§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert G. Hughes.]
§ 8 am
§ Mr. Iain Sproat (Harwich)I am grateful for the opportunity at this early hour in the morning to raise the important subject of the treatment of Animal Aunts by the Department of Social Security. I shall start by explaining what the firm does. If a family has a pet or pets, whether dogs, cats, fish, a pony or whatever, and the family goes on holiday, Animal Aunts arranges for an animal carer to go to the family's home and to stay there while it is on holiday to look after the animal or animals and the house.
The firm was set up in 1987 under an enterprise allowance scheme. It obviously found a valuable niche in the market because it has prospered greatly. The aunts or uncles are placed in all parts of the country. When a family contacts the firm and says, "We would like someone to look after our animals while we are away on holiday", the aunt travels to the family's home and stays there while it is away. She is paid by the family, not by Animal Aunts. Over the six years or so since the firm began, it has found about 10,000 clients and it has about 300 animal carers. As I have said, it arranges for them to go to the homes of the clients to look after their pets. The firm provides a useful social service.
What does the Department of Social Security want to do? After six years of the firm's existence, the Department has decided that it believes that the animal carers are not self-employed, although that was the basis on which the firm was set up. As I have said, it was established under an enterprise allowance scheme with the full co-operation of the Department of Employment. For six years the Inland Revenue has agreed that the carers are self-employed. Customs and Excise has similarly agreed that that is the position. The Department of Employment set it up initially, it being the structure of the business plan that the carers should be self-employed. And so they have been for six years. Only then does the Department of Social Security say, "No, we believe that under the 1978 regulations dealing with the categorisation of earnings, the carers should be employed. We shall say to Animal Aunts, 'You must pay us the relevant national insurance contributions.'" I understand that the Department is asking Animal Aunts to pay those contributions from 1990 to the present day.
The results will be disastrous. The firm will go out of business and the 300-odd carers will lose their jobs. Everything that the Government are trying to build up, and have successfully built up under the enterprise allowance scheme, will be destroyed. It is a classic example. It is astonishing—almost not to be believed—that a Conservative Government, having set the firm up under an enterprise allowance scheme, should then decide to destroy it. The Department is seeking to destroy that company at a time when there are 3 million unemployed, we are emerging from the longest and deepest recession that almost anybody can remember, and my right hon. Friend the Prime Minister has just launched a campaign to get rid of burdens on business and has instructed my right hon. Friend the President of the Board of Trade to make one Minister responsible for deregulation.
My hon. Friend the Minister may say, "There is nothing that we can do. That is the law, and we must obey 729 the law." But it is not the law; it is an interpretation by my hon. Friend's Department of a regulation—and in my view, it is a false interpretation. Presumably I am supported in that view by the Inland Revenue, Customs and Excise, and the Department of Employment—who for six years have gone along with the idea of animal carers being self-employed persons.
Time does not allow for close textual analysis of the relevant statutory instrument, the Social Security (Categorisation of Earners) Regulations 1978, but I draw the attention of my hon. Friend to schedule 1, part I. As is so often the case with regulations, the regulations are written in such a complicated way and have so many overlapping qualifications that although it is easy to find one part which appears to support one's argument, it is equally easy to find another part which does not.
Paragraph 2 of column (A) of the regulations obviously applies, as it uses the words
where the person employed is supplied by or through some third person".However, that is preceded by wording stating that the employeeis under obligation to render personal service and is subject to supervision, direction or control, or to the right of supervision, direction or control, as to the manner of the rendering of such a service".Clearly, that does not apply. An Animal Aunt is in my home at this moment, as I speak—and I have no control over that person. I only say, "I have six dogs. Look after them using your professional knowledge, in the way that you think best."I have no supervision and am not physically present. I have no control over that person. My right of direction is exercised only in so far as I say, "Look after these animals."
Nor does the firm of Animal Aunts, which is even further removed from my house, have any supervision or control. The interpretation of my hon. Friend's Department is therefore wrong.
Even if there were some doubt, I would want it exercised as a principle by all Departments throughout Whitehall that where there is any doubt about the applicability of a regulation, the benefit of that doubt shall go to the side of the argument that is producing the jobs and the wealth creation—not the other way around, as my hon. Friend's Department seek to do in this case.
If doubt existed, presumably the Inland Revenue and Customs and Excise would not have agreed that animal carers are self-employed and the Department of Employment would not have helped to establish the firm in the first place under the enterprise allowance scheme. Self-employment was the basis of the company's structure. We would not still be arguing the case six years on if doubt did not exist.
As my hon. Friend the Minister knows, there is a parallel case. Let us suppose that a farmer goes on holiday, requiring a stockman or herdsman to look after the stock while he is away. That stockman or herdsman is rightly regarded as self-employed, but he is doing exactly the same job for animals outside as most animal carers do for animals inside—although animal carers also look after outside animals if they have to. There is another element of doubt: the herdsman or stockman has agreed to be 730 self-employed, yet for some reason, after six years my hon. Friend's Department is saying that animal carers should not be regarded as self-employed.
There is a difference between the relationship between the agency Animal Aunts and animal carers, and a normal employer-employee relationship. In the former case there is no discipline and grievance procedure, no provision for notice, and no regular or assured hours of work. Animal Aunts, for example, is allowed to arrange for a substitute if an "animal aunt"—for instance, the one whom I had arranged to look after my dogs—is unable to turn up. The arrangement would not be made by the agency. The "animal aunt" whom I had hired and who could not turn up would pay the other one personally; payment would not be made by the agency.
These "aunts"—it is a ludicrous name—are in business on their own account. There is a financial risk; in fact, a case is in progress now. An aunt who looked after some pets in Scotland was not paid by the family. In such cases, the aunt does not go back to the agency and say, "I want my money"; she—or he—must get the money from the family for whom the work was done. Aunts also pay their own insurance. In one case—there are a number of others—an animal under the control of an aunt got out of control and bit a teenager. The teenager sued the aunt, not the agency.
There is no doubt in my mind, at any rate, that these people are self-employed. But even if my hon. Friend does not agree with my opinion, she cannot deny that there is doubt about the matter. I think it extraordinary that she should seek to exercise her judgment on that doubt against a company which creates jobs and wealth.
My hon. Friend's Department has displayed some of the most objectionable aspects of bureaucracy in its handling of the matter. First, it has shown an extraordinary combination of dilatoriness with a ferocious persistence in hounding the firm. My hon. Friend made a noise when I used the word "dilatoriness". I have a letter here: its authors took five and a half months to answer a letter from the lawyer acting for Animal Aunts. On 28 August 1990, they wrote—I speak from memory—"Thank you for your letter of 13 March. I am sorry we have not replied earlier." They did not explain why they had not done so. The firm had to hire accountants and lawyers and fire off letters; the Department of Social Security did not even bother to reply and then did not explain why it had not done so, but it still goes on hounding the firm.
The matter has been dragging on for six years. I think it intolerable that a Government Department should hound a firm for so long without resolving the problem: it has had to come to the Floor of the House because of the Department's threats. The letters are so carelessly written that, even after two years, there are fundamental mistakes. I have one letter in which the writer—a civil servant in my hon. Friend's Department—says that of course Animal Aunts are paid by the agency. That is a fundamental misunderstanding of the matter, even after two years of investigation.
Is my hon. Friend happy that an official in her Department, or the Contributions Agency, can decide to attack this firm? What can the firm do then? It can refer the case to an inquiry. But the inquiry is not an adjudicative one; it is only investigative. The inquiry therefore looks at the original decision made by an official in my hon. Friend's Department. It then goes back to her Department and another official in her Department decides whether to 731 uphold or overturn the original decision of an official in her Department. In other words, the Department is judge and jury in its own case. That must be wrong.
I tried to get statistics from my hon. Friend regarding the percentage of cases in which the Department had ever overturned decisions. As far as I could gather, in 85 per cent. of cases the Department, perhaps not surprisingly, had reinforced the original decision. I do not think that that is the right way to judge a case upon which somebody's livelihood depends.
As for the huge expense incurred, this firm amounts, really, to just two or three women somewhere in Hampshire. They had to hire lawyers and accountants. They instructed a barrister to represent them at the inquiry. I understand that they have spent thousands of pounds, just this year alone, on fending off the attacks of my hon. Friend's Department.
After I had set out much the same complaints as I have made in this debate, my hon. Friend wrote me a letter of some 1,000 words. I had said in my letter to her that she was about to destroy 250 to 300 jobs and to put a firm out of business. My hon. Friend's 1,000-word letter in reply contains not a single word about the loss of jobs, the worry and hassle for the business, the expense to the firm, or the firm being made to close down. No attempt was made even to answer the argument I put to her about the parallel between the relief stockman and the animal carers. Although there was not a single word about all that, my hon. Friend devoted a whole paragraph to saying that her officials were doing very well and that I must not attack them for hounding this company.
That is the sort of insensitivity and crass behaviour that infuriates businesses and individuals and which the Prime Minister is trying to sort out by means of the deregulation campaign. This is important for Animal Aunts, but it is also important as a signal to the outside world that people can take seriously what we are trying to do about removing burdens from business. I hope that my hon. Friend can give me some comfort on both grounds.
§ The Parliamentary Under-Secretary of State for Social Security (Miss Ann Widdecombe)I am grateful to my hon. Friend the Member for Harwich (Mr. Sproat) for providing an opportunity for me to respond to the points that he has somewhat vehemently raised in the case of the firm of Animal Aunts, and also for the opportunity this gives me to say something about the importance that I attach generally to the correct determination under the law of individuals' employment status for national insurance, while at the same time seeking to ensure that the mechanisms for doing so are not unduly bureaucratic or burdensome.
This case is all about whether pet and animal sitters—or "aunts", as they are called—supplied by the firm Animal Aunts are to be treated as self-employed earners responsible for their own national insurance contributions or, as my hon. Friend vigorously contends, are to be treated as employed earners for national insurance purposes, with the firm of Animal Aunts being liable to pay full class 1 contributions on their behalf.
Class 1 national insurance contributions are, of course, the most widely paid class of contribution, paid by virtually everyone in a job and by office holders, such as company directors or, indeed, Members of Parliament. 732 Well over a million employers regularly deduct and pay over these contributions to the tune of nearly £40 billion per year. It is virtually part of our culture to pay these contributions. If anything, attention often focuses on instances in which employers fail to meet their obligations to pay contributions in respect of their employees. We have seen, for instance, reports by the Comptroller and Auditor General pinpointing certain shortcomings in the contribution collection system, and it is to the public credit of my Department's Contributions Agency that it is addressing these with vigour, and is meeting or exceeding the various high-level targets that are published.
In saying that, I seek not to undermine my hon. Friend's stance in the Animal Aunts case, but simply to place it in context. I should also like to remind the House of the purpose of national insurance contributions, which are at the very centre of this debate.
Unlike taxes, which are raised by the Crown with the consent of Parliament, to provide moneys for the general purposes of government, the national insurance system is entirely separate, providing pensions for the retired and short-term contributory benefits for those who are sick or unemployed. These benefits are covered by the national insurance fund, which is directly financed by the contributions of employers and people in employment. As its name denotes, the national insurance fund is an insurance fund over which the Secretary of State has powers of control and management. Entitlement to benefits from the fund depends upon the amount and class of contributions paid.
There is an important distinction here. Employed earners who have paid full class 1 contributions are entitled to the full range of contributory benefits. However, the class 2 contributions paid by self-employed persons do not earn entitlement to unemployment benefit or to SERPS. Moreover, self-employed persons who suffer an accident at work cannot qualify for disablement benefits under the industrial injuries scheme, so it is very important from the individual contributor's point of view that he or she be correctly categorised for national insurance purposes. We have heard much about the interests of the firm, but we need to consider also the interests of individuals and the benefits that may or may not accrue according to which contributions they pay.
Indeed, a considerable number of disputes arise from cases where workers have been treated as self-employed persons, suffered an accident at work and then found that they are not entitled to benefits under the industrial injuries scheme. Of course, in the vast majority of cases it is abundantly clear which is the correct class of contribution due: usually a person is either working clearly under contract of service to an employer or is on business on his own account, and therefore an independent contractor.
However, the Government are conscious that there are grey areas, and, picking up the deregulation point that my hon. Friend made, we have sought to make it as easy as possible for people to get authoritative advice on their status. Thus, in each tax and social security office one person is responsible for all inquiries and decisions about employment status. Anyone in work can get a written decision on their employment status from either the Inland Revenue or the DSS. My Department and the Inland Revenue have got together to produce a joint leaflet giving extra guidance.
733 I will come later to the special position of employment agencies, but, while on the subject of deregulation, I should just like to mention my Department's employers panel, with whom we consult regularly on a wide range of issues. The next meeting of the panel is to be on 25 May 1993. Sub-groups of the main panel meet on specific issues, and small businesses are represented on the panel. Arising from our commitment to the Government's deregulation initiative, we are eliminating, from this April, some annoying differences in definitions of earnings and expenses between tax and national insurance.
I have described in some detail the general provisions that govern employment status, but there is a particular provision that is relevant to this case. It deals with the special circumstances of employment agencies that supply workers to third parties. By way of further background, the House should be aware that the special provisions embodied in the Social Security (Categorisation of Earners) Regulations exist with the aim of achieving parity of treatment for workers under the social security scheme.
Thus, for example, a relief typist or secretary supplied by an agency and working alongside other office workers under similar conditions is treated as an employed earner for the purposes of national insurance by virtue of the regulations, notwithstanding that she would otherwise be a self-employed earner, because she is not under a contract of service to either the agency or client firm.
Following a query from one of the "aunts" late in 1987, my Department made detailed inquiries into the terms of engagements and eventually concluded late in 1989 that the provisions of the regulations to which I have referred were satisfied, and that the aunts should be treated as employed earners for national insurance purposes.
I should like to say a little about the Contributions Agency's conclusions. Regulations 2(1) and (2) of the Social Security (Categorisation of Earners) Regulations provide for persons to be treated as employed earners in respect of any employment falling within column A of part 1 of schedule 1 provided the person is not within the exceptions specified in the corresponding paragraph of column B.
It was concluded that the aunts fell within paragraph 2 of column A, but that the exceptions in column B did not apply. In particular, one condition that had to be satisfied was that there was no on-going financial interest on the part of the third person. However, under the terms of the contract with the client, Animal Aunts collects further fees if an engagement is extended or renewed at a later date, and therefore maintains an on-going financial interest in the employment. Subject to the ruling being operated by the firm, the Department agreed not to pursue the question of arrears at that time.
Rulings of this sort are administrative in nature and carry no force in law. However, there is the right to have the question formally determined by the Secretary of State, as provided by section 17 of the Social Security Administation Act 1992. The Secretary of State's function is to determine a question raised by a contributor. There is no provision for the Department to raise any question itself, or to participate in the proceedings as an interested party.
The jurisdiction is not to adjudicate in a dispute between the contributor and the Department, but to 734 investigate afresh all the facts relevant to the question and to reach a conclusion as to its appropriate determination in the light of all the relevant facts and applicable law.
In carrying out those functions, the Secretary of State has power to appoint a person to hold an inquiry into the question and report to him. Such inquiries are inquisitorial and form part of the process of determination. The possibility of a formal determination in the Animal Aunts case was quickly mentioned in ensuring correspondence between the Department and the firm's accountants, but the correspondence became somewhat protracted as the accountants queried the application of the regulations and the Department responded.
Far from hounding the firm as my hon. Friend has suggested, I think that it would be right to say that the Department took considerable time and trouble to examine every representation made on the matter, but finally remained of the view that the facts did not allow another conclusion to be reached. It was more than two years later that the firm eventually applied for the matter to be formally determined last May. Further delays took place, but the inquiry was held last month, and I am pleased to be able to tell the House that the inquirer's report and recommendation have been received, and it was possible for the formal decision to be given yesterday. This has been dispatched to Animal Aunts and will, I hope, arrive in the first post this morning, but I have pleasure in informing the House that the "aunts" who were the subject of the application have been found not to be included, or treated as included, in the category of employed earner for the purposes of social security Acts—
§ Mr. SproatHear, hear.
§ Miss Widdecombe—and, on that announcement, I am pleased to hear the first kind words in this debate from my hon. Friend. In other words, the Secretary of State found in favour of Animal Aunts. If I may say so, I think that that is particularly significant, given my hon. Friend's concern about the independence of the decision-making process when the Secretary of State might be held by some to be judge in his own cause.
It is not uncommon for the Secretary of State to overturn the Department's view. The "improvement" rate—as it is called—by the Secretary of State, for instance in 1991–92, was such that 36 per cent. of employment status decisions resulted in the Department's view being overturned. That is a very much higher percentage than my hon. Friend suggested.
My hon. Friend made the point that where there is reasonable doubt about the applicability of a regulation, the benefit of that doubt should be in favour of the side that creates or preserves jobs and profitability. There are wider issues here which it would not be appropriate for me to try to answer, but I do think that if one were making such a proposition then an equally strong argument could be made for giving the benefit of the doubt in such a way as would protect the benefit rights of the individuals concerned.
Finally, I pay tribute not only to my hon. Friend's enthusiasm in pursuing the Animal Aunts case so vigorously, but also to the entrepreneurial spirit of its proprietor. Let there be no doubt about that: the last thing my Department wants to do is to harass small businesses.
§ Question put and agreed to.
§ Adjourned accordingly at half-past Eight o'clock.