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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