The final item of business is a members’ business debate on motion S4M-11720, in the name of Neil Findlay, on the umbrella company contracts scam. The debate will be concluded without any question being put.
Motion debated,
That the Parliament welcomes the demonstration, which was organised by the unions, UCATT and Unite, and held at the UK Parliament on 26 October 2014, to highlight what it considers the scandal of so-called umbrella company contracts; condemns what it believes is the increasing number of employment agencies that are involved in this legal tax scam; understands that such contracts allow the cost of processing wages, employers’ national insurance and holiday pay to be passed on to workers, and impacts on people working in Lothian and across Scotland; recognises what it sees as the exploitative nature of these contracts; understands that, in some cases, they have allowed employers to pay workers less than the minimum wage; notes the negative effect that it considers such arrangements have on workers’ morale and productivity, as well as a loss of tax revenues to the Treasury, and further notes the calls on the UK and Scottish governments to use their procurement strategies and their powers and influence to end bogus self-employment and to ensure that this scandal is not allowed to continue.
17:03
Nothing surprises me any more about the way in which the biggest players in the construction industry treat their workers. The lengths that some companies will go to in order to cut wages, erode conditions and increase profits at the expense of ordinary working people is a familiar story for too many construction workers. We see skilled tradesmen—brickies, sparks, joiners and so on—who work on some of the biggest construction projects in our country, building the houses, schools and hospitals that we all rely on, being systematically ripped off time and again.
The reality is that some things never change. At start of the previous century, Robert Tressell wrote about the very same practices in his classic book, “The Ragged-Trousered Philanthropists”. He wrote about how the bosses used greed, deceit, and intimidation to exploit and control building workers, how they kept wages down as profits soared, and how they used the threat of the sack and hunger to keep workers in their place. The classic scene where the great money trick is explained by Frank Owen has simply been reinvented by the construction bigwigs of today. History does indeed repeat itself.
In the 1970s, the lump labour scheme brought about the national building trade strike and then the case of the Shrewsbury pickets, who are still campaigning for justice.
We have had the blacklisting scandal. Still none of the companies has owned up, apologised or compensated their victims, yet, to this day, we are awarding them contracts such as those for the Victoria and Albert museum in Dundee, the Aberdeen bypass and the new Dumfries hospital.
We have had the exploitation of agency workers and bogus self-employment; now we have the umbrella companies scam. Steve Murphy, the general secretary of the Union of Construction, Allied Trades and Technicians—UCATT—calls the latest attack on workers’ rights
“the most devious and complex yet”.
That is some claim.
How does it work? Umbrella companies are a direct response by the companies to the United Kingdom Government’s decision to ban employment agencies from falsely claiming that construction workers were self-employed.
Companies and agencies pretended that workers were self-employed to avoid paying employers’ national insurance contributions. Lobbying by the construction unions and workers themselves forced the Government’s hand. What did the employers do? Did they pay their national insurance and accept that their scam had been rumbled and was over? Did they hell; they never do. They simply moved on to their next cunning plan: a 21st century version of the great money trick.
Employment agencies use a complex pay structure to pass on to workers the costs of employers’ national insurance and the processing of their pay. They are able to pass on those costs, which employers would normally meet, by putting an umbrella or composite company between them and the staff they recruit. By using those companies as middle men to pay workers, the agencies engineer a situation in which the amount that a construction worker receives in their pay packet is often a lot less than the rate that was agreed when he or she took the job. In some cases, people who expect £13, £14 or £15 per hour actually receive the minimum wage plus whatever amount the umbrella company sees fit to pay on top.
The agencies also encourage workers to submit bogus or exaggerated travel and food expenses claims to boost their wages and make up the money that the umbrella company takes from them. One pay slip that a worker recently passed to me shows basic pay of £277 and expenses of £389. If the worker gets caught claiming false expenses, Her Majesty’s Revenue and Customs takes them, not the agency or contractor, to task.
In this great money trick, everyone gains except the person who does the graft. The agencies gain from saving the cost of employers’ national insurance. The umbrella company gains from making a profit by charging the workers a fee for processing pay and producing a payslip that is often so bamboozling that the employee cannot fathom out what they should or should not be paid. The contractor benefits in the long term from lower staff costs.
The arrangement is spreading like wildfire throughout construction and other sectors. I attended a lobby of the Parliament by Unite, UCATT and the GMB prior to Christmas. There, I heard of workers from the Denny power station whom it had happened to. Workers on the new university accommodation that is round the corner from the Parliament building—run by the arch-blacklisters Balfour Beatty—are subject to payment via umbrella companies. I am advised by Unite that umbrella companies are being used by contractors on the Ineos site at Grangemouth and at the fabrication yard at Methil. We also suspect that they are being used on the Forth bridge contract and many others.
Of course, it is not just the workers but the Government and the taxpayer who lose out. An analysis by UCATT has revealed that the Government receives significantly less tax when a worker is employed via the scam. That is because, when an umbrella company pays a worker less than the rate that he or she agreed, there is less income tax and national insurance to pay, and the expenses that it uses to top up pay are entirely exempt from tax and national insurance. Therefore, someone who earns £500 a week via an umbrella company pays £3,800 a year less in tax and national insurance than they otherwise would have paid. There is also an impact on pension arrangements and holiday pay. On top of that, pernicious zero-hours contracting is being brought in.
What should happen? I recognise that some of this requires action at a UK level, but as always there are things that the Scottish Government should and could do. Trade unions are calling for employment agencies and other employers to be obliged to employ workers directly and not via umbrella companies. The hourly rate that is agreed between a worker and an employer, including an employment agency, should be the rate that the worker is paid. There should be a legal duty to make payment arrangements transparent and easy for the worker to understand. It should be obligatory for employers to reimburse travel and other expenses in addition to a worker’s hourly rate, and holiday pay should never be rolled up into a worker’s weekly pay. All forms of bogus self-employment should be abolished.
A lot of that could be achieved via public procurement guidance and in tender specification and scoring, but that requires political will. Only last week, writing in the Morning Star, Richard Leonard of the GMB exposed the Government’s duplicity on blacklisting at the V&A in Dundee. On Friday, we heard that the Government has delayed the procurement guidance on the living wage until after the general election. It does not have a good record on these issues.
I welcome the offer from the cabinet secretary, Roseanna Cunningham, of a meeting on the issue and I thank her for that, but I hope that, 104 years after Tressell’s death, we can get some action to end such Victorian practices.
17:11
I thank Neil Findlay for bringing the issue to the chamber. I was delighted to sign the motion to allow it to come here. I have to thank a few people before I get to the body of my speech, because for the past couple of years there have been three men in my life, from a trade union point of view, who have helped to inform me—and keep the Parliament informed—of some of the things that have been going on in the construction industry. Stewart Hume, Neil Milligan and Greig McArthur, who are with us today in the gallery, have been immensely helpful to me in ensuring that I understand the issues that they are experiencing.
One of the clearest things about any scam is that there is an in-built cycle—with a sales pitch, a recipient and an unchallengeable deal that costs money—that is essential to making it work. That is why most get blown out fairly rapidly. Once people are aware, they are empowered to avoid it. I hope that the fact that this seedy business is under discussion today is achieving just that awareness. I hope that, equipped with knowledge that they may not have at the moment, workers across the construction industry trades will have the collective power, through their union, to say no.
Colleagues have already explained how umbrella companies work for employers and agencies while they fail for workers. If members have ever set their eyes on a payslip that has been run through this deliberately confusing system, they will know why so many people are baffled about why they are suddenly receiving anything up to a third less money at the end of the week.
Many workers do not realise that they have signed up to pay their employer’s national insurance contributions, lose their holiday pay and pension rights and perhaps also be subject to a weekly fee of about £30 for the payroll company. Such deductions come via employment agencies that are engaged in this practice. Not only does the agency not pay the employer’s national insurance contributions, it gains that additional fee. Contractors benefit because they get experienced workers for reduced labour costs.
That dissembling is intentional, of course. Normal payslips show deductions and their purposes clearly. On umbrella company payslips, there is no itemisation of the deductions. Workers just see a lower final amount than they expected.
Then there is another complicated layer involving expenses. We heard about that from Neil Findlay. Workers have been told that they can make up the balance of their normal pay by claiming expenses such as travel and subsistence. The impact that that has on pension contributions is immense, so it is not just an issue for workers’ weekly payslips; it is also an issue for when they eventually retire. Many people who are on contract—as we heard, many construction workers are employed on short-term contracts—are already entitled to claim travel and subsistence, so it really is part of the scam.
Expenses payments are tax free because they are reimbursements. Umbrella companies provide a legal opportunity to top up low wages with that mechanism. For those who do not have any travel or subsistence costs, the wage will stay at the low end of the scale. Many, or perhaps most, are coerced into accepting these new arrangements. They are really being told, “Take it or leave it,” and, as most workers cannot afford to leave it, they have to take it.
The deductions that are suddenly introduced offer no benefit to the worker; instead, they benefit only the employers, who no longer have to pay their portion of national insurance contributions. They might also add in a fee, and they will potentially manage to avoid taxation on a massive scale. Indeed, I know that many of my colleagues in this place already do not agree with some of the companies that avoid tax.
There are losers above and beyond the workers themselves. For a start, there are lower tax revenues for the Treasury, and the NHS loses out, too, because unpaid national insurance contributions mean less for hospitals, nurses and doctors.
I accept that some of these issues lie with the UK Government, but does the member not accept that if we in this Parliament had the political will, we could agree to amend the procurement legislation or the procurement guidance to wipe out some of this at that stage in all public procurement?
If Mr Findlay was up to the minute with his information, he would know about the consultation that is with the Scottish Trades Union Congress right now. Perhaps he should go and talk to his pals in the Labour Party who are involved in that process.
Will the member give way?
I am nearly finished.
The fact that this is all entirely legal does not seem to be bothering HMRC in the least. The best that it can manage is to say that it might update the guidelines so that workers better understand what they are getting into. However, the skilled tradespeople who work on construction sites do not normally have the luxury of being able to say, “No, thanks—I won't bother taking the job.”
Yet again, this is a clear example of how Westminster control leaves us in Scotland helpless to act on behalf of the workers who are victims of abuse. We need power over employment rights, not a submission to the Smith commission from the Labour Party while it was helping its wee Tory pals. We need to kill this practice before it takes official hold and becomes normal, acceptable working practice rather than an abhorrent scam.
Could you draw to a close, please?
People in employment expect and deserve decent and fair treatment, and Governments are obliged to ensure that such obligations are enshrined in law and delivered in practice. Unite has made very clear its opposition to this abusive system and has clearly set out the ways in which it needs to be addressed. The UK Government must play by the rules and honour its responsibilities towards working people and those working men up in that gallery today.
Nation, not class.
Order.
17:17
I congratulate Neil Findlay on securing this important debate. The umbrella company scam has been ignored for too long, and I hope that today we can send out the message that we in Scotland do not accept this type of exploitation and abuse.
I take this opportunity to commend everyone who has worked so hard to push this issue on to the political agenda, particularly the trade unions UCATT and Unite, whose representatives I was pleased to meet outside the Parliament earlier. UCATT has produced an eye-opening report called “The Umbrella Company Con-Trick”, which outlines the scale of the problem and its impact on workers and shines a light into the dark and murky world of the umbrella companies that have boomed in the past year. Indeed, a recent episode of “Dispatches” estimated that 200,000 workers across the UK are currently being paid via umbrella companies, and many of them are working on Britain’s biggest public construction projects.
As a result of this scam, a worker has to pay not only their own national insurance contributions but the cost of processing their wages and their employer’s national insurance contributions, too. Trade unions have estimated that payment via an umbrella company is costing construction workers as much as £120 a week and, as Neil Findlay has pointed out, costing the Treasury £3,800 a year in lost revenue for an average worker.
These scams not only hit workers hard in their pockets but undermine collective national agreements and make it difficult for unions to organise and stand up for their members’ rights at work. As Christina McKelvie has made clear, workers who refuse to accept the conditions are treated with contempt and simply do not get the work. To add insult to injury, thousands of these highly skilled workers are now officially being paid only the minimum wage rather than the rate for the job and are forced to rely on expenses and performance pay to top up their wages.
Of course, it is not just wages that are hit; workers are also losing out on pension entitlement and holiday pay. Payslips are often so complicated that is difficult for any worker to understand how their pay has been calculated. The amount that they get paid is often a lot less than the rate that was agreed. In fact, many workers are losing out on hundreds of pounds every month. Zero-hours contracts are fast becoming the norm and, for many workers, job security has gone out the window. Many are being left with no idea how many hours they will be working or how much money they will be bringing home from one week to the next, with the result that thousands of highly skilled and valued construction workers are left feeling exploited, undervalued and demoralised.
There is no doubt that the use of these contracts is unfair and exploitative. They are being used by unscrupulous employers to maximize their profits and to evade their taxes and employer responsibilities. Workers up and down Scotland and across the UK are paying the price.
What we are seeing might only be the tip of the iceberg. Indeed, in some areas it has become impossible for workers to find jobs where their pay is not through an umbrella company. Given the opportunity that the scams present to legally cut workers’ pay and employment costs and boost profits, unless we take action to crack down on the abuse there is every chance that the umbrella companies will spiral and spread to other sectors of the economy, too. It will be a race to the bottom in which every worker will lose.
It does not have to be like this. In Wales, the Labour Government is acting to outlaw the use of umbrella companies on its construction projects. That is a step in the right direction and I hope that, today, the minister will take the opportunity to say that Scotland will follow Wales’s lead.
Last year, the Scottish National Party voted against Scottish Labour’s plans to ban umbrella companies from winning public sector contracts. I hope that the minister will think again and commit to using the Scottish Government’s procurement powers to ban the use of such contracts in all public sector contracts.
Workers on umbrella contracts cannot afford to wait any longer. They deserve better than inaction from the Scottish and UK Governments. Paying workers through an umbrella company is unfair, unjust and unacceptable. The Scottish Government has the opportunity to show which side it is on and to end the misery that workers are facing. It has the opportunity to act now, as Wales has done, to end the scandal of umbrella companies and ensure that no company that is involved in these dodgy practices is engaged on any public contract in Scotland.
17:21
I thank Neil Findlay for bringing the issue before Parliament. I will not attempt to repeat anything that has been said, but I hope that I will set out a clear position from this side of the chamber that indicates the level to which we support the view that was put forward.
As Neil Findlay pointed out, there is in fact nothing new under the sun here—the schemes that are being described in the debate have had their counterparts in previous times and legislation has been required to cut out such practices. However, the whole notion of the bogus self-employment racket has caused a great deal of concern across our labour force for a long time. It is interesting that the attempts to remove the loophole have resulted in another opportunity for the contract scam to make an appearance.
Companies that are in difficult positions are often faced with options to do inappropriate things, but are driven to do so perhaps by the structure that exists. In the broader sense, although the Government has been working for some time to reduce tax thresholds, the fact that national insurance remains as it was before has caused unacceptable decisions to be made. Perhaps it would be appropriate, if in the future we look at cutting the tax of the lower paid, that we consider exemption from national insurance contributions as a potential option to cut the temptation.
I plead with Mr Johnstone—I appeal to his better nature—that we do not make excuses for the companies. What is going on is outrageous. We are talking about some of the most profitable companies that we will ever find in the construction world. Let us condemn as wrong what they are doing and stop making excuses for them.
I fully agree. I was about to make it clear that I am not prepared to make excuses for the companies.
We have seen major companies in this country involved previously in things that have damaged their reputation. I have discussed blacklisting with Neil Findlay on more than one occasion, and we have considered how that might be dealt with. I like to think that the blacklisting issue might be behind the issue that we are debating, although the consequences are not. I am surprised to discover that some of the same companies, or certainly companies that are in a similar position, once they are offered the opportunity to do something equally as dubious, seem only too happy to become involved in it.
This is a complex issue that we all need to understand. The concept of self-employment is not the problem. I was self-employed from the moment that I left full-time education to the moment that I became a member of this Parliament. It must be said that self-employment has a role to play. That role is complex, but it is not in the area that has been described here.
It is vital that each and every one of us does all that we can to name and shame the companies that are involved, to make it clear that the practice is unacceptable and, whatever our position, to ensure that the practice is wiped out. In this day and age, it is only fair that a skilled man should get a fair day’s wage for a fair day’s work. If anything steps in the way of that, it is up to us all—regardless of our political position or our economic opinions—to say that the use of umbrella company contracts is wrong and should be ended now.
17:25
I, too, thank Neil Findlay for bringing this important issue to the chamber for debate.
Umbrella companies have been in existence since 2000. At the time, they mainly represented freelance workers who had fixed-term contracts. The problem is what such companies are now being used for.
In April 2014, the UK Government passed legislation to crack down on false self-employment. Some employment agencies were pretending that workers were self-employed in order to avoid paying employers’ national insurance. The UCATT report “The Umbrella Company Con-Trick” highlights that, in order to get round that legislation, in the spring of 2014 many construction workers
“were moved en bloc onto umbrella company contracts.”
That has resulted in the shameful situation of workers having to agree to zero-hours contracts, to pay employees’ and employers’ national insurance contributions and admin fees, to lose out on pension contributions and to face potential cuts in their holiday pay.
The GMB has called on the UK Government to step in to deal with tax avoidance abuse and scams, which it says are costing workers income and the Exchequer much-needed revenues. It also highlights that workers are having their salaries slashed as a result of those extra costs, but that
“Pay is then partially re-boosted through scams using expenses, performance related pay and other methods.”
That situation could have been avoided. More than six years ago, HMRC investigated umbrella companies and produced a report detailing a number of issues, including invalid dispensations, ineffective overarching employment contracts, potentially illegal deductions and unlawful management processes. Other problems that were identified included non-compliance with dispensations, tax-free expense payments and national minimum wage breaches.
The 2008 HM Treasury pre-budget report reported on the consultation on the use of travel expenses in conjunction with being employed via umbrella companies. The document questioned the validity and fairness of allowing business expenses in that form and suggested that an overarching employment contract was not a form of employment that allowed travel and subsistence expenses.
It was reported in November 2008 that the then Labour Chancellor of the Exchequer
“Alistair Darling was last night tipped to define an ‘umbrella company’ in Monday's Pre-Budget Report to help close a tax loophole they use to deprive the Exchequer of £300 million.”
When the announcement came, the outcome was that
“the Government has decided to leave the current rules unchanged.”
Therefore, a problem was identified back in 2008 and the then Labour UK Government failed to act.
Will the member take an intervention?
No, thank you—Neil Findlay has said enough.
However, workers who are caught up in the situation are not interested in who is to blame; they are interested only in who will act on their behalf to remove the loopholes and resolve their pay issues. Successive UK Labour and Tory Governments have failed to tackle the issues surrounding umbrella companies, so maybe it is time that the Scottish Parliament had the opportunity to do so. The difficulty is that employment law is reserved to Westminster.
In its submission to the Smith commission, under the heading, “A better labour market and workplace protection”, the STUC recommended
“The devolution of employment law, health and safety, trade union law and the minimum wage”.
The STUC went on to say:
“The default position under the current constitutional settlement has been for primary legislation on equalities, employment law, health and safety, trade union regulation and minimum wages to be reserved to Westminster ... Whilst this division of powers exists between Holyrood and Westminster, it is not the case across the whole of the UK. In Northern Ireland all of the legislation listed above is devolved to the Northern Ireland Assembly.”
Will the member give way?
No, thank you.
It is unfortunate that the proposal to devolve employment law was blocked by the Labour Party.
The UK parties have done nothing to tackle umbrella company contracts, Holyrood is barred from tackling the issue and workers are caught up in a situation that needs to be resolved urgently. The difficulty is that the people who could have done something have done nothing.
17:30
I welcome the union representatives who I understand are in the public gallery watching the debate. I am sorry that I was not able to come out to meet them outside the Parliament today; I was in a meeting with the cabinet secretary and some Unite members, further to a meeting that had been arranged at the request of Christina McKelvie MSP.
We discussed a number of workforce issues, including umbrella contracts, and we heard about the unacceptable and abusive practices that are going on in the construction industry and other sectors. In particular, we heard about problems of compulsion, workers being denuded of their rights, and workers receiving reduced pay and worse conditions. I therefore thank Mr Findlay for bringing this important members’ business debate to the Parliament.
The UK Government has pursued a programme that has resulted in the slow dismantling of employee rights that have been built up over many decades. To cap it all, the advances in employee rights legislation in recent years have been undermined by the introduction of significant fees for employment tribunals, which in effect have priced workers out of justice.
I want to pick up on some points that were made in the debate, for clarification. I think that it was Cara Hilton who mentioned the situation in Wales. Scottish Government officials have been speaking to their counterparts in Wales and have tried to obtain a copy of the draft guidance on procurement policy on which the Welsh Assembly Government is working, but people were not keen to give us a copy. I understand that the statement that the Welsh Minister for Economy, Science and Transport made the other week might shortly be subject to clarification in relation to the powers that the Welsh Assembly Government has to do what the minister wants to do.
The Scottish Government is taking action on workforce matters, against a backdrop in which power over employment law still lies with the Westminster Government, as members said. We are committed to pursuing the fair work agenda, and in the months to come the fair work convention will be established, further to the publication of the report, “Working Together Review: Progressive Workplace Policies in Scotland”.
I have never disputed that many of the issues lie with the UK Government. That is accepted. What I dispute is that the Scottish Government can do nothing. The Scottish Government can do plenty to prevent many of the issues that we have been talking about, if it has the political will to change procurement guidance and contract tendering. Will the minister do that or not?
I listened to Mr Findlay, and I know that his heart probably lies somewhere else on the constitutional aspect of the issue that we are debating, but the fact of the matter is that the party that he represents in the Scottish Parliament does not seek for the Parliament to have the powers to deal with the important issues under discussion. If we had those powers, their impact would benefit workers in Scotland.
Will the minister give way?
No. I am sorry, but I have only seven minutes.
Mr Findlay would prefer to have the important powers over employee rights and pay and conditions to be determined even by a Tory Government at Westminster rather than by the democratically elected Scottish Parliament. Mr Findlay’s problem is that in every debate of this kind he has to try to square a circle that just cannot be squared.
In terms of the action that the Scottish Government is taking within the powers that we do have, we will be setting up the fair work convention. Members may be interested to note that we are currently finalising the membership and the remit of the convention, in which employers and unions will work together to promote progressive workforce policies and, of course, the living wage.
We will also introduce the Scottish business pledge, which the First Minister confirmed as part of the Scottish Government’s programme for government and which at its heart is a partnership or compact. The Government will indicate its support for a strong and competitive economy so that Government and employers together are able to support a fairer, more prosperous Scotland. In return for support from the Scottish Government and its agencies, such as Scottish Enterprise and Highlands and Islands Enterprise, we want companies to commit to the Scottish approach by, for example, paying the living wage, by not using the unacceptable zero-hours contracts and umbrella contracts, and by implementing other progressive workforce policies.
On procurement, which has been mentioned in the debate, it is clear that the key problem, as I said only a couple of weeks ago in a members’ business debate that Mr Findlay took part in, is that we do not have the power to set the minimum wage rate. If we did have that power, which the Scottish Government sought for this Parliament through the Smith commission process, we would not have to approach the issue on a denuded basis in terms of what we can do on guidance on the procurement front. On that issue, I think that Mr Findlay suggested that we had not published guidance or that there had been some delay in it. I do not know whether he is aware that there is guidance on the Government’s website in the form of a Scottish procurement policy note that deals with workforce issues, including umbrella contracts. I recommend that he have a read of that.
We are determined to continue to do what we can, using the powers that we have, to ensure that workers have the rights that they are entitled to expect in the 21st century. However, with our hands tied behind our backs, we do not have the employment law powers that, as we heard from Gordon MacDonald, even Northern Ireland does, although we would really like those powers. Notwithstanding the publication of the vow plus, if we can call it that—I do not know what it is called or what the Labour Party was up to the other day—the Labour Party does not support the devolution of powers over employment policies. Not even in the vow plus did Labour call for that. The Labour Party needs to have a long, hard look at where it is going in terms of seeking to protect the rights of workers in Scotland.
We are clear that we want to have the power to protect workers’ rights. I suspect that, in the months ahead, the people of Scotland will be considering these matters very carefully as we approach the Westminster elections in May.
Meeting closed at 17:38.Previous
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