Examination of Witnesses (Questions 660-679)
BERR, OGC
22 JANUARY 2008
Q660 Mr Wright: When we had evidence
from UCATT before one of the claims was that 50% of the construction
industry is regarded as self-employed and a large proportion of
that would be regarded as bogus self-employment and, indeed, it
must be an issue with the Treasury because in UCATT's estimate
in 2001 they estimate it probably cost the Treasury £1.5
billion and in today's value it would probably be nearer to £2.5
billion. What work are you doing with HMRC to tackle this problem
of bogus self-employment?
Mr Timms: The first point I would
want to make on this is there is nothing wrong with genuine self-employment.
I do agree that false declaration of self-employment is wrong
and we are committed to effective enforcement of the Construction
Industry Scheme. I know that the HMRC estimate is that maybe up
to perhaps 200,000 out of the total 900,000 self-employed subcontractors
could be falsely classed as self-employed, which is a much smaller
proportion of the total than the UCATT figure. It is still a big
number but it is not as large as the one that UCATT suggested.
I know that HMRC is very determined to bear down further on that
number. It is HMRC's lead. They recognise it as a significant
problem and are working to reduce the scale of it. Certainly on
the evidence I have seen it suggests it is not quite as large
has UCATT suggested.
Q661 Mr Wright: Even a figure of
200,000, as you say, represents a large proportion and, indeed,
with the encouragement from the employers to employ people on
a self-employed basis it is quite clear to see that it is much
cheaper for them to do that without the responsibility of sick
pay, holiday pay, the fact that 20% of their money is deducted
at source by HMRC, so it is a win-win situation for the employers
on big contractors. Apart from the fact that we are losing money
through the Treasury, whether it is 200,000 or 500,000 it is significant,
probably more importantly is the effect on the industry itself
to be better regulated. It must be a concern to your Department,
these people who should not be regarded as self-employed and are
bogus self-employed, and I would have thought some action would
have been taken to work with the HMRC on this particular issue.
Mr Timms: Can I just comment first
of all on the question of the scale of the financial loss. The
estimate I have is the figure we are talking about would be around
£340 million per year, so quite a lot less than the figure
that you have suggested.
Q662 Mr Wright: It is still a lot
of money.
Mr Timms: Absolutely, it is not
to be sneezed at, it is a large amount of money, but it is an
order of magnitude less than UCATT was suggesting. I think the
difference arises because HMRC believes that it is 900,000 self-employed
rather than a million and, even given that difference, the amount
of money involved is quite significantly less in HMRC's view than
UCATT have suggested. In the end, how the industry organises itself
must be a matter for the industry. There is a perfectly proper
place for genuine self-employment and I do not think it is for
government to regulate or instruct companies about how their relationships
are organised as long as it is in compliance with the legislation
as it currently stands. Where it is not, and we might be talking
about 200,000 people, then action needs to be taken and HMRC is
on that case.
Q663 Mr Wright: This is the point.
The argument is not about the genuine self-employed. This has
even wider implications. Earlier we were talking about the skills,
the training and apprenticeship places, and you are less likely
to get the bogus self-employed involving themselves in training
young people within the industry, so it is self-perpetuating and
in the future you are going to get more people being encouraged
to go self-employed, therefore taking away the necessary skills
and reducing the ability for young people to get into the industry.
Mr Timms: Yes.
Q664 Mr Wright: Surely if there was
a way forward for the Department, even if it is 200,000, to regulate
that side of the business that would support and help the skills
and training shortage that we have for young people. There are
50,000 people who want to go into skill placements and there are
only 7,000 apprenticeships and that in itself should be an incentive
for the Department. Whether it is 200,000, 300,000 or 400,000
it is a big issue and I would have thought the Department would
have taken this on very seriously indeed.
Mr Timms: I agree with you, and
HMRC agrees with you, that it is very important to bear down on
that number however large in reality it is.
Q665 Mr Wright: The HMRC are doing
it purely for their own reason, to regulate the income they are
losing, but what I am suggesting is we have particular problems
in the industry in terms of skills and training and surely BERR
should take this on board in saying this is an opportunity to
regulate this industry for health and safety but also, just as
importantly, to provide huge opportunities for young people, so
if it is regularised through regular self-employment we will have
these opportunities.
Mr Timms: I agree with you about
the benefits of bearing down on that number of bogus self-employed
people, I think it is entirely appropriate that HMRC is in the
lead on doing that and, as you say, they have got a very clear
incentive to do so on fiscal grounds, but I think that arrangement
is quite an effective one and I hope that we will see a reduction
as a result.
Q666 Mr Wright: Moving on to the
OGC, I understand that they do not require government departments
to procure projects from contractors that directly employ their
workers, unless there is a clear case for them being self-employed.
If this is the case, why do we not do something about it?
Mr Timms: Mark, do you want to
comment on the OGC's approach here?
Mr Pedlingham: No, not particularly,
in the sense that we do not specifically have best practice and
procurement guidance that plays in this arena which is very much
seen as a taxation issue and HMRC deal with it alongside BERR.
Q667 Mr Wright: So this is HMRC as
well?
Mr Pedlingham: Yes. The bogus
employment issue is primarily a taxation issue. The question of
the skills of people engaged in a programme is part of the general
achieving excellence in construction guidelines we give throughout.
There are a range of those guidelines that deal with the capability
of the contractor.
Q668 Mr Wright: Should BERR not be
working with the HMRC on this particular issue?
Mr Pedlingham: Exactly.
Q669 Mr Wright: And you are doing
that?
Mr Timms: I am BERR and Mark is
OGC.
Q670 Chairman: I am a bit concerned.
To be fair, we have heard some conflicting evidence on this issue
but to dismiss bogus self-employed as just a taxation issue does
not convince me. We have heard, for example, BAA at Terminal 5
used entirely directly employed labour and that was one of the
reasons they attributed to the great success of that project but,
to be fair, the Emirates Stadium used quite a lot of bogus self-employed
as well, so there is contrasting evidence out there. I do not
think it is just a taxation issue, there are also implications
for quality and the outcome as well which must concern the client,
the public sector client and the private sector client.
Mr Timms: I am sure that is right
and I would want to endorse your point about the huge success
of Terminal 5 and there are a lot of lessons for the whole of
industry to be learned from that success. The question is how
we address it. I am satisfied that the approach we have with HMRC
in the lead is an effective way of bearing down on that problem.
I am not saying it is not of interest but I do not have the levers
to tackle it, HMRC does, and it is important they take it very
seriously for the reasons the Committee has said.
Q671 Chairman: You accept it is not
just necessarily a taxation issue, it is also an issue about quality
and outcome as well.
Mr Timms: I do accept that.
Q672 Anne Moffat: One of the other
things the Treasury has done is to change the system moving from
photo-ID when you are onsite to online registration. UCATT, and
I tend to agree, have said that will make the situation much worse.
Would you like to comment on that?
Mr Young: I think this arises
from the new arrangements from the CIS in 2007. One of the problems
that has arisen is some of the interpretation as to what some
of this documentation actually constitutes. One of the challenges
that HMRC have informed me they are dealing with, and have done
for many years, is the presumption that being registered with
HMRC on their systems to be able to be processed as a self-employed
person sometimes has been used by the individual concerned and
accepted by the companies as them being self-employed as a matter
of course, which HMRC have made clear was never the intention.
One of the purposes of the new CIS, as I can call it, is to try
and get away from the cards which were often used by individuals
to say, "Here, I have got a card, I am self-employed".
There are still operational arrangements that they have instigated
under the new regime. In terms of the effectiveness of these operational
arrangements, it is still quite early days under the new scheme.
I know that they have still got groups in place with industry
to look at the operational aspects of the scheme if there are
things that need to be looked at, and I am sure they will be interested
to hear how the system is progressing.
Q673 Anne Moffat: I can understand
wanting to improve the system, but what I cannot understand is
how taking away the photo-ID will improve it. You can still have
online registration. Being required to have ID, would that be
something you would reconsider?
Mr Young: I think that is a matter
for HMRC ultimately because they are the managers of the system.
Certainly if this is a point that arises from evidence then I
am sure they will take note of that.
Q674 Anne Moffat: Thank you. My next
question is about the Gangmasters' Licensing Regulations. What
are the arguments that that should not cover the construction
industry?
Mr Timms: I know this is a point
that UCATT have raised as well. It is one that they have raised
with me. I do not think they raised the earlier point but they
certainly raised this one with me. I think the right approach
to take here is through the Vulnerable Workers' Forum with the
help of UCATT and the Gangmasters' Licensing Authority because
they are both represented on the Forum. It is clear that if there
is a degree of illegality where there is clear evidence from a
trade union or from anyone else I would argue that should be made
available to the Vulnerable Workers' Forum which is looking at
evidence of mistreatment, including within the construction sector.
The aim is to identify options for improving the effectiveness
of enforcement without increasing burdens on good employers. Once
we have got the results of the Forum then we can draw some conclusions.
I think that is the right approach, to get the evidence and see
what conclusions we can draw.
Q675 Anne Moffat: Could the regulations
themselves not do that? If you are a good employer then you are
not going to be held back by the gangmasters' legislation because
you will be adhering to good practice and the law.
Mr Timms: That is what the Vulnerable
Workers' Forum is looking at, whether there are changes that ought
to be made and whether those can be made without imposing additional
burdens. We need to let the Forum do its work and then have a
look at what they recommend.
Chairman: Another gear change to health
and safety.
Mr Hoyle: With scaffolding!
Q676 Mr Clapham: Minister, could
I take you on to the area of health and safety. There is a great
deal of anxiety, and I do accept when one compares the construction
industry in the UK with construction industry in other European
countries we have a good record, but when one compares it with
other industries in the UK the record is not so good. As you will
be aware, a former Lord Chancellor made the point that health
and safety is the cornerstone of a civilised society and yet we
have seen accidents, fatalities particularly, in the construction
industry increase quite enormously: 77 deaths in 2006-07. Why
do you think the record on fatalities has increased so much in
construction?
Mr Timms: Well, Chairman, I think
this is a very, very serious issue and one where there is a good
deal of work that is needed. It is right, as you have done, to
compare performance in the UK with performance elsewhere. It is
also right to look at the record over a period. We have seen a
good record of reducing the number of fatalities over an extended
period and that is extremely welcome but, as you rightly say,
in the past year that record went seriously in the wrong direction
and we need to get it squarely back on track. That is extremely
important. We are supporting the work of the Health and Safety
Task Group of the industry's Strategic Forum. That is going to
be pulling together a plan in order to respond to the Safety Forum
that was convened by Peter Hain, the Secretary of State for Work
and Pensions, last September. This is a very, very important issue
for the industry and we do need to make sure that we get back
on the track of the good trend of previous years. In terms of
why, this is something we have talked about in the umbrella bodies
meeting that I chair. There is some evidence, am I right in saying,
that the housing refurbishment area in particular has been where
we have seen problems. Perhaps Clive could say a little bit more
about that. We need to understand where the problem is arising.
It looks as though the problem is disproportionately there.
Mr Young: Arising from the sharp
increase in fatalities compared to the previous years, HSE took
on board a review of those figures in connection with the Strategic
Forum, the DWP Safety Forum that was held in December, and looked
at each individual case and tried to draw out lessons. One of
the challenges looking at it dispassionately in terms of the actual
figures is sometimes it is difficult to identify particular trends
because there may be particular causes of fatalities in one year
but they may not apply in the following year. Trying to identify
possible interventions that need to be taken is quite difficult.
Looking at the information for this year, I understand it is quite
different from what was seen in the previous year. The lessons
that can be learned from that period will need to be digested
by the taskforce to look at the actions that need to be taken
alongside the ongoing plan that HSE's Construction Division have
put in place.
Q677 Mr Clapham: Minister, could
that increase be because of the fall-off in resources of the HSE
and the number of field inspectors available in construction?
Have you had any discussions at all with the Secretary of State
for the DWP who has responsibility for health and safety?
Mr Timms: I have not seen any
evidence that the change that you have referred to and the risk-based
approach now being taken by HSE has concluded. I think HSE would
strongly refute the suggestion that was part of the explanation.
I have not personally spoken to the Secretary of State for Work
and Pensions, although my Secretary of State has done and did
so around the time of the Forum. I would just underline this is
a really important issue for the industry and the government.
The plan has been drawn up, it is a very important document, and
it is absolutely essential we get back on the track of continuing
improvement that we have seen in the last few years and I expect
the changes being made in HSE to help us in that rather than hinder
us.
Q678 Mr Clapham: I hear what you
say, but bearing in mind how important health and safety is in
the construction industry, is it not one of those areas where
you ought to be meeting with the department that has responsibility
for health and safety to ensure that guidelines on best practice
are actually pushed through?
Mr Timms: There is certainly discussion
between my Department and the HSE. As I say, John Hutton and Peter
Hain have talked about this.
Q679 Mr Clapham: Could you say what
the targets are for improving health and safety in construction?
Mr Timms: The target in my mind
is getting us back on track for the continuous reduction in fatalities
that we have seen in the construction industry, I think I am right
in saying, looking back over the last 10 years or so. For the
past three to six years figures have been very, very disturbing
and we need to get back on track to cut those down.
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