Code of Practice on Fair and Transparent Distribution of Tips

Lord Johnson of Lainston Excerpts

Friday 24th May 2024 Lords Chamber

Moved by

[Lord Johnson of Lainston]

That the draft Code of Practice laid before the House on 22 April be approved.

Relevant documents: 24th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)]

My Lords, just so that everyone is clear about these measures, “tips” covers all tips, gratuities and service charges. The code of practice will give legal effect to standards in the allocation and distribution of tips and transparency surrounding the keeping of records and the retention of written tipping policies.

As I am sure all noble Lords are aware, an initial draft of the code was published in December and updated following a public consultation. I say, on behalf of the department, that we are extremely grateful for all those businesses, workers and other stakeholders who provided helpful responses to the consultation. All those responses have been carefully considered. It is important to stress that many thousands—the vast majority, in fact—of hospitality venues, bars and clubs behave extremely well with tips. It is a crucial component of encouraging people to work in the hospitality sector, which is what we absolutely need in this country.

There are, however, some who have not behaved appropriately, and this code will ensure that there is an appropriate framework around which they now must operate. Law-abiding, legitimate processes will also be properly codified. We have also published a response to the consultation, setting out in more detail the feedback that we have received and the changes that have been made.

I have some technical points in conclusion. The updated code was laid before Parliament on Monday 22 April, pursuant to Section 9 of the Employment (Allocation of Tips) Act 2023, and approved by the House of Commons on Tuesday 14 May. The code contains summaries of the key intentions of the Act. It details the scope of the measures and provides further information on the need to maintain fairness in the allocation and distribution of tips and the need to uphold transparency in the handling of tips.

It was not the Government’s intention that certain hospitality venues should re-engineer their tips process and describe them as “brand fees” or some other charge that could circumvent the principle that, when consumers believe that they are giving a gratuity to an individual member of staff, it goes to them rather than to the corporation that controls the venue. We have been in touch on some of the most high-profile cases and will continue to keep a close watch on them.

The code subsequently expands on how to resolve conflicts which arise between employers and workers, including impartial advice and assistance in resolving problems through ACAS and eventual escalation to an employment tribunal. Following approval by this House, the code of practice and the other remaining measures in the tipping Act will come into force on Tuesday 1 October, thus, I hope, cementing this Government’s reputation as a true friend to all waiters, waitresses and hospitality workers across this country. I beg to move—and keep the tip.

[Lord Addington (LD)]

My Lords, it is a pity that we have to do this, but it is good that we have done it. I am glad that it has happened.

--- Later in debate ---

[Lord Boateng (Lab)]

My Lords, I will raise one matter arising from when I was working as a community lawyer in the Queensway area, in W2, where there are many workers in the hospitality industry. It relates to the impact of tips on tax and benefits. I commend the work of the Low Incomes Tax Reform Group in this often neglected area.

This legislation and the code of practice are entirely welcome, as my noble friend Lord Leong has indicated, but the reality is that, as a result of this, some employers will be paying service charges over to workers for the first time, as opposed to keeping them, and will adopt different practices, such as removing service charges, so that they do not have to handle tips. It is therefore likely that more workers will receive tips and in larger amounts. That is wholly desirable and to be welcomed, but it will have implications for tax and welfare benefits.

We have seen the consequences when sufficient attention is not paid to the impact of additional payments on people’s entitlement to welfare benefits—it can have extremely adverse implications for the individuals concerned. The Low Incomes Tax Reform Group made representations to the department during the welcome consultation that there should be clearer signposting to HMRC and the benefits department to make sure that there will not be adverse unintended consequences for employers and employees.

I can find only one reference to tax implications, which is a sort of signpost, in paragraph 2(a) of the code of practice. I urge the Minister to go back to the department and make sure that, when this is promulgated, there will be clearer signposting on the tax and benefit implications of this welcome code.

[Lord Johnson of Lainston (Con)]

I thank noble Lords for their interventions. If I may turn to the specific points raised by the noble Lord, Lord Boateng, I completely agree with his comments. I will certainly take them back to the department. As with all things, there are often unintended consequences. As Minister for better regulation, I am very aware that we do not want to drive restaurants and so on to stop giving tips to staff. If Hanson’s Café was allowing people to keep tips, and then decides that the new legislation means it wants to remove the principle, we should be aware of that and monitor it closely.

As the noble Lord, Lord Addington, raised, it is important that people know that their tips are now going to go to the waiting staff. I regret that we have to bring this type of legislation forward. It is a surprise to many of us that this is necessary, but I think it is necessary. This code of practice will give a great deal of transparency and clarity.

As the noble Lord, Lord Leong, said, it is vital that we have an effective tipping policy. It is not simply a gratuity or a nice to have. We need to have a functioning hospitality industry. Tips play an important part in compensating and incentivising the service industry, so it is really important that the Government and all of us in this House see the importance of legislation such as this to ensure that the system runs properly, people are treated fairly and the economy can function as a result.

I will take all points back to the department. I assure the noble Lord, Lord Boateng, that his point is fed in directly. I reassure the House that there are no changes to the tax processes on account of this legislation. Clearly, there are different tax treatments for various types of tip, in terms of cash, whether is it paid through a tronc or directly from the venue under the new principles. It is right to make sure that they are clearly signposted.

In response to the kind comments from the noble Lord, Lord Leong, it has been an enormous pleasure to work with him over the last year or so. I think we have achieved a great deal together for this country and I am very proud of the collaboration that we have managed to achieve in so many different areas. I extend these comments to his colleague, the noble Lord, Lord McNicol, who has been extremely collaborative and very supportive. I know they are not in their usual place, but the noble Lords, Lord Fox and Lord Purvis, have also been highly collaborative, although they like to ask me as difficult questions as possible. I am not sure how much that will be missed in the future, depending on various different outcomes. I am extremely proud of the work that we have done on our free trade, business and regulatory agenda. We can all feel that this last piece of important legislation is a job well done. I beg to move.

Motion agreed.