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Mr. Baker: Does the Minister agree that we need an independent audit of the BBC's finances?

Janet Anderson: The hon. Gentleman knows that we are in the middle of a consultation process and that one of the recommendations of the Davies report is that the BBC should become subject to the scrutiny of the National Audit Office. I am sure that he would not encourage me to pre-empt any of the decisions that the Government might take when that consultation is complete and we have been able to take into account the views of hon. Members and the Select Committee. However, I thank him for his intervention.

When the time comes for legislation, all the major broadcasting issues will be covered. Now is an exciting time: the future of broadcasting is important and we envisage the BBC playing a leading role in the future. We should be proud of some of this country's cultural entrepreneurs in broadcasting--they are the envy of the world. I thank all hon. Members who have contributed to today's debate and assure them that we shall take their views into account.

Mr. Jim Dowd (Lord Commissioner to the Treasury): I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.



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Private Recruitment Agencies

Motion made, and Question proposed, That this House do now adjourn.--[Mr. Dowd.]

1.56 pm

Mr. Paul Burstow (Sutton and Cheam): In May, the Department of Trade and Industry published its proposals on the regulation of the private recruitment industry. The deadline for responses was 30 September. To the layman, the draft regulations appear to offer better protection for people seeking work and those hiring staff. No one could oppose proposals that eliminate abuse or bad practice--we all want to raise standards; but what appears at first glance to be a thorough piece of work on the part of the employment standards agency is in fact nothing of the sort. If implemented, the draft regulations would have a perverse effect by driving up the cost of live-in care for the elderly and disabled people, undermining Government policy to promote independent living and greater choice through direct payments, and reducing flexibility in the labour market by increasing bureaucracy.

I was first alerted to the flaws in the draft regulations by a steady trickle of letters from providers of home care and live-in care staff. I make no apology for relying heavily on evidence provided by the United Kingdom Homecare Association, which represents about 700 care agencies throughout the voluntary, not-for-profit and private sectors. It is wrong to characterise the concerns expressed by the care agencies as a minority opinion, not least because those concerns are echoed by organisations representing care users, such as Age Concern, Help the Aged, the Carers National Association, the Royal Association for Disability and Rehabilitation and Mencap. Hon. Members on both sides of the House have written to the Minister to express similar concerns and to ask questions.

The best way to explain the draft regulations and the fact that they are misconceived is to present a case study. I shall tell the House about a lady called Elizabeth, who is 80 years old and who suffers from multiple sclerosis; she is frail and vulnerable. In 1996, she started to use her savings and attendance allowance benefits to pay for a two-weekly rotational live-in care package arranged by a care agency. The package enables her to continue to live at home with a degree of independence and dignity, instead of moving into residential care and becoming institutionalised.

The current cost of Elizabeth's care package is about £316 a week. If the draft regulations are implemented as they stand, the cost to Elizabeth of her care will rise under the new rules by 91 per cent. to £602.78 a week--an extra £286 a week, or £14,872 extra a year. The VAT element alone in that calculation is almost double the attendance allowance that she receives. Elizabeth's case is only one of thousands of examples of how well-intentioned regulations may have unintended and undesirable results.

The objectives of the new regulations are entirely laudable. They are designed to increase clarity for clients, agencies and work seekers; promote labour market flexibility; protect clients and the general public by codifying good practice; curb payment abuses so that workers are paid and safeguard clients' money to prevent loss or misappropriation. No one could argue with those aims and goals, but they will not be achieved if the compliance cost consequences of the regulations are not addressed.

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I asked the Minister what assessments and estimates he had made of the impact of the proposals on those who buy care privately. In a written answer, I was directed to annexe 3 of the regulatory impact assessment. However, I was disappointed that the impact assessment was unable to quantify the cost of most of the measures,

To be fair to the Minister and the Department, paragraph 33 of the impact assessment accepts that there are compliance costs in the form of additional VAT. However, the Department admits that it has no way of knowing how many hirers will be unable to offset VAT payments. I can tell the Minister that more than 40,000 care users in this country will be unable to offset the new VAT liabilities that arise from the regulations.

From talking to people in care agencies and reading the impact assessment, I suspect that officials do not fully understand the market in which care agencies operate. Regulations that are drafted for a wider industry are not necessarily appropriate for particular segments of it.

The employment status of carers or personal assistants, and especially the impact of regulation 7(1), are at the heart of the matter. The United Kingdom Homecare Association, and others who have made representations to me and other hon. Members, strongly contend that people who work in the care sector are genuinely self-employed. They maintain that for four reasons. First, care workers are under no obligation to accept any assignment that is offered to them. Secondly, the care worker is paid directly by the hirer. Thirdly, the care worker can register with more than one agency. Fourthly, the care worker can refuse to accept the placement for the rate that the hirer offers.

While it is right to try to clarify the contractual position--as the regulations attempt to do--to avoid opportunities for abuse and poor practice, it is misguided to believe that any real benefit will arise from prohibiting care agencies from acting as agents for self-employed, autonomous care workers.

The practices have developed and stood the test of time for 30 years or more. They enable care workers and care agencies to operate in the flexible way that the Minister and his colleagues extol to the private sector. Therefore, it is strange that the Department is willing to regulate that practice out of existence in the care sector while it allows other sectors in the recruitment industry to continue to use it.

Regulation 7(1) would insist that care agencies became direct employers. That would give rise to substantial extra costs that would put home care and live-in care out of the reach of many and confine it to the few. The extra costs of payroll, national insurance contributions, employer's liability and sick pay insurance mount to push up costs to the end user. To add insult to injury, VAT will be chargeable on the whole amount of the increased sum, not just the agency's fee for initially arranging the placement.

There are numerous examples to show that, under the Government's proposals, the VAT element of the cost of home or live-in care will exceed the amount that the Benefits Agency pays in attendance allowance, or the care component of the disability living allowance. Those benefits are designed to help people to meet their care costs and the extra costs of disability, not to pay their tax bill.

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In the past few months, the Minister has made statements criticising care agencies and others for

Despite repeated requests for the Government to publish their figures, they have not been forthcoming.

The Department has disputed figures such as those in the case of Elizabeth, which I quoted earlier. The Minister knows that in August, his officials met Mrs. Gifford of Able Community Care to go through her calculations. The Minister told me yesterday in a written answer that he does

I hope that the Minister can tell the House today in detail why he does not accept the calculations. I understand that, even using a formula provided by DTI officials themselves, cost increases of about 40 per cent. still result.

The lower figures that I have been informed could be achieved are arrived at by amazing contortions which appear to defeat the stated purpose of the regulations. First, I am told, the DTI's formula results in a cut in care workers' take-home pay because officials say that the employee should absorb the extra national insurance costs. Secondly, the DTI formula makes no allowance for the cost of travel, which can be an obstacle to a flexible labour market. Again, that cost has to be picked up by the care worker. That may not be a DTI formula, but I have been led to believe that it is. Will the Minister tell me, therefore, why he does not accept Mrs. Gifford's figures? What alternative figures does he have? Why does it appear that the Department is willing to allow care workers' terms and conditions to worsen?

I know that the Minister accepts that the VAT liability will rise, although he may dispute by how much, because in a letter, the Minister said that

It is a pity that, when I tabled a written question to the Chancellor of the Exchequer, he transferred it to the DTI. However, I am glad to have been told that the Department of Health is due to reply to my question. I hope that the Minister will be able to tell the House today what Treasury and Department of Health officials have found so far, because I know that the reference to his ministerial colleagues was made back in August at the latest.

The Paymaster General confirmed in a letter in August that the DTI's proposals will attract a VAT liability. She said:

The Government are unwilling to come forward with their own estimates, but figures from industry analysts suggest that the extra cost will be about £40 million per annum. That will be an extra £40 million in tax revenue for the Chancellor met from the savings and benefits of elderly and disabled people. The Paymaster General suggested, however, that the impact might be reduced if

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those agencies managed by nurses are able to argue that the services that they provide are VAT-exempt health care. That could reduce the cost to some £20 million.

That extra VAT burden will have knock-on effects. It will drive up demand for social services funding, place pressure on the independent living fund and frustrate the Government's stated policy of extending direct payments to older people and encouraging their greater take-up by disabled people. It begs the question: where was the joined-up government thinking on that set of proposals?

Although I appreciate that the Minister may not be in a position to answer for his Treasury colleagues, I hope that he will be able to pass on my representations and ask the Paymaster General to re-examine the scope for zero rating on personal home care for individual users. The Government's hands are not tied on VAT exemptions in that area. All home care services provided to meet an assessed need should be VAT exempted. Paragraph 1(g) of article 13 of the sixth VAT directive permits exemptions for

The Government therefore have the scope to grant an exemption to commercial, as well as charitable, organisations.

Even if the interpretation by Customs and Excise is right, and there are clearly grounds for dispute on the point about the VAT directive, there is another way in which the Government could lift the additional VAT burden imposed by the regulations. An EU initiative would allow the Government to seek a reduced VAT rate for labour-intensive services that are sold directly to final consumers. Surely home care and living care come under that heading?

Will the Minister consider, with his Treasury and Department of Health colleagues, the possibility of making such a bid for a reduction in VAT on those services? That offers a solution to the problems that the regulations will cause for this part of the recruitment industry. I understand that time for such applications is limited because the regulations are due to come into effect at the beginning of the next calendar year.

In this short debate, I want to make it clear that I fully accept the need to strike a balance between the interests of workers, hirers and agencies so as to afford greater protection to all parties in future. Regulations have a positive role to play in eliminating abuses or bad practices and in driving up standards--or at least they could have.

That leads me to my final point. Regulations are only as good as the enforcement regime that underpins them. The current regime is complaints driven, but it gives little insight into how the sector is performing or who is operating in the sector. That is reflected in page after page of the regulations, and in the compliance cost assessment. There is almost no reference in the documentation about the regulation of this industry to the impact that it will have on the care industry. That is undoubtedly because of the paucity of information available to the Department at the moment.

Creating new rules and clarifying old ones will not necessarily raise standards. It leaves it open for low-profile cowboy operators to drive a coach and horses through the regulations while the reputable operators pick up and pass on the compliance costs to those in need of care. At worst, reputable operators will be unable to

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compete in a market in which others are undercutting them by dodging the regulations, and they go out of business as a consequence.

Enforcement and regulation require a joined-up approach. I hope that the Minister will talk to his colleagues in the Department of Health about their plans for the establishment of regionally based commissions for care standards, and the possibility of them taking on some, if not all, of the role of enforcing standards in the important field of domiciliary and live-in care.

I hope that the Minister will be able to answer three questions, of which I gave his private office notice on Wednesday. I do not think that they are too taxing, but I shall wait and see. First, what is his Department's estimate of the increased care costs that will arise from the regulations? That information could put to rest the concerns being raised by hon. Members and outside organisations. Secondly, what other Departments have been involved in assessing the impact of the draft regulations, and when did they become involved? Thirdly, what is the timetable? When will the regulations emerge in their final guise, and when will the House have the chance to consider them in that context?

Above all, I hope that the Minister will tell the House that he accepts that the fears I have expressed are real, and that the Government's commitment to protecting the rights of the many will ultimately shine through in the revised regulations that emerge from the consultation process.

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