Ed Davey
Main Page: Ed Davey (Liberal Democrat - Kingston and Surbiton)False Self-employment Status
Ed Davey Excerpts
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)
I thank the hon. Member for Streatham (Mr Umunna) for raising this important issue. Like him, I think it is important that we debate this matter, so I congratulate him on securing the debate.
I make it clear to the hon. Gentleman and to the House at the outset that the Government do not condone false or bogus self-employment. If an individual is wrongly categorised as self-employed when they are a worker or an employee, it has implications for the individual, the employer and the Exchequer, as the hon. Gentleman explained. As self-employed people effectively pay a lower rate of tax and national insurance, and because engagers pay no employers’ national insurance, there will always be those who try to present an employment relationship as self-employment.
The terms and conditions of any employment should reflect the reality of the employment relationship. The true economic activity undertaken by an individual should determine how they are taxed. Those who are working under employment terms should be taxed as such. That ensures that people receive the appropriate employment rights and contributory benefit entitlements, and that they pay the right tax and national insurance. It is not a matter of making a choice about someone’s employment status; their status should reflect the reality of the relationship between the parties.
Employers should be aware that anyone who incorrectly treats a worker as self-employed is liable for that worker’s tax and national insurance contributions, and may be liable to penalties. An individual worker can also pursue a claim for employment rights through an employment tribunal or an enforcement body, as appropriate.
Of course, there is guidance on employment status in relation to tax on the website of Her Majesty’s Revenue and Customs, and guidance on employment rights on the direct.gov and Business Link websites. The direct.gov website includes pen pictures of key groups, to help people understand their own status. We have also made information and guidance available through the ACAS helpline. I believe that greater awareness of obligations, penalties and rights for both workers and employers is the best mechanism to avoid abuse, along with an effective enforcement regime.
I think the hon. Gentleman will agree that it is for businesses to decide the most appropriate arrangements for engaging workers. The Government should not promote a particular approach but should ensure that they have the right enforcement mechanisms in place.
Mr Umunna
I completely agree with the Minister’s points about public awareness of the issue. One of my questions to him should have been what the Government were doing about that, and I am encouraged by what he has said.
In practice, I was aware of the existence of much of what the Minister has talked about, but I found that clients often were not. Will the Government consider advertising in newspapers and magazines and on the television the information that is available? Although it exists, I believe there is a lack of awareness of where it is.
Mr Davey
I have to say that people who want to find it can find it very easily, but I think some people may want to avoid finding it. Indeed, that was the message of the hon. Gentleman’s speech. There is great availability of information—I have mentioned a number of websites, but there are other sources of information for people to turn to. I agree with him, however, that raising awareness is important.
It is essential that we do not lose sight of the fact that legitimate self-employment is a key part of the UK labour market. I know that the hon. Gentleman does not disagree with that. Nearly 4 million people in the UK are self-employed, which reflects the UK’s tradition of entrepreneurship. The legal and institutional features of the UK, including its competitive markets and employment framework, have delivered diversity and dynamism in the labour market, which allows more people to find a job that suits them. That has contributed to the UK having higher employment, at 70.6% of the total working-age population, than most other OECD countries, whose average is 64.8%, and still lower unemployment, at 7.8% compared with an 8.6% OECD average.
Like all other forms of employment, self-employment consists of a wide variety of individuals with a range of activities and capacities. The spectrum ranges from individuals working for themselves to people running multinational businesses and employing a substantial number of employees. The self-employed are not generally covered by employment legislation, because they are their own boss. They do, however, benefit from key protections such as the right to work in a healthy and safe environment and protection under discrimination legislation. The rights and responsibilities of the self-employed are governed by the terms of their contract with their client or customer.
Self-employed people are usually identified by the fact that they are in business for themselves and provide a service to multiple clients. They are generally more independent workers than others, and they have far greater control over how and when to deliver a service and who delivers it. They are usually better able to protect their own commercial interests, although they bear any financial risk from the business that they operate.
A self-employed person must register with the tax authorities, submit an annual tax return and account for their own tax and national insurance payments. The hon. Gentleman will be aware of such requirements from his previous work. Taxation is clearly a matter for the Treasury and HMRC, but as I said earlier, any employer who incorrectly treats a worker as self-employed is liable for their tax and national insurance contributions. If they do not meet those liabilities, they could be subject to penalties. That is the law at the moment, and it is a strong one.
I hope that the hon. Gentleman accepts that the Government recognise that false self-employment exists—it is difficult not to do so. As I think he said, in July 2009 the previous Government undertook a consultation, through the Treasury and HMRC, on the problem in the construction sector, to which it is considered particularly relevant. Officials are currently in the process of reporting back to Treasury Ministers, so I do not have an announcement for the hon. Gentleman, but I know that those Ministers are examining the matter.
The hon. Gentleman asked whether the Government should extend the Gangmasters Licensing Authority to cover construction. We had a long debate a few months ago on the Gangmasters Licensing (Extension to Construction Industry) Bill, which the hon. Member for Midlothian (Mr Hamilton) promoted as a private Member’s Bill, in which I explained to him that the Government did not think that such an extension was a good idea. Licensing bodies should be considered only when certain conditions are met. There must be evidence that existing regulation is inadequate and evidence of significant abuses of employment rights; confidence that the licensing system would be a proportionate and effective way of tackling the problem; and any scheme must be practical, enforceable and affordable. In that long debate, I set out why the proposals for extending the GLA to the construction industry did not meet any of those key conditions.
The hon. Member for Streatham suggested that the employment agency standards inspectorate is not seen as an effective regulator, but I think it does a good job—it is a key part of regulatory safeguards. Employment agencies, as other businesses, must comply with the national minimum wage regulations, which are rigorously enforced by HMRC. As an indication of that, I can tell him that in 2009-10, HMRC identified more than £4.4 million in arrears for more than 19,000 workers. It is making full use of new penalty powers to fine businesses that are in breach of the regulations. In the first 10 months of this financial year, HMRC issued 761 penalty notices, which is an average of 76 each month—HMRC is playing its role.
Employers must adhere to the special employment agency regulations enforced by the employment agency standards inspectorate of the Department for Business, Innovation and Skills, which both responds to complaints from agency workers and undertakes proactive, risk-based inspection, increasingly in partnership with HMRC. The agency has powers to prosecute and prohibit individuals from running agencies. Since April 2010, nine individuals have been prohibited from doing so, and more cases are in the pipeline. The regulatory framework, therefore, is active and working, and it is bringing bad employers to book.
Mr Umunna
The Minister spoke of my request for the remit of the GLA to be extended to cover construction. I sense from his comments that there is a problem in that industry. If he accepts that the status quo is not particularly satisfactory—he has made the Government’s position on extending the GLA’s remit clear—what does he propose to do about that industry?
On HMRC, does he think that 39 inspectors are sufficient given the scale of the problem? Will he expand on the Government’s assessment of that? Does he think that the £350 million fiscal loss estimate given by the previous Government is correct, or does he believe that it is a gross underestimation, as many trade unions do?
Mr Davey
When we debated the extension of the GLA to the construction sector—I urge the hon. Gentleman to read the Official Report for that debate—I explained and set out how there had been an awful lot of health and safety and other improvements in the construction industry. I am aware that false employment status in the industry is seen as a problem—that is why the Treasury is considering responses to the earlier consultation— but I believe that extension of the GLA would be disproportionate given that record of improvement.
Let me be clear, however, that the Government are not complacent—further improvements to the EASI and other enforcement bodies are possible—which is why I announced, as the hon. Gentleman may be aware, a review of the Government’s workplace rights compliance and enforcement arrangements. I want to establish what further scope there is to streamline such arrangements and make them more effective. The arrangements for enforcing the national minimum wage and the 48-hour average week are within the scope of the review, along with employment agency regulation and gangmaster licensing. I expect to publish a statement of initial findings and intended next steps later this year in the context of the rolling employment law review that I am co-ordinating on behalf of the Department.
The hon. Gentleman asked about the number of inspectors focused on employee status, and referred to a parliamentary answer given by the Exchequer Secretary to the Treasury, my hon. Friend the Member for South West Hertfordshire (Mr Gauke) in which he noted that there were 39 employee status inspectors. However, we need to be clear about where they fit in to the overall compliance regime. HMRC status inspectors provide technical support in more complex cases to a larger number of HMRC compliance staff, who are responsible for reviewing whether employers have complied with their tax and national insurance obligations. It is wrong, therefore, to see the status inspectors by themselves. In addition, technical support is available to both HMRC staff and employers via the online tool, the employment status indicator. One needs to see those 39 inspectors in that context.
I congratulate the hon. Gentleman on raising this issue, and I can assure him that we take it very seriously: the Treasury takes seriously the loss-of-tax issues, on which he rightly focused, and BIS takes seriously the employment rights issues, which is why we are reviewing workplace rights compliance and enforcement arrangements. I know that, with his experience and knowledge, the hon. Gentleman will continue to contribute to this debate. I welcome that, because we have very similar objectives.
Question put and agreed to.