HC Deb 21 July 1977 vol 935 cc2001-16

'Section 69(2) of the Finance (No. 2) Act 1975 shall have effect and be deemed always to have had effect with the addition of the following words at the end of paragraph (b)that is to say—

"Provided that for the purposes of this Chapter a person whose trade is the supply and fixing of floor coverings, furniture, fittings and chattels of any description whatsoever shall not be a sub-contractor."'.—[Mr. Ridley.]

Brought up, and read the First tune.

Mr. Ridley

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Myer Galpern)

With this new clause, we may consider the following:

New Clause 23—Sub-contractors.

New Clause 24—Sub-contractors in the building industry.

New Clause 25—Sub-contractor, exemption.

Mr. Ridley

I propose to take immediately, with New Clause 22, New Clause 25. Then I shall discuss New Clauses 23 and 24 as a second subject.

It is only right that we should return to the vexed subject of sub-contractors in the building industry, if only for the reason that the Government have still not done anything about them. They at least seem to acknowledge that this matter is of paramount importance by so ordering the procedure of the House on Report to take new clauses on sub-contractors in the construction industry as a special category, for some reason, between Clauses 17 and 18.

We congratulate the Financial Secretary on his having at least recognised the importance of this subject, but he has still not understood the damage that his legislation on sub-contractors is doing. Therefore I make no apology for raising the matter again.

There are two matters which need to be raised about the scope of the sub-contractors legislation. When we were first discussing this legislation in Committee, Section 69 (3) (a) of the Finance (No. 2) Act 1975 said that it was to apply to any person carrying on a business which includes construction operations". That was the definition of the extent of this iniquitous legislation.

My hon. Friend the Member for St. Ives (Mr. Nott) was sufficiently percipient at the time to realise that that was a rather wide definition. Any person carrying on a business which includes construction operations could be almost anyone. The Financial Secretary himself, presumably, has added a bow window to his house or possibly put a little plastic gnome in his garden. Both would technically be a construction operation.

Therefore, in Committee on 3rd July 1975 my hon. Friend the Member for St. Ives asked what this definition meant. The Financial Secretary said: Subsection (3) treats the definition of the contractor for the purposes of the subsection as anybody whose business includes construction work. That, of course, includes various public bodies. The 'business' part must include construction operations, but that does not imply— where the business is not construction— cases where an individual or an organisation carries out some small alterations himself or itself. The right hon. Gentleman went on to say: A person has got to be in the business of construction operation."—[Official Report, Standing Committee H, 23rd July 1975; &c. 876–7.] My hon. Friends in that Committee perhaps unwisely accepted the Financial Secretary's word that it was limited to construction operations—that is, companies carrying out construction. The first group that the Revenue pulled into the net was those who supply floor coverings, furniture, fittings and chattels of any description in the building industry, yet they are not builders in the sense that they hew, plaster and build. They are the people who come with manufactured products that they have made and who install them. By no sense of the imagination could those people be called people who are in the business of "construction operations", yet I have met a number of cases in which firms which supply and install this sort of goods have been asked for 714 certificates before being paid for the contract which they entered into with the main contractor. New Clause 22 therefore deals with their case.

We want a clear, definitive statement that the Financial Secretary is sticking to the words that he used in Committee on 3rd July 1975. We want his agreement that these people are not within the scope of the legislation. Were he to deny this, he would be going back on his words. I know that Opposition Members are supposed to be naive and gullible, and when a Minister in this Government tells us something we have the weakness of tending to accept his word. That was the mistake we made in 1975. We believed the Financial Secretary.

Now, the Revenue is busy bringing these people into the net, and we would like to have it out with the right hon. Gentleman. In 1975 he said what I have quoted, and then he authorised the Revenue to include all these people who make carpets, door handles and other things, thus allowing them to be persecuted over 714 certificates.

I wish to deal next with New Clause 25. Here we are dealing with a much more major issue, although it is not more important in the sense that it involves ordinary working people, for whom the Opposition show real concern. I see that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) is laughing. He should not laugh at ordinary working people. Ordinary working people are part of the mythology of the Labour Party, and it ill behoves the hon. Gentleman to start poking fun at the working people for whom the Opposition are always concerned.

New Clause 25 is concerned with the gross dereliction from the undertaking that the Financial Secretary gave in that famous Committee stage in 1975. By no sense could those who work in the North Sea in the oil and gas extraction industry be classified as being in the business of construction operations. There is no way that the words "construction operations" could be applied to people who are extracting oil and bringing it ashore from North Sea fields. Yet I am told authoritatively that oil companies have been classified as contractors for the purposes of Section 69.

Incidentally, I believe that there is a misprint in New Clause 25. The last word should be "contractor", not "subcontractor". But that does not destroy the point that these contractors have been asked to deduct 35 per cent. — now 34 per cent. due to the magnificent munificence of the Government—from payment to those whom they employ for a whole manner of services rendered from welding to diving and other tasks which I do not understand technically but are performed in the extraction of gas and oil.

10.45 p.m.

I am sure that if that famous hero who saved the coasts of this country from pollution by stopping up the Norwegian well which became a gusher— Mr. Red Adair— had been on the other side of the median line, he would have been classified as a labour-only sub-contractor and would have had 34 per cent. deducted from his fee. I am not sure that he would have come had he known that that was the name of the game. The miracle was that the gusher was on the other side of the median line in Norwegian, not British, tax jurisdiction. This new clause is designed to let Red Adair have the money that he has contracted to get and not let the Treasury get its hands on it before he has established his right to it as a non-British taxpayer.

Is it true that sub-contractors working for North Sea oil companies have been classified by the Revenue as people to whom the 714 legislation applies? Have they been forced, rightly or wrongly, to conform with the 35 per cent. deduction in the past, now 34 per cent., and, if so, why? I suggest that in no sense could they be described as being engaged in construction operations. The Financial Secretary knows that. This is a point of personal honour for him, because he gave the assurance in Committee to my hon. Friend the Member for St. Ives that he was thinking of people whose business comprised construction operations, not people who, by a side wind or as some extra part of their activities, engaged in construction operations. We want a convincing answer on that matter before being prepared to leave it.

The second part of the debate must concern the procedure for those who genuninely are required to obtain certificates under the legislation. I am talking about genuine labour-only sub-contractors in the building industry, not in the furniture or oil industries. These people have been put into the most impossible state because, having been told with legislative authority that they must have certificates and that they would get certificates, the certificates have not been made available.

In many cases letters have been issued to successful applicants which the Revenue has asked them to take as surety for having no deductions made from their gross emoluments. That is, to say the least, illegal, because the legislation states that any contractor who pays a subcontractor gross when that sub-contractor is not in possession of a certificate is committing an offence. We have only the Revenue's say-so for the fact that such people will not be prosecuted. That was a slipshod piece of administration for which the Government should apologise to the House and to the sub-contractors concerned.

Still the certificates are not to hand. Still there is an endless queue of people waiting for their certificates. A Mr. Scaffell was told that he would get his certificate, but it never came. He then received a letter from the Revenue, which authorised him to carry on in business without deduction until 5th July 1977. On 11th July he wrote to his inspector stating that he still had not had a certificate although he was allegedly authorised and that his letter of authorisation had already run out.

How can the scheme be administered so badly? How is it that these people, who do not have recourse to high-powered legal and accountancy advice, can be treated as the Revenue has been treating them? Either they are eligible for a certificate or they are not, in which case they should not be told that they will get one.

That is the sort of abuse that the Government, in their lax way, have heaped upon the indecency of the whole scheme. New Clause 23 is designed to ensure that if no certificate is received within 30 days it shall be deemed that the sub-contractor is authorised to trade without deduction— it is not at all a bad idea— in order to smarten up the Revenue's administration.

One of the worse defects in the scheme lies in appeals. New Clause 24 seeks to remove the inability of the commissioners to hear appeals where the ground for refusal of a certificate is that the applicant's tax history is inadequate. That is what the Financial Secretary calls the concent of the good taxpayer, which he has personally, and on his own authority, introduced into our law and into our practice. It is the idea that if a man is not a good taxpayer certain fundamental rights can be denied to him and certain penalties heaped upon him.

These appalling and autocratic powers are administered by the tax inspectors without appeal. A person who has not received his certificate has no way that he can appeal except to the commissioners, and the commissioners are debarred from hearing the case if the inspector so much as hints that the reason for refusal is that the tax history is not entirely satisfactory.

The clause seeks to give the commissioners the power to cross-examine the tax inspector on the reason for the tax history being found to be unsatisfactory and to find that maybe the inspector has been unfair or harsh and that his ground for saying that the tax history of an applicant is not satisfactory can be faulted, which is not the case at present. That would remedy the worst part of the blemish against human rights that is contained in this legislation.

Surely the least that the right hon. Gentleman can do is to accept the principle of the clause. It may not be perfectly drafted. I have never claimed that anything I have ever drafted is perfect, except when I have drafted to leave out whole clauses. That is when my drafting is at its best. However, I am not having the argument from the right hon. Gentleman that the drafting of any of the clauses is inadequate. These are serious grievances that are felt by the citizenry about the Government's taxation legislation.

The opportunity for the grievances to be put right is on Report.

Each one of the points that I have put forward is valid, having come to the notice of myself and my right hon. and hon. Friends. It is up to the Government to respond to each one. I should not be against advising my hon. Friends to vote for all four of the new clauses, but it may be that in order to save time it will be better to choose the clause to which the Financial Secretary responds least satisfactorily and to vote upon that. 1 assure him that we shall not leave this issue without a vote unless he is prepared to concede the points that I have just made.

Mr. Graham Page (Crosby)

I hope that the Government will accept New Clause 22, which clears up a difficult issue. It concerns those who are not commonly known as contractors, those who do not carry out constructional operations but attend to provide a supplement to a building, such as floor covering and the installation of manufactured articles after the house, factory or office has been built.

This is not a fanciful point. I understand that it has been decided by the Inland Revenue that covering a floor with a carpet, linoleum tiles or whatever it might be is a constructional operation and attracts the need for a 714 certificate if the work is carried out by a subcontractor. All that we are asking for in the clause is to clear up the situation. I am sure that what has happened was never intended when the schedule to the Finance (No. 2) Act 1975 was drafted.

Even more important is New Clause 24. It came as a great shock to most of us that there had crept into Section 70(6) of the 1975 Act the exclusion of any appeal from this quasi-judicial act of the inspector. Inspectors were deciding how these conditions should be applied. They were deciding how, in any particular circumstance, the conditions should be construed and whether the poor unfortunate sub-contractor should be deprived of his certificate if they thought that a condition had been breached.

We raised this matter in a previous debate on this subject, and it appeared from cases that were cited that even the inspectors of taxes themselves thought that there was a right of appeal. They had encouraged some taxpayers to appeal when there was no appeal available to them under the Act. If it was thought by the inspectors to be right that the taxpayer should have a right of appeal but it was found that for some reason the Act excluded that right, let us remedy that defect now.

I wonder whether there is any provision in any other legislation of this sort by which the taxpayer has no right of appeal from an administrative decision by someone at the level of inspector of taxes. It is an administrative decision, but it is a quasi-judicial decision and there should be a right of appeal. I hope that the Government will be prepared to put the matter right by accepting New Clause 24.

Mr. Ian Gow (Eastbourne)

Constantly when we have debates on economic policy the Chancellor of the Exchequer tells us that he is legislating for what he describes as ordinary working people. Those words fall readily from the Chancellor's lips. Yet when we come to examine some of the legislation that is brought before the House by the Treasury Bench we find that it operates in the most vicious way against precisely the people of whom the right hon. Gentleman claims to be the champion. That is why it falls tonight, as it often has in the past, to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) to be the champion of ordinary working people. We have come to learn that it is my hon. Friend who is proving that it is the Tory Party that is the people's party— the party of the masses.

We have seen all the way through this 714 legislation that there is a vicious, cruel result which falls upon the small sub-contractor in the building industry. These clauses seek to redress some of the worst injustices of the 1975 (No. 2) Act. One of the most disquieting features of this legislation, which the clauses go some way to alleviate, is the way in which, when a Member of the House appeals to the Treasury on behalf of a constituent and points out the evils that flow from this legislation, it is possible to have the damage put right. But what about constituents who do not approach their Member of Parliament?

11.0 p.m.

I want to give three examples to the House. A constituent of mine was refused a 714 certificate because he had grown a moustache. That absurdity was drawn to the attention of the Minister and, to his credit, it was put right. There was another appalling occasion when a constituent who had been unemployed for six months in the two years before he applied for a certificate was denied it because of his misfortune. Since 28th February 1974 many sub-contractors in the building industry have suffered that misfortune. Under the 1975 Act, an applicant who has suffered this misfortune is to be denied a certificate. I pay tribute to the Financial Secretary, who rightly decided that it was wrong and directed the inspector of taxes to issue the certificate which he had previously refused to issue.

Mr. John Ryman (Blyth)

I have only just come into the Chamber. Can the hon. Member explain the relevance of a moustache to this matter?

Mr. Gow

I shall not be drawn by that question. I shall explain to the hon. Member later. We want to get on with the debate.

Another of my constituents, a small builder, recently purchased from the Tory-controlled Eastbourne Council the council house in which he was living. He applied for a 714 certificate and it was refused. He wrote to me. I received a letter in response to one which I wrote to the inspector of taxes. It was dated 4th July and it stated: I am prepared to immediately consider his current records which should presumably run from March 1977 and if these show that having been advised of his deficiencies in this direction in the past, he has now completely remedied the situation, I shall be only too pleased to look into the possibility of a new style certificate. If it had not been for a letter from a Member of Parliament to the inspector of taxes pointing out that the man's case should be reconsidered, he would have been precluded from taking up employment.

First, the Financial Secretary should accept the clauses. Secondly, he must issue new instructions to inspectors of taxes so that not only do those who ask their MPs to take up their cases receive justice but that the right to work is given to the thousands who have been denied certificates.

The Financial Secretary stonewalls the subject every time it is raised, because he has been given a Treasury brief. Perhaps I can commend to him a high and rare political virtue. He should be prepared to say that the Government's drafting of the 1975 Act was grievously wrong. The Government should have the courage to come here and adopt the philosophy of my right hon. Friend the Member for Leeds, North-East (Sir K. Joseph), because they have sinned and they should put it right.

Mr. David Mitchell (Basingstoke)

We are talking about an industry in which there are always firms going bust and new firms starting. That is the way of life among small businesses. It is true that today many more small businesses in the building industry are going bust under the pressures of less construction work, more activity by direct labour departments, shortage of finance, the problems of employment protection and all the other things, of which my hon. Friends are only too painfully aware, which press on the small business. As a result of the pattern of life in the small business world and the building industry, in which people go bust and different firms start, that is the way of things I hope that the Financial Secretary will accept that this pattern exists.

What is happening today is that businesses are going bust but others are not starting. That is one reason why the unemployment figures are going up and up. Whether or not they will reach 2 million is something about which Ministers, one understands, are guessing. The new jobs that start in the construction industry are jobs where very often someone is starting in business for the first time and does not, therefore, have the track record which he is required to have in order to obtain a 714 certificate. But without the certificate, effectively he cannot start. It is a chicken-and-egg argument.

I have here a letter from a constituent of mine who lives near Highclere. He is a building contractor whose son has just started up in business. He wants to start a business making a particular form of concrete product. He tells me that everything seems to be in order to start and that his son has applied for his income tax exemption certificate from the Inland Revenue, as that is necessary because he will be selling to building contractors as well as to private individuals.

The son wrote on 25th April this year seeking his certificate so that he could start the business. He did not get a reply until 6th July. I do not know how anyone, after gathering together and laying out the money required to start a business, can be expected to sit and wait from April to July before he gets his licence to work. But then what comes?

He is told "I am sorry, you cannot have a licence to work because you have no track record."

That is just not good enough. We have a situation in which unemployment is rising because of the natural death of some businesses, and there is the man sitting on the Government Front Bench who is preventing the birth of new businesses. His hon. Friends below the Gangway are worried about the level of unemployment rising, as are Opposition Members. I ask him to accept the new clause so that he can help to save at least some of these firms.

I give one other example. As a direct result of what the Financial Secretary has been doing and the way in which he has been enforcing the legislation, another person, who is not a constituent of mine and who must remain nameless, has decided that, instead of setting up a proper business and doing things in the way in which he should, he will go moonlighting and pay no tax at all. He is moonlighting in the private sector where no certificate is involved.

The Financial Secretary has stopped up one hole, opened others and made some people into crooks. That is a stupid way in which to behave.

Mr. Robert Sheldon

We return again to the question of 714 certificates. I note the interest in the House about this matter. During the period over which we have discussed these problems, I have attempted to show the way in which people have been successfully coming forward to obtain certificates. Despite the excessive gloom that usually accompanies these debates, I have to record that the figures have been increasing in the way that was expected and stated by myself over the past months.

These are the latest figures. Out of 344,000 applications received, 281,000 have now been approved. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) did not expect anything like that. He will recall his extreme opposition on this problem and describing it as one of the greatest administrative disasters to have befallen the present Government. However, he must accept that these figures are nothing like the situation he foresaw only a few months ago.

We are, however, faced with dealing with those who have been refused, perhaps because they have decided not to put their tax affairs in order in the way that I indicated, because their returns are still outstanding and awaiting such changes of attitude as may be required on their part, or because technical details are yet to be cleared up.

The large number of people who now have certificates and are working happily is an illustration of the way in which we have succeeded in overcoming some of the problems that the previous Government attempted but failed to deal with and which this Government have attempted to put right.

The new clauses view these matters from a fresh angle. New Clause 22 seeks to remove certain operations from the tax deduction scheme. It concerns finishing operations. I do not say that the way in which the legislation is set out and the categories of work which are subject to the tax deduction scheme should remain unchanged for all time.

I note the point of the right hon. Member for Crosby (Mr. Page). After the scheme has had time to prove itself, we shall want to consider whether those categories should be retained for the indefinite future. As regards finishing operations, the same position existed under the 1971 scheme. The wording was imported from that scheme. Perhaps the hon. Member for Cirencester and Tewkesbury violently disagreed with his Government on that occasion, but I cannot recall his having made then the case he made today.

Mr. Ridley

Why did the right hon. Gentleman tell the Standing Committee in July 1975 that the scheme was to apply only to persons involved in construction operations? I am asking him to stick to his assurance, but he cannot do that and persist in the argument he is advancing.

Mr. Sheldon

Construction operations in this scheme cover the whole range dealt with by the previous Conservative Government. The wording in the new legislation was imported from the Conservative measure.

Mr. Graham Page

It is the recent interpretation of "construction operations" that we complain about. When those measures were introduced, it was not contemplated that people who lay floors, for example, would be included.

Mr. Sheldon

The categories of work now in the scheme should not be regarded as being there for all time. When the scheme has been operating for a long time, we can see whether some categories might be removed from it.

New Clause 25 deals with North Sea divers. The problems that the hon. Member for Cirencester and Tewkesbury foresees do not apply. The drilling for or extraction of oil or natural gas is already excluded from the deduction scheme under Schedule 13 to the Finance (No. 2) Act 1975.

New Clause 24 seeks to allow the appeal Commissioners to overrule the inspector where there is a difference of view. Perhaps I can outline the facts again, since the House may have overlooked them with the passage of time. When someone applies for a 714 certifi-cate—

11.15 p.m.

Mr. Ridley

The Oil Taxation Office has claimed that all the companies working in the North Sea are caught, and they have accepted that. Is the Minister now saying that he will tell the tax office— the name of the tax inspector is Hennessey, at City 12— that he was wrong to include the oil companies and that they are excluded from the legislation? That will make a great difference to the work of the Revenue. The Minister seems to have been wrongly briefed, because the companies are being included in the legislation at present. I have given him the reference. Will he now undertake that he will stick to what he has said?

Mr. Sheldon

Under Schedule 13 to the Finance (No. 2) Act 1975, the drilling for and extraction of oil and natural gas are already excluded from the deduction system. If the hon. Gentleman has in mind any particular case which he would like me to go into further, I shall be happy to do so.

If someone applying for a 714 certificate satisfies the conditions, the certificate is granted. If his tax performance over the previous three years has not been satisfactory, that condition may be disregarded by the inspector of taxes, in which case the certificate will be granted. If the application is not in order and the certificate is not given, the applicant may appeal to the general commissioners. If they agree with the Revenue the appeal will be rejected, and if they disagree the certificate will be granted.

New Clause 24 is an attempt to allow the appeal commissioners completely to overrule the inspector on a question of discretion, to give them the discretion to overlook a failure to carry out a basic tax obligation. That would cause inconsistency. The commissioners are lay people, and allowing them to forgive wrongs and grant a certificate would lead to an inconsistency of decision which we are able to avoid in the case of the discretion given to the tax inspector. This suggestion is not the way to proceed.

Mr. Graham Page

I cannot see how the proviso at the end of Section 70 (6) can be interpreted as the Minister says. If there is a dispute about whether a condition has been satisfied, under that wording the general commissioners, or the special commissioners, are excluded from considering whether, as a fact and not as a discretion, that condition has been satisfied.

Mr. Sheldon

If the commissioners disagree with the Inland Revenue on questions of fact, they are entitled to put their view and the appeal may go in favour of the applicant. We are talking about the inspector's discretion when it is agreed that a person has done something wrong. We could not allow the procedure suggested in the new clause to be put into effect.

Mr. David Mitchell

What will be the situation of the man who is at fault because he has not been in business before?

Mr. Sheldon

A person does not need to have been in business before, otherwise the argument would be circular—he had not been in business before and, therefore, he could not go into business. As long as a man has a tax record, whether as an employee or as self-employed in another area, that is enough for the tax inspector to provide him with a certificate.

The requirement that the contractor should inspect the certificate is basic to the operation of the scheme. New Clause 23 requires the contractor only to get verification from the tax inspector. That would wreck the scheme. It suggests that the contractor should write to the tax inspector asking him to verify that the certificate held by a person is in order. A great deal of checking would have to be done, and the requirement for letters to be dealt with within 30 days places the whole burden on the tax inspector. It would bring to the system the chaos that the hon. Member for Cirencester and Tewkesbury has always claimed would result from it.

I agree with what the hon. Member for Basingstoke (Mr. Mitchell) said about the self-employed. It is no part of this scheme to diminish their ability to carry on with their work. The figures I have quoted show that large numbers of them have obtained certificates and are doing their work as well as ever. No self-employed person would say that his operations depend on the possibility of being able to avoid the tax that so many others rightly pay. Those who say that should not be defended by the sort of legislation to which the Opposition's proposals would give rise.

Mr. Ridley

With the leave of the House, may I reply briefly to the debate? A packed and tense House has been attending on the Financial Secretary's every word because feelings are running high, as the size of the audience at this hour on a Thursday night will demonstrate.

The Financial Secretary dismissed as unimportant the fact that 50,000 people had been put out of work by the operation of these certificates. He claimed the fact that 344,000 had applied for them as a justification when 50,000 people have been refused and are presumably now on the dole queue.

An important concession has been obtained. The right hon. Gentleman admitted that he has been forcing the oil industry to operate the scheme when it is excluded for the legislation. I intend to inform the oil industry that it can rely upon the right hon. Gentleman's word and stop operating the scheme. I can quote chapter and verse of what the Financial Secretary said. This is of great importance for the development of North Sea resources, and we are grateful to the right hon. Gentleman for admitting that the Inland Revenue has been operating the scheme illegally in the North Sea.

The important point was the one pressed by my right hon. Friend the Member for Crosby (Mr. Page)— the question of appeal. The Financial Secretary told us that it would be quite wrong to allow the tax inspector's discretion to be over-ruled by the commissioners and that the giving of such power to the commissioners could not be contemplated. But what on earth are the commissioners for if they are not needed to fight for the taxpayer when the tax inspector makes allegations against him? That is at the heart and nature of the functions of the commissioners. The right hon. Gentleman has admitted that he is denying that very appeal to an impartial authority which goes right throughout the taxation which the individual suffers. For that reason, I invite my right hon. Friends to support New Clause 24.

On New Clause 22, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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