Payroll Companies

Steve Rotheram Excerpts

Wednesday 16th January 2013 Westminster Hall

[John Cryer]

I thank my hon. Friend for that intervention. He makes an important point. Creating economic uncertainty—and there is enough of that about anyway—and payroll companies spreading it around by making people self-employed so that they do not have rights at work or confidence in the future, is hardly an incentive to spend money. If people are not spending money, there will be even less economic confidence or confidence in other areas.

[Steve Rotheram (Liverpool, Walton) (Lab)]

I congratulate my hon. Friend on developing some interesting arguments about this largely unknown and certainly unexplored and ignored issue. May I pay tribute to my union, UCATT, which I joined as a young teenager in 1979? Members will say that that year does not sound right, but—

[Rachel Reeves (Leeds West) (Lab)]

Child labour.

[Steve Rotheram]

Yes, child labour.

I pay tribute to the work that UCATT has carried out in bringing the issue to the attention of a much wider audience. Can my hon. Friend the Member for Leyton and Wanstead (John Cryer) say why, at a time when Liverpool city council, for example, is having 52% of its discretionary budget cut—up to £300 million—the Government are turning a blind eye to payroll companies, which are avoiding paying up to £2 billion into Treasury coffers?

[John Cryer]

I thank my hon. Friend. He makes a good point. The council that largely covers my constituency, Waltham Forest, faces some savage cuts, while we see billions—it is billions, by the way—disappearing down the Swanee, because HMRC is powerless to stop it. HMRC itself is facing cuts and has been for quite some time. It will face more and more cuts; its staff numbers are being reduced, so it is unable to police this behaviour.

I should point out that not all payroll companies behave as Hudson does. When Jamie Elliott began his report, he found companies that said, “We are not going to help you do this. This is inappropriate. We think that you are engaging in bogus self-employment, so we will not help you.” The majority, however, did not say that. The majority said, “Yes, we are more than happy to help you transfer people to”—using my words—“bogus self-employment.”

I have mentioned the more respectable payroll firms, but at the dodgy end of the market things can be even worse. There are cases of workers turning up for work and being told, “Although you have not signed or agreed anything, you are now self-employed. You are not employed by the company.” They are transferred without their knowledge. That may technically be illegal, but under the current circumstances and in such an uncertain industry as construction, many employees will not be keen to complain about an employer, which clearly does not think that much of them if they want to transfer them to being self-employed.

I have described a fairly straightforward sort of scam— I use the word advisedly—but another scam is the use of umbrella companies, which is rather more complicated. Workers remain employed, but by an umbrella company, which is in turn set up by the payroll company. The cost saving is made by a tax dodge that allows tax relief on employees’ travel and subsistence to be used to pay employers’ national insurance. Since employers’ NI runs at 13.8%, we are talking about a considerable saving. That is the incentive that payroll companies have to set up the umbrella companies that allow the dodge to take place.

A final example of the sorts of practice being engaged in is the use of offshore status. For example, International Subcontracting Solutions Ltd employs 24,000 supply teachers across the UK. Because it is based in the Channel Islands and is a payroll company, ISS is not liable to pay employers’ NI, although it does technically employ the teachers. At the same time, the recruitment agencies in the UK that actually find the jobs for the teachers are also not liable to pay employers’ NI. On all the fronts I describe, the Treasury is losing out in a big way—to the tune of billions of pounds.

My final point is in line with the intervention that my hon. Friend the Member for Liverpool, Walton (Steve Rotheram) made. The Elliott report puts the amount of money lost to the Treasury at £1.9 billion, but that only covers construction. It is an estimate, but it is pretty accurate. There have been no detailed reports, which is why I have concentrated on the Elliott report, but from what I can gather, such practices are spreading to other industries. I have received e-mails describing how they are spreading into the hospitality, catering and retail industries.

If we take all those industries together, my suspicion is that billions of pounds are being lost to the Treasury at a time when we are seeing savage cuts to public services left, right and centre. Every Member can cite cuts to services in their constituencies and local authorities used by the people who they represent, and yet all this money seems to be disappearing down the Swanee.

Thousands, certainly tens of thousands, and possibly millions of workers in the long term, will be deprived of basic rights at work, their holiday and sick pay, and their pension and redundancy entitlements. That will do only one thing: fuel a lack of confidence in the economic future of this country.

--- Later in debate ---

[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.