Payroll Companies

Jo Swinson Excerpts

Wednesday 16th January 2013 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

As always, it is a pleasure to serve under your chairmanship, Mr Hollobone. I thank the hon. Member for Leyton and Wanstead (John Cryer) for securing and introducing this debate, and for outlining the range of issues about which he and his colleagues are concerned. Towards the end of his speech, he rightly spoke about how it can be a challenge for people who are worried or vulnerable within the employment market to speak up on things that are not right. That is one reason why it is important that they can bring such matters in confidence to their Member of Parliament, so that MPs can take the opportunity to raise issues in the House and question Ministers through such vehicles as Westminster Hall debates. It is right and fitting that he has done so today.

It is worth putting on the record that the problem we are discussing is not the existing model for payroll companies per se. As the hon. Member for Edinburgh South (Ian Murray) pointed out, there is a range of different employment statuses and ways of working. We enjoy having the kind of labour market that has flexibility, which has many benefits for our economy. At the same time, however, that does not mean that we should not be concerned when vulnerable people are subject to practices that should not be going on.

It is worth noting that, even in the investigation that was carried out, not all the companies approached acted in any way improperly, as has been mentioned. Many payroll companies provide a valuable role, not least in small and medium-sized enterprises up and down the land that may not be able to have their own full human resources departments. Outsourcing that service can be essential, but of course we want to ensure that that service is not being used as a front for tax avoidance or to deny people rights to which they should absolutely have access.

The practice that the hon. Member for Leyton and Wanstead described, from that investigation, of a company basically wanting to shift people from PAYE to self-employment, without changing anything else about their work, management structures and so on is absolutely unacceptable. He is right to highlight that that type of behaviour is fake self-employment. HMRC has powers to investigate and clamp down, and those companies will then be liable for tax and national insurance contributions and issues such as holiday pay, when an individual was effectively an employee rather than self-employed. The company, not the individual worker, would be liable for those costs.

[Steve Rotheram]

Will the Minister give way?

[Jo Swinson]

I will certainly give way to the hon. Gentleman, who I am shocked to learn was a teenager in the late 1970s—some appalling kind of child labour must have been going on.

[Steve Rotheram]

I was exploited at a young age. If money is demonstrably not being collected by HM Treasury, has the Minister queried why? Why is a blind eye being turned to the construction sector? Is that perhaps because the casualisation of our industry that results from payroll companies’ practices is a price worth paying?

[Jo Swinson]

I do not agree, and I do not accept that a blind eye is being turned, because HMRC is able to investigate. One of the concerns that has been mentioned is the reduction in the number of investigations opened. I can understand why, at first glance, those figures are of concern, but it is worth bearing in mind the context. Basically, there is much greater use of intermediaries and employment businesses in the recruitment of people into the industry, so the smaller number of cases opened by HMRC does not necessarily reflect a smaller number of individuals covered. A case may be opened now that would have involved many individual cases some years ago, and therefore I do not draw the same conclusion as the hon. Gentleman.

It is important that HMRC investigates, because none of us wants to see tax avoidance. We may disagree on the figures and estimates. The hon. Member for Leyton and Wanstead suggested that the figure was £1.9 billion. The Government’s estimate—it is based on the previous Labour Government’s estimate, which is very much in line—is about £350 million a year. We therefore disagree on the scale, but whether it is £1.9 billion or £350 million, we can all agree that tax avoidance is not welcome or acceptable if the practice is deliberate and people are actually employed rather than self-employed. The Government are, of course, taking significant steps to clamp down on tax avoidance.

The hon. Gentleman also raised the worrying issue of companies suddenly trying to transfer to self-employed status people who had previously had full employee status. Of course, as he acknowledged, that would be illegal, because companies cannot unilaterally change employment contracts.

It is worth recognising that more can be done to improve the information available to individuals about their rights. The Government website, which is a good source of information, is being revamped under the gov.uk banner. We in the Department for Business, Innovation and Skills will look at the information about different employment statuses that we provide through that website and at how best to get across that information. In doing so, we will consider some of the issues that the hon. Gentleman raised in his speech.

There is also the pay and work rights helpline, which is a free service. It is confidential, which is important, given the fear that vulnerable employees might sometimes face. There is somewhere that is free for them to go for advice in confidence. The number is 0800 917 2368, which I encourage MPs to be aware of and to pass it on their constituents.

We have a flexible labour market in this country, which is valuable in itself. The challenge is to distinguish between false and genuine self-employment. Of course, not everyone who is self-employed and works in the construction industry is falsely self-employed; it is an entirely legitimate path for individuals to choose. Equally, we should not assume that everyone who works in that way in the construction industry is in some way cheating the system.

We have a range of different employment statuses—employee, worker, fixed term, part time, temporary—and it is right for employees and companies to be able to choose between those options, so that they can find the approach that works best for them. It would not be helpful to suggest that any type of employment status is better than the others, because people value different elements. Flexibility is often appreciated in both directions, as is the extra control that workers often have on how they undertake their contracted work, rather than being directed as an employee would be.

[Steve Rotheram]

I do not think that anyone is suggesting that every self-employed person is dodgy or that they are going through an organisation that is in some way dodgy. Like many people, my hon. Friend the Member for Leyton and Wanstead (John Cryer) and I were self-employed in the construction industry. The issue here is about the practices that are demonstrably called into question by the report that was referred to earlier. If nothing else, will the Minister agree to meet the Union of Construction, Allied Trades and Technicians and perhaps other unions to discuss the matter in detail?

[Jo Swinson]

The debate today gives us an opportunity to discuss a range of related issues and for the Department for Business, Innovation and Skills to look at what it can do. HMRC plays a significant role in the matter, so it would be worth engaging with Treasury Ministers. I will undertake to contact my counterparts in the Treasury after the debate to express the concerns that have been raised, particularly those in the UCATT report. I will make sure that they have a copy of that report and are aware of the issues. Anyone who likes can report any concerns about tax evasion directly to HMRC. The authors of the report and, indeed, hon. Members may want to do so on 0845 915 3296.

The resourcing of HMRC was mentioned, and we are investing more than £900 million in HMRC to tackle tax evasion, criminality, unpaid tax debt and avoidance. We announced on 3 December an additional £77 million by the end of 2014-15 to expand the anti-avoidance and evasion activity, because it is important. Some issues have been mentioned today not only in the construction sector but through false self-employment, which we recognise is a problem. More widely, there have been well publicised cases of tax avoidance, and we want to ensure that they are dealt with.

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

It is estimated that some 300,000 people are falsely registered as self-employed. I do not know whether that figure is correct. Perhaps the Minister has the correct figure. If she does not, will she write to my hon. Friend the Member for Leyton and Wanstead (John Cryer) with her Department’s estimate of the number of people who are falsely registered?

[Jo Swinson]

I do not have the estimate of the number of people who are falsely registered, but the Government’s estimate of the cost of false self-employment in this area is £350 million. I will certainly see whether HMRC has additional estimates of the number of people who are falsely registered. I would be surprised if it were as high as 380,000, given HMRC’s estimate of the cost. I will endeavour to find out and to write to the hon. Member for Leyton and Wanstead.

The construction industry scheme was mentioned, and it has an important role to play in tackling tax evasion. We do not want to fall into the trap of thinking that many people are trying not to pay tax. Most people pay what is due and pay it on time, and that is as true in the construction sector as anywhere else. We are aware, however, that because of the flexible contracts in construction, where itinerant labour is often used, there can be challenges. That is why the construction industry scheme was set up, so that a deduction or withholding payment of 20% can be made from the payments to a subcontractor if their track record indicates that that is necessary. The scheme secures £3.2 billion a year that might otherwise be at risk. In cases of genuine self-employment, at the end of the year appropriate reports and returns are sent in and a refund is paid.

[Ian Murray]

Does the Minister not realise that the reason why the Government have to deal with this problem is that workers in the construction industry are, given the state of the industry, simply glad to be in a job, so they will not raise concerns themselves? It is important that the Government take hold of the issues and deal with them on behalf of the workers. Workers fear for their jobs at the moment, which is why they are not bringing forward concerns themselves.

[Jo Swinson]

I recognise that at a time when unemployment is certainly higher than we would like—thank goodness, it is starting to come down, but we all want it to be much lower—that has a knock-on effect on the confidence of people in the labour market to challenge behaviour. That is why the Government, and, I would argue, hon. Members, have an important role to play in ensuring that people have information about their rights. Helplines offer free and confidential advice. Employers’ responsibilities are often highlighted, and public pressure can be applied, particularly to large household name companies, to ensure that good practice is followed.