Select Committee on Environment, Food and Rural Affairs Minutes of Evidence

Examination of Witnesses (Questions 200-219)

Wednesday 21 May 2003

Mr Richard Kitchen, Mr Lindsay Harris, Mr David Lambert, Mr Graham Black, and Mr Rolf Toolin

  Q200  Mr Breed: Thirteen?

  Mr Lambert: Thirteen, yes. However, that does not tell you the scale of the problem.

  Q201  Mr Breed: No.

  Mr Lambert: One of the difficulties we have is that agricultural gangmasters are a subsection of labour providers generally. Our research indicates that they cross over into all sorts of other areas where the provision of low-skilled labour is the issue. So, getting a handle on the actual size of the problem in terms of VAT or anything else is very difficult to do.

  Q202  Mr Breed: I will finish off this bit because we are not getting very far. Do you believe that if there was a co-ordinated team covering all the various aspects of where the fraud and criminality and everything else was actually put together, do you think that the problem is of sufficient scale to warrant that sort of investment in that sort of scale of operation to try and get to the bottom of it, or are you saying: "Yes, we know it is there but, quite frankly, it is a small part of the overall scene and, therefore, yes, we are going to do it as and when we find it but it is not really worth putting time, effort and money into really sorting it out"?

  Mr Lambert: I think it would be the first of those two. We think that a co-ordinated approach is the way. Whether a co-ordinated single team is the answer we would, perhaps, not agree with but we would certainly think that a co-ordinated approach to the problem is the way forward. In fact, that is what we do. We share information between the many government departments that are involved: Inland Revenue, DWP and Customs & Excise. All take part in a group called the Grabiner Working Group which shares information and co-ordinates activity in areas of the informal economy, including gangmasters.

  Q203  Mr Breed: I will finish now, but you have co-ordinated, you have got that, but we are told that there are thought to be over 2,000 gangmasters involved in supplying over half the total labour force of 70,000, and so far we have got 13 prosecutions in 18 months. That is the extent of the co-ordination and commitment and such so far?

  Mr Lambert: The assumption is that the prosecution of an individual gangmaster is the best way to solve the problem, and it may not be the best way to solve the problem.

  Q204  Mr Breed: Except, of course, we have just heard that they are in jail and the businesses are still going.

  Mr Lambert: Which may mean that prosecution is not the answer but to deal with the fraud itself may be the best way of dealing with it.

  Q205  Patrick Hall: I just want to learn from your experience in Lincolnshire. I believe that the operation started or was focused in Lincolnshire. Is that right? Yes or no?

  Mr Kitchen: Yes.

  Q206  Patrick Hall: Is that project still on-going?

  Mr Kitchen: Yes.

  Q207  Patrick Hall: So in the four years since it has been running, do you have clear information about numbers of gangmasters and numbers of people employed by them?

  Mr Kitchen: No.

  Q208  Patrick Hall: Earlier you said you did not have any information, and I took that to mean for the whole country, which must be fair enough, but where you have worked for four years you still do not have that information. Is that right?

  Mr Kitchen: That is right.

  Q209  Patrick Hall: Why is that?

  Mr Kitchen: What we are doing in the DWP on gangmasters is part of a wider task in tackling fraud against the benefit system. It grew out of a recognition that there is a particular sector of those who are working in the East of England which merited our attention. They have worked initially to a MAFF guideline on gangmasters through to 1 April last year. Since 1 April last year they have become part of a wider initiative across the whole of the country, and the issues for my joint working unit, who are co-ordinating these activities, are firstly to establish what are the key indicators of the problem and, secondly, the effectiveness against the problem. Gathering information in this area of the number of gangmasters has been extremely difficult because it is a problem of definition. You have a high-level gangmaster who might be asked to supply a couple of hundred workers who will go to subcontractors (also gangmasters) who will supply some of those workers and some of those subcontractors will have subcontractors themselves. So counting the number of gangmasters is not such a simple matter as saying "We have approximately 250". I can tell you we have approximately 250 big players in the agricultural gangmaster world, and the 2,000 quoted in 1998 is now reckoned to be at the lower end of reasonably informed estimates—it could be as much as 3,000 now. What we are doing on the intelligence front is gathering information on the identity, the location, the number of workers and the places of work of gangmasters in those major 250. We are at the early stages of doing that. We are finding, for example, that we can follow gangmasters around the country; where the workers are one week working here in Lincolnshire, in week two working in fish factories in Scotland and in week three they are in Wales in forestry. We found the same workers in other sectors. Bizarrely, one gang who had been working on flower picking down in the West Country turned up the following week in a furniture depository on removals and storage—into other areas of business. The issue is that gangmasters are supplying labour; they are supplying labour at the cheap end of the market—unskilled labour. It is a moving turnover of people. The identification of those people is dependent upon them telling us who they are through gangmaster statements made, and we have false declarations of identity. Some of those false declarations of identity cover people who are working and who are entitled to work in the UK, some of those false declarations of identity cover people who are not entitled to work in the UK and are using assumed names in order to do so. This is a complex web and the problems for law enforcement are significant. What we are doing is getting a grip of it through addressing the problem by engaging the powers that there are in the several departments involved and through an intelligence lead directing them at where the problem occurs, so that you can follow a gangmaster from Lincolnshire to the fish factories of Scotland and build a case about how much that gangmaster has been charging his customers. The frauds there are fall into two broad areas: one is frauds by individual workers—and they tend to be small frauds—on the DWP, and then there are large frauds by the gangmasters themselves. The DWP cannot deal with gangmasters as businessmen, and we work with our partners in the Revenue and the Customs to do that. We cannot deal with those employees who are not claiming benefit but are in fact illegal workers because they are not entitled to work in the UK; we deal with the Immigration Service as partners on that. We have a co-ordinated response across government. It is early days, and the information we are working on is thin but improving. What we are doing now, for the first time, is pulling together threads from all those departments and from all parts of the country to gauge, firstly, the level of the problem and, secondly, the effective means of dealing with it.

  Q210  Patrick Hall: I think that answer is very helpful because it shows that, in fact, collectively you can describe the picture very well. I was not trying to suggest exact numbers today, yesterday and tomorrow, and it is not necessary to do that because we will never ever get that, but we understand now the picture very well, after a number of years of looking at certain parts of the country. Therefore—and the question was not just to yourself, Mr Kitchen—are there some key lessons that can be learnt to make dealing with what you have described as a problem more effective in the future?

  Mr Kitchen: Yes, there are. The lessons that can be learned are about effective deployment of the resources we put into this. It is much more efficient to deploy an appropriately skilled group of officers working on fraud against people whom we know the details of the fraud they are involved in, and the intelligence lead provides that. We are focusing heavily on gaining intelligence on the gangmasters across government through a single intelligence unit to direct the activities not just of DWP but of my colleagues in other departments.

  Mr Black: Can I answer that from the Revenue viewpoint? I agree entirely. I think we recognise and we share, possibly, the concern of the Committee that we would like to know more about exactly what is happening and going on out there but it is a difficult area; often we are dealing with people in the informal economy who, by their very nature, will not come forward to us. What we are finding is that by pooling the information we have within the Inland Revenue—we have had to mark the position across the whole of the UK, not just in isolated positions—we can share that with our colleagues; they can share their information, we share intelligence information and that enables us to make sure we direct our resources to the most risky areas and the areas where there is most abuse. It is not easy and it has taken us time to get there but certainly we are moving.

  Q211  Mr Jack: When I was in the Treasury, Messrs Black and Lambert, and officials used to find tax avoidance schemes, they were always able to give ministers a figure as to what the revenue at risk was. So they had an unknown total size of the universe but they had a good guess. What do you think is the revenue that is at risk, Mr Black and Mr Lambert, in your respective areas from these illicit activities?

  Mr Black: I will give Mr Lambert time to think of his response to that. I think we have particular issues around the informal economy. Sometimes when you have particular tax avoidance schemes it is possible to quantify them relatively easy. It is difficult to quantify the whole informal economy and, therefore, it is difficult to slice that up and think "How much is the stake from this particular area of risk?". What we can say is that we know the risk is significant. We know from the inquiries we have undertaken that our specialist units have managed to identify we have a £4 million liability from the cases they did, and that is only part of a much larger picture up and down the country where our local teams are picking up quite high risk cases. So I am afraid it is quite difficult to put a figure on the scale of abuse in the informal economy, but we do recognise—

  Q212  Mr Jack: What you have just said puts into question the examples which the Chancellor gave in the Budget, where he noted down the £66 million—the returns he was going to get—from a whole series of compliance activities. I am sure you made your contribution to that exercise. So a number somewhere must exist as to what, in ballpark terms, you think you might be able to contribute to that exercise. So what is it?

  Mr Black: I would love to be able to do exactly that. I think it comes down to the fact that you can quantify the effect of compliance activities more easily in some areas than you can in others. You can see where the tax loss is from a particular avoidance scheme, you can quantify that, but because of the informal economy, because by its very nature people have not, perhaps, even entered the system in the first place, that does make it more difficult for us to come up with a firm figure. I would like to be able to give you a firm figure on that, but I do not think I can.

  Q213  Mr Jack: Mr Lambert, you have had a little extra thinking time. What is the Customs' position on this? I have just been sitting in the Finance Bill clause after clause as we have closed loopholes in Value Added Tax abuse—all neatly documented and we know how much money we are going to save. What is your idea?

  Mr Lambert: I am afraid I have to agree with my colleague from the Revenue in terms of gangmasters themselves, but we are doing a lot of work on the basis of trying to determine how much tax is at risk in individual trade sectors. One of the reasons for that is the motivation of your Committee's inquiries themselves to find out what the size of the problem is that we are addressing. So whilst we do not know what the tax at risk is in terms of the informal economy, as Graham says, we expect that in the not-too-distant future we will be able to address that.

  Q214  Mr Jack: One final small question: where you have had some success can you give us some indication of the ranges of monetary amounts which you have discovered? Just give us a feel. Is it between £10 to £1 million, or what? Just give us some kind of feel. You must have found something.

  Mr Black: I think that was a very accurate estimate you have just made there. Within our range of experience, in some of the cases we have looked at, we are talking about £800 to £1,000 to £1 million, because often the tax estate is not necessarily profit-related tax it is related to the fact they should have been deducting as employers. So that can mount up quite significantly if you have got a large number of people working for you. Oddly enough, it is probably up to £1 to £1.5 million at the very high end of the scale, but gangmasters by their very nature do operate through all levels of the economy and we get them at the very small level as well.

  Q215  Mr Jack: What about Mr Lambert in VAT? How much have you found? What kind of things have you found?

  Mr Lambert: In six figures, basically. Because of the resource-intensive nature of the work, we only prosecute the most serious cases, but we have found them between £120 and £7,000 in cases that we have prosecuted.

  Mr Jack: Thank you.

  Q216  Mr Mitchell: I am getting incredibly disappointed by this. Here we are, you have got impressive titles like "Gangmasters" and you have done four years of work and you cannot tell us anything. You cannot define the scale of the problem, you can tell us there have been 13 or 14 prosecutions, or whatever it is, and that you have recovered something in terms of six figures. It is an incredible disappointment if, after all that time, you cannot even define the scale of the problem.

  Mr Kitchen: I understand the disappointment. What we each have, as separate departments, is a responsibility for either a tax or, in our case, a benefit or, in the case of DEFRA, the Minimum Wage. We are taking one section of the wider community where we administer these things. We have ourselves said we should work together because we each of us can see there is a problem here with this particular sector. Over the four or five years that this has been running, experience has given reassurance that we are right to be doing what we are doing. The Grabiner Report of 2000 said that not only the rag trade, not only the fast-food industry but agricultural gangmasters also need particular attention. That was in February 2000. We have moved from recognising that there is a problem to deploying resources against the problem, and because this is an entirely informal economy issue we are getting a handle on the fact that there is significant criminality, significant social effect, and players, including the industry, are contributing to a very complex set of issues that we as government departments must tackle. The recognition is there, the work is being undertaken, the enforcement powers are being deployed; the work is being co-ordinated, we have learnt to take an intelligence-led approach, and we are beginning to get a handle on the scale of the issue and the effective means of tackling it. However, we cannot simply—simply cannot—quantify an informal economy phenomena that is evolving and growing as we watch it.

  Q217  Mr Mitchell: I am just wondering whether you are not starting at the wrong end of the problem. There you are, persecuting these poor buggers who are being exploited, quite frankly, and the Transport and General told us you are actually working very hard in sending people back home and this kind of thing for immigration offences or labour offences, or whatever. Why can you not follow the money flow? There must be an audit trail. Somebody is paying them. This is not a small man with an Irish accent arriving at my back door and saying he will concrete a path because he happens to be working on some asphalt contract 20 yards down the road. This is big business. Somebody is paying out big sums of money to some people. Why is that not in the books? Why are you not checking that and pursuing the money trail?

  Mr Kitchen: You are talking about the employer end as opposed to the employee end, which is our concern.

  Q218  Mr Mitchell: I am talking about tax, I am talking about VAT and I am talking about records of transactions.

  Mr Black: I think the answer to that is we will follow the money wherever we can. That is why we end up with significantly large settlements when people have not been following the rules. As I say, it does mount up fairly quickly if they have not been properly following the tax rules, but the fact is sometimes the money trail disappears into nothing because there is a false identity or someone who has disappeared at the end of the line. I think on the employer side there is no doubt that there is some very big money and we do follow the money. I think David would probably say the same from the Customs & Excise. Obviously it is slightly different from the DWP perspective who are, perhaps, looking at the employees in the first instance. We all recognise round the table that it is not just a money question; there are wider issues. In London you will also enforce the National Minimum Wage provisions for the non-agricultural sector. We recognise that there are wider issues beyond simply following the money, but where the money is there we will do it.

  David Taylor: I just doubt whether the government departments at the highest levels are sufficiently fleet of foot to keep in contact with gangmaster issues. It is clearly becoming more complex and is broadening, and just not to have an estimate available of the scale of the problem, to me, speaks volumes. It really does. It is not impossible to give us a best and worst estimate so that we have some indication of the numbers of gangmasters, the numbers of people involved, the levels of payment that are made to the people concerned, the levels of payment made by retailers and food processors and so on, just to have the scale of the problem. Unless things get measured they just do not get done, despite the retreat of the Secretary of State for Education and Employment (whatever he is called nowadays) from that important value yesterday. Surely, the best brains in the Civil Service could have come up with something before this inquiry started to operate. I am really disappointed, Chairman, I have to say that. Immensely disappointed. It is symbolised by the one-hundred-word up-date to a 20,000-word report that was written five years ago, that Mr Pollard brandished for us. If that is the best that the British Civil Service can come up with it is about time we put it out to Capita—and I am someone who vigorously opposes PFI in all its manifestations.

  Mr Lepper: I look forward to watching Mr Taylor washing his mouth out at some future point this afternoon!

  Q219  Mr Borrow: I think, Chairman, my question may be largely irrelevant because the question I put down here a quarter of an hour ago was on the basis that we had had all this anecdotal evidence that things are getting worse. I have listened, in the last ten minutes, to everybody saying "We cannot measure it", so presumably we do not know whether it is getting worse or getting better. Is there any evidence it is getting worse or better? The other point I wish to make, Chairman, is that I have spoken to colleagues in my own constituency on these sorts of issues and one gets the sense that there is a conspiracy by those in whose interest it is to ensure that these issues are never discussed, right the way across industry. You will get anecdotal evidence or comments that "This is going on" or "That is going on", but nobody is prepared to actually put names, dates and details; it is all "This is said to you in private but we are not going to go on the record and say this is the problem", because too many people have too much to lose if some of the issues around gangmasters and the legality of gangmasters actually comes out. I would be interested, in particular, in the comments of Mr Toolin, whom I have seen nodding on a number of occasions as comments have been made by myself and my colleagues this afternoon.

  Mr Toolin: Basically, the reality is that there is not the resource to do this as effectively as all of you would like it to be done. It is exceptionally resource- intensive. We have targets set for us and one of the Immigration Service's targets is not illegal working, it is failed asylum seeker removal, and it is a question of whether or not you consider that the tackling of illegal working will get you failed asylum seekers at the end of the day. I will give you some rough figures for the Committee just to dabble with, but in the 1,800 removals last year on the illegal working side 170 were failed asylum seekers. So I would seek to persuade my organisation that indeed we should play a bigger part in dealing with illegal working. I think, essentially, with illegal working it is a question of what do you want, really? There are a number of views expressed from a number of areas. One of the clearest views is that there is not the number of legal workers in the United Kingdom to facilitate the industry. So how do you tackle it? I am not a policy maker but I would venture that the way to tackle this and to tackle gangmasters is to take gangmasters out of the system. To do that we need to hit illegal working hard (and I know that that means hitting the very people that some say we should not be hitting, and that is the worker who wants to better his existence), to bring proper arrangements on short-term levels and spread that to countries who are less fortunate than ourselves and to ensure that there is a fairly good turnover, over a two-year period and a work permit system, which does not incur indefinite leave to remain in the United Kingdom (it has got to be a minimum four years) and you spread that around and you do it lawfully by making them go to a Jobcentre and do it. What I think is happening with the way we run the system now, and what seems to come across, is that there is a large scale of illegality practised among gangmasters who set themselves up because they can see a quick buck. I can understand, in many ways, how my colleagues have difficulties in defining the money, because these people do change their names and they do change their companies with absolute regularity. They create "phoenix" gangmasters—people who do not exist—who have sub-contractors who you can never find, where payments are made and not made and the money trail is not quite as easy to follow. I know I have dabbled into my colleagues' areas and I do not want to go too far because I do not understand that too much—

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