fair game for every confidence trick and that to snatch every penny one can from him by whatever means commends itself is legitimate, and morally does not count. I refer to the Chancellor of the Exchequer. I am grateful for this opportunity because this is a further example of this kind of attitude, and I should like to seize this chance to make my protest, not because of the real regard in which I hold the Chancellor, but because it is not he who loses. The people who lose are other members of the community, often decent, hardworking people, who have done nothing to deserve having this burden transferred to their shoulders.

Professor Phelps Brown's Committee gave a startling example of this in considering the effect of financing the industrial training scheme. Paragraph 329 points out that the Construction Industry Training Board inquired of a number of employers and local authorities the names and addresses of all the labour only sub-contractors who carried out work for them in the year 1964–65. It was supplied with 45,794 names and addresses and it duly issued 45,794 forms. Of those, 15,444 were returned through the Dead Letter Office; the Post Office had never heard of the people concerned. From another 16,024 no reply was received. So that out of the original 45,794 it received replies from only 14,326, and of those 6,667 revealed a payroll of less than £5,000 per annum, 7,012 were able to satisfy it that they were self-employed and did not employ anyone and were not therefore liable to levy. Out of the original 45,794, only 647 turned out to be leviable.

I invite my right hon. Friend the Minister of Public Building and Works to say whether, to protect the public from this kind of unfair transfer of burden, the Government have considered the possibility of implementing the recommendation in paragraph 448 of the Phelps Brown Report to the effect that anyone who pays for construction work by someone other than a registered employer should be deemed to be the employer of the person he pays, so that the person who orders the work will be responsible for Selective Employment Tax and other employers' contributions for social service purposes and for deducting income tax.

That is not the full extent of the objection. It is true that if the matter stood there the extension of this practice would be condemned by the very reasons for its spread. One objection emerges from paragraph 340 of the Phelps Brown Report, in which it is pointed out that in the public sector of the building industry, labour-only sub-contracting is very much less prevalent, partly, admittedly, because it is disapproved of by the trade unions. But another substantial reason appeared to be that officials believed that it was very much more difficult, with this method of getting the work done, to keep control of standards and maintain quality.

But perhaps the most serious mischief with which we are confronted is a concomitant of avoiding liabilities, because when a person seeks to avoid liabilities he frequently finds that he has avoided becoming entitled to benefits. One example is payments under the Redundancy Payments Act. A number of workers who have taken part in this practice discovered that when they were no longer in work they were not entitled to payments under the Act.

Perhaps the most serious aspect of this matter concerns responsibility for industrial safety. The law relating to master and servant imposes on employers an obligation to consider the safety of their employees. They must provide safe equipment and ensure that there are safe methods of working. If an employer fails to do this and injury results, the employer may find that he is liable to pay a substantial sum of damages. There is, however, no such obligation on a subcontractor. He may have the same obligation as other members of the public, but he certainly does not have the obligation of an employer.

Therefore, someone who is injured in consequence of the negligence of a subcontractor, or someone who is himself a subcontractor when he is injured, may discover that not only does he undergo the pain and suffering concomitant upon the injury but that, having lost a considerable time from work and having found his earning capacity permanently impaired, he is not entitled to recover compensation from anyone. There is a gap in the family budget and there is no method of closing it.

That, again, is not the full extent of the mischief because, if someone might be under an obligation to pay damages when a victim is injured, that someone might feel under a responsibility, at least to himself, to ensure that no unnecessary injuries occur; but with no one responsible in damages, there may well be no one who feels sufficiently strongly that he has an incentive to ensure that no injuries occur. Therefore, accidents happen which need never have happened. Limbs are lost, eyes are lost and sometimes lives are lost which could have been saved.

If the subcontractor employs his mates, if he is the kind of subcontractor who arranges with the management to provide a fixed body of labour to do the job, he will be responsible as an employer to his mates. Unhappily, however, the very factors which make him a labour-only subcontractor often ensure that he is not in a position to provide expensive equipment and, if an injury occurs and an award of damages is made against him, that he is not in a position to pay the damages, either.

If the Bill recently introduced by my hon. Friend the Member for Consett (Mr. David Watkins) reaches the Statute Book, as we may now reasonably hope, those who employ labour on this kind of basis will be under an obligation to insure. Where this practice prevails, however, it is sometimes all too difficult to enforce even those laws which have reached the Statute Book.

An attempt was made in the building industry by the National Joint Council to meet the problem in working rule 8, which imposes upon the main contractor a number of obligations, including an obligation to satisfy himself that those who work are covered by insurance against employer's liability. For reasons which all of us who have sat in the House during the past Session know well, however, this is not a rule which is legally enforceable, and all too often it is not enforceable by any other method, either.

Sometimes, too, those who take part in the arrangement are misled—I do not suggest deliberately, but they are misled—when they are informed that there is in existence a contract of insurance which will indemnify the management against liability to subcontractors as though they were employees. The magic word, how- ever, is "liability". Very often, when a claim is made, it is pointed out that since there is no liability, the clause does not apply.

In an attempt to meet some of these problems, I applied to the House earlier this Session for leave to introduce a Bill and I was granted that leave. The purpose of the Bill was to implement paragraph 441 of the Phelps Brown Report, not only for the building industry, but for a number of other industries. The purpose was to ensure that the main contractor was liable for industrial safety as though he were an employer.

On Second Reading, that Bill was objected to on behalf of the Government. I venture to hope that my right hon. Friend the Minister may be able to explain this afternoon the reasons which prompted the Government to take that course. Although, owing to the hour of the day, not many of my hon. Friends are present, I assure my right hon. Friend that I am not the only person who has ventured to wonder why that course was taken. It may be that the Government have it in mind to implement the recommendation of the Phelps Brown Report, and that being so, it would Le natural that they would wish to do it, not piecemeal, but as a whole, and they might wish to draft the legislation themselves. I am sure that if that were the case my right hon. Friend would not overlook the fact that my Bill sought to deal with the situation in certain other industries, too. It may be that the Government have it in mind, if the Phelps Brown recommendations are implemented, to see how they work in the construction industry with a view possibly to implementing them in other industries.

If that were so, and my right hon. Friend could give that assurance to the House, I could perhaps find it in my heart to understand and forgive, but I think it is right to warn him that there is a real feeling about this in the trade union movement generally and among a large number of my hon. Friends in this House, and that if he has any doubt as to that he need only look at the list of sponsors of my Bill, a list which was limited only by the maximum permissible number of sponsors.

It is very important that my hon. Friend should have an opportunity of speaking on this matter at such length as he deems necessary, and I realise that the hon. Gentleman the Member for Folkestone and Hythe (Mr. Costain) also wishes to make a contribution to the debate, and I shall content myself with saying that.

I think it right, however, that I should pay tribute to the work which has been done on this subject by the Industrial Law Society and, in particular, by Professor Wedderburn and Mr. Geoffrey Clark and Mr. John Williams and, among trade unionists, by Mr. Poupard, of the Amalgamated Society of Slaters, Tilers and Roofing Operatives.

I can understand the Government's feeling on this and I have some sympathy with them. There are many other matters waiting to be dealt with, matters which may be more attractive to the public and more likely to catch the front pages of the newspapers. If something is done in this matter there are two categories of people who will benefit. One is the general public, who will be spared the loss to the Exchequer and an unfair transfer of burdens through these financial operations. It is not easy for any individual to identify himself under the comprehensive label of the "general public". The other category who will benefit will be the victims of accidents which have not yet happened, and which, if these recommendations are implemented, perhaps never will happen. It may be that from neither of those categories can the Government claim the gratitude to which they would be entitled if they were to implement these recommendations. I can only offer my right hon. Friend this comfort, that he will from a large number of people, on behalf of their members, their constituents and their colleagues, have earned that gratitude if he and the Government find it in their heart to do so.

Mr. Deputy Speaker

The hon. Member for Folkestone and Hythe (Mr. Costain) will need the leave of the House to speak again, but in the special circumstances I think that the House will give it to him.

4.48 p.m.

Mr. A. P. Costain (Folkestone and Hythe)

Thank you very much, Mr. Deputy Speaker. By leave of the House I should like to make a very brief inter- vention and as I have spoken before already I shall do so extremely shortly.

I should like to congratulate the hon. Member for Rowley Regis and Tipton (Mr. Archer) upon raising this very important subject and upon the very thorough way he has studied it. I think there are three points which may be made.

Although the hon. Member's case was not primarily concerned with the building industry he has quite rightly raised it around the building industry because this is the industry where this labour is largely used. I do not think he quite followed through sufficiently the Phelps Brown Report, which shows quite clearly that labour-only subcontracting has been the type of work which has been necessary in certain parts of the industry, particularly house building.

What does worry the industry and also worries the Opposition is the fact that this type of work has grown very rapidly in the last two years. Indeed, only yesterday I had a note from my own labour exchange saying it was unable to give me accurate figures about the number of vacancies filled in the building industry because so many building workers were self-employed.

The matter which concerns us most is the unhealthy hothouse growth of this practice, which is due entirely, we believe, to the effects of S.E.T. Indeed, the President of the National Federation of Building Trades Employers at a meeting at Nottingham in a special reference to this said that if the Government want an efficient industry they must make up their mind whether they want that or the S.E.T. He said: They can either have an efficient building industry or S.E.T. They cannot have both. I hope that the hon. Member's efforts will lead to more power being given to the Minister's elbow in asking the Chancellor of the Exchequer to get rid of this ridiculous form of taxation.

4.50 p.m.

The Minister of Public Building and Works (Mr. John Silkin)

I should like to follow the hon. Member for Folkestone and Hythe (Mr. Costain) in congratulating my hon. Friend the Member for Rowley Regis and Tipton (Mr. Archer) on the manner in which he has raised a very important topic. I agree with the hon. Member for Folkestone and Hythe that this is a matter which primarily concerns the building and construction industries, and I will deal with the points which he has raised.

It is not only in the last two years that labour-only sub-contracting has been of importance. As my hon. Friend pointed out, it has been growing ever since the 18th century, but in his elegant historical treatise he omitted the period between 1961 and the present day. The figures are available between 1961 and 1966, when S.E.T. was introduced.

In 1961 there were 93,000 self-employed persons in the construction industry, about 6 per cent. of the total. By 1966—that is, before the introduction of S.E.T.—the number had grown to 147,000. In other words, it was growing at the rate of about 10,700 every year. Whether or not S.E.T. had been introduced, it would on that basis be in the region of 175,000, or 10 per cent. of the employees in the construction industry today.

What we have to deal with is a problem that has been with us for some time and which, for whatever reasons, has been growing at the expense of many hard-working members of the industry, both employers and employed. The 175,000 is a "guess" figure. Professor Phelps Brown puts it at between 165,000 and 200,000.

There are 100,000 who are self-employed without employees. There is a strong distinction here. A labour-only sub-contracting employer may be performing useful work for the community—I would not dispute that—but where the labour-only sub-contracting employer is self-employed, this tends often to the belief that it is for reasons other than the best performance of his work.

My hon. Friend the Member for Rowley Regis and Tipton gave several reasons why, in his view, the practice was a bad one. He instanced bad workmanship. This is a complaint that has often been made about the self-employed person in the construction industry and, above all, about the gangs of self-employed persons sometimes known as the "lump", the point being that, without adequate supervision, work can be skimped. I was interested to learn from him that this is a complaint that has been with us not only for the past few years. It appears to have a good historic background to it, if only in the area in which his constituency is situated, but, whether or not that is so, this is a complaint which is frequently made.

Mr. Archer

I am sure my right hon. Friend would not want to convey the impression that it is only in the Black Country that certain standards of work are inferior. The Royal Commission considered the whole country.

Mr. Silkin

I certainly would not like to pass judgment on the Royal Commission which gave its views in 1894 or thereabouts. I am sure that that consideration applies all over the country.

The major point is that labour-only subcontracting on the scale we know it, with its large ingredient of self-employment without employees, is due, as my hon. Friend pointed out, to a desire to avoid taxes. I almost said a desire to "evade" taxes, but I am not certain of the legal aspects of that word and perhaps it is better to use the other nomenclature. In any event, that is the reason for it. It is very hard on the rest of a hard working and patriotic industry that those whose design it is to avoid tax should gain benefits at the expense of the others.

It has been said by some employers, and I would not question it, that the difference it makes in the pay of persons concerned in the industry is about £4 10s. a week. That seems to be about the figure. It is a tremendous inducement to employers to employ self-employed people in labour-only subcontracts. Other things follow inevitably. My hon. Friend has mentioned the question of redundancy payments. When a man finds himself in a position of not being able to work, there are many other benefits that he is unable to claim.

My hon. Friend made a strong point on the matter of industrial safety. It seems wrong that the lives and health of a large proportion of workers in le building industry should be at risk because in a large number of cases people are avoiding tax. I share with him a feeling of distress that should be so. I agree with him that where a man is self-employed on the basis about which we have been talking there is a lack of responsibility for safety. In such cases nobody knows, and I am afraid nobody cares, where the responsibility lies for seeing that a man is not injured or that he is properly insured in case he is injured. This again I find a matter of great concern.

The question then is what can one do about it. My hon. Friend had some rather hard strictures to make on the Government for objecting to the Second Reading of his Bill earlier in the Session. I will not hide behind the truth of the matter, which is that the Government were objecting not necessarily to the Second Reading of his Bill but to 'ts automatic Second Reading. That is the way in which the House works; that is the procedure.

My hon. Friend is quite right in assuming that a piecemeal solution of the problem would not be welcomed by the Government. This is a vast and important problem in the construction industry, and it needs to be dealt as one, rather than piecemeal. I hope he will be satisfied if I assure him that in the event of any legislation his point will be sympathetically considered.

It has been said by my hon. Friend that the Government have had so many other urgent matters to consider that they have not given the weight to the Phelps Brown proposals that they ought to have done. This is a kind way of saying that they have been neglecting their duties, but there are excuses. This does not represent the truth. The situation is that in March 1967 the Phelps Brown Committee was set up jointly by the then Minister of Labour and my predecessor. Its terms of reference were to consider the question of labour only sub-contracting in the building and civil engineering industries.

It reported just over two years later, in July 1968. Both sides of industry were consulted, and the first round of consultations was completed seven months later, in February 1969. It took seven months for the collective wisdom of the industry to be collated and collected. From that moment a working party of my officials and the other Departments concerned considered the reactions of the industry. This working party reached conclusions three months later. That was only two months ago.

If my hon. Friend believes that the Phelps Brown Committee rightly took a little more than two years to consider this, and the industry rightly took seven months, he might give the benefit of the doubt to the Government if, after five months, they have not come forward immediately with legislation which in any event would die with the Session. I can promise my hon. Friend that the Government believe this to be a difficult and urgent problem, and that they are well aware of all the points he has raised. They are considering urgently the desirability of legislation. It is a complex question and there are a number of snags. If and when such legislation is decided upon, the points made by my hon. Friend will be among the first to be taken into account.