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Restaurants (Service and Cover Charges) Bill [H.L.]

9.26 p.m.

The Earl of Bradford: My Lords, I beg to move that the Bill be now read a second time.

I should make my personal interests clear, as president of the Master Chefs of Great Britain, chairman of the Westminster Considerate Restaurateurs Association, committee member of the Restaurateurs Association of Great Britain, Chairman of Weston Park Enterprises, and owner of Porters Restaurant. By inclination and by nature I am a committed believer in

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deregulation and the more directives that appear from Brussels to handicap our restaurant trade unnecessarily, the more I feel that way.

However, the Bill is deregulatory as it will clear away a morass of unworkable codes of practice and government directives to create a positive level playing field on which all restaurateurs can play the game by a clear set of rules. Surely that is better than baffling our customers with rather ambiguous and conflicting practices as we do at present.

The fact is that there is already regulation over misleading prices under the Consumer Protection Act 1987 and the Code of Conduct for Traders on Price Indications which followed a year later. The Department of Trade and Industry appeared to realise that both the Act and the code of practice were not working or being complied with, as it set up a working group in 1992 to study the best way forward. It sat on the recommendations until 1993 and then completely ignored the working group's call for regulation, instead proposing a reformed code of practice. Sadly, it has even failed to deliver that.

All I seek to do with the Bill is to simplify and clarify the mess and confusion that both business and consumers face from the present perplexing mixture of regulation, codes of practice and industry traditions.

Over 16 years ago I tried to introduce a voluntary code to the industry entitled the Newport Code. Its main stated aim was to remove hidden extras from menu pricing and bills. The only achievement was that the Government changed the law regarding not including VAT in menu prices inside the restaurant. One day shortly afterwards I went to my own restaurant to be offered a cocktail entitled, rather grandly, the Newport Codebreaker. This contained a mixture of dark rum, light rum, vodka, advocaat, coconut cream, orange juice, a dash of nutmeg, a pinch of cinnamon and ice. On inquiring as to why on earth it was called the Newport Codebreaker, the manager cheekily told me that it was the cocktail with all the hidden extras in!

Sadly, many serious problems arise when the restaurateur wilfully causes confusion for the customers by using pricing policies that are at best unclear and at worst a deliberate attempt to delude the customer into thinking that a meal will cost him less than it does. This particularly affects tourists as they are totally perplexed by the contrasting policies which are completely the opposite to the situations that they find in their home country. They then leave Britain with a feeling of great dissatisfaction.

In 1992, recognising that the continued muddle over different pricing practices within the trade was persisting, I tried to introduce a restaurant customers charter with the support of the British Hospitality Association, the Restaurateurs Association of Great Britain and the British Tourist Authority. Regrettably, this totally failed to make any significant impact, though it contained sound principles. The same is true of the voluntary code instituted by Her Majesty's Government in 1988, which recommended all-inclusive pricing. Yet again it was almost completely ignored.

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In Europe, fortunately, the situation is entirely the opposite. France changed the law a few years ago to make all-inclusive pricing compulsory. This does not mean that you cannot leave a small tip to reward excellent service, but it is not the expected norm. After all, no one can force the public not to tip as it is a voluntary act. Across the rest of Europe, all-inclusive pricing is now standard procedure with the strange exception of Greece, but apparently tipping is not normal there either.

In many ways I agree with those who state that it should not be necessary to legislate over these matters and that the industry should put its own house in order. Unfortunately, time after time it fails to achieve that. There is no way for even the best intentioned industry body to enforce a set of rules or code of practice. Members just ignore that which they disagree with or resign from the organisation.

Is it not time, therefore, that we followed the lead of continental countries and introduced by statute a few standard practices here? The first requirement of the Bill is that prices should be quoted on a fully inclusive basis and that this should be made clear to the customer by means of a simple statement printed at the bottom of the menu and the bill saying that: "Our prices are fully inclusive and our staff do not expect a tip or gratuity". This would ensure that for the first time in this country pricing in all restaurants, instead of just the few, will be fair, honest and open.

I am certainly not expecting--and some have expressed concern about this--that waiting staff will be worse off as a result; rather that they will be properly and more straightforwardly rewarded for the job that they do. At the moment they have to rely on either the strange legalised begging ritual of tipping or on the vagaries of variable seasonal business to produce a reasonable service charge tronc making their wages up to a proper level. The change should increase the public's professional respect for their specialist skills and, in particular, should ensure that they will be decently remunerated with a proper wage commensurate with their ability, in a similar fashion to all other restaurant staff. After all, you do not march into the kitchen when you order a meal and wave a £10 note under the head chef's nose to guarantee that you get good food. Why should you then have to bribe the waiting staff to bring it to the table?

In no other retail business actually selling goods--and obviously I do not include taxis and hairdressers under that heading--does the present situation occur. You do not pay a charge of £1.50 to walk through the doors of an electrical goods shop. You do not then find that the price of a microwave has increased because various parts have been left out, like vegetables in a restaurant all too often. You certainly do not tip the sales assistant when you are paying for the goods.

It follows very simply that if prices charged in restaurants are fully inclusive then there cannot be any reason not to fill in the credit card slip in its entirety. This is a most appalling abuse at present. Only the other day my wife had dinner in a Chinese restaurant in Pimlico Road where they presented her with a bill at the

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end of the meal that had an unspecified service charge--actually 12½ per cent.--added to the total. She presented her credit card. They returned it without the bill and tendered the credit card slip with only the top line filled in. She had to ask for a copy of the bill to check whether or not service had been added before completing the transaction. It was a blatant attempt to try to fool her into leaving a tip on top of the service charge.

Then we come to this strange creature--the cover charge or couvert. Some restaurateurs try to justify that by saying that it pays for the laundry, others that it is for bread, butter, olives. In reality, they could just add it into the charge for every main course and stop trying to mislead the customer into thinking that a meal may cost less than it actually does.

The final requirement is that a restaurant must produce a legible and readily comprehensible bill so that the customer can easily ascertain what he is being charged for. In some restaurants at the moment it would require the use of a calculator along with further careful perusal of both the menu and the wine list to work out some of the indecipherable bills with which you are presented.

This Bill could have gone even further and removed the vegetable charge abuse that so often occurs; namely, when you are persuaded to order three vegetables with your main course and end up with an extra £6 or more, having been charged for a full portion of each. All main courses should be served accompanied, as happens in most other countries. It is yet another way of disguising the final cost of the meal to the customer.

The Bill has the full support of the British Tourist Authority, the Consumers Association, the National Consumer Council, Caterer & Hotelkeeper, The Good Food Guide, Egon Ronay Guides, the Harden Guide to London Restaurants, Sharrow Bay Hotel, the Four Seasons Hotel Group, Albert Roux, Nico Ladenis, and many others in the industry. They regard it as being progressive and in the best interests of business and the customer; they certainly do not consider it as regulatory or even controversial.

Those in the catering trade who argue against it by trying to insist that freedom of choice is important demonstrate how right and important it is, because they all adopt different practices themselves, thus illustrating perfectly the lack of any consensus among them and the confusion that is then caused to the customer.

Other opponents have made conflicting and rather simplistic claims: that it will drive up prices, reduce competition, or make it difficult for a customer to complain by withholding a tip if the service has not been good.

The answer as to whether the Bill will increase prices is yes and no. Yes, in the case of those rare establishments that do not levy service or other charges and where tipping is at the discretion of the diner; but for the vast majority of establishments, no. The price paid by the customer will remain the same; the only difference will be that he or she will know at the outset

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what the total bill will be and will not be surprised by an additional £1.50 for this or £2.50 for that, plus a hefty service charge.

The second criticism I find particularly strange. Surely fair competition between restaurants will increase if the customer more easily understands what he is to be charged in each individual establishment and is not seduced by strangely ambiguous pricing policies on the menu displayed outside a restaurant into going inside and then being stung by many hidden extras.

Lastly, you can undoubtedly withhold payment for substandard service, exactly as you can for poor food or drink by making a deduction from the bill.

The recent Which? report from the Consumers Association showed that an overwhelming 85 per cent. of the public wanted the price on the menu to be the price seen on the bill; and 73 per cent. wanted cover charges to be scrapped. Obviously, most people are thoroughly fed up with the present situation and we should not disregard their wishes.

Her Majesty's Government should support this Bill, as it is entirely consistent with their declared policy of promoting free choice, fair competition and value for money. I urge them to heed the pleas of many of the most respected in the profession, and particularly the clear call from the public as well as from the many supporters in this House. I should be delighted to discuss the whole Bill with the Minister and make any changes that he sees fit, so long as the substance is not lost.

I realise that there is an absolute necessity for considerable consultation to examine the finer detail and even certain legal problems with the wording. That will inevitably lead to consequent amendments. But let us please attempt to start moving our catering industry practices into the modern age by removing these abuses of the customer and the tax system. In that way we shall make eating out a much happier and more straightforward business, and ensure that the respect and reward earned by being a member of the waiting profession is a vastly better one.

Lastly, I am delighted that two noble Lords will make their maiden speeches tonight on this subject: my noble friend Lord Phillimore and the noble Viscount, Lord Thurso. I am sure that they will add considerable weighty argument and experience to our debate. Altogether, I feel that we have appropriately a fine vintage selection of speakers tonight. I look forward to their contributions with keen anticipation. I beg to move.

Moved, That the Bill be now read a second time.--(The Earl of Bradford.)

9.40 p.m.

Viscount Thurso: My Lords, I believe that I should begin by declaring several interests. I am a director of the Savoy Hotel Plc., the chairman of Lochdhu Hotels Limited in Caithness and managing director of Champneys, the health resort. I am also a former chairman of the Clubs Panel of the British Hospitality Association and currently chairman of the Master Innholders. According to my mother, my father once spoke in your Lordships' House during a blackout. The

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Chamber was lit by candles and the microphones were not working. He, with his customary skill and ability, surmounted those difficulties. I am only too delighted tonight to have both light and sound. I only hope that when I sit down your Lordships will feel the same way.

I am most grateful to the noble Earl, Lord Bradford, for this opportunity to speak for the first time in your Lordships' House on an issue which has been the subject of hot debate in the industry in which I have spent my whole working life. I am only sorry that on this occasion, while I am in sympathy with the objectives with which this Bill seeks to deal, I cannot support the noble Earl, since I believe that primary legislation is not the appropriate method for dealing with these matters.

My entire working life has been in the hospitality industry, having gone straight to management training with the Savoy Company after leaving school. During those early years, I worked in every department in the hotels and for much of that time was the recipient of service charge and tips. In the light of that experience, I should like to make one general observation. I have often heard the assertion that receiving tips or service is demeaning to the recipient. But I have never in fact heard it from anyone in the industry who benefited from that income. In my case and the case of colleagues with whom I worked at that time, we were only too delighted to be able to increase our remuneration by our own honest endeavour and skill. I do not recall feeling demeaned. I do recall the joy of receiving a tip for a service well performed.

I have been extremely lucky in my life in the hotel industry. By great good fortune I was appointed the general manager of the Savoy's hotel in Paris at an early age. At that time, it was customary for the majority of hotels and restaurants in France to levy a service charge, which was then governed by, I believe, the Loi Goddard. I am aware that the law in France has now changed, but at that time that law set out the rules governing all aspects of service charges. If my memory serves me correctly, it was a requirement that, where a service charge was levied, it had to be paid to the staff. In this country, so far as I am aware, there are circumstances in which a service charge can be levied but not given to the staff. I have heard of establishments which indicate a service charge but do not distribute it, it being kept by the proprietor. I believe that to be wholly misleading, since customers are perfectly entitled to believe that there is no requirement to leave any form of gratuity, whereas in fact the staff will receive nothing. I would certainly support any action to deal with that iniquity.

On my return from France I had the further good fortune to become the founding general manager of Cliveden. I decided at that time and in that particular property that a service charge was inappropriate. I hoped that guests who were happy with the service we provided would chose to leave whatever gratuity they felt appropriate. But at the same time I wanted to make it clear to them that there was no pressure from either the management or the staff. We therefore ended up with a long-winded statement on the bottom of our menus which indicated that service was "neither

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included nor anticipated", which we later amended when it was pointed out to us by a client that he thought we meant that service charge was neither included nor anticipated. Gratuities thus were left entirely to the discretion of the guests.

At that time I also came across the practice of leaving credit card slips open, a practice which I personally dislike intensely. I made it a disciplinary offence for any member of staff to leave a credit card slip open. The only complaint I ever received was from a gentleman who complained that he was unable to add a gratuity to his bill, which proves something that all hoteliers know: you cannot look after all of the people all of the time.

Until recently I ran a small company which owned three hotels and a major golf club. One of the hotels was in America where there is no service charge, or there was no service charge in that establishment. But everybody was well aware that one tipped for everything. I was interested to discover that the wages paid to waiting staff in Florida were generally lower than comparable wages paid in this country, even though there was a statutory minimum wage. However, overall it seems that the waiting staff earned more than their counterparts in this country because of the tips that they received.

I have always been struck by the friendly and efficient service which the majority of establishments give in the United States. I believe that there is a direct correlation between the quality of the service and the financial interest which the servers have in rendering good service. However, that system only works if the customers are prepared to partake in tipping, and it seems to me that in this country generally customers are less likely to tip.

Until October of last year I was chairman of the club's panel of the British Hospitality Association. The BHA takes the view, which I endorse, that it is inappropriate to deal with this matter by primary legislation; rather, it would prefer to see an extension to the Price Marking (Food and Drink on Premises) Order 1979. I am also currently chairman of the Master Innholders, an association of some 80 hoteliers who have received the accolade of Master Innholder. At a recent meeting of its executive committee I asked those members present for their views. They were unanimous in opposing legislation as the correct method of dealing with this matter.

I apologise for taking up so much of your Lordships' time in relating my career. However, I hope that my experience may be helpful in this debate. While I fully accept that consumers would benefit from an abolition of service charge in the short term, I am equally convinced that employees would lose.

A well-run service charge system permits the restaurateur or hotelier to have a degree of flexibility in his labour cost, which is usually the highest cost element in his operation. At the same time, it allows the employee to share both the gain of the good times and the pain of the bad times. That of course can also be achieved by a bonus or commission system. However, current taxation law is such that if the proprietor

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indicates that the service charge is voluntary, then the taxation treatment is more beneficial than if it is compulsory or inclusive.

I suggest therefore that an amendment to taxation legislation to allow all service charges, whether voluntary or compulsory, to benefit from the same tax treatment, coupled with compulsion for restaurateurs to pay staff any amount of service which they have indicated is included in the bill, would allow restaurateurs to obtain the benefit of the current service charge system while allowing existing legislation to be used for strengthening the rules governing the display of service charges. Most importantly, it would allow restaurateurs to display prices as inclusive of a specified percentage of service without any negative impact for him or his staff in taxation terms.

I dislike the practice of cover charges intensely and none of the businesses with which I am involved in an executive capacity employs them. However, I believe that cover charges have largely died out and I doubt the necessity of requiring their abolition by legislation.

This is an important issue in our industry. However, at a time when restaurateurs and hoteliers are facing an increasing barrage of regulation, I urge that the Bill is an unnecessary curtailment of their commercial freedom.

9.48 p.m.

Viscount Montgomery of Alamein: My Lords, it is my privilege on behalf of the whole House to congratulate the noble Viscount on his splendid maiden speech, and I do so unreservedly. He comes from a distinguished Scottish Liberal family who have served both his party and the nation over many generations. But today he chose to speak on a subject of which he has great knowledge. He cogently outlined his career in the restaurant industry, and that is precisely what we have found to be of great value. He is uniquely qualified to speak with authority on the subject, and indeed he did so. I hope that we shall hear him frequently in the future.

My noble friend Lord Bradford, who is a successful restaurateur and also speaks with knowledge, has explained the objectives of the Bill very clearly. I believe that it would be widely welcomed by consumers but, sadly, as my noble friend has explained, it has not been accepted universally by the industry. Before we go much further it is important to distinguish, as both previous speakers have done, between cover charges, which include table money, cutlery, table cloths, and so on, which practice of charging has been widely discontinued and of which very little exists, and the service charge--tipping--on which I propose to concentrate now as it is clearly the more controversial element and is causing quite a lot of complication.

In doing so I must declare an interest in that I am a former honorary president of the Restaurateurs Association of Great Britain. My noble friend is a member of its committee. Unfortunately, as he pointed out, the industry is not entirely of one voice; nor is the British Hospitality Association, as was mentioned by the noble Viscount, Lord Thurso. To a certain extent that is understandable, because no restaurant wishes to take a

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lead and put itself at a disadvantage to its competitors. However, if the matter of no tipping was made mandatory, it would be taken out of restaurants' hands and would be more acceptable since it would be universal. In other words, there would be one rule for all. As my noble friend has pointed out, the code of practice which the industry attempted to recommend and which was endorsed by the Department of Trade and Industry has not been 100 per cent. successful.

The other interest I have to declare in this matter is that I have recently been appointed honorary president of the Academy of Food and Wine Service, a position to which I succeeded when my noble friend Lord Montagu retired. It is an extremely worthy organisation with the most admirable aims--to improve appreciation of food and wine by developing the knowledge, service and social skills of restaurant staff. In other words, it is a training organisation which aims to achieve nationally recognised levels of professional competence in restaurant services. Its objective is to promote the image of restaurant service as a profession equal in all respects to other craft/skill occupations. That is a most excellent and worthwhile objective as it will inculcate the idea of waiting and service as a career. In that sense, it deserves very full support from Her Majesty's Government.

As noble Lords can imagine, the Academy supports the objectives of the Bill since, if restaurant charges are all inclusive, the staff will have a proper salary structure and thus a longer term stability than might otherwise be the case. I should have thought that that would appeal to all parts of the House. Indeed, it is the situation in both France and Italy, where legislation has been applied to this matter. I therefore support the Bill wholeheartedly and hope that it makes further progress.

I shall be interested to hear what my noble and learned friend on the Front Bench has to say, because I am extremely doubtful that the Bill can make its way onto the statute book unless the Government are prepared to support it properly or at least to take it seriously, which I hope they will do, and give the matter further consideration for the future. I support my noble friend and hope that the House will give the Bill a Second Reading.

9.54 p.m.

Lord McConnell: My Lords, I wish to join in the congratulations to the noble Viscount, Lord Thurso, on a very interesting and informative maiden speech. I hope that we shall often hear from him in future. The only interest that I might declare in this subject is as a customer who has nothing whatever to do with the restaurant business. I strongly believe, as has already been said, that staff in restaurants should get proper wages and that they should not have to rely on tips to augment them. They are respectable people and, although the noble Viscount may disagree with me, I personally feel that it is degrading to have to slip money to some other man who is just as good as I am and who is there as a waiter. I believe that he is entitled to a career and to be regarded with respect in that and get his wages in the proper way.

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It has been said that in many other retail trades there is not such a thing as tipping. If one goes into an outfitter's shop one may try on various garments. One may be given advice by the assistant, but one is not charged for what might be quite a lengthy service. He gets his wages and he is happy to serve the customer. He may possibly earn some commission, but there is nothing extra charged to the customer. Why should it be any different in a restaurant? I cannot fathom that.

It has been said--and I have heard it many times before--that not all service charges are handed over to the staff. There are cases in which a service charge is levied--very often a large amount, between 10 per cent. and 15 per cent.--and the restaurateur puts it into his own pocket. I believe that to imply that the payment is for the staff and then to pocket it is very near to the criminal offence of obtaining money by false pretences. It should be made a specific offence.

I know that there has been a recent High Court decision that in certain circumstances gratuities which are not in cash become the property of the restaurateur. I am told that that case will be the subject of an appeal. But it should be made clear in law and not left to interpretation of what is rather ambiguous legislation at the moment. It is essential that we have proper legislation. Voluntary codes are of no use at all because decent people in the trade will follow them and the cowboys will take no notice. Therefore the legislation has to be something that applies to everyone and which can be enforced.

I was very glad to see mentioned in the proposed legislation credit card slips and the space which is left at the end. I have come across that as, probably, have most noble Lords. I write in "nil" against the addition and give something in cash to the waiter because I know right well that some are going to put in a figure underneath the sum and then a subsequent total for a higher amount. That is very sharp practice, to put it mildly, and it may be a little more than that.

I agree that we should be brought into line with the rest of Europe, which, with the possible exception of Greece, as has been mentioned, has, I am led to believe, proper legislation. Our near neighbours certainly have legislation which we could well benefit from examining to see to what extent we can copy it.

I notice that the Bill does not apply to Northern Ireland. That is probably inevitable because it seeks to amend Sections 21 and 25 of the 1987 Act, and those two sections are contained in Part III, which does not apply to Northern Ireland although Parts II, IV and V do apply there. It is very much a hotchpotch of legislation. I do not see why one part of the United Kingdom should be treated any differently from the rest. It may be that an Order in Council will be produced if the Bill becomes law, but I deprecate that method of legislation. I deprecate introducing an order which cannot be amended and which has to be accepted in total or rejected altogether. It negatives the function of this House as a revising Chamber if something is presented to us and we are told, "You cannot revise it. You cannot do anything about it. Take it or leave it".

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I support the Bill and hope that it will eventually become law. It is a good first step. It may be necessary to have other pieces of legislation along these lines, particularly with regard to the enforcement of wages for catering staff, but I have great pleasure now in supporting the Bill.

10.2 p.m.

Lord Phillimore: My Lords, I welcome this opportunity of making my first speech in the House in support of this Bill. My interest in supporting the proposed legislation lies in being a restaurant customer who detests being "badgered, bothered and bewildered" by the variety of practices adopted by restaurateurs in relation to cover and service charges and the presentation of the costs of a meal.

Every customer is entitled to be made welcome and comfortable in a restaurant. That includes not only the provision of pleasant and attentive service and good food, but also a clear presentation of the likely cost of the meal. No one likes to query the position about cover and service charges at the end of a meal when wishing to leave. I am sure that, like many restaurant customers, I am too interested in the food for the health of my body or wallet, and so I concentrate on the choice of dishes rather than on scouring the menu card for details of cover and service charges, and thus leave myself open to a price shock at the end of a meal. The usual practice, whereby the menu card is efficiently whisked away after the initial choices are made, often never to be seen again since a separate dessert menu is sometimes presented which does not refer again to cover or service charges, serves only to compound the confusion.

Some of the practices that I have experienced, which I understand that the Bill seeks to eradicate, are, I am sure, well known to your Lordships and have been referred to already, but they bear brief repetition. I refer to the lack of clarity as to whether there is a cover charge; to the lack of clarity as to whether there is a separate and additional service charge; to the so-called "optional" service charge which is often filled in before the presentation of the bill to the customer, thus eliminating or at least strongly discouraging any choice by the customer; and to the blank space that is left on the credit card voucher for the insertion of a gratuity which is presented to the customer whose memory has faded about the details of the menu card as to service charges, perhaps from having wined and dined too well.

Those practices cause much confusion and can be misleading not only for those who live in this country but also for those who visit this country for tourism or business. It is vitally important for the reputation and economy of this country to make all visitors feel as welcome and as well treated as possible. This legislation will lead to uniformity of practice to the great advantage of the customer, who will know the likely price of a meal on studying and comparing menus displayed outside a restaurant as well as when he sits down inside a restaurant.

Legislation in this form is necessary because the restaurant profession is not seen to have adopted a uniform code of practice on these matters; and the

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present legislation is inadequate in that the definition of "misleading price indications" under the Consumer Protection Act 1987 is not wide enough to outlaw these practices. So I commend the legislation to your Lordships.

10.5 p.m.

Lord Rathcavan: My Lords, it is my privilege on behalf of the House to congratulate the noble Lord, Lord Phillimore, on his maiden speech. I share with him the distinction, wisdom and good taste of having chosen a French wife, but I also share with him a keen interest in the restaurant business. I was most interested to hear his comments on the Bill, delivered in a style which was a tribute to his training in the Middle Temple. I am sure we all greatly look forward to hearing his future contributions.

I have to declare an interest as now a director of the Berkeley Hotel, which owns restaurants. I have been involved closely in the restaurant business over the past 15 years as a non-executive director and at one time as a proprietor of a restaurant business. Up to a point, I strongly support the aims of the Bill to remove the great confusion which exists among restaurant customers, particularly foreign visitors, and to prohibit the levying of hidden and unexpected charges.

The cover charge habit, as many noble Lords have pointed out, is indefensible. It is rapidly going out of fashion, and I hope that most noble Lords will support its prohibition. As any good restaurateur knows, the cost of the cover should be absorbed into the normal overheads. Secondly, the habit of adding on what amounts to a compulsory service charge, often as high as 15 per cent., is immoral when it becomes a charge which is not distributed to the staff but is taken by the company or the restaurant owner as a contribution to his own overheads. That is all too frequently the case.

I find equally indefensible a service charge which is said to be distributed to the staff but is in fact taken by the company or restaurant owner and paid to the staff as part of their weekly wages.

That is as far as I would go in supporting the Bill: prohibiting the unfair, the unclear and immoral service charges which go to the proprietor and not to the staff; and banning the cover charge and stopping the confidence trick of not fully completing credit card slips when given to the customer for signature. However, I do not agree that genuine and optional tipping or gratuities for good service should be actively discouraged, as the Bill proposes.

Reward for good service is a part of the restaurant business. When it is properly organised it acts as a great incentive in so many ways to the efficiency of a restaurant. That is recognised by our tax system also. I am grateful to the noble Viscount, Lord Thurso, for having brought such expertise on the subject in his excellent contribution. Where a gratuity is genuinely optional, and where it is distributed directly to the staff, as he said, by an agreed or even elected and truly independent representative of the staff, known as the troncmaster, that charge is not subject to VAT or liable

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to national insurance contributions. Together those savings amount to over 3 per cent. on the total bill or 25 per cent. of the gratuity given.

I checked this week with the VAT office of Customs and Excise and with the Contributions Agency of the DSS. Both confirmed that there is no reason to change the special treatment in the regulations for tips and gratuities. Restaurants which operate that fiscally efficient system save over 3 per cent. in tax costs. If the Bill goes through in its present form and staff are remunerated only by the employer and not partly through a troncmaster, those costs will be passed on to the consumer.

I assure your Lordships that staff who are partly paid by and through the independent troncmaster greatly prefer that system, as the noble Viscount, Lord Thurso, confirmed was the case when he worked in the industry. They see their weekly wage reflecting the level of business and the reward for good service. It means a fluctuating weekly wage but it is a mighty incentive towards higher standards of service and greater efficiency. Some restaurant owners even ask their troncmasters to bear a percentage of the costs which arise from breakages and pilfering. It is extraordinary what effect that has on the level of breakages and pilfering. I hope that when the Bill is discussed in Committee, your Lordships will take into account that point and will allow the troncmaster system to continue.

Most restaurateurs would like to see a level playing field where bills are legible and readily comprehensible; where prices are as net and as inclusive as possible; where there is no more confusion about spurious service charges which do not get properly distributed to the staff; and where there is a real incentive to compete on the same pitch with good fresh food and good value for money.

I thank the noble Earl, Lord Bradford, for bringing the Bill before the House. It seems to prohibit some of the worst practices now used in the industry. But I do not believe that it should discourage genuine gratuities and tipping. I hope that I have been able to explain to your Lordships the important role played by that most respected man in the restaurant staff--the troncmaster.

10.12 p.m.

The Earl of Lindsey and Abingdon: My Lords, I begin by congratulating both the noble Viscount, Lord Thurso, and my noble friend Lord Phillimore on their excellent maiden speeches and their contributions to the debate.

Some 40 years or more ago, I was considering making the hotel and catering business my career. I undertook a course in hotel management and bookkeeping which required one also to have some practical experience. I applied for a job and was accepted as a junior or commis waiter at a well-known London hotel. Although I lasted for less than six months in the job, the experience was most interesting and worth while. I believe that it has contributed to my being able to understand more clearly the views of the restaurant owner and the waiter as well as those of the customer.

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The hotel for which I worked had an extremely good and well-regulated system governing additional charges. There was no service charge as such. That was left to the discretion of the customer. The restaurant was divided into what were known as stations, which covered about six to eight tables each. Each station had one head waiter, one chef waiter and two commis waiters. Only the head waiter of each station was allowed to accept a tip or gratuity. That was then put into a pot known as a tronc. At the end of each week's takings, the amount was distributed on a percentage basis to the four waiters who worked on the station.

I assure your Lordships that that was an extremely welcome bonus, small as it was in my case, because basic pay was extremely low considering the long and unsociable working hours. There was no such thing as trade union protection or a guaranteed minimum wage.

After I decided to pursue another career, I experienced a very different situation. As an interest, I invested a small amount in a restaurant near to where I then lived in London. The establishment did not impose a service charge and a waiter who received a tip was allowed to keep it. However, the management imposed a cover charge which, if converted into today's money, would amount to about £2 per customer. I wondered what that was for because the place provided no table cloths or napkins; indeed, there was not even a carpet to clean. The floor was of stone and covered in sawdust and the walls were hidden by prints and watercolours.

I find it most annoying--and I am sure that many of your Lordships will agree with me--when eating out at some of these restaurants, when what should have been an enjoyable meal ends up with confusion over the bill. With a menu stating "cover charge and service included" there is a gap for the gratuity when the bill arrives. That amounts to a double service charge. If you pay by cheque or credit card, there is no knowing if the so-called "gratuity" goes to the waiter who has served you or into the coffers of the management. I must say that I am inclined to leave that amount blank and hand a cash donation to the waiter concerned if the service has warranted it. I am also fully aware that there are tax implications to be considered in the Bill.

In conclusion, I welcome the Bill to "prohibit the levying" of service and cover charges other than those stated. I wish my noble friend Lord Bradford every success in getting the Bill through its remaining stages and on to the statute book.

10.17 p.m.

Lord Montagu of Beaulieu: My Lords, I hope that my career in the tourist industry over the past 45 years and its inevitable connections with the catering industry is well enough known for me not to bore your Lordships' House with a long list of my appointments past, present and in the future.

I believe that the noble Earl, Lord Bradford, is to be congratulated on raising this issue, even if the Bill fails to become enacted. I certainly support the Bill, but as the details have been so well rehearsed, there will be no good in repeating them tonight. However, I should like

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to submit to your Lordships' House my view that, if passed, the Bill would have a very radical and beneficial result, not only on our restaurants, cafes and hotels but also on Great Britain's ability to continue to compete successfully in the tourist industry. The facts are simple: tourism is our most important overseas earner and one of our biggest employers, but it was not always so.

Before the war our food was unexceptional; there were very few good hotels and restaurants and there was no expertise or skill to command respect or indeed to attract people to these shores. Over the past 50 years those concerned with the tourist industry have done a magnificent job in making Britain one of the world's great tourist attractions for millions of overseas visitors, as well as our own people who take holidays in this country. Our food is no longer a deterrent, and the same can be said for British wine. The industry has been transformed by better training, dedicated chefs and restaurateurs. It is now not only respected and admired, but also emulated. Indeed, we have seen roast beef featured on French menus, which is a great compliment.

The only regular criticism is the confusion on prices and costs which has been described. The uncertainty about the total bill and how to deal with gratuities deters many people from eating in restaurants, and that applies particularly to the lower income bracket and young people who are not experienced in restaurants. So what do they do? They go instead to fast-food establishments because there is no VAT and no service charge on hamburgers and hot dogs.

France had a similar problem and it successfully solved it by legislation of this sort. Therefore I hope that the Bill will succeed. It is to my mind necessary that any extra charges are not imposed, but what is equally important is that they are seen not to be there. Managers of restaurants can present themselves with transparent honesty as long as they say what is being sold and for how much. That is sadly lacking today. The result of the code of practice is that the good guys obey it but the bad guys do not and therefore the good guys suffer.

Great patronage will result from increased respect and confidence. Of course the staff must be rewarded but I believe that it is for the management to determine how best that should be done. It is not the responsibility of the customer. Some noble Lords tonight have the impression--I hope that the noble Earl, Lord Bradford, will correct this--that the Bill seeks to abolish gratuities. In my opinion, that is certainly not the case. I believe that the noble Earl, Lord Bradford, will confirm that when he replies to the debate. Individuals must of course always retain the right to reward good service. I hope that this Bill will succeed, as I believe that it will make an important contribution to customers' satisfaction and consumers' interests.

10.21 p.m.

Lord Monson: My Lords, as well as congratulating the two maiden speakers on their excellent and interesting maiden speeches I also wish to congratulate the noble Earl, Lord Bradford, on his initiative in devising and bringing forward this Bill. The all too frequent abuse of service charges is something which

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has concerned me for a long time. Indeed, I first raised this matter in your Lordships' House when the party to which the noble Earl belongs was seated on the opposite side of the Chamber, which takes us back 17 years or more.

However, unlike the noble Earl, my particular concern has been not so much for the customers, most of whom--although I concede not all of them--are astute enough to look after themselves, but rather for the employees. I know from several sources--not least from younger members of my family and their friends who in the past have worked in restaurants during long vacations--that all too often service charges which the customer fondly imagines are destined for the pockets of the waiter or waitress go instead into the coffers of the owners or managers, in whole or in part. Here I entirely endorse what the noble Viscount, Lord Thurso, and the noble Lord, Lord Rathcavan, have said on this matter.

I have often mulled over the idea of introducing a Private Member's Bill myself which would make it obligatory for service charges to go entirely to employees, but I have always been stymied by the all too likely prospect of unscrupulous owners or managers redesignating themselves as employees and thereby creaming off the greater part of the money raised by the service charge. The noble Earl may have come to the same conclusion; at any rate, his solution is the bold, even ruthless, one of outlawing both service charges and cover charges altogether. I use the words "bold" and "ruthless" for two reasons. Even in North America where tipping, and substantial tipping at that-- 15 per cent. is normally expected--is an absolute social, even if it is not a legal, obligation, service charges are now normally levied if the party is larger than six or eight. This applies not only in areas frequented by British and other European tourists but throughout the greater part of North America.

Moving back to the eastern hemisphere, we find that--unless legislation has changed since I was last in France--the cover charge is still alive and cooking (that is a Freudian slip; I meant to say alive and kicking) on the European continent. If one orders one of the prix fixe menus in France, as one normally does if one has any sense as they are such good value, one will not pay such a charge as such menus are genuinely all inclusive. It is a very different matter if you order o la carte. In that case you are almost invariably charged a couvert, not unreasonably. I am the first person to defend the practice, under certain circumstances.

Restaurateurs are normally terrified of someone monopolising a potentially profitable table on a busy day and ordering perhaps only one course and a glass of tap water. Contrary to popular supposition, it is possible to get a glass of tap water in France despite the restaurateurs' protestations. It would obviously be disastrous for their profits if the practice were to become too widespread. Therefore, I believe that in certain limited circumstances a cover charge on an o la carte menu rather than a table d'hote one, can be justified.

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Provided the customer is kept fully informed, which is not the case at present, and provided there is no ambiguity and no cheating of customers or staff, I believe that restaurants should be allowed a choice. There are many reasons for that. In view of the late hour I shall mention only two.

An isolated restaurant with intermittent trade may only be able to survive if its part-time staff, who may be students, are paid on what is effectively a piecework basis, as happens in Canada and the United States. Secondly, many customers, surprising though it may seem, feel uncomfortable not tipping and would prefer the basic price not to include service so that they can tip either on an ad hoc basis or, having had the calculations made for them, by means of a service charge. Remember that in France, even though prices may be all inclusive, it is usually stated that service of 10 per cent., 12 per cent. or 15 per cent. is compris so that people are aware that there is a charge, which, if the restaurant is properly run, presumably goes to the staff.

To sum up, I agree with the noble Viscount, Lord Thurso, that Clause 1 of the Bill is over-prescriptive, as is the last half of new subsection (1A)(c) in the otherwise excellent Clause 2. However, the latter can be amended in Committee. Should it come to a vote I shall certainly vote for the Second Reading of the Bill as the status quo is most definitely not satisfactory.


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