§ LORD DERWENTMy Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.
§ The Question was as follows:
§ To ask Her Majesty's Government whether (1) service charges made by hotels and restaurants have or have not to be distributed to the staff; (2) in either case it is permissible to charge V.A.T. on the service charge; and (3) a customer can refuse to pay the service charge and make his own contribution to the staff, thus avoiding V.A.T. on his contribution to the staff.
THE EARL OF GOWRIEMy Lords, the first part of the Question is not a matter for Her Majesty's Government, but I understand that practice varies. The answer to the second part of the Question is that where a service charge is included in a hotel or restaurant bill it is part of the value on which the value added tax is charged. As to the third part of the Question, whether a customer can refuse to pay a service charge is a matter between him and the supplier.
§ LORD DERWENTMy Lords, if the practice varies, is my noble friend aware that probably more than 90 per cent. of the customers—or I suppose we call them "consumers" nowadays—think the service charge is paid entirely to the staff? And where it is not, or only part of it is paid to the staff, is not that cheating the customer, and if so, should the tax authorities condone cheating by charging V.A.T. on it?
THE EARL OF GOWRIEMy Lords, I think that there are aspects which are somewhat unsatisfactory here, and I will look at them more closely. However, 498 I cannot agree that there is a question of cheating a customer because, of course, a service charge is part of a total charge for goods and services by the hotel or restaurant, and is advertised as such.
§ LORD ROYLEMy Lords, is it not a fact that most of us regard what is called a service charge as a gratuity rather than a service charge, and because of that, it is most unfair that the Government should take 10 per cent. of what is, in effect, a gratuity to the staff of the hotel?
THE EARL OF GOWRIEMy Lords, the noble Lord will be aware that the V.A.T. is and was always a tax on services as well as goods, so I do not think there is any question of unfairness here.
§ LORD HALEMy Lords, can the noble Earl, Lord Gowrie, say, if a customer takes his advice and refuses to pay the service charge, what happens when the proprietor detains his baggage?
THE EARL OF GOWRIEMy Lords, I am sure anyone would carry the noble Lord's baggage for him free, gratis and for nothing.
§ LORD DOUGLASS OF CLEVELANDMy Lords, if a service charge is not paid to the people who give a service, is not that an offence under the Trade Descriptions Act?
THE EARL OF GOWRIENo, my Lords, because under the Wages Councils Act 1959 there are statutory minimum wages for those who work in hotels and restaurants, and employers may not use tips to make up this minimum level. But as I said in my earlier answer, a service charge is advertised as such, as part of the total charge for goods and services.
§ LORD SHINWELLMy Lords, is the noble Earl aware that the so-called service charge, which in the opinion of some people is intended as a gratuity or in lieu of a gratuity, is just a sham, whether it is 10 per cent., 12½ per cent., or, as in some cases, 15 per cent., and that those concerned are always holding their hand out, expecting a tip whether they are waiters, chambermaids or porters?
THE EARL OF GOWRIEMy Lords, some hotels do pass the whole of the receipts to the staff while others retain the service charge but claim they pay 499 correspondingly higher wages. Others, especially restaurants, put no service charge on the bill, pay lower wages and expect the staff to make them up in tips.
§ LORD COLERAINEMy Lords, would it not be possible to have a uniform practice in this matter? Would that not be more fair to everybody? Would it be possible to amend the Catering Wages Act, for instance, so that there is a uniform practice?
THE EARL OF GOWRIEMy Lords, it is always open to any Member of your Lordships' House or of the other place to attempt to bring in legislation on this question.
§ THE EARL OF LAUDERDALEMy Lords, would the Government not support the principle of fair trading in this matter?
THE EARL OF GOWRIEMy Lords, I think it would be premature for me to give an answer on that; but as I said to the noble Lord, Lord Derwent, I think there are unsatisfactory aspects about this matter which I will look at more closely.
§ BARONESS SUMMERSKILLMy Lords, could not the Government indicate to these establishments that they must show on their brochures, or whatever they produce, what kind of establishment it is? The noble Earl indicated that there could be three ways of operating in these places. Why should not the customer be told precisely what method is being adopted?
THE EARL OF GOWRIEMy Lords, I do not wish to be too repetitive. I have answered this point several times. A service charge on a bill is an announced charge as part of the total charge for goods and services.
§ BARONESS SUMMERSKILLMy Lords, the noble Earl has just told the House that the employer can tell the customer that he is keeping the tip because he pays good wages. The employer can adopt other means, and give the tip to the domestic. Why cannot the customer, whether in an hotel or a restaurant, be told exactly what is being done?
THE EARL OF GOWRIEMy Lords, I did not tell the House that the employer 500 can tell the customer about this. Of course he can; but there is no requirement on him to do so. I said that my information was that the practice varies.
§ LORD SLATERMy Lords, is the noble Earl aware that there have been many supplementary questions directed to him on this particular Question on the Order Paper, and while they have all been most helpful, would he not agree with the question that was asked by his noble friend below the gangway; that a black list ought to be published in regard to this particular issue, and that the Government ought to take some direct action to stop what is happening at the moment?
THE EARL OF GOWRIEMy Lords, I think there would have to be a little more evidence of abuse before such a step was taken, but I did say to my noble friend that I would look more closely into the question.