Hotels and Restaurants (Control of Service Charges) (Hansard, 3 March 1982)

§ Mr. George Robertson (Hamilton)

I beg to move, That leave be given to bring in a Bill to regulate the administration of service charges in hotels and restaurants; and for connected purposes.

This is a simple, uncontroversial measure designed to produce justice for the customer of an hotel or restaurant as well as for the staff of the same establishment.

Few people who patronise an hotel or restaurant are immune from service charges. Amounts range from 10 per cent. to 15 per cent. and are commonly added to most bills. It is obligatory to pay it. Remarkably enough it has to be paid despite the service provided and whatever its standard. In the best hotels and in the worst, if the service charge is on the menu when one orders, one must pay it.

The rub for the staff is that the service charge—designed as it was to spread gratuities and tips more fairly and equitably to staff—is, incredibly, the legal property not of the staff but of the management. Last year, Lord Gowrie, then Minister of State, Department of Employment, told me: As things stand at present, this money is the property of the employer and he may use it in any way he chooses including for payment of the statutory minimum wage rates laid down by the Wages Council. That is outrageous, skinning, as it does, both the customer and the staff at the same time.

The principle of the service charge is that it goes to the staff eventually, even if they do not own it, even if they know little of it and its distribution, and even if it is simply used to pad out the disgracefully meagre minimum rates laid down by the wages council. However, even that is not happening. Employees have no right to know how much is collected by the employer in service charges, nor how or if it is distributed to the staff. At best, therefore, a suspicion is left in people's minds about the destination of the money and at worst—and this is all too common—service charges are simply skimmed off as extra profit.

Last June the major hotel trade paper, the Caterer and Hotelkeeper, in an editorial entitled "Tipping needs cleaning up", stated: Service charges levied automatically on bills have the merit of allowing those staff to share some of the revenue supposedly given by the public in appreciation of the quality of the service to which they have contributed indirectly. However, it went on: The problem here is once the system has been in operation for a while, staff no longer know whether revenue from service charges really is being distributed to them, and, if it is, how it is shared out. Even the trade itself, therefore, recognises the existence of the problem. One hotel owner has written to me saying that since the expression "service charge" is so notorious in the industry as just another name for siphoned-off profits, he refuses to use the term and puts on his bills, "Levy in lieu of staff gratuities". A restaurant which I visited recently puts at the foot of its bills "Service charge where levied is collected by us on behalf of our staff". In these cases at least, the customer knows where his enforced gratuity is going, but these are all too rare examples.

Hotel and restaurant staff up and down the country know that they are being robbed and that customers are 285 being conned. If we add up the 12½ per cents. and the 15 per cents. on practically every hotel and restaurant bill in Britain, we have a possible multimillion pound fiddle. Yet those who are being robbed are among the most poorly paid people in the working population.

Today, however, the issue now goes beyond the service charge racket. The same issue of Caterer and Hotelkeeper said: Sometimes customers tip on top of the service charge, implying they don't really understand why it is there. What this appears to mean is that the service charge is becoming another form of cover charge. Indeed, the Hotel and Catering Workers Union, of which I was for many years an official and by which I am sponsored, now has evidence that the Inland Revenue is assessing hotel staff for gratuities that it claims are being received in addition to distributed service charges.

So discredited is the supposedly simple, easily understood, separate service charge that customers are now being encouraged or gently, and sometimes not so gently, forced to part with another levy on top of it.

Tipping and staff wage subsidies, along with other cover charges, will soon account for a larger item than the cost of food or of a room. What will happen then? Will there be a rates charge, a gas price increase charge, a food price increase charge, maybe a staff income tax charge, or, say, a management holiday in the Bahamas charge, levied on the customer's bill? The possibilities are endless, yet no more illogical than a charge for service which does not go to those who provide that service.

The scandal is simple. Many thousands of the lowest paid workers in the community should be benefiting from the service charge on bills, adopted from continental practice. Where they are not, or where it is simply being used to subsidise low wages or the employer's profits, they are being ripped off, and so are the customers, who think that the 12½ per cent. means that no tipping is necessary, because it goes to the staff.

This simple legislation would give the customer the right to know that the money is going where he wanted it to go, and the staff the right to what is properly theirs 286 anyway. It would be no more of an obligation on employers than what, as their own trade press says, they should be doing in any event. It would tidy up a multimillion-pound scandal which touches every one of us who uses a hotel or restaurant.

The Bill would also be used to seek to regulate the use of the words "service" or "service charge" on bills. A separate service charge is at least separate, and the money, wherever it goes, is still collected separately. But what about the term "service inclusive"? Does it mean that tipping is unnecessary because 10 per cent. or 12½ per cent. of the bills go to the staff? Does it mean that service is a separate component in staff pay? Does it mean that staff will always be paid above the appalling minimum wage levels? Or is it a device to pretend that a staff bonus is tied up in the price put before the customer? The effect is that some customers tip, some think that they do not need to, some are suspicious, but most take it on trust—and the staff usually lose out.

The sour taste left by the continuing scandal of service charges does the hotel and catering industry—indeed, the tourist industry—immense damage and demeans its image and reputation at home and abroad.

The Bill would do much to clear out this particular nasty skeleton from the hotel and catering industry's cupboard, and I commend it to the House.