SUBCONTRACTORS IN THE CONSTRUCTION INDUSTRY

HC Deb 12 May 1977 vol 931 cc1623-59

'Subsections (2) to (5) of section 70, and Schedule 12 of the Finance (No. 2) Act 1975, shall cease to have effect on 1st June 1977.'—[Mr. Ridley.]

Brought up, and read the First time.

Mr. Ridley

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

The new clause deals with arrangements in the construction industry in relation to tax certificates. The effect would be to remove the conditions in the Finance (No. 2) Act 1975 upon which a subcontractor may or may not be granted a 714 licence. This change is proposed by the Opposition because the evils that have resulted from the administration of the 714 scheme have become so damaging and so unfair that we feel that some way has to be found to right the grievances of those who have been held up, or not given certificates, or in many ways abused by the system brought in by the Government.

That is not to say that we in any sense wish to condone tax evasion. The Financial Secretary would do well to avoid any argument of that kind, for the reasons that I shall give. We believe just as much as he does that it is important to stop tax evasion.

The solution which we are offering to the Government to get them off their hook should not make it easier for tax evasion to take place or make the construction industry sub-contractor on all fours with any other self-employed person. Indeed, it would mean that sub-contractors in the construction industry would still be treated less favourably than most self-employed persons, because we accept that there should be a certificate. If it comes to that, I concede that it might be desirable to have a photograph appended to the certificate. But that certificate should be granted as of right to anyone who wants to practise his trade, and it should be possible for the Inland Revenue to trace tax evaders and tax offenders through the possession of the certificate.

If it is argued that on any occasion someone could flee the country having not paid his tax, I remind the Committee that any self-employed person who is paid gross, and accounts for his tax later, is in a position, if he so wishes, to flee the country. It is wrong to single out the construction industry as being one in which that sort of thing is more liable to happen than in any other profession or industry. It is wrong to make a special case in the way that the Government have done in the past.

Without going through the legislation, which is long and complicated, it is fair to say that the conditions that the clause seeks to remove can be boiled down to five. The first is that there should he a three years' experience before a tax certificate can be granted. In practice, this rule has worked extremely hardly. We have examples of men who have been abroad for a year or two, then come back, skilled and reliable people, but who have been refused certificates simply because they have been away. We have examples of people who have been in prison, and on release, far from being rehabilitated back into activity, have been refused certificates for that reason. We have examples of people who have been unemployed who, far from being helped back to work, when they got a contract to carry out were prevented from doing the work by not being allowed a certificate.

This cannot be right. It simply cannot be a necessary condition that the three-year rule should apply. Today, I heard of the case of a man who had been working abroad. When he came home, he was unable to get a certificate because he did not have a three-year qualification. He was then unable to draw unemployment benefit, because he was self-emyployed as opposed to employed. He had to move out of the family home and leave his wife in order to qualify for unemployment benefit. To do that sort of thing to skilled craftsmen in the building industry must be wrong, and the Financial Secretary must know that it is wrong if he has any sense or compassion to bring to bear on the problem.

Next, there has to be a bank account. That condition seems to be totally unnecessary. It has not caused the maximum of difficulties, but there have been a few cases in which the failure to have a bank account has resulted in the refusal of a certificate.

7.0 p.m.

Next, proper records have to have been kept, and then there have to be proper premises, stock and equipment. There have been many cases in which certificates have been refused on these grounds. I should like to quote only one. It came into my hands this afternoon. It is the case of a Mr. F. J. Lynn, of South Park Road, Wimbledon, who was a general foreman who worked as self-employed and went on to various contractors' sites in order to manage the job for them on a contract basis—a very skilled and senior man in the industry. Because of a mix-up by the Revenue in past year, he lost his earlier certificate.

The story will be coming to the Financial Secretary from the wretched man's Member of Parliament, my hon. and learned Friend the Member for Wimbledon (Sir M. Havers). It is one of Revenue muddle and confusion, resulting in the man being unable to work, over a year ago. When it came to his wanting to apply for a new 714 certificate he was unable to do because—I quote— I do not employ anyone, nor have to supply any materials or have any capital outlay, to enable me to carry on my work. I simply was employed by various firms as a freelance general foreman. As such, he is outwith the conditions, and he did not believe that he would be given a certificate if he applied. He concludes, I am left to wonder, as the bills mount up, and the situation gets steadily worse—how can it be that a competent, skilled man is in this position, with work available at this very time, is prevented from doing it and is left a burden on the State, living on a minimal amount, when all I ever wanted was to continue working in the capacity for which I have trained and worked for since I was 15 years of age? This really is not good enough.

The final condition, as the Committee will know, is the quizzical one of whether there have been tax irregularities in the past. The first point that I want to make about this matter is one that shocks me profoundly. There have been a number of cases that have come my way and to some of my hon. Friends. With greater or lesser diligence, according to the time at our disposal, we have corresponded with tax inspectors and the Financial Secretary about these cases. I must say that in my own case, where I have pressed a case, I have nearly always succeeded in getting the person concerned a certificate. I think that my hon. Friend the Member for Eastbourne (Mr. Gow) has had a similar experience with a case about which I hope he will tell the Committee.

There is prima facie evidence that if a Member of Parliament makes a stink about the refusal of a 714 certificate it is likely to result in a certificate being granted, whatever the tax irregularities. I am only sorry for the thousands of people who have been refused who have either not had Members of Parliament who would take the trouble to fight their case or not had the knowledge and bravery to involve their Member of Parliament in fighting it. That seems to me to be a most unsavoury position to have reached.

I have succeeded in one or two cases. I am interested to ask the Financial Secretary at this stage about one case that I think it justified that I should name. I quote the Financial Times of Monday 9th May in relation to the J. Murphy company. It says: In March, 1976, Murphy and its subsidiary, J. M. Piling, were fined a total of £575,000 in connection with payments to labour only contractors following the 54-day 'lump' trial at the Old Bailey. Three executives were each fined and given gaol sentences. That is a large company that employs over 2,000 people. I ask the Financial Secretary whether it is to be given a 714 certificate, because if ever there were tax irregularities this clearly is proven to have applied to that company? I do not wish it ill, but it will be very difficult for the Financial Secretary to justify to very many small men why they should be refused certificates for alleged improprieties when a company against which a case has been proven in the courts is to be given one. I hope that everybody will be given one.

If we fail in the clause, I hope that we shall return to the matter in Standing Committee upstairs in order to move new clauses that will at least reduce the onerous nature of these conditions and that will also provide a channel of impartial appeal—particularly on the tax aspect, which is another unsavoury feature of the whole matter.

However, I must point out that with the experience of a few weeks of operation since the scheme came into force, the worst fears of Opposition Members have been fulfilled. The injustices are rife. Moreover, our allegations that the refusal of a 714 certificate was the denial of the right to work, and that the certificate was in fact a licence to work, have been proved more and more true.

I should like first to tell the Committee that it has recently come to my notice that the big ready-mixed concrete companies have started refusing to supply ready-mixed concrete to people who have not got 714 certificates unless they pay either in cash or in advance. Further, all sorts of suppliers in the building industry are starting to treat the refusal of a 714 certificate as a sign of uncreditworthiness, and some of the credit rating agencies are putting such people on their lists, for no other reason whatsoever than that they have been refused a 714 certificate.

The same appears to be true of the suppliers of diesel oil, who have interpreted the refusal of a certificate as the existence of doubt about the financial stability and the creditworthiness of people who have not got such certificates.

That is a very sinister development. It proves not only that the denial of a certificate makes it harder for people to survive financially but that all sorts of extraneous factors may be brought up against them by the private sector as well as the public sector, making it very difficult for them to get work.

Another example that I have is a specification for a tender, sent out by Lambeth Borough Council—a bill of quantities. Condition 17 provides that The Contractor shall only engage bona fide Sub-Contractors who comply with the Declaration of Intent as set out in the terms of the National Joint Council for the Building Industry and the Contractor or his Sub-Contractors shall under no circumstances engage self-employed operatives. There it is. There is a local authority doing exactly what the Government told us a month or two ago when we last raised this matter that local authorities would not do. Is the Financial Secretary going to make sure that this sort of thing is stopped immediately, or will he allow councils who so misinterpret the position as to do things like that to persist in their wrongful ways?

The effect of all this is not to suppress the small man. It is not to make him, overnight, into that horrible concept of the Financial Secretary's—a good taxpayer. It is to drive him underground. More and more of these people are resorting to earning their livings in the only way that they can, which is by continuing their trade but not working for local authorities, and working for cash only. Probably the effect of what the Financial Secretary, in his foolish way, has done is to increase tax evasion, because if a man does not get a 714 certificate and goes moonlighting the Revenue gets precisely no revenue at all. It may well have had the effect of reducing the amount of revenue and increasing the amount of evasion.

My hon. Friends and I have considered deeply what to do about this matter. As I have said, we do not believe that we should do anything that increases the chance of evasion. That is one of the reasons why, as I have just said, I attack the present situation.

If, by granting a certificate automatically and as of right, we can get away from all the unpleasant and undemocratic stuff that I have been talking about on this occasion and on previous occasions, it will be a redress of the grievance that the 20,000 people who have been refused certificates quite rightly feel, as do my hon. Friends and I. If that can be done without putting the Revenue at a disadvantage in the proper collection of tax due, why not?

It is up to the Financial Secretary to tell us, if he can, why the solution that I propose would not work. I am certain that he will simply flannel and rely on the fact that he believes that it is necessary to have these conditions. That will not be acceptable. The right hon. Gentleman must prove to the Committee, if he is to resist the new clause—which I hope he will not—that to rely upon the certificate only and to use that as a means whereby the Revenue can trace tax dodgers and evaders is satisfactory.

The Financial Secretary must convince the Committee that there are grounds for arguing that, because these people are in the building industry, more onerous conditions should be imposed upon them than on, say, accountants or other self-employed people. If not, he will have the clause pressed upon him and, I hope, attached to the Bill.

When we last debated this matter—before the disastrous spate of by-elections, which cut the Government down to size—the Liberal Party, the Scottish National Party, Plaid Cymru and the Ulster Unionist Party, so ably and fully represented here at the moment, found it right to vote with the Conservative Opposition. Members of those parties are no doubt so convinced of the case that none of them has felt it necessary to refresh his memory about the rights and wrongs of it. I think that the Financial Secretary will find himself in a tight corner. Therefore, I hope that he will do his best to persuade us that we are wrong. If he fails to do so, I assure him that we shall press the clause to a Division.

Mr. Nick Budgen (Wolverhampton, South-West)

It would perhaps be reasonable for the Government to persist in their onerous and arbitrary demands on sub-contractors in the building industry if they were able to persuade the Committee that many large contractors within the industry were prepared to offer permanent, regular employment to those who are otherwise driven on to social security as a result of being denied 714 certificates. But it must not be forgotten that, among the great industries that have suffered from the recent recession and have least benefited from the various forms of arbitrary and discretionary Government handouts which have been showered upon the more-favoured sectors of the economy, unhappily the construction industry generally has suffered most of all during the last two years. Therefore, it can properly be said that those who are denied 714 certificates are in a difficult position.

The general position in the construction industry is uncertain. It started—I have to add a note of some criticism here against the Conservative Party—by being grossly over-stimulated during the period 1971 to 1973. The industry was then hit by cuts in public expenditure at the end of 1973. It was hit again by the introduction of the development gains tax, the Community Land Act, the development land tax and, again, recent cuts in public expenditure which, although in general I welcome them, concentrated overwhelmingly on the capital side. The construction industry has been hit, hit and hit again.

7.15 p.m.

Let us understand who is being hit. I see my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) nodding in agreement. If he will forgive my embarrassing him in this way, the great company which bears his name has been extremely successful in contracting in the Middle East. That is splendid for the architects, for the surveyors and perhaps for those who lend money to that great company. However, it does not help the chap in Wolverhampton who wants a 714 certificate to do a bit of plastering. That kind of chap will not be employed on a large contract, perhaps in Dubai. Essentially, the professional and middle-class people benefit from that kind of work.

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

I agree with my hon. Friend. Does he realise that many artisans and foremen who go out to Dubai in the Middle East to get some capital free of tax with the object of coming back and starting small businesses are completely stopped from doing so because of this problem?

Mr. Budgen

I appreciate what was said by my hon. Friend. This evening I am making a plea not so much on behalf of foremen but on behalf of those who would otherwise be employed—persons who do not have many skills.

For example, my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) referred to the chap who has just come out of prison and who in the past would have been employed as a bricklayer's labourer on a building site. Today, if he goes to Tarmac in my constituency and asks for a job, it has to be explained to him that, because the overhead costs of employing a man are so high and the uncertainty of the trade is so great, while the company might be able to give him some work as a sub-contractor it dare not introduce him on to the payroll generally as an employee.

Let us consider the overhead costs which have been added to employing a man. I make no criticism of the concept of redundancy payments. However, when employing a man today a company must contemplate the possibility that he may become redundant, in which case he will have to be paid a substantial capital payment, largely at the expense of his employer.

It is necessary to make proper provision for a pension for a man who may be employed by a construction company—again, in an uncertain trade climate. The Employment Protection Act makes it difficult for an employer to respond to changing conditions in the trade. The minimum wage legislation is often referred to by Labour Members. Minimum wage legislation, at a time of high unemployment and when that legislation is fiercely and vigorously forced upon employers, creates more unemployment. The consequences are to make it more expensive for the big construction companies to employ men on a permanent basis. Therefore, the only way in which many men—men who are weakest in the job market—can get any work is to become self-employed, to work for themselves and to sub-contract out their work.

These men—many of the weakest people in society who most need help—are being harried at a time when they might reasonably say to themselves "The social wage, or whatever that silly expression these stupid people on the left wing of the Labour Party talk about, is so high that we might as well sign on the labour." They possibly would not understand the clever economist's term, but they would know that the social wage was indexed. They would know that most other people did not have wages or receipts which were indexed. A man in that position could say "I am better off signing on the labour than going through the agony of trying to register as a sub-contractor in the building industry, in which people like myself who do not have too many skills have traditionally found work."

That is not the position in today's world. We now find that those self-reliant people are an affront to the Socialist concept of having most of the building work within the great companies or, better still, no doubt, within the direct labour organisations. That concept is also an affront to the Labour Party's masters in the trade unions.

Tonight the Conservative Party should once again be the party that stands up for the little man. Most of all, we should stand up for the little man who is trying to rehabilitate himself. We should stand up for the chap who has no skills or who has just come out of prison and wants to do better for himself and his family than signing on at the labour. Those people are among the thousands who are unemployed as a result of the uncertainties in the construction industry. Our fight is on behalf of economic sanity and compassion for some of the weaker sections of our community.

Mr. John Wakeham (Maldon)

I support the clause, for many of the reasons that were so eloquently given by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). It affects small sub-contractors trying to earn a living in difficult times, but the present situation also affects some of the major sub-contractors. Some substantial companies must abide by these regulations. In some cases, when they are working for overseas principals on contract in this country, they must go through all this rigmarole. That is damaging to the standing of some British companies, which should be well above having to deal with tax evasion. They, too, must produce certificates. Nobody could seriously think that they should be included in this scheme.

I turn to the central question. I ask the Financial Secretary whether all this is worth while. I asked him a question on this subject in our last debate. The Financial Secretary said that we were talking about tax evasion, which is costing the Revenue about £10 million. I wonder whether the whole process is worth while. There are substantial arguments against it. The Financial Secretary owes it to the House to give a clear indication why he believes that a tax loss of £10 million justifies all the extra bureaucracy, the attacks on personal freedom and the many undesirable activities about which we hear.

The same principle is at stake as was at stake in the previous debate. We should consider the compliance costs—the costs to the honest taxpayer and to the Revenue of administering the new scheme. A modest assessment of the cost to the taxpayer is about £25 per head. If about 400,000 certificates are involved, I calculate that to cost about £10 million—the total amount of revenue that is being lost. The Inland Revenue costs must be similar. It appears from those calculations that the scheme will cost about twice as much as the amount of tax lost. We would all like to see that revenue saved, if it were practicable.

I hope that the Financial Secretary will consider carefully any compliance costs that he may be given. The compliance costs that he gave in the last debate did not stand up to one minute's examination. The Financial Secretary said that the costs of compliance were 2p in the pound. That means that a trader with £10,000 worth of output would have compliance costs amounting to £16. I do not think that is correct.

Mr. Robert Sheldon

There has been a misunderstanding about this issue. Compliance costs represent the cost to the trader. I was talking about official compliance costs. I am sorry about the jargon, but there is a difference between the cost of collection and the other aspects. I was talking of the official compliance costs and comparing them with the total costs of administration. The hon. Member for Maldon (Mr. Wakeham) is talking about the cost to the trader in terms of the paper work required of him.

Mr. Wakeham

I must be careful not to stray back. In the previous debate our case was that the cost to the taxpayer must be considered when justifying any legislation. Some of us accepted the information that we were given, but I did not fully understand at the time.

I hope that the Financial Secretary will tell the House the true cost to the country as a whole—that is, the cost to the honest taxpayer and others, as well as the cost to the Revenue for administering the scheme. I say that the cost is twice as much as the revenue loss. I base that conclusion on the Financial Secretary's figures.

We shall return to the subject in other debates. It is a much neglected side of our Revenue practice and taxation. The cost of compliance with complex legislation is becoming more of a burden. We must consider not only the uncertainty but the cost of compliance. I ask the Financial Secretary to try to justify the amount of revenue and the compliance costs and to see whether the sums add up. I do not think that they do.

Mr. Costain

I support the new clause. As my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) said, I have had a number of years' experience in the building industry. I recognise the effective role of the labourer in that industry. All my life I have found a prejudice, particularly by trade unions, against self-employed labourers. The trade unions feel that they are losing members. That is not true.

I shall explain to the House the necessity for labour-only sub-contractors. Well over half the new houses in this country are built by contractors who never build more than 25 houses per year. Maintenance is usually carried out by small firms. Only when one recognises that can one appreciate the need for labour-only sub-contractors.

A firm building 25 houses per year cannot keep a permanent gang of bricklayers on its staff. There are not enough bricks with which they can build. One man could build one house per year, but in each house 15 to 20 different trades are involved. A lavatory pan could probably be fixed in a day, but small firms must rely on labour-only sub-contractors to do that job. If they did not they would have permanently to employ such labour. That would increase the costs of houses.

I know that there have been tax evasions. I was a member of the committee that exposed the so-called Luton evasions. Large sums of money were involved. The evasions started because it had not been made easy for a small contractor to understand the machinery required for tax collection. He started off without the proper machinery and the evasions went from bad to worse.

7.30 p.m.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) apologised on behalf of the Conservative Party for an overheated economy. But what overheated the economy in 1971–72 was the legislation brought in by the Labour Government to give grants for alterations and improvements to hotels. It started with the very best of intentions but it concentrated the specialised labour for plumbing. The grants given for bathrooms to be put into hotels concentrated plumbers and individual craftsmen into this activity and put the whole thing out of balance. That is where the overheating started.

There is another factor that has altered in my lifetime in the building industry, and that emphasises how essential it is to have the small labour-only sub-contractors. When I was a youth, building labour expected to travel all over the country. Men expected to follow their employers throughout the country. Nowadays, because of the shortage of housing and the effects of the stupid rent legislation—I should be out of order if I were to elaborate on that—people want to live near to their place of work. Travel is now so expensive that they want a job as near as possible to where they live.

The labour-only sub-contractors can concentrate and spread their work over 10, 15 or 20 small firms in an individual town. I recently had a flat altered for myself in my own constituency. I wanted to employ as much local talent as I could. I employed a small contractor to do the work but I do not think there was ever more than one man in his permanent employ.

The Treasury ought to make it extremely simple for a man to set up in business and get on the register. What did the Government do in the case of gun licences? They did not make it difficult for people to get licences. They made the cost of the licence extremely cheap—five shillings for three years—in order to get people to register. Then, once they were on the register, they could follow it through and see what was happening.

Many artisans—bricklayers, carpenters and plumbers—have all their lives had the ambition to set up in business for themselves. Most of the large firms, including my own, started as labour-only sub-contractors. Sir Malcolm McAlpine used to tell how his first job was as a labour-only sub-contractor building a signal box at the time when the railways were being constructed. All these big firms have developed in this way.

Artisans go abroad on a three- to four-year contract and, because there is no tax deducted, they can save £6,000 or £7,000. That is enough to enable them to come back to this country and start a business. But, unfortunately, because they have been away for three years, the regulations prevents them from commencing.

I should like to have a definite reply from the Minister about the position in terms of the Common Market. I understand that we are bound to give equal employment to, say, a French contractor who wishes to come over to this country and start in business, employing two or three men. But how is he able to get a start? Our regulations prevent him from starting up. Is not this contrary to the treaty? As I understand the position, unless a man has been operating for three years in this country he cannot start a business.

If the Government were to look at this question again and accept the clause they could achieve a good deal by it. If they fail to accept it, these small gangs of men will do moonlighting, going round from house to house in the manner of window cleaners. They will be employed by housewives to carry out small extensions to houses, they will be paid in cash, and the Revenue will lose all the tax. The Government are following a very short-sighted policy. I hope that the Minister will accept the clause. It is the sensible thing to do.

Mr. Ian Gow (Eastbourne)

If the Government were to agree to the clause, it would remove the pernicious Schedule 12 from our legislation with effect from the first of next month. Schedule 12 applies to four categories of sub-contractor—individuals, partners, firms and companies. There are separate parts of the schedule which refer to those four categories of sub-contractor.

My hon. Friend the Member for Maldon (Mr. Wakeham) talked about the effect of the schedule upon the larger sub-contractors. I want to concentrate solely upon the individual sub-contractor, the smallest man—the very man in the category in which we are most likely to have an expansion in employment. For the small man in particular, the granting or withholding of a No. 714 certificate is literally crucial to his right to work. For the small man, the single operator, a 714 certificate means that he can work. The withholding of a 714 certificate means that he cannot work.

If, therefore, through our tax legislation we are to make it a condition, so clearly and so unequivocally, that the whole right to work depends upon the issuing of this certificate, we must be absolutely certain that we frame our tax legislation in such a way that it gives every encouragement to employment and every discouragement to unemployment.

There is common ground about that between the Financial Secretary to the Treasury and my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). If I may say so, I thought that my hon. Friend was a little unfair to the Financial Secretary, because what has happened this evening is what has happened so often before. The Financial Secretary does not have his heart in the speech that he will be making in a few minutes' time.

Mr. Budgen

He does not have one.

Mr. Gow

No. That is the tragedy. The Financial Secretary does care about this, but he now has to go through the journey of extricating the Government from a position which is totally indefensible. He has to make the journey from the Finance (No. 2) Act 1975 to reality. Some concessions will be announced this evening. There will be an undertaking that the Government will look at it again. There will be a reference to the courtesy with which he writes to Members of the House who take up issues with him.

The objectives of my hon. Friend here are the same as those of the Financial Secretary—to get back to sanity. The difficulty is that we shall not do that until my hon. Friend the Member for Cirencester and Tewkesbury is occuying the ministerial position now occupied by the right hon. Gentleman.

When we had our earlier debate on 9th February on the subject of the 714 certificate, I explained the amazing case of one of my constituents who had been refused a 714 certificate because he had grown a moustache. Happily, following representations that were made to the Inland Revenue, despite the fact that he had grown a moustache, the decision to withhold a certificate was subsequently reversed. I am glad to say that my constituent is now working productively with others and has been able to reduce the unemployment in South-East England.

But there is another case to which I wish to draw attention because it shows how the Government have produced regulations which fly in the face of their objectives. Schedule 12 sets out some of the requirements which have to be met before a 714 certificate can be issued. The regulations about moustaches appear in the Statutory Instrument, and I am concentrating on the schedule.

One of the conditions for the issue of a licence to work is that the business is carried on from proper premises. It should not be for the inspector of taxes to decide whether the premises are proper. What does the word "proper" mean? A small sub-contractor may have all the tools of his trade in his own back garden. If my hon. Friend's clause is passed, it would not be up to the Inland Revenue to decide whether premises are proper.

I come to the next requirement which has an effect which, it appears, the Government did not intend to introduce through the regulations. It is that no certificate shall be issued to an applicant unless he has been in employment for three years before the date of the application. That, too, is provided for in the schedule.

In March this year a constituent of mine, a Mr. Knight, who is a painter and decorator, received a letter from the Inland Revenue which stated: It is a requirement of the Finance (No. 2) Act 1975 that the applicant must have been employed or self-employed throughout the three-year period preceding application. As you were unemployed for 26 weeks in 1974–75, this requirement is not met. So Mr. Knight, who had undergone the misfortune of being unemployed, suffered from a further burden. Unemployment is a misfortune which has afflicted many of our citizens since 28th February 1974. I predict that it will afflict still more of them and that it will therefore become increasingly difficult to meet that requirement. In 1975, when we were debating that Finance Bill, the number of unemployed was significantly lower than it is today. As this Government have proceeded, so the number has risen. I do not believe that when the Government passed the Act they envisaged its pernicious effects.

Having inflicted the misfortune of unemployment—which, one might say, was an involuntary action on their part—on certain people, they are now inflicting a further burden by denying these people the right to work even though they could do so. I do not believe that that is he Government's intention, but that is how the inspector of taxes sees it.

I have with me a courteous letter from the Financial Secretary—and I must say that all the correspondence from the right hon. Gentleman is of a most courteous nature—dated 9th May in which he apologised for the decision in that case. The 714 certificate has now been issued to Mr. Knight in spite of his period of unemployment in 1974–75. The worrying aspect of the case is that if representations had not been made by a Member of Parliament Mr. Knight and the man who grew a moustache would both still be out of a job, because they would not have had their 714 certificates.

Mr. Budgen

Will my hon. Friend explain how in law it was possible for the Inland Revenue to grant that certificate to Mr. Knight when so plainly his constituent did not conform to the admittedly ridiculous regulations which are laid down?

7.45 p.m.

Mr. Gow

My hon. Friend has raised an important point. if the regulations were interpreted strictly, as the inspector pointed out to me in justifying his decision, my constituent would not have got a certificate. This, therefore, is what would be described as an extra-statutory concession.

Mr. Budgen

In that case, the inspector of taxes was unlawfully making the law and abrogating to himself the role of the Queen in Parliament.

Mr. Gow

My hon. Friend will know well that a number of extra-statutory concessions are granted by the Revenue. I am not complaining that that power was exercised in this case by the Inland Revenue. I am complaining that we should have had these absurd regulations in the first place. My hon. Friend's new clause would remove them.

In his letter of 9th May, the Financial Secretary explained this to me. He said: At the same time, however, it has been recognised that the three-year requirement"— that is, the requirement of employment— could bear hardly in some instances, and Inspectors have been authorised to ignore short periods of unemployment or absence, when these car, be fully documented and when the applicant's credentials are fully satisfactory in other respects. Again, I emphasise how courteous the right hon. Gentleman was in his letter. He concluded: I would, however, once again extend my apologies to you and to Mr. Knight. The difficulties to which my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred could be removed at a stroke by the Financial Secretary accepting the amendment. We know that the new regulations, brought in understandably to try to end a certain amount of tax evasion, have proved sweet to the taste but have caused indigestion most sour. They have soured the small sub-contractor. They have eroded the ability to find work at the very time when we should be increasing the opportunities to do so. They have put one more nail in the coffin of mistrust between taxpayer and Inland Revenue, between Government and governed, and between people and Parliament. The regulations are recognised more and more by those who have to operate them as being unjustified, unjustifiable, complex and unfair.

Mr. Peter Rees (Dover and Deal)

I rise to intervene briefly in the debate. It is worth commenting that this is the second time in three months that the House has had occasion to return to these regulations which conceal the particular aims and principles that are being forced into the open by the activities of Conservative, Members. It is noticeable that no single hon. Member from the Labour Party, the Liberal Party or the Nationalist parties appreciates what is at stake in these regulations.

I agree with my hon. Friend the Member for Eastbourne (Mr. Gow), although I cannot match his eloquence. I was struck by the metaphor that he used—"the nail in the coffin". What is being laid to rest in this coffin is the confidence between the general body of taxpayers and the Inland Revenue.

It is obligatory to start our interventions in debates like this by saying that we have no truck with tax evasion. I shall also make that declaration. It is no part of our public duty in this House to hold any brief for evasion, but it is right to consider whether the remedy on occasions may not be worse than the disease.

It is amazing, in fact almost grotesque, that the party opposite has at last discovered that evasion and avoidance are not the monopoly of one particular economic or social class. With the tax structure and the rates of taxation that exist at present—and we debated this fully earlier this week—there is a pressure to avoid, and I am afraid that at the margin there is a pressure to evade right throughout the country.

I may be out of order in saying this but I think that the real remedy is for the Government to take a fundamental look at the whole tax structure and the rates of taxation. Only when we get the top rates down to 30 per cent. and the lower rates down to 5 or even 2 per cent. perhaps—and it is just perhaps—there may be a change in the attitude of taxpayers. There may be a return to the simpler arcadian era of the 19th century when it was almost a matter of national pride to pay taxes. But I must admit if we look back to the 18th century we find that individuals of every class in the community were concerned with avoiding excise duty—I am afraid it is a sad commentary on human nature.

I do not wish to add to what my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) said in his analysis of the problem. He speaks with direct experience of the construction industry. I speak with only second-hand knowledge which I have gleaned from talking to friends in the business. I add this interesting little statistic in the vain hope that it may evoke a flicker of response from the Financial Secretary. I was talking to a representative of a distinguished construction company—perhaps what my hon. Friend the Member for Folkestone and Hythe would admit as being in the higher echelons of the industry—and he said that in normal years—and we are talking about an industry that is in recession, but may be poised for an upturn depending on the outcome of this debate—one-third of his turnover would be paid in wages to direct employees, one-third would be spent on materials and one-third on payments to self-employed sub-contractors. That demonstrates the scale of the problem unless the Government devise an acceptable solution.

When the next upturn in the economy comes—and the Government are desperately pinning their hopes for electoral survival on economic upturn—it must certainly start with the construction industry and then work its way through the rest of the economy. If we cramp the style of genuine construction companies we may find that one of the consequences will be to divert work to direct labour departments of local government. This may be the effect underlying these regulations. One is compelled to look past the fiscal scene and consider just how disinterested, in a political sense, the Financial Secretary is in supporting these regulations. It may be that he feels that this is a suitable way of diverting business to direct labour departments. Whether he will be successful in the light of the recent local government election results remains to be seen. I hope that with the benevolent connivance of the Chair we may debate this important question again.

The alternative to diverting work to the direct labour departments will be the formation of a twilight or underworld of individuals or small groups operating exclusively for cash, outside the law regardless of what happens, and offering a service to those who are prepared to take a chance. This would be a desperate situation and for a marginal loss of tax it is not one that we should lightly contemplate.

I have focused for a moment on the details of the conditions required for a certificate, which is, in effect, a licence to work—let us be under no illusions about that. These are the conditions imposed by statute. It will be interesting to see in practice how readily the conditions can be met or how necessary it will be for the individual Inland Revenue inspector to bend the law.

My sympathy goes out to the individual inspector. The vast majority of inspectors are men of humanity and practical experience and they know that the world of commerce and industry must go on. They know that unless wealth is generated in the construction and other industries, what we do here in this House is a matter of irrelevance. We should not put them in the position of having to introduce on their own authority what I might charitably call "extra-statutory concessions" but which are, in fact, flat breaches of the law.

In the last debate on 9th February I put a variety of rather precise questions to the Financial Secretary and he did not have time to answer them then. But with his habitual courtesy he wrote me a full letter, and I pay tribute to him for his courtesy and thoroughness in answering my points. However, I must confess that I remain doubtful. Perhaps the Committee would allow me to uncover the points that I raised with him then.

The requirement in the Twelfth Schedule of the Finance (No. 2) Act 1975 is that business should be carried out on proper premises with proper equipment and other facilities. One understands the general drift of that. If proper premises can be identified, one can reasonably infer that the business is being properly conducted. But we are not talking about companies such as Taylor Woodrow and Costain. We are talking about small groups of men who may have to move across the country to find work—that is their utility. Will the tax inspector be satisfied when that man says that he has a house in Deal but his business takes him to Newcastle because that is where work is booming and he is looking for work? Will the inspector be prepared to accept that the man has premises at his home in Deal but he is operating nearly 400 miles away? This is a question of delicate judgment for the individual inspector. Will the man be required to produce the title deeds for his house in Deal? Will he have to demonstrate that he has a proper lease with the full panopoly of the law, or is this just a sham to terrorise people? These are practical questions. It may be that they are the sort of questions my constituents will ask me. They have to be answered by the individual inspector across the table to the individual applicant. I hope that the Financial Secretary will give us up-to-date figures of the number of applications waiting to be processed and the length of time these are taking.

There is a question of plant. The Financial Secretary, with his usual acumen, said in his letter to me: Clearly, some trades require substantial premises, including a yard (and anyone who, for example, said he was running a plant-hire business but had no yard and no plant would have difficulty persuading the Inspector that he was genuinely self-employed). We can all produce extreme examples but it is examples at the margin with which we are concerned. How will the inspectors act? Will they go round examining premises? Will the plasterer arrive at the inspector's office with his plastering equipment? These are practical problems that do not admit of a glib answer.

Mr. Ridley

In the case I quoted to the Committee involving the gentleman who is a self-employed foreman, how can he acquire either premises or a yard?

8.0 p.m.

Mr. Rees

My hon. Friend's question is both to the point and unanswerable. I suppose he comes to the inspector's office and shows him the callouses on his hands and says "Look at my hands, look at my face which is etched deep with lines of anxiety and responsibility. I am a centurion, a leader of men, and you must take it from me that I am doing this work."

Mr. Costain

The man will probably arrive in a donkey jacket with a contractor's name written on the back.

Mr. Rees

This discussion exemplifies the fact that, however unregarded we may be by millions outside, on any topic, however technical, there is always some hon. Gentleman who can speak from direct experience. I am grateful to my hon. Friend the Member for Folkestone and Hythe for drawing on his experience. That will provide the inspectors with the kind of overt symptoms they can look for.

I also raised with the Financial Secretary following the previous debate the question whether the unfortunate applicant will he able to convince the inspector that his tax affairs were in order. The Financial Secretary blandly replied that where the Government felt there was a genuine difference of opinion between taxpayers and inspector, and where the liabilities had not been settled for that reason "that in itself will not be a reason for delaying the issue of a certificate".

But what constitutes a genuine difference of opinion? The genuineness of the situation apparently is to be judged by the Inland Revenue. I must confess to a slightly partisan view. I do not believe that a person should be judge and jury in his own case. I am not utterly persuaded that our tax gatherers, with their well known integrity but also with their zeal for public service, can be relied upon in every case to detect a genuine difference of opinion.

The Financial Secretary may say that these matters can readily be determined by the appeal commissioners, but I understand that this matter will not be within their discretion. Therefore, there is no remedy on that score. All an applicant can do is throw himself on the mercy of the inspector and say "I implore you to accept that there is a genuine difference of opinion between us".

I come finally to the most outrageous matter introduced in Schedule 12—namely, that the applicant should have minimum insurance cover against public liability for £250,000. In the previous debate I adduced the case of a plasterer in Sandwich, Deal or Dover in my constituency and I asked how such a man would obtain cover. This is an immense burden to place on the small man or the small gang. Are they expected to go to a Lloyd's broker or to an insurance company and to say "We want this cover—what will be the charge in premiums?". The Financial Secretary in his letter replied: I accept that there will be some, such as plasterers, whose occupations expose them to far less risk of incurring claims to damages than others, but insurance companies take this into account when fixing the level of premiums, and I would expect a plasterer to be able to get the necessary cover at relatively low cost, I wonder why the Government have tried to slip this provision into what is essentially a fiscal matter. This induces in me the perhaps unworthy suspicion that this is not essentially a fiscal matter, but is aimed at the self-employed—those who are operating on the margins. I suspect that this is being introduced at the behest of the big battalions in labour, the trade unions who wish to see these people gathered into the fold, such as the Transport and General Workers' Union. This is a Jack Jones benefit measure. I appreciate that he is having his day and that he has his friends on the Government Front Bench, but he should not use them in this way.

At the end of the day it appears that the Government would prefer to exact the last penny in taxation than to take steps to help the construction industry. The test is whether we want to see the construction industry ready and able to take advantage of the next upturn in the economy, or whether we wish to see a queue of disgruntled applicants outside the offices of the local Inspector of Taxes and eventually outside the Social Security offices. I am sure that the Financial Secretary who is a reasonably modest man—I shall not say a humble man—will recognise that there is some force in our arguments. I do not claim any direct experience, but we have had direct experience given by Opposition Members this evening. I therefore hope that the Minister will recognise that it is worth sacrificing a little tax at the margin, and that it is worth affronting Mr. Jack Jones in order to give a small measure of justice to those who on the whole have made their small contribution in the market places of this country.

Mr. Graham Page (Crosby)

Mr. Robert Wilson, the President of the National Federation of Building Trades Employers, said in a speech the other day: We believe that the whole thing has got out of control". He was referring to the 714 certificate system. If anybody should know how the system works, surely it is the President of the NFBTE.

My hon. Friends have spoken eloquently about the conditions that have to be met under Schedule 12 of the Finance (No. 2) Act 1975—the schedule that the new clause seeks to obliterate. They have pointed to the extraordinary situation in which a person who wants to set up business on his own account is placed in view of the conditions set out in paragraph 1 of Schedule 12—for example, where the business consists of or includes the carrying out of construction operations or the furnishing or arranging for the furnishing of labour in carrying out construction operations". Who would have thought that that provision would apply to carpet layers and landscape gardeners? Indeed, it has been so applied. The inspector says that they are substantial contractors, and therefore the view is taken that they are carrying out the terms of paragraph 1.

Mention has been made of proper offices or premises at which a business must be carried on with proper equipment, stock and other facilities. But many successful small businesses are carried on from a man's own house, or involve the use of a room in that house. Are those to be regarded as proper premises? I am sure that the Financial Secretary will say "These regulations have been applied reasonably by the inspectors". But the examples given have shown that they have not been reasonably applied.

I wish to draw attention to a statement issued by the Board of Inland Revenue relating to its policy on the issue, withdrawal and renewal of sub-contractors' tax certificates. Let me say for the record that I am quoting from the Income Tax Construction Industry Tax Deduction Scheme Appendix C. The statement says: In the first place the Board wish to dispel any fear that the threat to withhold or withdraw a certificate may be used to encourage agreement with the Revenue's views in matters unrelated to the deduction scheme". Since that is said in that statement, it must show that the Board recognises that there is some fear and that that fear has been based on some sort of fact—some application of the system that has given rise to a fear in the mind of the public.

The statement is trying to dispel the fear that the system will relate to matters unrelated to the system. It goes on: When they are considering the entitlement of a business to the issue or renewal of a certificate, the Revenue are bound by the Finance (No. 2) Act 1975 to have regard to the extent to which there has been failure to comply with tax obligations. It says just the word "tax", not tax payable under this system or the tax that would be deducted if the certificate is not given, but any tax obligation. Having said that the scheme will consider merely the issue of the certificate it goes on to say that what must also be considered is the way in which a person has dealt with his tax affairs, and that if an inspector does not like it he can refuse the issue of the 714 certificate. This is enlarged on in paragraph 4, which says that: Apart from irregularities in connection with the deduction scheme itself, examples of non-compliance with this order include failure to account for PAYE tax deducted I am sure that a great number of right hon. Members have, in the course of their business or professional careers in or out of this House, occasionally omitted to account for PAYE deductions, perhaps for a month or two.

The statement goes on: continued failure to pay the business's own tax once the amount payable has been agreed, deliberate or reckless failure to meet normal obligations (including the settlement of accounts) or to answer inquiries". If one fails to answer an inspector's inquiry he may say that one is doing it deliberately and recklessly, and because one has done that in the past, perhaps a year or two ago, he may refuse to issue a 714 certificate. I give one further quotation. It comes from the last paragraph of the statement, which deals with the withdrawal of the certificate once it has been issued, and when it may be withdrawn during its period of validity. Many people do not realise that this can be done. An inspector can withdraw a valid certificate. The statement says: it would be usual for the certificate holder to receive some form of preliminary warning. Can we believe that the Board of Inland Revenue could be so heartless as to withdraw a certificate without warning? The Board may do so. The statement says: There may, however, be exceptional cases where immediate action, without warning, to withdraw the certificate will be the only way in which the revenue can be protected. Is that a reasonable way to apply these conditions? The Financial Secretary may say that if it is not reasonable one can appeal against it. I am not sure what the inspector had in mind in the case quoted by my hon. Friend the Member for Eastbourne (Mr. Gow), referring to his constituent, Mr. Knight. My hon. Friend made representations on behalf of his constituent. They were considered and, I gather, turned down by the inspector. However, later, because of pressure, the inspector wrote a letter. I have borrowed this letter from my hon. Friend the Member for Eastbourne, because it is quite extraordinary. It is a letter from the inspector of taxes to my hon. Friend's constituent, and it says: If you do not accept the decision, written notice of appeal may be made to me within 30 days receipt of this notice. Arrangements will then be made for your appeal to be heard before the General Commissioners or, if you so wish, by the Special Commissioners, both of whom are independent bodies. One would have thought from that assurance that my lion. Friend's constituent could have gone before the general commissioners or the special commissioners if he had so chosen in order to put his case about having been refused a 714 certificate because he had not complied with the conditions under Schedule 12, and that he would have been heard. I certainly understood that to be the meaning of the letter.

8.15 p.m.

However, either the inspector who wrote that letter was trying to mislead my hon. Friend's constituent or he had not read the Act. If he had read Section 70(6) he would have seen that a person aggrieved by the refusal of an application for a certificate may give notice of 30 days—as the inspector said in his letter—and choose whether to go before general or special commissioners. He would have seen that: the jurisdiction of the Commissioners on such an appeal shall include jurisdiction to review any relevant decision taken by the Board in the exercise of their functions under this section However, we then come to the vital words: other than a decision that an individual, a company or a firm is or is not to be treated as satisfying a condition set out in any Part of Schedule 12 to this Act. It is about those conditions that we complain, and that is why I support my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) in moving the new clause.

There is no remedy for a man who applies for a 714 certificate and who is unfortunate enough to be refused because he is, like me, very bald and a year ago had a mass of hair. I could not go to the commissioners and say that that was a most unreasonable application of the conditions under Schedule 12. That is the real danger of the system.

Mr. Gow:

I am grateful to my right hon. Friend the Member for Crosby (Mr. Page), because he has drawn the attention of the Committee to a most important point, namely, do the commissioners have power to consider whether a refusal under the provisions of Schedule 12 is reasonable? My right hon. Friend has told the Committee that in his opinion and interpretation of the Act they have no such power. My right hon. Friend is right, but is he further aware that that interpretation is not the one that is being put upon the Act by the inspector of taxes? Further to the letter of 15th April that my right hon. Friend has just read out, the inspector of taxes wrote to my constituent to say that he had arranged for his appeal to be heard by the commissioners at their meeting on Thursday 5th May. Of course, it was only after the Minister intervened that we were able to withdraw the appeal, because the certificate was granted.

I wish to draw the attention of my right hon. Friend to the fact that the inspector misunderstood the law.

Mr. Page

I am much obliged to my hon. Friend the Member for Eastbourne. It seems that hon. Members must act as advocates and as general commissioners in these cases. There is no one else who can conduct or hear the appeal except the Minister so it is for us to persuade him—and not the general or special commissioners—by means of evidence so that he will give his blessing to the refusal of an application by an inspector because of some condition under Schedule 12.

Of course, the inspector was quite right in saying that one can appeal to the general commissioners and that they will arrange for the case to be heard. The general commissioners can hear an appeal as long as it is not an appeal against the condition wrongly applied under Schedule 12. The inspector may lead an aggrieved applicant before the general or special commissioners believing that he will have the whole of his case heard. He may go there with counsel and solicitors, only to find that he is precluded under Section 70(6) of the 1975 Act from putting the very point that he wants to put.

I do not say that the whole problem could be cured by removing that proviso, but this does show how unreasonable the application of the system as it stands can be. It demonstrates that it needs a complete revision, and I hope that the Financial Secretary will give an undertaking tonight to accept the clause. If necessary, it can be tidied up at a later stage. I hope that the Financial Secretary will accept what was stated by the President of the National Federation of Building Trades Employers—that the whole system has now got out of control.

Mr. Robert Sheldon

This has not been a brief debate, and I do not complain about that even though we have debated the subject before. However, no one has mentioned the previous scheme that this system seeks to replace. Our system has only just come into operation, and one could be excused for wondering whether every hon. Member is aware of what is being replaced.

The last Conservative Government tried to meet the problems that arise in this rather special industry with its rather special practices. During the 1960s, with the growth of evasion, attempts were made to trace people who regarded themselves, because of traditional practice, as self-employed and who were untraceable as they moved around the country pursuing their occupation.

Faced with these difficulties, the Conservative Government produced a scheme to account for the tax paid by such people and it came into force in 1972. Its approach was the same as the approach of the present scheme, namely, to secure the deduction of income tax from those self-employed people.

The sub-contractor's tax certificate that we have introduced is purely a response to improve provisions that were manifestly failing and were generally known not to be producing the results expected by the Conservative Government. We have tried to replace the inadequate certificates that led to considerable forgery, theft and impersonation and we have tried to cover all the categories affected. The previous certificates did not cover companies. Our scheme, which came into operation last month, provides for certificates that are proper security documents. They ask for proof of the taxpayer's reliability over the past three years. The requirement is to ensure only that people have been meeting their obligations in that period and are running bona fide companies.

Everyone else undertakes to pay tax in accordance with the laws and regulations that we pass. We are trying to obtain tax from these sub-contractors, the majority of whom are individuals rather than companies. In other industries they will usually be employees, but in this industry they go around the country undertaking various tasks and we have to make special arrangements for them.

Even if the people concerned are not able to meet the requirement of being able to show that they have paid taxes over the past three years—a requirement that every other citizen has to meet—the certificate still does not become a certificate to work. The man concerned could become an employee—though if he does not wish to do that we have no intention of forcing him to work for someone else. He could go to a contractor who has a deduction scheme—we hope that many contractors will operate such schemes—or he could do various building jobs for firms or individual householders. The worst fears of Opposition Members will not be fulfilled. There are many opportunities for these people to use their skills.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) said that he did not wish to put the Inland Revenue at a disadvantage. Other hon. Members have echoed that view and said that the needs of the Inland Revenue should apply to these people just as they apply to anyone else in the community. The hon. Member for Cirencester and Tewkesbury said that he put a high priority on this point.

I wish only to ensure that every individual pays the right amount of tax. If the new clause produced that result, I should be happy to accept it. It is because I have some doubts about whether that would happen that I am not able to accept it. I imagine that the hon. Member for Cirencester and Tewkesbury will not be surprised to hear that.

The hon. Member for Maldon (Mr. Wakeham) asked about the cost of the scheme. The new scheme will cost about £2.3 million, compared with the £2.8 million cost of the old scheme, and according to our best estimates the new scheme will result in a substantial saving of staff of about 220.

The hon. Member for Folkestone and Hythe (Mr. Costain) asked about the EEC aspect. I can assure him that there is no conflict with the Community.

The clause would undermine the whole basis of the scheme by giving sole discretion to inspectors to decide whether a person should have a tax certificate. It is almost unbelievable that such a proposal should come from an hon. Member who believes in the liberty of the individual and in set rules with which the ordinary individual can comply rather than his being at the mercy and sole discretion of another individual. The House of Commons should not consider that to be a satisfactory way of obtaining tax from members of our community, and that is my main argument against the clause.

It is proposed that the clause should come into effect on 1st June, but as Royal Assent is not given to the Bill until early in August I am at a loss to know how we could implement its provisions in June. I can see no question of retrospection. A rather odd mistake seems to have been made here.

Mr. Peter Rees

If the clause were to come into effect when the Finance Bill received Royal Assent, would the Financial Secretary be disposed to accept it?

Mr. Sheldon

The hon. and learned Gentleman does not seem to have understood what I said. The clause provides that the system comes into operation on 1st June. I do not see how a system can come into operation on 1st June of this year when the Bill is not passed into law until August.

Hon. Members who know me will know full well that I never make a point about drafting that may not be particularly accurate. I know the problem under which Opposition draftsmen labour. But this seems to be more than that. There may be some peculiar reason for the date of 1st June 1977 that I am unable to understand, or perhaps it may be a piece of nonsense as I have already suggested

Mr. Nicholas Winterton (Macclesfield)

My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) asked whether the Financial Secretary would be favourably disposed towards the clause if it came into effect when the Finance Bill received Royal Assent. In answering that, perhaps the right hon. Gentleman can indicate what will happen to the 220 people who are being displaced under the new scheme that he has described.

8.30 p.m.

Mr. Sheldon

The hon. Gentleman may not have heard me earlier give reasons why I disagreed with the clause. Perhaps the hon. and learned Member for Dover and Deal (Mr. Rees)—who came into the Chamber and made a speech, went out and returned only while I was winding up—

Mr. Peter Rees

I did not.

Mr. Sheldon

—did not hear my point either. I said that I did not accept the clause.

The hon. Member for Maldon asked about the number of applications received. Perhaps I can give him the latest figures. I have given figures of this kind before, but while we are discussing the clause perhaps I may give the latest figures that I have. They cover the period up to 14th April. I am sorry that I have none later than that.

The applications totalled 316,000. Those that were approved and received certificates numbered 241,000. About 28,000 applicants were refused, although they could have made a subsequent application with success. Of the number outstanding, 16,000 did not pursue their applications; some of those may no longer be in business. Of the rest, late applications total 9,000. That presents no problem, and they will be processed in the normal way. There are 16,000 applications pending which will be successful when action is taken to put their tax affairs in order, and we believe that 6,000 are unlikely to qualify. That is the latest breakdown that I have at present.

Mr. Graham Page

I am puzzled by what the right hon. Gentleman said about "putting their tax affairs in order" Having regard to the statement published by the Board of Inland Revenue, which I read out, that it would not deal with the deduction scheme as a means of blackmailing a man into paying his ordinary tax, what does the Financial Secretary mean by saying that these 9,000 applicants have to put their tax matters in order?

Mr. Sheldon

I dealt with this matter in a previous debate, but I am happy to explain. If their record over the past three years is in order, that means that they have met their obligations for tax in the same way as other citizens of the country are required to do. They will then have met their tax in full, and there will be no question of their failing to qualify for the certificate and they will obtain it.

If the right hon. Gentleman doubts that, I shall be happy to deal with any particular constituency case as, indeed, I have dealt with a number so far. I might say that there have not been as many cases as the hon. Member for Cirencester and Tewkesbury sought to inform the Committee as a result of the introduction of this scheme. I believe that certain changes have taken place in the industry as a whole. Perhaps I might briefly refer to them.

Mr. Peter Rees

I must admit that was not reassured by the Financial Secretary's answer to my right hon. Friend the Member for Crosby (Mr. Page). The Financial Secretary will appreciate that the initiative must lie with the Revenue and that it must raise an assessment on the applicant which, presumably he must satisfy. The Revenue could endlessly delay raising a final assessment. What exactly does the Financial Secretary mean by saying that these people have to put their financial affairs in order? Does it mean that there could be an endlessly prolonged wrangle with the inspector of taxes and that ultimately, three years from now, lie may raise an additional assessment which the applicant must satisfy? The Financial Secretary owes it to the Committee to be a little more explicit.

Mr. Sheldon

If there is a dispute with the Inland Revenue over the amount, as sometimes happens, certain sums outstanding which are the consequence of the dispute can be left over and the affairs of the person concerned will normally be regarded as being in order. In the majority of cases the total tax will be paid, but in some cases there can be disagreement. That will not preclude the granting of the certificate.

These people in the industry had two years notification of the changes that were coming, and it is more than 18 months since the legislation was passed. They have had time to undertake to pay their tax liabilities in the same way as other citizens and to accept the changes that were coming.

As I said, the major problems of this industry lie in the mobility of labour and in the historical fact that the ties to one employer or a particular area have been less strong than in most industries. In seeking to make this change, we have not tried to change the operations of the industry. We have been concerned with tailoring the need to obtain the required tax revenue from such individuals to the peculiar relationships between the self-employed and their industry.

I have given the undertaking, which I am happy to renew, that I intend to continue this close watch on the operation of the scheme. I believe that the worst fears of the hon. Member for Cirencester and Tewkesbury have not come close to being fulfilled. It is too early to say what problems may yet arise, but so far this matter is going a little better than many of us expected when the changes were introduced.

Mr. Ridley

I think that that was the worst speech I have ever heard from the Financial Secretary—and that is saying something. He did not address himself to the points raised in debate. He went through the worst refuge of a parliamentary scoundrel in relying on drafting objections to shoot down a matter of substance. He did not understand that what is on trial here is his attitude to the right to work of these people.

Apart from that, this has been one of the best debates that I have heard for some time. My six hon. Friends who spoke, who unfortunately were not challenged by any Labour Member, made speeches based on experience, each complementing one another, and added even greater weight to the case that is building up against this iniquitous scheme.

The help that we received from my hon. Friends the Members for Wolverhampton, South-West (Mr. Budgen) and for Folkestone and Hythe (Mr. Costain) in relation to the building industry showed that they knew more about the matter than did the Financial Secretary. The cases described by my hon. Friend the Member for Eastbourne (Mr. Gow) and others showed deep concern and great knowledge of this scheme.

The Financial Secretary was wrong to suggest that the new clause was defective on drafting grounds. There is no reason why the inspector should not grant a certificate to everybody under the clause. Secondly, if the clause were carried there is no reason why it should not come into force on 1st June. Everyone would know that it would, and as soon as the Finance Act had become law that would be possible.

When one is reducing the burdens on the taxpayer, there is no reason to wait until the Act receives Royal Assent. Indeed, the Minister could drop the whole scheme now if he wanted to. All that he would have to do would be to say that he will no longer require certificates to be gathered.

My hon. and learned Friend the Member for Dover and Deal (Mr. Rees) was perhaps referring to the Financial Secretary when speaking of the froth on the surface of public life. If the right hon. Gentleman can do no better than rake over the past history of the way in which he introduced the scheme, when this was

done, when that was done and when the other was done, when ordinary working people's livelihoods are at risk, my hon. and learned Friend's remark must ring true. The right hon. Gentleman has complained of inadequate certification in the past. The clause seeks to ensure that he has adequate certification but that he removes the intolerable position into which he has put the tax inspector; namely, making him the judge of the question whether a citizen has a good record in respect of these conditions.

The right hon. Gentleman said that contractors had two years' notice of the scheme. I shall give them very much shorter notice. The notice is as short as the time that is necessary to get rid of this miserable Government, with their miserable attitude to those who want to get on with the job. When we return to office we shall review these conditions and remove from the statute book all the evils about which we have been complaining. Contractors can look forward to a proper deal under the next Conservative Government.

In view of the fatuous response of the Financial Secretary, I suggest that my right hon. and hon. Friends vote against the Government and support the clause.

Question put, That the clause be read a Second time:—

The Committee divided: Ayes 133, Noes 138.

Division No. 135]	AYES	[8.43 p.m.
Alison, Michael	Ewing, Mrs Winifred (Moray)	Knight, Mrs Jill
Arnold, Tom	Eyre, Reginald	Knox, David
Atkins, Rt Hon H. (Spelthorne)	Farr, John	Lamont, Norman
Bain, Mrs Margaret	Finsberg, Geoffrey	Lawrence, Ivan
Baker, Kenneth	Fisher, Sir Nigel	Lawson, Nigel
Banks, Robert	Fookes, Miss Janet	Lewis, Kenneth (Rutland)
Bennett, Sir Frederic (Forbay)	Forman, Nigel	Luce, Richard
Berry, Hon Anthony	Fowler, Norman (Sutton C'f'd)	McAdden, Sir Stephen
Biggs-Davison, John	Gardiner, George (Reigate)	MacCormick, Iain
Blaker, Peter	Goodhart, Philip	Macfarlane, Neil
Body, Richard	Goodhew, Victor	MacGregor, John
Boscawen, Hon Robert	Gorst, John	Mackay, Andrew James
Bottomiey, Peter	Gow, Ian (Eastbourne)	Marshall, Michael (Arundel)
Bowden, A. (Brighton, Kemptown)	Gray, Hamish	Mates, Michael
Brocklebank-Fowler, C.	Griffiths, Eldon	Maude, Angus
Brooke, Peter	Grimond, Rt Hon J.	Maxwell-Hyslop, Robin
Bryan, Sir Paul	Grylls, Michael	Mayhew, Patrick
Budgen, Nick	Hall, Sir John	Meyer, Sir Anthony
Chalker, Mrs Lynda	Henderson, Douglas	Miller, Hal (Bromsgrove)
Clark, Alan (Plymouth, Sutton)	Hodgson, Robin	Mills, Peter
Clarke, Kenneth (Rushcliffe)	Holland, Philip	Moate, Roger
Clegg, Walter	Hordern, Peter	Moore, John (Croydon C)
Cope, John	Howell, David (Guildford)	Morgan, Geraint
Costain, A. P.	Hunt, David (Wirral)	Morrison, Charles (Devizes)
Crawford, Douglas	Hunt, John (Bromley)	Morrison, Hon Peter (Chester)
Dean, Paul (N Somerset)	Hutchison, Michael Clark	Neave, Airey
Dodsworth, Geoffrey	James, David	Nelson, Anthony
Drayson, Burnaby	Jessel, Toby	Neubert, Michael
Durant, Tony	Kershaw, Anthony	Newton, Tony
Edwards, Nicholas (Pembroke)	King, Evelyn (South Dorset)	Nott, John
Emery, Peter	King, Tom (Bridgwater)	Page, Rt Hon R. Graham (Crosby)
Page, Richard (Workington)	Sims, Roger	Wakeham, John
Percival, Ian	Sinclair, Sir George	Warren, Kenneth
Price, David (Eastleigh)	Smith, Dudley (Warwick)	Watt, Hamish
Rees, Peter (Dover & Deal)	Smith, Timothy John (Ashfield)	Weatherill, Bernard
Reid, George	Stanbrook, Ivor	Welsh, Andrew
Rhodes James, R.	Stanley, John	Wiggin, Jerry
Ridley, Hon Nicholas	Steen, Anthony (Wavertree)	Wigley, Dafydd
Ridsdale, Julian	Stewart, Rt Hon Donald	Wilson, Gordon (Dundee E)
Roberts, Wyn (Conway)	Stewart, Ian (Hitchin)	Winterton, Nicholas
Rossi, Hugh (Hornsey)	Stradling Thomas, J.	Wood, Rt Hon Richard
Sainsbury, Tim	Temple-Morris, Peter
Shaw, Giles (Pudsey)	Thomas, Rt Hon P. (Hendon S)	TELLERS FOR THE AYES:
Shelton, William (Streatham)	Thompson, George	Mr. Spencer Le Marchant and
Shepherd, Colin	Townsend, Cyril D.	Mr. Carol Mather.
Silvester, Fred	Viggers, Peter
NOES
Archer, Peter	Harrison, Walter (Wakefield)	Palmer, Arthur
Ashton, Joe	Kooley, Frank	Parry, Robert
Atkinson, Norman	Horam, John	Pavitt, Laurie
Barnett, Guy (Greenwich)	Hoyle, Doug (Nelson)	Phipps, Dr Colin
Barnett, Rt Hon Joel (Heywood)	Hughes, Rt Hon C. (Anglesey)	Richardson. Miss Jo
Bates, All	Hunter, Adam	Robinson, Geoffrey
Booth, Rt Hon Albert	Irvine, Rt Hon Sir A. (Edge Hill)	Rodgers, George (Chorley)
Bradley, Tom	Janner, Greville	Rodgers, Rt Hon William (Stockton)
Brown, Hugh D. (Provan)	Jay, Rt Hon Douglas	Rooker, J. W.
Brown, Robert C. (Newcastle W)	Jenkins, Hugh (Putney)	Rose, Paul B.
Buchan, Norman	John, Brynmor	Sedgemore, Brian
Carmichael, Neil	Johnson, James (Hull West)	Shaw, Arnold (Ilford South)
Cartwright, John	Jones, Dan (Burnley)	Sheldon, Rt Hon Robert
Castle, Rt Hon Barbara	Kaufman, Gerald	Shore, Rt Hon Peter
Clemitson, Ivor	Kerr, Russell	Silkin, Rt Hon John (Deptford)
Cocks, Rt Hon Michael (Bristol S)	Kilroy-Silk, Robert	Silkin, Rt Hon S. C. (Dulwich)
Cohen, Stanley	Kinnock, Neil	Silverman, Julius
Coleman, Donald	Lamborn, Harry	Skinner, Dennis
Colquhoun, Ms Maureen	Lamond, James	Small, William
Cook, Robin F. (Edin C)	Latham, Arthur (Paddington)	Smith, John (N Lanarkshire)
Corbett, Robin	Lee, John	Smith, Timothy John (Ashfield)
Cowans, Harry	Luard, Evan	Snape. Peter
Cox, Thomas (Tooting)	Lyon, Alexander (York)	Spearing, Nigel
Crowther, Stan (Rotherham)	Lyons, Edward (Bradford W)	Spriggs, Leslie
Davies, Denzil (Llaneill)	Mabon, Rt Hon Dr J. Dickson	Stallard, A. W.
Davies, Ifor (Gower)	McCartney, Hugh	Stewart, Rt Hon M. (Fuiham)
Davis, Clinton (Hackney C)	McDonald, Dr Oonagh	Stoddart, David
Deakins, Eric	McElhone, Frank	Stott, Roger
Dean, Joseph (Leeds West)	MacFarquhar, Roderick	Summerskill, Hon Dr Shirley
Douglas-Mann, Bruce	MacKenzie, Gregor	Taylor, Mrs Ann (Bolton W)
Dunn, James A.	Madden, Max	Thomas, Ron (Bristol NW)
Dunnett, Jack	Magee, Bryan	Tinn, James
Eadie, Alex	Marks, Kenneth	Walker, Harold (Doncaster)
Edge, Geoff	Marshall, Dr Edmund (Goole)	Walker. Terry (Kingswood)
Ellis, John (Brigg & Scun)	Maynard, Miss Joan	Watkins, David
Ennals, David	Mendelson, John	White, Frank R. (Bury)
Evans, Ioan (Aberdare)	Mikardo, Ian	Whitehead, Phillip
Ewing, Harry (Stirling)	Millan, Rt Hon Bruce	Whitlock, William
Faulds, Andrew	Miller, Dr M. S. (E Kilbride)	Wilson, Alexander (Hamilton)
Fletcher, Ted (Darlington)	Miller, Mrs Millie (Ilford N)	Wilson, Rt Hon Sir Harold (Huyton)
George, Bruce	Mitchell, Austin Vernon (Grimsby)	Wilson, William (Coventry SE)
Ginsburg, David	Moyle, Roland	Wise, Mrs Audrey
Gould, Bryan	Mulley, Rt Hon Frederick	Wrigglesworth, Ian
Graham, Ted	Noble, Mike
Grant, George (Morpeth)	Ogden, Eric	TELLERS FOR THE NOES:
Grant, John (Islington C)	Orme, Rt Hon Stanley	Mr. James Hamilton and
Grocott, Bruce	Ovenden, John	Mr. Joseph Harper.
Hardy, Peter

Question accordingly negatived.