AMENDMENT OF SECTION 69(3) OF FINANCE (NO. 2) ACC 1975 (Hansard, 13 July 1976)

§ Mr. Ridley
I beg to move, That the clause be read a Second time.
The clause deals, once again, with one vexed aspect of the new arrangements brought in in 1975 for sub-contractors in the construction industry. It is not a major point, but it is a point which has been made on several occasions before and with which the Government have so far failed to deal either by accepting the need for amendment or by satisfactory argument.
Indeed, I have a letter from the National Federation of Building Trades Employers which urged this matter on the Chancellor, to which the reply was: you may be sure that he will bear your representations in mind. Bearing representations in mind is not what we want. What we want is a reasonable defence from the Financial Secretary, if he is to reply, or, alternatively, an amendment.
The point is that local authorities, housing associations and new towns—I shall not read out the whole list of public bodies—are classed as main contractors. In deducting tax from those who do sub-contract work and who do not carry a certificate, they have to make deductions direct from any sub-contractor they employ.
575 I understand that the construction of the original section in the Finance (No. 2) Act 1975 is that in order for there to be a contract there has to be a main contractor and a sub-contractor, and that it is from that relationship that the power to require a main contractor to deduct tax from those without certificates derives. I understand that argument.
But all those who commission building work are not so required to behave. For instance, a private firm, a factory or a private individual who commissions building work and can enter into a contract direct with a lump labour firm is not required to be bound by last year's Act. Equally, many people who do not need to be included are included. Those are cases in which a local authority or housing association enters into a contract with a reputable main contractor and the main contractor is required, under the legislation, to produce his certificate and to go through all the paper work, although it may be the Greater London Council employing Wimpeys. That kind of contract is far removed from the lump labour contract at which the original legislation was aimed.
This matter is causing annoyance and irritation, and a great deal of extra paper work and frustration in the building industry. It is an added and unnecessary bit of bureaucracy, because there is a large amount of paper work attaching to having to send to the tax collectors certificates stating that tax has been deducted, or that it is not necessary to deduct it. An extra burden of paper work is put upon the industry, with no reason at all.
I suggest that the Government could clear this matter up straight away by accepting the clause. Alternatively, they could clear it up by providing that a local authority has to go through this rigmarole only when it employs lump labour as opposed to a main contractor. Alternatively, they could clear up the matter by providing that where a main contractor works directly for a local authority it is not to be classified as a main contractor for the purpose of the legislation.
There are three simple, watertight, reputable ways in which this may be done. I appeal to the Government to choose the way that I have included in the clause, as it is the simplest. If they 576 wish to find their own way of achieving that object, let them do so. I hope, late though the hour is, that the Minister will advance some arguments on the matter. On no previous occasion when I have been present has the Minister done more than say "We know best. This is what the Revenue think that we must do; therefore we shall do it, whatever the Opposition may think."
I urge the Minister to accept the principle I suggest or explain why he should not do so.

§ Mr. Robert Sheldon
The new clause, if passed, would introduce a major change into last year's legislation. I do not think that the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), who moved the clause, seeks to avoid that responsibility. However, if the clause were passed a great weakening of the scheme would result. We must bear in mind the problems that we have encountered over the past few years in trying to obtain the correct tax and insurance contributions from businesses of this kind. Those who have lived with these problems have realised that they were much more difficult than originally envisaged. In spite of the changes, the tightening-up and the close consultations that have been a feature of this legislation, such businesses have evaded their responsibility.
The hon. Gentleman sought to deal with those bodies which he considered to be of good repute. We have also considered how far it might be possible to make exceptions for large firms about whose standing there can be no dispute. The problem is that local authorities and large firms often act as main contractors. They sub-contract part of their work to other bodies, which may be reasonably reputable but about which there may have been some doubt in the past as to the way in which they carried on their activities. I do not think that I need go far, beyond mentioning the name Murphy, which was a large, reputable organisation but which was recently the subject of a number of charges.
Main contractors, be they local authorities or firms of good reputation, as suggested by the hon. Gentleman, may well in the natural course of their business wish to engage sub-contractors of the kind that 577 we seek to include in our legislation. It would be wrong to undertake any weakening of this process before we see it in operation.

§ Mr. Ridley
I suggest that the Government circularise local authorities and say that where they employ sub-contractors they must abide by the rules. The Government may take the rest of the requirement out of the Act. That would meet the case. I am trying to meet the legitimate need to tighten up but at the same time to cut out a lot of bureaucracy. I have suggested a fourth way, but the Minister merely says that those in the industry think that it is better to do it in this way. I should declare an interest, as I have a connection with a builder. All the building people engaged in the industry find that there is a great deal of bureaucracy and nonsense. The Minister's answer so far has not met the point.

§ Mr. Sheldon
The hon. Gentleman did not wait until I came to what he might have considered the more constructive part of what I had to say. I accept the problems caused by the legislation, but the hon. Gentleman must understand, as the industry does, the great problems arising from the incredible amount of evasion that has bedeviled Governments in dealing with the situation. When local authorities engage sub-contractors they may not know their precise circumstances, and so on. The hon. Gentleman assumes a relationship between the main contractors and the sub-contractors which is not inevitably the case.
The hon. Gentleman has made an important point, of which we are very conscious, but this is not the way to deal with it, certainly at this stage. However, I see the problem of the amount of paper work, and a special procedure has been arranged whereby a number of the kind of organisations to which the hon. Gentleman referred will be able to provide local authorities with evidence of their certification by a written statement instead of having to rely on their certificate, as the other businesses of which we were talking will have to do. This arrangement will represent a considerable relaxation of the scheme, particularly for main contractors, without abandoning the deduction arrangements altogether.
578 That is as far as we can go in advance of the introduction of a new scheme, which in any case we shall have to consider with great and continuing care.

§ Sir Geoffrey Howe
The Financial Secretary acknowledges that there is genuine concern about the cases of the large contractors of which he talked, and we agree. The development of a scheme for the reliable collection of tax in this sector has caused difficulties to successive Governments, but there is now concern that the bureaucratic requirements have gone further than necessary in the area mentioned by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley).
We are glad that the Financial Secretary went as far as he did in acknowledging that there may be scope for modification and relaxation and withdrawal of frontiers, but concern continues to be expressed by the smaller subcontractors and firms. The hon. Gentleman will probably have received today, as I have, a long report from the National Federation of Self-employed on the whole scheme. I am not suggesting that he would be able to buy all the propositions in the report on sight. The federation expresses concern about the impact of bureaucracy on the small firm as well as the larger firm, and sets out a number of proposals which deserve consideration. The federation believe that the cost of administration, including the production of exemption certificates, will be disproportionate to the amount of lost revenue it is hoped to recover.
I am not denying the difficulties, but I hope that the Government will continue to see how the bureaucracy and the burdensome nature of the scheme can be diminished.

§ Mr. Ridley
I am grateful to the Financial Secretary for having gone some way, and to my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) for having tried to push him a little further. I hope that he will succeed.
This is a real problem, but in view of the forthcoming nature of the end of the hon. Gentleman's remarks, I beg to ask leave to withdraw the motion.