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The Solicitor-General (Lord Falconer of Thoroton): My Lords, I agree entirely with what the noble Viscount, Lord Thurso, said. I believe that both of us have the same broad objective in mind. We want to ensure that there is proper and convenient disclosure of records between employer and employee. I believe our disagreement arises as regards whether this measure is the most appropriate and effective way to achieve what the noble Viscount wants to achieve, having regard to the interests of both the employer and the employee.

I think the noble Viscount will agree that often there will be a supervisor or similar person who can make the records of night-shift workers available at a time when night-shift workers are working. No difficulty will arise between a reasonable employer and a reasonable employee because they will approach the matter with common sense and reach agreement. As I pointed out in previous debates, the amendment is inflexible. The

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amendment would have the effect that records would have to be produced during the employee's working hours. A small employer may not have the means to make records available during an employee's working hours, but under the terms of the amendment he would be obliged to turn up in the early hours of the morning, for example, to produce the records for the employee even though that may cause immense disruption to that small employer. The Bill is silent as to the time during people's working hours when the records must be produced. It is to be hoped that as time goes on convenient times will be agreed for all.

The noble Viscount, Lord Thurso, referred to Clause 11(7) which states,


    "Where a production notice is given, the employer shall give the worker reasonable notice of the place and time at which the relevant records will be produced".

When we discussed this matter the noble Viscount may have thought that the word "reasonable" referred to the notice rather than to the place or the time. In our discussion I may have overstated the extent to which that provides a solution. The underlying principle is that one should not prescribe the time--whether in favour of employee or employer--and that one should allow this to be worked out according to the circumstances. Common sense should prevail. It is to be hoped that at the end of the day sensible notice will be given. I believe that that is the right solution in all the circumstances. I believe that the solution the noble Viscount proposes is too biased in favour of the employee. The best course is to be silent about the matter in the Bill. I hope I have persuaded the noble Viscount to withdraw his amendment. We have thought carefully about the matter and we think the best course is silence rather than trying to prescribe measures which shift the balance too far one way.

Viscount Thurso: My Lords, I am grateful to the noble and learned Lord, Lord Falconer. I fully realise that, particularly since Report stage, he has taken on board the argument that I advanced and that he has clearly given it a great deal of thought. I am only sorry that at this stage I find myself still unable to agree with what he says. If I have understood him correctly, he has said that it is better to be silent because in all the circumstances common sense will prevail. If that were true, I should have thought we would not be debating this National Minimum Wage Bill at all because we would not need to put such legislation on the statute book.

There is a small number of employers--it is a small number--who have the opportunity to make life difficult for employees, whereas the ability of an employee to make life difficult for an employer, however small that employer may be, is somewhat limited. Therefore on this occasion and with great sadness I respectfully ask to test the opinion of the House.

3.56 p.m.

On Question, Whether the said amendment (No. 2) shall be agreed to?

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Their Lordships divided: Contents, 42; Not-Contents, 110.

Division No. 1

CONTENTS

Addington, L.
Alexander of Tunis, E.
Alton of Liverpool, L.
Beaumont of Whitley, L.
Calverley, L.
Carlisle, E.
Clement-Jones, L.
Craig of Radley, L.
Dholakia, L.
Ezra, L.
Falkland, V.
Gainford, L.
Halsbury, E.
Hamwee, B.
Harris of Greenwich, L.
Ilchester, E.
Jacobs, L.
Jenkins of Hillhead, L.
Kintore, E.
Linklater of Butterstone, B.
Ludford, B.
Mackie of Benshie, L.
McNair, L.
Maddock, B.
Mar and Kellie, E.
Newby, L. [Teller.]
Nicholson of Winterbourne, B.
Razzall, L.
Redesdale, L.
Rodgers of Quarry Bank, L.
Russell, E.
Saltoun of Abernethy, Ly.
Smith of Clifton, L.
Steel of Aikwood, L.
Thomas of Gresford, L.
Thomas of Walliswood, B.
Thomson of Monifieth, L.
Thurso, V. [Teller.]
Tordoff, L.
Wallace of Saltaire, L.
Williams of Crosby, B.
Winchilsea and Nottingham, E.

NOT-CONTENTS

Allenby of Megiddo, V.
Alli, L.
Amos, B.
Ampthill, L.
Archer of Sandwell, L.
Bassam of Brighton, L.
Berkeley, L.
Blackstone, B.
Blease, L.
Borrie, L.
Bruce of Donington, L.
Bruntisfield, L.
Burlison, L.
Carmichael of Kelvingrove, L.
Carter, L. [Teller.]
Cledwyn of Penrhos, L.
Clinton-Davis, L.
Cocks of Hartcliffe, L.
Currie of Marylebone, L.
David, B.
Davies of Coity, L.
Davies of Oldham, L.
Dean of Thornton-le-Fylde, B.
Dixon, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Evans of Parkside, L.
Ewing of Kirkford, L.
Falconer of Thoroton, L.
Farrington of Ribbleton, B.
Fitt, L.
Gallacher, L.
Gilbert, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Greenway, L.
Gregson, L.
Grenfell, L.
Hacking, L.
Hardie, L.
Hardy of Wath, L.
Haskel, L.
Hayman, B.
Hilton of Eggardon, B.
Hogg of Cumbernauld, L.
Holderness, L.
Hollis of Heigham, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. [Lord Chancellor.]
Islwyn, L.
Jay of Paddington, B.
Jenkins of Putney, L.
Judd, L.
Kennet, L.
Lockwood, B.
Lofthouse of Pontefract, L.
McCarthy, L.
McIntosh of Haringey, L. [Teller.]
Mackenzie of Framwellgate, L.
Marsh, L.
Mason of Barnsley, L.
Milner of Leeds, L.
Mishcon, L.
Molloy, L.
Monkswell, L.
Montague of Oxford, L.
Morris of Manchester, L.
Murray of Epping Forest, L.
Nicol, B.
Orme, L.
Paul, L.
Peston, L.
Pitkeathley, B.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Porter of Luddenham, L.
Prys-Davies, L.
Ramsay of Cartvale, B.
Rea, L.
Rendell of Babergh, B.
Roll of Ipsden, L.
Sefton of Garston, L.
Serota, B.
Sewel, L.
Shepherd, L.
Shore of Stepney, L.
Simon, V.
Simon of Highbury, L.
Smith of Gilmorehill, B.
Stallard, L.
Stoddart of Swindon, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Thomas of Macclesfield, L.
Thornton, B.
Turner of Camden, B.
Uddin, B.
Weatherill, L.
Wedderburn of Charlton, L.
Whitty, L.
Williams of Elvel, L.
Williams of Mostyn, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

27 Jul 1998 : Column 1206

4.4 p.m.

Clause 12 [Failure of employer to allow access to records]:

Lord Haskel moved Amendment No. 3:


Page 8, line 36, leave out ("subsection") and insert ("subsections (8) and").

The noble Lord said: My Lords, the three government amendments in this group are all technical amendments. They will complete and improve the Bill. They came to our attention only at this late stage. I hope that tabling them now will not inconvenience any of your Lordships. I have in any event written to the noble Baroness and the noble Lord, Lord Razzall, with an explanation of the amendments. A copy of those letters will be placed in the Library of each House. I beg to move.

On Question, amendment agreed to.

Clause 42 [Power to apply Act to individuals who are not otherwise "workers"]:

Baroness Miller of Hendon moved Amendment No. 4:


Page 26, line 14, at end insert--
("( ) Nothing in regulations made under subsection (1) above shall cause to be treated as a worker for the purposes of this Act any person counted as self-employed for the purposes of his liability to income tax.").

The noble Baroness said: My Lords, I return to the amendment to which I spoke but which I did not move in Committee, because I was disappointed with the Minister's response. Time did not permit me to raise the matter on Report.

In his remarks, the Minister produced a totally untenable argument against a perfectly reasonable proposal which does not diminish the Bill in any way. But apart from that, his comments contained one irrelevant and inaccurate comment. I wish to deal with that minor point first, because I should not like to leave it on the record unanswered.

The amendment relates to persons who are genuinely self-employed and have been authoritatively recognised as such by a major government agency, the Inland Revenue. It seeks to ensure that such persons are not recategorised as employees for the purposes of this legislation by a regulation made by the Secretary of State under the wide powers that he is taking under Clause 42(a).

27 Jul 1998 : Column 1207

The fallacious point raised by the Minister was that the Government were following the approach used in the Employment Rights Protection Act 1996 by the previous government. He then asked:


    "If it was right to do it then, why should we not do it in these circumstances?"--[Official Report, 22/6/98; col. 52.]

He also complained that I did not seek to address that point. I should like to do so right away.

The 1996 Act was not a Conservative Act; it was a consolidating Act. The provision to which the noble Lord referred was derived from the Employment Protection (Consolidation) Act 1978, which was passed by the previous Labour administration--old Labour--led by the noble Lord, Lord Callaghan. I believe that the Minister is indulging in a small piece of poetic licence when he claims that the Government are following the previous legislation.

In both the 1996 Act and the 1978 Act, an employee is identically defined as,


    "an individual who has entered into or works under ... a contract of employment".

Clause 42 of the present Bill covers a diametrically opposite situation. It covers an individual "who would not otherwise be a worker"--in other words, someone who has not entered into a contract of employment.

Turning to the substance of my amendment, I shall make the same point as I did in Committee, it is to be hoped more convincingly this time than previously, unless, as seems to be the case, in every aspect of the Bill the Government's ears and mind are closed to reasonable and constructive argument.

The Bill provides that the Minister may, by an administrative order, apply the Act to,


    "any individual ... who would not otherwise be a worker".

What a drastic power that is! Any individual, by administrative fiat, can be deemed to be an employee even though he and everybody else considers that he is self-employed. The Bill refers to "any individual", not just a category of people. The Secretary of State does not even undertake to consult with anybody before exercising this power.

The Government refused to accept the minor modification that I proposed at the previous stage. To save time, I do not intend to reintroduce it now. However, the wide sweeping powers being taken by the Secretary of State make this amendment essential. It provides the one important brake on his ability to act arbitrarily and even capriciously, and in fact, unnecessarily.

My amendment provides that where an individual has been recognised as self-employed by the Inland Revenue for taxation purposes, he shall be treated as self-employed for the purposes of the Act.

In Committee in the other place, the Minister for Small Businesses said that the Inland Revenue has no strict definition of self-employment, but it uses certain criteria. As a result, cases are decided individually. The noble Lord, Lord Clinton-Davis, in his reply to me said:

27 Jul 1998 : Column 1208


    "Self-employment for tax reasons is based on a number of tests designed to establish status on a case-by-case basis".--[Official Report, 22/6/98; col. 53.]

Ministers in both Houses of Parliament have, as your Lordships will see, agreed that before an individual is accepted by the Inland Revenue as self-employed, his claim to be such is carefully and thoroughly investigated. What is wrong with that? We do not disagree with the Minister exercising powers to close loopholes if he discovers any, but he may not throw out the baby with the bath water. If a person happens to be in a general category defined by the Secretary of State but is nevertheless an exception because he has satisfied the tax inspector that he is genuinely self-employed, then he is entitled to be excepted from that category.

The Government seem to have a paranoid fear that wholesale evasion will be attempted by what they call "unscrupulous employers". I have no doubt that there will be individual isolated attempts to evade the Act, and usually it will be by owners of small businesses. There are not too many large-scale devices that can be attempted and I shall certainly not put ideas into people's heads by suggesting some. However, again, the Government may well be right. Turning a genuine employee into a fictitious self-employed person could be one such route. However, I wonder by what stroke of arrogance the Department of Trade and Industry believes that it can devise loophole-proof secondary legislation more effectively than the Inland Revenue with all its vast experience of dealing with evasion?

Why should the DTI want to take on the highly technical job of drafting the anti-evasion regulations when, if the Secretary of State follows the recommendation of the Low Pay Commission--and it is the Low Pay Commission recommendations that I am talking about--it will be the Inland Revenue, combined with the contributions agency that will be responsible for the enforcement of the Act? Does the Secretary of State seriously suggest that the civil servant in the new revenue department should apply a different and perhaps inconsistent set of rules and guidelines, depending upon what hat he is wearing? Why should regulations drafted by the inexperienced DTI be more effective than the machinery that the Inland Revenue already has in place, with its vast backlog of precedents and guidelines? Believe me, persuading the Inland Revenue that a taxpayer is self-employed is no pushover. As the two Ministers have admitted, each case is carefully examined on its merits. That is a more effective method than what the Secretary of State proposes--a shotgun approach which catches everything in its path, whether or not justified.

Then there are the highly technical concepts to determine whether a person is an employee or a self-employed contractor. There is the control test, the integration test, the economic reality test, the mutuality of obligation test, the mixed or multiple test. I hope that no one will ask me to explain what those are because I do not have the foggiest idea. But I am advised that those are the kind of arcane problems that employment tribunals wrestle with in determining the same question of whether someone is an employee or whether that person is self-employed.

27 Jul 1998 : Column 1209

I have a whole page with a finely printed list of legal precedents of such cases that have reached the High Court. I confess that I have not read the whole page in detail, but I have it.

Is the Secretary of State seriously proposing to ignore all the previous rulings by the courts and set his own tests when he frames his regulations? Of course he is not. So what is the problem about accepting the ruling by the Inland Revenue, in the case of an individual, that it has ascertained, after careful inquiries, that he is indeed a genuinely self-employed person? I think there is none, except for the desire by the Secretary of State to keep everything possible in his own hands within his own empire, to re-invent the wheel and ignore legislation and court rulings that are tried and tested and that have been effective for many years.

There is this strange fear in the minds of the Government that there are all these unscrupulous employers out there simply waiting to find some complicated device to avoid the Act. But does the Secretary of State suggest that in according self-employed status to an individual tax payer--and I stress individual--the tax inspector and the employer are co-conspirators to evade the Act? Whatever the Secretary of State's motivation, one simple fact is clear. If the Inland Revenue has carefully vetted a person and has concluded that he definitely is self-employed, then that to any reasonable person should be conclusive. If the Secretary of State feels the need to make a general anti-avoidance regulation, then he can still do so. My amendment does not prevent that. He can still decide, for example, whether a milk roundsman--a fast disappearing breed--operating on a franchise from a wholesale dairy is self-employed or whether he is part of a subterfuge by the dairy. He can still decide whether minicab drivers and motor cycle messengers are employed or self-employed.

All my amendment does is to protect a person whose case has already been carefully examined in detail on behalf of the Government via the Inland Revenue, by giving him an exemption from being cast in the same mould as the evaders that the Secretary of State is trying to catch. It is totally incongruous that the definition of whether a person is self-employed can vary according to which department he is dealing with. This amendment simply asks that persons who are self-employed in the assessment of one branch of government should not be regarded as employees by another. I beg to move.

4.15 p.m.

Lord Haskel: My Lords, there will always be a grey area between employment and self-employment and the distinction is not always drawn in the same place for income tax purposes as it is in employment law. For employment purposes we have employment law; for income tax purposes we have income tax law. Indeed, for employment law purposes, we have adopted the Employment Rights Act 1996.

The noble Baroness says that it was a consolidated Act, but let me point out that the previous government adopted it and acted as if it was in force. Indeed, the definition of "worker" in the Act comes originally from

27 Jul 1998 : Column 1210

the Wages Act 1986, also during the previous government's administration. So it would appear that the previous government accepted what was laid down in the Employment Act 1996 and this is what the minimum wage Bill seeks to continue.

The noble Baroness raised the point about the Inland Revenue and the contributions agency, defining what is and what is not a self-employed person. As she told us, they produce a pamphlet listing the kinds of things which will help to determine whether an individual is employed or self-employed, for the purposes of assessing his or her income tax and national insurance contributions. It is the national insurance contributions which are important. Factors to be considered are whether a person risks his or her own money in the business, whether he or she is free to hire other people, whether he or she is paid at regular intervals and so on. The amendment, though intended to clarify the position, would not do so.

The amendment seeks to tie the Bill to the definition of self-employment used in tax law. But your Lordships know that there are many ways of blurring the line between bogus and genuine self-employment. It is precisely because of that uncertainty that we need the flexibility provided by the clause. Of course, it may not be used. If it is not used, that will mean that we will have reached the conclusion, in the light of experience, that we have covered all those who should be covered and, more significantly, no one has sought to re-define their employment relationship to escape the provisions of the Bill. But we may need to use it. If we do, we should certainly not be tying ourselves on the face of the Bill to criteria which are used in a different context of tax law.

The noble Baroness asks why the Inland Revenue laws should not apply to employment. The answer is simple. Self-employment for tax purposes is based on the tests which we have already discussed. Those tests are established on a case-by-case basis. In most cases it will be perfectly clear whether someone is or is not self-employed for both tax and minimum wage purposes. However, there will be questionable cases and it is not sensible to tie employment law to criteria drawn up for tax purposes where there is any question of uncertainty.

In reality, the labour market is very complex and the way to deal with that fact is to follow the established precedent in employment law as we have already done and to build in the flexibility to extend coverage if that proves necessary. That we have done by providing the power in Clause 42. Any regulations made under that power are subject to affirmative procedure and would therefore be scrutinised by this House. The noble Baroness therefore has the safety mechanism she seemed to want.

We have had quite a bit of debate on this important subject. There has been correspondence between myself and the noble Baroness. She kindly responded only this morning to my letter. However, for the reasons I set out, I urge the House to reject the amendment. It is not right to have employment law dealing with tax matters and

27 Jul 1998 : Column 1211

tax law dealing with employment matters. Employment law should deal with employment and tax law deal with tax.


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