§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dowd.]1.56 pm
§ Mr. Paul Burstow (Sutton and Cheam)
In May, the Department of Trade and Industry published its proposals on the regulation of the private recruitment industry. The deadline for responses was 30 September. To the layman, the draft regulations appear to offer better protection for people seeking work and those hiring staff. No one could oppose proposals that eliminate abuse or bad practice—we all want to raise standards; but what appears at first glance to be a thorough piece of work on the part of the employment standards agency is in fact nothing of the sort. If implemented, the draft regulations would have a perverse effect by driving up the cost of live-in care for the elderly and disabled people, undermining Government policy to promote independent living and greater choice through direct payments, and reducing flexibility in the labour market by increasing bureaucracy.
I was first alerted to the flaws in the draft regulations by a steady trickle of letters from providers of home care and live-in care staff. I make no apology for relying heavily on evidence provided by the United Kingdom Homecare Association, which represents about 700 care agencies throughout the voluntary, not-for-profit and private sectors. It is wrong to characterise the concerns expressed by the care agencies as a minority opinion, not least because those concerns are echoed by organisations representing care users, such as Age Concern, Help the Aged, the Carers National Association, the Royal Association for Disability and Rehabilitation and Mencap. Hon. Members on both sides of the House have written to the Minister to express similar concerns and to ask questions.
The best way to explain the draft regulations and the fact that they are misconceived is to present a case study. I shall tell the House about a lady called Elizabeth, who is 80 years old and who suffers from multiple sclerosis; she is frail and vulnerable. In 1996, she started to use her savings and attendance allowance benefits to pay for a two-weekly rotational live-in care package arranged by a care agency. The package enables her to continue to live at home with a degree of independence and dignity, instead of moving into residential care and becoming institutionalised.
The current cost of Elizabeth's care package is about £316 a week. If the draft regulations are implemented as they stand, the cost to Elizabeth of her care will rise under the new rules by 91 per cent. to £602.78 a week—an extra £286 a week, or £14,872 extra a year. The VAT element alone in that calculation is almost double the attendance allowance that she receives. Elizabeth's case is only one of thousands of examples of how well-intentioned regulations may have unintended and undesirable results.
The objectives of the new regulations are entirely laudable. They are designed to increase clarity for clients, agencies and work seekers; promote labour market flexibility; protect clients and the general public by codifying good practice; curb payment abuses so that workers are paid and safeguard clients' money to prevent loss or misappropriation. No one could argue with those aims and goals, but they will not be achieved if the compliance cost consequences of the regulations are not addressed.
1268 I asked the Minister what assessments and estimates he had made of the impact of the proposals on those who buy care privately. In a written answer, I was directed to annexe 3 of the regulatory impact assessment. However, I was disappointed that the impact assessment was unable to quantify the cost of most of the measures,because the regulations are likely to lead to changes in behaviour of hirers, agencies and workers.To be fair to the Minister and the Department, paragraph 33 of the impact assessment accepts that there are compliance costs in the form of additional VAT. However, the Department admits that it has no way of knowing how many hirers will be unable to offset VAT payments. I can tell the Minister that more than 40,000 care users in this country will be unable to offset the new VAT liabilities that arise from the regulations.
From talking to people in care agencies and reading the impact assessment, I suspect that officials do not fully understand the market in which care agencies operate. Regulations that are drafted for a wider industry are not necessarily appropriate for particular segments of it.
The employment status of carers or personal assistants, and especially the impact of regulation 7(1), are at the heart of the matter. The United Kingdom Homecare Association, and others who have made representations to me and other hon. Members, strongly contend that people who work in the care sector are genuinely self-employed. They maintain that for four reasons. First, care workers are under no obligation to accept any assignment that is offered to them. Secondly, the care worker is paid directly by the hirer. Thirdly, the care worker can register with more than one agency. Fourthly, the care worker can refuse to accept the placement for the rate that the hirer offers.
While it is right to try to clarify the contractual position—as the regulations attempt to do—to avoid opportunities for abuse and poor practice, it is misguided to believe that any real benefit will arise from prohibiting care agencies from acting as agents for self-employed, autonomous care workers.
The practices have developed and stood the test of time for 30 years or more. They enable care workers and care agencies to operate in the flexible way that the Minister and his colleagues extol to the private sector. Therefore, it is strange that the Department is willing to regulate that practice out of existence in the care sector while it allows other sectors in the recruitment industry to continue to use it.
Regulation 7(1) would insist that care agencies became direct employers. That would give rise to substantial extra costs that would put home care and live-in care out of the reach of many and confine it to the few. The extra costs of payroll, national insurance contributions, employer's liability and sick pay insurance mount to push up costs to the end user. To add insult to injury, VAT will be chargeable on the whole amount of the increased sum, not just the agency's fee for initially arranging the placement.
There are numerous examples to show that, under the Government's proposals, the VAT element of the cost of home or live-in care will exceed the amount that the Benefits Agency pays in attendance allowance, or the care component of the disability living allowance. Those benefits are designed to help people to meet their care costs and the extra costs of disability, not to pay their tax bill.
1269 In the past few months, the Minister has made statements criticising care agencies and others forwildly exaggerating the extra costs and causing a great deal of unnecessary alarm amongst the people who receive care.Despite repeated requests for the Government to publish their figures, they have not been forthcoming.
The Department has disputed figures such as those in the case of Elizabeth, which I quoted earlier. The Minister knows that in August, his officials met Mrs. Gifford of Able Community Care to go through her calculations. The Minister told me yesterday in a written answer that he doesnot accept that the costs which she calculates would in fact result from the proposed amendments to private recruitment industry regulation."—[Official Report, 28 October 1999; Vol. 336, c. 936.]I hope that the Minister can tell the House today in detail why he does not accept the calculations. I understand that, even using a formula provided by DTI officials themselves, cost increases of about 40 per cent. still result.
The lower figures that I have been informed could be achieved are arrived at by amazing contortions which appear to defeat the stated purpose of the regulations. First, I am told, the DTI's formula results in a cut in care workers' take-home pay because officials say that the employee should absorb the extra national insurance costs. Secondly, the DTI formula makes no allowance for the cost of travel, which can be an obstacle to a flexible labour market. Again, that cost has to be picked up by the care worker. That may not be a DTI formula, but I have been led to believe that it is. Will the Minister tell me, therefore, why he does not accept Mrs. Gifford's figures? What alternative figures does he have? Why does it appear that the Department is willing to allow care workers' terms and conditions to worsen?
I know that the Minister accepts that the VAT liability will rise, although he may dispute by how much, because in a letter, the Minister said thatministerial colleagues at the Treasury and Department of Health have asked officials to examine and report on the impact of the changes on those buying care privately.It is a pity that, when I tabled a written question to the Chancellor of the Exchequer, he transferred it to the DTI. However, I am glad to have been told that the Department of Health is due to reply to my question. I hope that the Minister will be able to tell the House today what Treasury and Department of Health officials have found so far, because I know that the reference to his ministerial colleagues was made back in August at the latest.
The Paymaster General confirmed in a letter in August that the DTI's proposals will attract a VAT liability. She said:The current application of VAT to home care gives the widest possible relief under the terms of the European Directive on which UK law is based. There is no possibility of extending the scope of VAT exemption to cover services provided commercially by unqualified, unsupervised carers.
The Government are unwilling to come forward with their own estimates, but figures from industry analysts suggest that the extra cost will be about £40 million per annum. That will be an extra £40 million in tax revenue for the Chancellor met from the savings and benefits of elderly and disabled people. The Paymaster General suggested, however, that the impact might be reduced if 1270 those agencies managed by nurses are able to argue that the services that they provide are VAT-exempt health care. That could reduce the cost to some £20 million.
That extra VAT burden will have knock-on effects. It will drive up demand for social services funding, place pressure on the independent living fund and frustrate the Government's stated policy of extending direct payments to older people and encouraging their greater take-up by disabled people. It begs the question: where was the joined-up government thinking on that set of proposals?
Although I appreciate that the Minister may not be in a position to answer for his Treasury colleagues, I hope that he will be able to pass on my representations and ask the Paymaster General to re-examine the scope for zero rating on personal home care for individual users. The Government's hands are not tied on VAT exemptions in that area. All home care services provided to meet an assessed need should be VAT exempted. Paragraph 1(g) of article 13 of the sixth VAT directive permits exemptions forservices … closely linked to welfare or social security work.The Government therefore have the scope to grant an exemption to commercial, as well as charitable, organisations.
Even if the interpretation by Customs and Excise is right, and there are clearly grounds for dispute on the point about the VAT directive, there is another way in which the Government could lift the additional VAT burden imposed by the regulations. An EU initiative would allow the Government to seek a reduced VAT rate for labour-intensive services that are sold directly to final consumers. Surely home care and living care come under that heading?
Will the Minister consider, with his Treasury and Department of Health colleagues, the possibility of making such a bid for a reduction in VAT on those services? That offers a solution to the problems that the regulations will cause for this part of the recruitment industry. I understand that time for such applications is limited because the regulations are due to come into effect at the beginning of the next calendar year.
In this short debate, I want to make it clear that I fully accept the need to strike a balance between the interests of workers, hirers and agencies so as to afford greater protection to all parties in future. Regulations have a positive role to play in eliminating abuses or bad practices and in driving up standards—or at least they could have.
That leads me to my final point. Regulations are only as good as the enforcement regime that underpins them. The current regime is complaints driven, but it gives little insight into how the sector is performing or who is operating in the sector. That is reflected in page after page of the regulations, and in the compliance cost assessment. There is almost no reference in the documentation about the regulation of this industry to the impact that it will have on the care industry. That is undoubtedly because of the paucity of information available to the Department at the moment.
Creating new rules and clarifying old ones will not necessarily raise standards. It leaves it open for low-profile cowboy operators to drive a coach and horses through the regulations while the reputable operators pick up and pass on the compliance costs to those in need of care. At worst, reputable operators will be unable to 1271 compete in a market in which others are undercutting them by dodging the regulations, and they go out of business as a consequence.
Enforcement and regulation require a joined-up approach. I hope that the Minister will talk to his colleagues in the Department of Health about their plans for the establishment of regionally based commissions for care standards, and the possibility of them taking on some, if not all, of the role of enforcing standards in the important field of domiciliary and live-in care.
I hope that the Minister will be able to answer three questions, of which I gave his private office notice on Wednesday. I do not think that they are too taxing, but I shall wait and see. First, what is his Department's estimate of the increased care costs that will arise from the regulations? That information could put to rest the concerns being raised by hon. Members and outside organisations. Secondly, what other Departments have been involved in assessing the impact of the draft regulations, and when did they become involved? Thirdly, what is the timetable? When will the regulations emerge in their final guise, and when will the House have the chance to consider them in that context?
Above all, I hope that the Minister will tell the House that he accepts that the fears I have expressed are real, and that the Government's commitment to protecting the rights of the many will ultimately shine through in the revised regulations that emerge from the consultation process.
§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Alan Johnson)
I commend the hon. Member for Sutton and Cheam (Mr. Burstow) on securing this Adjournment debate. He has taken a keen interest in this subject, as have other hon. Members. It is an important subject, and I welcome the debate, not least because it gives the Government an opportunity to state clearly what the review is about. We have had genuine consultation, and have welcomed the positive dialogue that we have had with the recruitment industry and others. We are carefully considering the responses that we have received, and we have made it clear that nothing has been set in stone, concrete, aspic or any other substance. The debate therefore comes at an opportune time.
The private recruitment industry plays a key role in today's flexible labour market. It is a major industry, and covers permanent placements and temporary staff hire in diverse sectors, from office work to factories, from entertainment to the care of the elderly, which was the issue on which the hon. Gentleman concentrated.
The industry has tripled since 1992, and its turnover is now estimated at more than £16 billion. The regulations governing agency conduct are 23-years-old. It is widely accepted that the private recruitment industry has expanded and developed so much since then that we need to update the regulations.
We have received widespread support from employment bureaux, trade organisations, hirers and workers for the aims of our new regulations. The problem with the contribution of the hon. Member for Sutton and Cheam is that it tended to give an unbalanced view of what the review is all about. He mentioned a perverse effect, but talked about one particular aspect.
1272 It is important to put on record the fact that most of the organisations in the sector have welcomed not just the review, but the broad thrust of the Government's proposals. I amplify that by quoting, for example, Age Concern, which says in its submission to the review:We welcome many of the changes that would be introduced and support the rationale behind them.It goes on to say:Many of the proposed changes are entirely consistent with the broader thrust of Government policy: enhancing the protection of vulnerable people; improving the quality of services: and ensuring minimum standards in employment practice. Age Concern England wholeheartedly supports these changes.
May I take the liberty of mentioning another quotation, which is also important? The hon. Member for Sutton and Cheam mentioned the UKHCA, a major player in the sector. It made it clear thatthe reforms will radically alter traditional working practices, most particularly in the care sector and, despite concerns over elements of the proposed regulations, agencies do support the basic principles of transparency and improved conditions for care workers.
§ Mr. Burstow
The Minister has moved on to the point that I wish to draw to his attention. The care sector of that big industry has generally welcomed the regulations, but it has particular concerns, on which I have sought to concentrate my remarks. I look forward to him dealing with the VAT issue, which is at the crux of the sector's concerns.
§ Mr. Johnson
Be patient. I will come to that, although the hon. Gentleman will recognise that the debate is about our review of the agency sector. For reasons that he mentioned, it is important to put it on record that the broad thrust of the proposals are welcomed. Indeed, if we did nothing and retained the status quo, Elizabeth, the constituent whom he mentioned, would stand to lose a lot and would be in great jeopardy.
It is important to set out, as the hon. Member for Sutton and Cheam did to a point, the review's aims. I do not think that he or his party would disagree with them. I would be surprised if any hon. Members would.
We aim to simplify and to reduce the number of regulations. Far from increasing bureaucracy, we intend to reduce it. There are three sets of different regulations. We are looking to have one set to benefit all agencies. We have not seen any criticism of that objective.
We aim to increase the clarity of contractual relationships in the sector, so that workers and hirers know who is contracting with whom. Again, Age Concern makes an eloquent submission to support that. It is equally concerned about the position of care workers and hirers.
Another principle is to promote labour market flexibility. We are looking also to introduce stringent requirements to check temporary staff who work with children, or the elderly—again, a fundamental update that is overdue. We are looking to protect clients and the general public, to curb payment abuses, which occur, as the hon. Member for Sutton and Cheam will accept, in all strands of the industry, and to safeguard entertainment workers' money. We have those seven fundamental aims.
1273 Contrary to some of the comments by the hon. Gentleman, I can assure him that, for the past two years—I respond to one of his fundamental questions—there has been close collaboration between the Department of Trade and Industry, Department of Health, Customs and Excise and Her Majesty's Treasury. He asked when that began. It would be stretching it to say 2 May 1997, but we began the process shortly after the general election. The concepts of joined-up government and cross-cutting are important, and nowhere more so than on this issue. In the care sector in particular, there are other Departments and Government objectives involved.
We recognise that many people are concerned about how their long-term care needs or those of their friends or relatives will be met. The Government are looking at the system of funding long-term care to ensure that it is fair and sustainable. We set up a royal commission in 1997 to help with that. My colleagues received the commission's report in March this year. We have already acted on some of the recommendations. For example, we have improved services for carers by allocating £140 million over three years to help to fund more respite care. We are extending direct payments to people aged 65 and over. That has been widely welcomed in the industry. We have also announced our intention to establish a proper commission for care standards as soon as parliamentary time allows so that residential and nursing homes can be inspected by an independent agency.
§ Mr. Burstow
The Minister referred to worthy Government initiatives, including direct payments, which were started by the previous Administration through a private Member's Bill. However, direct payments will butt against the regulations because of the increased liabilities that will result from the change of employment status of care workers, as I said earlier. The Minister has been talking about clarity—
§ Mr. Johnson
Everyone wants to safeguard direct payments. Age Concern and others have made that clear. The crucial aspect of the debate is the relationship between the hirer and the carer.
My colleagues are giving the commission's proposals on the funding of long-term care the careful consideration that they merit. We want to find a solution that is fair to the individual and to the taxpayer and will stand the test of time.
The Government are fully aware of the need for care services to be affordable and of good quality. We are also aware that a small number of agencies in the care sector offer among the most unsatisfactory and ambiguous business terms in the private recruitment industry. If we are conducting a proper review of the entire agency sector, it would be perverse to leave out a sector that has a large number of abuses. Good quality care will not be encouraged or promoted by such poor business practices.
1274 As I have already said, one of our main aims is to clarify the contractual relationships between employment bureaux, hirers and temporary workers. We shall require employment bureaux to operate as employment businesses when introducing or supplying temporary workers. The temporary worker's contractual relationship will be with the bureau rather than the hirer.
People who take on the difficult job of providing care are entitled to proper contracts and proper employment rights. A bureau that supplies the carer should be responsible for those elements. Otherwise, the people receiving care could find themselves liable under employment or tax law, even if their carer is labelled self-employed by their bureau.
At the moment, some employment bureaux supply workers on vague contracts that result in no one knowing who is responsible. That is the case for Elizabeth, the hon. Gentleman's constituent. Care recipients may find that, without their knowledge, they are responsible for ensuring that their carer receives the national minimum wage and other employment rights, for their health and safety and for their tax arrangements. Unfortunately, a minority of the care sector has conducted a scare campaign. The danger is that it has unnecessarily alarmed some of the most vulnerable people in our communities—those in need of care—and their families and, of course, the care workers themselves. Lurid stories about huge cost increases do not help anyone.
The hon. Gentleman mentioned Able Community Care, a company that participated in our consultation. I note that The Economist this morning contains an article that probably represents all the worst aspects of the lurid reporting that I mentioned. I am not saying that Able Community Care is responsible for the article. It states that people in need of care will have to leave their homes and be housed in already overstretched hospitals and nursing homes and that the Government will prohibit self-employment in the sector. That is certainly not our aim or objective.
§ Mr. Burstow
In a written answer on 19 October, the Minister stated that care workers who are self-employed could remain so. Can he confirm that now?
§ Mr. Johnson
I shall return to that in a moment. I have one final point to make first. The article quotes someone from an employment agency as saying:The agency think that this bureaucratic burden"—that is, paying the minimum wage, complying with employment law and providing proper paid leave—is all the more unnecessary because many carers come from abroad—mainly from the Commonwealth".We submit that all workers in this country are entitled to basic minimum standards.
On another piece of misinformation, let me say that labelling workers self-employed—we have no desire to remove the ability to hire self-employed carers—does not necessarily mean that they are. Claiming that those placed in bogus self-employment are not entitled to the minimum wage or to working-time rights will cut no ice in the review that we are conducting.
1275 Whether individual carers are self-employed for employment law or tax purposes depends on the nature of their contracts. Any disputes will continue to be assessed by the courts using established pointers to employment or self-employment.
The hon. Gentleman mentioned bureaucracy. We are well aware of the need to keep red tape to a minimum. As I have said, we propose to repeal a number of statutory requirements which are no longer necessary, such as those which prevent temporary workers from getting information about better jobs elsewhere. We are looking at ways to streamline the proposals to the maximum extent.
Bureaux have raised with us the need to respond quickly to customer demand. Workers are finding that they are taken advantage of as a result of that process, because the rate that they are offered on the telephone when they apply for the job is completely different from the rate that they are actually paid. We may be seeking to introduce bureaucracy—a term that may sound pejorative—but it is to the benefit of the hirer and carer.
I have two final points. The hon. Gentleman raised the crucial issues of costs and VAT. On costs, I cannot add anything to the regulatory impact assessment in the consultation document that was published at the end of May. We do not have available the information for which the hon. Gentleman asked. I am afraid that the Treasury is responsible for VAT. We are in the middle of the consultation period so I am not in a position to tell the hon. Gentleman the results of consultation that is continuing or to say anything other than we are 1276 working closely with the Treasury on the problems that he has identified. We ourselves highlighted these problems in the consultation document. Having done so, we are certainly minded to ensure that we find a solution—
§ It being half-past Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.
§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Dowd.]
§ Mr. Johnson
I fear that my inexperience is showing, Mr. Deputy Speaker.
We want to make sure that the problems are tackled. I would submit to the hon. Member for Sutton and Cheam that this is the only area where there is a legitimate area for concern about the proposals. Lurid stories about raising £60 million suggest that some bureaux are not paying the minimum wage or paid holidays, are not looking after carers properly, and are leaving the hirer in a state of ambiguity, with infirm and elderly people suffering accordingly.
I thank the hon. Member for Sutton and Cheam for raising the debate, and I assure him that his comments will be looked at as part of the consultation process. I am sure that, when he sees the final proposals—which we hope will be ready late in the winter, to come out next spring—he will feel that we have done a proper job on behalf of all people in need of care in this country, including Elizabeth.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-nine minutes to Three o'clock.