Speeches, etc.

Margaret Thatcher

HC Committee [Finance (No.2) Bill]

Document type: Speeches, interviews, etc.
Venue: House of Commons
Source: Hansard HC [747/1445-56]
Editorial comments: c2320-2350. MT spoke at c1452. The whole of the debate on this amendment is included on the disc.
Importance ranking: Trivial
Word count: 3684
[column 1445]

Mr. Cranley Onslow (Woking)

I beg to move Amendment No. 165, in page 77, line 48, at the end to add:

15. The Minister by whom any register of establishments is maintained under section 7(1) of the principal Act shall not refuse to exercise his power by virtue of section [column 1446]10(3)(a) of that Act to register a part of an employer's business as a separate establishment by reason only of the fact that the persons employed on the part of the employer's premises proposed to be treated as the site of that establishment are supervised by a person working in some other part of those premises.

I can probably best explain the background to the Amendment by reading extracts from two letters which, I think, speak for themselves. The first is from a dental surgeon in my constituency, and it reads:

“I have a dental laboratory attached to the premises employing one dental technician who manufactures our dental appliances.

My accountant suggested that I should contact the local Labour Exchange to seek the premium or at least the refund upon this tax for the technician.

There is only one other practice in the town that has their own dental laboratory (employing two technicians). Being friendly with one of the partners I suggested that they should apply at the same time for relief on this tax.

We both filled up the relevant form S.E.P.I and forwarded them to the Labour Exchange. These forms contained in essence the same information, especially on the activities of the laboratory.

Within a few days I had a letter saying that my application had been refused. Much to my amazement and also that of the other practice, a week or so later they were informed that they were to receive the premium on their two technicians.”

My constituent appealed, I think rightly, against the decision, but was subsequently informed that his appeal had been refused. The reasons given to him were:

“I have been informed that, in order to qualify for division, the activities carried out in an establishment must be separately managed or supervised.

It follows that to meet this requirement the activities must each have more than one man mainly engaged on this activity … and the previous decision must stand.”

My constituent, not unnaturally, told me that the situation appeared to him to be absurd. I am bound to say that I share his view. Indeed the situation described might almost have been invented by the late Gerald Hoffnung, the man who made us all familiar with the sad story of the bricklayer and the barrel of bricks. There seems to be much the same degree of improbability about it.

The Minister of Labour did not see it that way. He was good enough to write a letter to me on 28th April, saying:

“The Selective Employment Payments Act, Section 10(3)(a), gives the Minister by whom [column 1447]any register of establishments is maintained under Section 7(1) of the Act the authority, if he thinks fit on the application of an employer, to treat different parts of premises occupied for the purposes of his business by that employer as constituting the sites of different establishments. As I am sure you will realise, a power of this kind can only be seen to be exercised fairly if the Minister responsible for it states and follows clear rules for its use.”

Having explained the criteria the Minister goes on to say:

“While the first two parts of the criteria are satisfied in the case of your constituent's establishment the final test which requires separate organisation, including separate supervision, is not met and I therefore cannot agree to the application to divide the premises. As one person only is employed in the dental workshop, the inference is that he is supervised by the partners who control the practice as a whole. If it can be shown that this is not the case, for example, that the technician is self-supervising, I would be prepared to reconsider my earlier decision.

Where on the other hand more than one employee is working in an establishment it is open to the employer to establish that one worker is supervised by the other and that the ‘separately organised’ test is satisfied.”

This may be satisfactory to the Minister but it is not to me or to my constituent either. Even at the end of this careful explanation by the right hon. Gentleman the situation still appears absurd. It is not at all clear that the Minister even holds to his own rules. I have no evidence that the second establishment which employs two men was in fact called upon to establish that one of the technicians supervises the other, let alone which. And what is meant by “self-supervising” ? Is there any definition in any Act of what this is?

I will not dwell further on these points tonight, and merely make the general point that this tax seems to be accepted as the most ludicrous piece of fiscal legislation since the window tax—and I shall not say more about that because the window tax raised a lot of money and bore particularly heavily on the middle classes and the Financial Secretary might be tempted to reintroduce it.

In an effort to bring my specific point out I first tabled new Clause No. 39, which was drafted as best I could, in my primitive and untutored way, to meet these difficult rules of order. Fortunately, more expert hands have since got to work on it and the finely filigreed phraseology of Amendment No. 165 is the result. [column 1448]

If this Amendment is accepted it would remove from the existing law an outstanding absurdity which must be lower than the depths to which even the advocates of the S.E.T. are willing to descend. It is obviously nonsense that an establishment which succeeds in getting its work done with one man should not receive its money back, let alone a premium, while an establishment which employs two men, possibly to do the same job as one because it may not be as efficient, receives the premium for employing both of them.

Sir D. Glover

The Committee has been delighted by the way in which my hon. Friend the Member for Woking (Mr. Onslow) moved the Amendment. I have a similar case in my constituency. The people concerned are not dentists but garage proprietors. In passing, I recommend to my hon. Friend that he would probably bring his constituent within the line if the chap with one technician made him “managing director/technician unincorporated” . It is just another example of the complete absurdity of the way the Selective Employment Tax is working.

I wrote to the Minister of Labour some time ago about a garage in my constituency. It seems to me that the question whether an establishment is separate or not is determined by whether there is a door between the two activities which is either locked or in some way made to separate them. The garage concerned produces wrought iron gates. It employs not one person but about 10. My constituent thinks that all those 10 people, who are undoubtedly in manufacturing, should be subject to the premium. But they cannot be because the garage is a service, and the wrought iron gates are made by some people in a building which is one with the garage building.

Basically, this is the same argument as the one about the dental technician. If the Government want to bring any sense into the Selective Employment Tax, they ought to do something about these absurd anomalies. The best thing to do is to get rid of the tax altogether. The longer we discuss it, the more we find anomalies, foolishness and idiocy, and the example which my hon. Friend gave in his brilliant speech is, I should think, [column 1449]the supreme idiocy of all in any Government legislation. Application is made in respect of two technicians, both doing the same work. One is accepted as within the rule and the other is not.

Similar anomalies exist in a wide variety of cases. The garage in my constituency is another example. Naturally, my constituent feels a great sense of injustice. He is now paying an added cost for the 10 people producing wrought iron gates, which puts him at a disadvantage against all his competitors, who, presumably, are in separate buildings which qualify. I hope that the Minister will take this matter seriously and accept the Amendment.

Mr. Hattersley

The two examples which hon. Members have put to the Committee both arise naturally, inevitably and properly out of the workings of Section 10(3,a) of the Selective Employment Payments Act. Section 10 (3,a) allows establishments to be divided for S.E.T. purposes, in whatever way the “appropriate Minister” thinks fit. It was the good fortune of the Minister of Labour, in the first example quoted, to be the appropriate Minister who decided whether a split was possible or not.

Section 10 (3,a) is not only simple but it is intended to be a help to industry. It is intended for those firms which literally carry on two activities, a major activity not qualifying for premium or refund and a minor activity which may qualify. Were they not entitled to split the two activities, such firms, because of the rules governing the payment of selective employment premiums, would receive no premium in respect of any of the activities within the single establishment. The split is designed to enable two genuinely separate activities to be considered separately in order that the minor activity may qualify for either refund or premium if that qualification is, in general, appropriate.

The Committee will understand that it is only reasonable that there should be criteria laying down how a genuinely separate activity is to be discerned and putting before the House and industry precisely the terms and conditions by which separate activities are to be recognised.

[column 1450]

Sir D. Glover

Does not the hon. Gentleman realise that, by its nature, that is a discrimination against the smaller firm, giving an advantage to the bigger firm?

Mr. Hattersley

If the hon. Gentleman will bear with me to the end of my argument, he will see that that is wrong. It is discriminating, if he likes to put it in those terms, in favour of the firm with two genuinely different activities. When the Amendment was made—it was not incorporated in the original proposals—it was accepted by industry as a genuine concession designed to help those firms with two separate activities carried on in one establishment. It is only reasonable that if there is to be a split there should be some criteria by which it can be decided. The three criteria were announced by my right hon. Friend to the House and have since been published, so that no one should be in doubt as to what constitutes separate activities.

First, the activities must be genuinely different in kind. I would have thought that the repair of motor vehicles and the production of wrought iron gates comes within that category. Secondly, they must be carried out in separate parts of the establishment. I understand from the hon. Member for Ormskirk (Sir D. Glover) that that is the criterion which his constituent failed to meet. Thirdly, the two activities must be separately organised, by which my right hon. Friend means that they can be separately identified in the employer's records and are separately managed and supervised. Even at this late hour, those three criteria will not be regarded by the Committee as unreasonable ways of deciding whether an undertaking is two separate activities or a single activity.

Mr. Onslow

Is the Minister implying that one of the two dental partnerships in my constituency to which I referred is not genuinely carrying on a separate activity? Can he see a distinction? I cannot.

Mr. Hattersley

I see a genuine distinction under the third heading, that is, that they are separately organised, which means that they must both be identified separately in the employer's records and separately managed and supervised. I shall deal with the hon. Gentleman's case later, but I am sure that he understands [column 1451]that the argument is best advanced by dealing with the general application before coming to the specific application.

The general principles are the separation according to those criteria. Hon. Members will well understand that if we do not lay down rules which distinguish separate activities, if we allow activities which are different from the major one carried out in the premises to qualify for premium, without there being a clear case that it is organised on a separate basis, we are eroding the establishment rule. We are paying premiums, making refunds and charging taxes not according to the establishment heading but according to the occupation of individuals. The entire operation of the Selective Employment Tax, certainly its secondary purpose—the redistribution of employment resources between manufacturing and service industries—is dependent on its being organised according to establishments rather than according to individuals.

I shall not weary the Committee with the enormous technical complications of charging this tax on an individual rather than establishment basis. But I remind the Committee that there are many manufacturing firms which, if they were charged tax according to individuals rather than according to establishment, would be very much worse off under the tax than they would be according to the present rule.

The hon. Gentleman does not advance it in these terms, but the example he gave was numerically small.

Its application as a general principle would erode the basic establishment rule on which the tax is based. That is the logical extension of his point. If we calculated according to individuals rather than establishments, that is the only possible outcome.

Turning to the hon. Member's specific case, I reiterate the information he has already received in writing from my right hon. Friend. If it is possible to demonstrate that a single individual does conform to the three criteria we laid down, the same individual is to be treated as a separate establishment. I hope that he will accept that very many single individual establishments have been so classified. I hope that he will also understand that if the Ministry lay down rules [column 1452]and establish criteria we have an obligation to stick to those criteria and to hang on to those rules.

Therefore, I can only advise the Committee this evening not to accept the Amendment. While its clear implications are not understood by the Front Bench opposite, I can only reiterate that the Government feel that the establishment rule is essential to the operation of the tax, and the proposal of the hon. Gentleman would have the effect of eroding it.

Mr. John Smith (Cities of London and Westminster)

I shall not detain the Committee more than a moment——

Mrs. Margaret Thatcher (Finchley)

Why not?

Mr. Smith

—but I do not want the Government to go home thinking that this is an isolated example, a freak case. These cases are bound to occur among very small businesses. I have a letter here from a constituent of mine who lives over his shop. He is in a small way of business. He is just the sort of man I should like to see prosper. The Committee may not think his business particularly important. He says that his business is that of a hair cutter and manufacturer of hair lotion

“for the use of our distinguished clientele. We also send these various preparations all over the world” ——

so he is an exporter as well—

wherever our clientele have moved to.”

And I can well understand their moving. He of course got into the same sort of troubles as my hon. Friend's constituent, and the same sort of answer, that the way in which the Act will affect a particular employer will depend, broadly speaking, on where his establishment falls in the standard industrial classification. He is in much the same boat as the constituent of my hon. Friend the Member for Woking (Mr. Onslow).

In another part of my constituency there is another small business; again, a small firm, run by a few people, and employing very few people; and the business is split in an unusual and unforeseen manner. That firm was turned down. They write that they applied to the industrial tribunal and appeared in front of it and that

“the Chairman said that the Act was clearly not meant to refer to businesses such as ours.”

[column 1453]I took this up with the Board of Trade and got a letter which simply said among other things

“This may indeed be a hard case.”

But they lost.

I feel that the reply we have just been given illustrates a flaw in this legislation. I am not concerned with the purposes of this tax. It may be to raise revenue; it may be to redeploy labour. It may have moral overtones. I am not concerned with that. There may indeed be something to be said for having a proper payroll tax, or, indeed, a payroll tax selective regionally. I am not concerned with that. But there is nothing to be said for a tax which discriminates between individuals, and if the Government must discriminate between individuals for heaven's sake let the discrimination be done by human beings. We heard a lot just now from the Minister not that it was individuals who mattered—but the establishment rules; and here discrimination is being done not by human beings but by a machine, by a paper machine, the Standard Industrial Classification.

We have heard tonight and this afternoon of little else except hard cases. There are going to be many more. There are bound to be many more because the Government have committed what I regard as the real crime against civilisation—of subjecting man to the machine. These cases are not decided on their merits but by reference to this Standard Industrial Classification which was devised for quite another purpose. The Government have got hold of this bed of Procrustes and are going to stamp us all into it, the old, the disabled, and so on, whether we fit it or not.

We shall obviously never correct this tax by tinkering with it because it contains this deadly flaw of subjecting man to the machine instead of making the machine serve man. In the end it will have to be repealed, but as we cannot expect Jericho to fall at the first blast of the trumpet I hope that as a first step the Government will heed the cases which we have put forward and put them right on behalf of those small individuals, who are not large firms which can look after themselves, but small people who write in their own hand and live over their shops and thoroughly [column 1454]deserve all the help which they can get to be kept in business and doing what they are.

Sir D. Glover

I rise only to say, having listened to the hon. Gentleman the Parliamentary Secretary, that I never thought that, in the same week that we have had the communiqués from Cairo, Beirut and Amman, in this House I should hear a more absurd reply than those communiqués.

Mr. Iain Macleod (Enfield, West)

This farce deserves a wider audience and I promise the Parliamentary Secretary that it will get it. We have a personal liking for the hon. Gentleman, as he knows, but he must not come to the Committee, at whatever time of night, and hope that he can satisfy us with the sort of nonsense he gave in answer to the cogent case put by my hon. Friend the Member for Woking (Mr. Onslow). I hope that the Press will resurrect this small debate from Hansard. It may take a day or two to find it but they will do so and realise how ludicrous the administration of this Act, in these illustrations at least, has become.

I say directly to the hon. Gentleman that it is his job as a Minister to act as a Minister and not as a rubber stamp. There is a double duty upon him in this case because, by the operation of the guillotine, we never discussed in the House Section 10(3), on which he has relied. If we had had a chance to debate it, it may well be that the collective wisdom of the House could have improved it and he might have been able to give a better answer. But the point is—I am sure he will recognise it, although I say this more in sorrow than in anger—that there is a special duty upon Ministers to act as Ministers and interpret these provisions in an ordinary and sensible way. For the hon. Gentleman to have listened to my hon. Friend's speech and then blandly to have said that to agree to the Amendment would erode the principle is not good enough.

Mr. Hattersley

It is true.

Mr. Macleod

With great respect to the hon. Gentleman, I say to him that I have more experience than he—indeed, more experience in his Department than any man still active in public life today. [column 1455]I know what can be done. It is not for a Minister merely to take a brief or order that is put in front of him. He must exercise his initiative, and if a matter is seen to be absurd it is his duty to put it right. It is not good enough for the hon. Gentleman to pretend that he is compelled to do this by some mystic order of Parliament or conceivably of some official. It is his business to act as a Minister.

If my hon. Friend will allow, we would like to return on Report, with the full strength of the Front Bench, to this matter. I hope that my right hon. and hon. Friends will come to that debate armed with the sort of illustrations which show the absurdity of the rigidity of the Minister and his Department in this matter. I do not suggest to my hon. Friend that he should withdraw the Amendment. We should have it negatived and allow that to stand for the moment. But we are determined that the answer of the Minister shall be exposed in all its frailty to the public and also on Report stage when we reach it. I hope that the Minister will reflect and consider between now and Report on whether he could bring a little common [column 1456]sense into the administration of a very difficult Act.

Mr. Onslow

I am grateful to my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) for his support and also for the support of my hon. Friends. I want to read a further extract from the last letter I have had from one of my constituents. He says:

My practice being mainly National Health I am used to this muddled approach to problems by bureaucracy and so not really surprised at the decision.”

I am not surprised, but I am a little disgusted. I am grateful to my right hon. Friend for his promise that we can have another go at this on another occasion.

Amendment negatived.

Schedule, as amended, agreed to.

To report Progress and ask leave to sit again.—[Mr. Iain Macleod.]

Committee report Progress; to sit again Tomorrow.