COMMITTEE of PUBLIC ACCOUNTS debate -
Thursday, 20 Jul 2000

Vol. 2 No. 22

Annual Report of the Comptroller and Auditor General and Appropriation Accounts.

Vote 9 - Office of the Revenue Commissioners (Resumed).

Mr. D. Quigley (Chairman) called and further examined.

Chairman

We will move on to today's schedule which is the 1998 Annual Report of the Comptroller Auditor General and Appropriation Accounts, Vote 9 - Office of the Revenue Commissioners (resumed). We are here to deal with one aspect of the report, that is, the phenomenon of subcontractors in the construction industry.

Apart from Revenue, we have representatives from the Department of Social, Community and Family Affairs, the Irish Congress of Trade Unions and the Construction Industry Federation. Witnesses' attention is drawn to the fact that, as and from 2 August 1998, section 10 of the Committees of the Houses of the Oireachtas (Compellability, Privileges and Immunities of Witnesses) Act, 1997, grants certain rights to persons who are identified in the course of the committee's proceedings.

I welcome the Accounting Officer of the Revenue Commissioners, Mr. Dermot Quigley, Chairman. Mr. Quigley, I am sorry to divert you from your other important tasks again today but this is an important issue for the committee. Will you introduce the officials accompanying you?

Mr. Quigley

I am accompanied on this occasion by Mr. John Shine, who is the senior inspector of taxes in the income tax technical services area of the chief inspector's office, and by Mr. Paddy O'Shaughnessy who is, as you know, the liaison officer for the Comptroller and Auditor General and the Committee of Public Accounts.

Chairman

I welcome Mr. Edmond Sullivan, Secretary General of the Department of Social, Community and Family Affairs, who has come at short notice because of an oversight. Thank you very much, Secretary General. You are accompanied by Mr. Hynes, director general. You are both welcome.

We are joined by Mr. Fergus Whelan, Mr. Paddy O'Shaughnessy, Mr. Eric Fleming and Mr. Niall Irwin from the Irish Congress of Trade Unions, who are all welcome. From the Construction Industry Federation, we are joined by Mr. Liam Kelleher, director general. Perhaps he might introduce his colleagues.

Mr. Kelleher

Chairman, I am joined by my colleagues, George Hennessy, director of the federation, and Terry McEvoy, director of the federation.

Chairman

We are also joined by Mr. Vincent Palmer from the Department of Finance who is welcome. I will ask the Comptroller and Auditor General to summarise the issues before us today and to refresh the committee's memory on the issue.

Mr. Purcell

Thank you, Chairman. As you said, the committee, at its meeting on 4 May last when examining the Revenue section of my annual report, indicated that it would return to a matter referred to in paragraph 10 of that report, that is, the special programme of field visits carried out largely in 1998. I think they began in October 1997 but most of them were carried out in 1998 for the purpose of checking whether people registered as self-employed subcontractors, particularly in the building industry, were correctly registered and whether they should be paying tax and PRSI through the normal PAYE system.

During the course of that programme, we heard that the tax registration status of over 63,000 subcontractors was reviewed with the result that over 12,000 were reclassified as employees who should have been paying PAYE and PRSI instead of what is called a relevant contract tax, that is, the 35% deduction made from payments by contractors to subcontractors. That would normally be deducted in that way.

This was a much needed exercise on the part of Revenue and if one was to be overly critical, one might say it was long overdue. I am sure the Department of Social, Community and Family Affairs would have had a concern about the situation. Apart from the loss of income to the social insurance fund and the lack of payment of PAYE, employers and employees PRSI was not being paid. Of course, there would have been a corresponding deficiency in the income of the social insurance fund. Apart from all of that, at a social and health level, the lack of insurance cover for injuries for a large number of workers who were incorrectly employed as subcontractors would also have been a matter of concern. In a nutshell, that is the position as I understand.

Chairman

I intend to proceed as follows: I will call Mr. Quigley, Mr. Sullivan, a representative of congress and a representative of CIF to make brief opening statements and then we will have questions.

Mr. Quigley

Thank you, Chairman. I made a statement on this in response to the questions I was asked at the previous meeting of the committee on 4 May. There is a long history, of course, about taxation and the construction industry and I will not try your patience by going over that history. However, it is fair to say there was a concern throughout the 1960s and 1970s about the construction industry. Indeed, the sub-contracting tax - that tax has a separate deduction system - was introduced in 1970 as part of the effort to deal with that situation. It introduced a fairly crude system of deduction at 35% of, in a sense, the gross payments to uncertified subcontractors. These would be people who did not have the tax clearance, no C2 in the case of the subcontracting system. That rate was the standard rate of tax at the time. Despite significant reductions in the standard rate of tax in the intervening period down to 22% now, that rate of deduction of 35% in respect of payments to uncertified subcontractors has been maintained so as to try to protect the interests of the Exchequer in this situation where there were concerns about the industry.

Moving forward to the 1990s, those concerns were there. There was discussion in the early 1990s in the black economy monitoring group, as it was called. We, of course, in Revenue participate with our colleagues in the Department of Social, Community and Family Affairs and with the trade unions and employers. I value and appreciate the effort they put into the work of that group. We are concerned how we can ensure for the future that the group is active and effective.

There was a concern at the time about this phenomenon. Were people clear about the position? Were they an employee or a subcontractor? It is not an issue that is absolutely clearcut. In fact, this issue of contract of service, or contract for service - contract of service connoting employment and contract for service connoting a self-employment situation - is one of the most litigated issues in taxation law. There is a whole body of case law in the UK and Ireland. Recent cases, both at the appeals commissioners and in the courts, have established what is an employment situation, when is one a worker or when is one self-employed.

On foot of concerns in the black economy monitoring group, Revenue produced a leaflet in 1995 or 1996 which tried to set out in simple terms the tests which should be applied by the potential principal contractor and the subcontractor in deciding whether there was a subcontracting or employment situation. We introduced a system under which a joint declaration would have to be made by the two parties saying that they had read the Revenue guidelines and that they had satisfied themselves that it was a subcontracting situation. We publicised it widely and it was well received. The guidelines applying there are the same as those operated by the Department of Social, Community and Family Affairs. It is a joint set of guidelines because in neither case in our governing legislation - in tax law or in social welfare law - is employment defined because it is a contentious issue.

To be fair to the trade unions, it must be said that following the issue of those guidelines, some time in 1997, the trade unions expressed concern. There was a public campaign in Dublin where people said they were being forced to be subcontractors rather than employees. Revenue met with the trade unions at the time and decided on the basis of that to launch the programme of nationwide visits to construction sites, which has been described by the Comptroller and Auditor General and which has been summarised in his report for 1998. We discussed it in evidence at the last meeting.

Briefly, that programme involved visits to 6,200 principal contractors. It meant looking at the employment status of over 63,000 subcontractors. As a result of that, Revenue queried and had reclassification undertaken, formally writing to the employers or the principal contractors to undertake it in respect of 12,000 workers who, as a result, we reclassified as employees. This was a very significant commitment of auditors' resources. They were not full audits. They could not be because at the time we did a nationwide blitz to try and tidy up the situation. We put approximately 40 auditors on this work for a period. As has been indicated, most of the work was done in the course of 1998.

Since then, we have kept an eye on the construction industry. Our annual audit programme, or full audit programme, would include an element of audits of the industry. We would have obtained approximately £15 million out of the audit of the industry in 1999. Some of the audit we would do would be specifically relevant contracts' tax audits, the system of deduction we are concerned with. Others would be joint audits, where we audit what we call the fiduciary taxes, that is, the taxes collected on behalf of the State and on behalf of workers - the VAT, PAYE and the relevant contracts tax. Our auditors would do a joint audit of those. On foot of the reclassification requests made in 1998, we also visited a number of employers who did not seem to be fully convinced and we eventually secured their agreement to reclassifying some workers, who were part of that 12,000, as employees.

It is a contentious issue. There are various factors at work. The unions would have concerns about people being subcontractors rather than employees. The State would have concerns about the protection of the tax and the PRSI. There is also the question of the benefits and entitlements of workers, which are different from those that go with the self-employed subcontracting situation. If workers are having PRSI paid in respect of them at the class A rate they are entitled to a range of benefits. This is a very serious and significant issue for them and for the State.

On the other side of that, if somebody is classified as a subcontractor and there is no employer's PRSI at the rate of 12%, they would not have entitlement to those benefits and the State, in theory and in principle, might save expenditure on that side. However, there is an exposure for the State, the workers and the industry generally.

Trying to be objective about this, I said it was not a black and white situation. It is quite complex. It is not the job of Revenue, and I would not assume it, to try to direct categorisation or status in an industry. There has been a history of subcontracting in the building industry. It is part of the commercial viability of the industry. Not only that, but within industry in Ireland and internationally, there is now a fragmentation of the firm as we knew it and there is much more contracting out of particular jobs or part of jobs. Many more people are also encouraged by the State to be entrepreneurial, to set up businesses in their own right.

Revenue does not regard itself as an arbiter of the correct classification in all of these cases and we would not try to force that. However, on the other hand, we are concerned, and have implemented these guidelines, to bring clarity to the situation and to introduce a conscious decision by the two parties to the contract that this is either an employment or a subcontracting situation. If it is a subcontracting situation, subcontractors have two options. They can apply for the C2 tax clearance, in which case over the preceding three years they must have their tax affairs in order and we give a C2. If they get the C2 they get their payments gross, that is, without deduction of the 35%. They are then responsible, like every other self-employed person in the State, to make their returns to Revenue. They are on our books because they applied for a tax clearance certificate, but they must make their return and pay their tax.

If they take the other route and they are uncertified they suffer the 35% rate and Revenue has that money. On the figures I have seen, Revenue would have collected in 1999 gross approximately £200 million in tax through the crude deduction of 35%. We then dole that money back out in the sense that somebody is entitled to a refund if their affairs are in order or if there is VAT or PAYE which is owing, we can offset those payments against VAT or PAYE owing. The result is that at the end of the year you get down to a net figure which is the net receipt of RCT. In 1998 that would have been——

Chairman

What does RCT mean?

Mr. Quigley

Relevant contracts tax which is a system - perhaps I should have explained it more clearly earlier - we are focusing here on the construction industry but it applies also to the meat processing industry and to certain parts of the forestry industry. It is known as the relevant contracts tax and it was previously known colloquially as the C45, the subcontracting system but it has broadened out now in its application. We collect this amount of money gross, we offset then and, as I was saying, in 1998 we ended up with a net receipt of £80 million; in 1999 I think the net receipt was about £26 million. So there is money there which, in principle, should be offset against income charge but does not. You have to ask why the person is not prepared to make an approach to Revenue.

In some cases that might be an overpayment because 35% is a very crude amount, a high rate of tax off what is effectively the total turnover of the business. It must be borne in mind that the payments made by the principal contractor in this situation will cover VAT and expenses that had to paid out by the subcontractor but we are not allowing for any of that. Our system goes in and takes 35% off the top. It is quite a crude system and it is not clear-cut that in all cases the amount that is deducted would not be sufficient to meet the tax and PRSI obligations of the State. However, having got an overall figure and an overall assessment, a cost benefit analysis of the pluses and minuses, benefits or no benefits, tax and PRSI which go into this situation would be quite difficult to do.

Deputy Rabbitte

Is the £200 million figure the gross sum?

Mr. Quigley

The £200 million was the gross figure, it is £196 million, I think. Then we paid out roughly £170 million, I think, in either repayments or offsets.

To conclude, Chairman, I would say that there is an issue here all the time. We put in place a system under which we would have arrangements, specific telephone numbers and so on, for the industry or the trade unions to tell us about doubtful situations. We did not get a huge number, in fact we got quite a small number of calls as a result of those arrangements but in our own audits each year we are going back and the cases which we had a doubt about whether they would make the adjustment, we have factored those into the ongoing annual audit programme.

I have to say since we discussed this at this committee in May, we have had a meeting more recently, towards the end of June, with representatives of the trade unions who sought the meeting. The representatives at that meeting expressed concern that the situation in fact has reverted somewhat and that some of the adjustments that had been made in the classifications might have been undone or that there was a new pressure on workers in certain cases to accept a subcontracting classification instead of an employee employment situation. That has happened and we are considering that. The trade unions looked to Revenue again to say, "well, what will Revenue do about this?". Of course, we have an obligation, not necessarily for all or for precisely the same reasons that the trade unions are putting this, but we have a common interest in dealing with tax evasion or PRSI avoidance. We will certainly be looking positively at mounting another operation in this area, which we will have to do.

This time around - we did what we did in 1998 to try and get widespread coverage around the country - we would try to focus and maybe do a more intensive audit. We will, in principle, be tougher where we find repeat offences in the sense of the repetition of wrong classifications. We have in mind to consider how we would do this. I say that while emphasising that I do not regard this as a clear-cut, black and white situation in all instances. Even if Revenue takes a view, that view could well be appealed to the Appeals Commissioner or the courts. It could be challenged, as it has been in the UK and Ireland. Certain rulings have been given already which we would have to take into account.

I also would say that in doing these audits, we would have to take account of the realities of the construction industry for the companies involved, where subcontracting is a major issue and a major way of doing business, not only in Ireland but abroad. We have to be balanced in this. Nonetheless, in view of what the trade unions said to us in June, I think we will have no alternative but to undertake a further operation, possibly more intensive. I hope I have not gone on too long but that is the background as I see it.

Chairman

I have allowed you a certain latitude but I do not think I will be so liberal with the next speakers. One thing you did not mention was the possibility of social welfare abuse so perhaps we can hear from the Secretary General from the Department of Social, Community and Family Affairs on his concerns in this respect.

Mr. Sullivan

I think the Chairman of the Revenue Commissioners has given a comprehensive review of the issues, including the number on the social welfare side which I will touch upon very briefly. Our concern here is clearly in relation to people's entitlement to social welfare benefits. As the Chairman said, the whole issue turns on whether a person is employed or self-employed, whether they are employed on a contract of service or a contract for service. If a person is employed, their PRSI is the class A rate which gives coverage for all the short-term and long-term benefits whereas somebody who is self-employed is paid the class S rate which essentially gives them coverage just for pension purposes. There is a big difference in terms of the coverage for social insurance purposes between a person classed as employed or self-employed.

The issue of contract of service and for service is one that has been dealt with for a number of years and it is not clear-cut at all. I know there is a lot of case law on the whole issue. We work very closely with the Revenue Commissioners in this whole area. As the Chairman of the Revenue Commissioners has indicated, we produced a guide for tax and social insurance purposes in this whole area which sets out a number of factors that are taken into account for people if they have to decide whether they are an employee or are self-employed. We have common criteria and guidelines between ourselves and the Revenue. Prior to this, it was not quite as clear-cut as that but this has actually helped standardise. That has been in place for the last number of years. If my information is right, the guidelines were published in 1998. I think that has helped the situation a lot. That would basically be our concern in relation to this whole issue.

In relation to the abuse issue which the Chairman mentioned, we would have a programme of employer inspections that we carry out each year. We try to dovetail that as best we can with Revenue. We do not want to be overlapping or duplicating what the Revenue inspectors are doing. Our concern would be somewhat different from that of the Revenue in terms of any investigations of employers. We are anxious to ensure that employers are operating the PRSI correctly, that they are recording the details correctly, because it is the detail that is important in terms of the eventual returns that come to us, in determining ultimate entitlements to benefits. There is a certain number of documents that are prescribed that have to be held on site for subcontractors. We try to make sure they are available as well. We also have joint operations with Revenue in particular enterprises we want to look at jointly. There is a high level of co-operation between what we do and what the Revenue do. That is it in a nutshell, Chairman. If there is anything more, I am happy to take any questions.

Mr. Whelan

There is something very strange in the construction industry. Construction companies - almost uniquely, it does not happen in other sorts of enterprises - are very reluctant to employ people. They sub-contract whatever and whenever they can, and many workers are either coerced or conned into pretending not to be employees. There are also some unscrupulous workers who are pretending to be employers or self-employed to minimise their tax liability. There are more individuals claiming to be employers and self-employed in the construction industry than there are employees. There are less than 40,000 employees in the construction operatives pension scheme. That scheme is mandatory for all employees.

We cannot conclude from that there are only 40,000 employees. There would be probably, in our view, at the moment, about 60,000. About 20,000 more should be in the pension scheme but, for one reason or another, their employers have decided to ignore their statutory obligation and not put them into it. The point is that the Revenue Commissioners have issued in 1999, for example, 28,000 C2s. They have not said how many RCT1s or C45s they have issued, but we believe and we have good reason to believe that it is of the order of about 50,000. What we are talking about is 80,000 people in the industry claiming to be either employers or self-employed.

I would like to make it clear that we in the unions have no problem with employers, big or small, or people who are genuinely self-employed operating in the construction industry. We have a big problem when bogus sub-contractors and bogus employers undercut compliant employers and employees who pay their tax liability in full and who honour the registered agreement and the pension scheme and so on. That is why we embarked on our campaign against the abuse of the C45 system in the late 1990s.

It was suggested to your committee, Chairman, on the previous occasion that we were concerned about aspects that have no direct relevance to Revenue such as membership of the union. I want to make it clear that membership of the union has no relevance in relation to this. There are plenty of unscrupulous employers who have designated their employees on C45 or RCT1 who would be only too happy to have them in the union and pay their union subscriptions if we would go away and not show up the abuse. Our motives for raising the question were very broad and far-reaching and should be relevant to Revenue and all other agents of the State.

We understand that the Revenue Commissioners view their job as simply the collection of taxes. However, we believe that all agents of the State have a responsibility to ensure that they administer their systems in a fashion which underpins rather than the undermines important aspects of public policy such as labour law protection and the protections in the social welfare code.

For building workers their status as employees has a vital importance. Social welfare entitlements, sick pay, pension, holiday pay, job security, safety at work and much more can be sacrificed when workers are coerced or conned into pretending to be self-employed. While in theory sub-contractors are covered by safety legislation, the fragmentation of site management resulting from the proliferation of sub-contractors makes safety management on site extremely difficult.

The status of self-employment is sometimes imposed on workers against their will. Sometimes it is sold to them on the basis of the tax advantages that those with self-employed status enjoy over the PAYE worker. While those advantages are real as far as the tax system is concerned, the worker is often being conned because of the loss of down-the-line benefits such as holiday pay, pension and other entitlements and protections already mentioned.

We in the unions confront this con head on wherever we meet it and we usually succeed in restoring the designation of employee to the workers concerned. Revenue practices and procedures for the issuing of C2 and RCT1 forms are not helping. For instance, Revenue has printed and distributed 81,000 RCT1 forms so far this year. There is no control over who gets these forms. Revenue has little concern about who is handed the forms. When workers are presented with the form and ask to sign it, they see that it has been issued by Revenue and many of them think it must be fine. The changes we suggested to the format of the form have helped, but we know of many cases where workers were put on RCT1s without even their signature. We dealt with these matters as they arose.

The very looseness of the system encourages abuse. It is our perception that it is now much easier to get a C2 than it used to be. Revenue issued more than 28,000 RCT1s in 1999. We would like to see a year by year table for the last three years, for we strongly believe that that will show not that there are many more employers but that the system is getting looser. A plasterer would have trouble getting a C2 in the past because usually he would not be supplying materials and would not have plant and equipment. Now it is apparently not as difficult as it once was, yet the criteria are supposed to have remained the same.

There is a perception on our side that different regions of Revenue have varying degrees of rigour when deciding who is and who is not a genuine employer. We understand that it is a self-assessment system but there should be some level of control at the point of issue of these forms and some follow-on or audit to detect abuse. The high level of mis-designation detected in the 1997-98 campaign suggests to us that self-assessment is not appropriate for dealing with RCT1s The applicant should be required to prove his self-employed status rather than just claiming it. Even when an audit takes place it will usually be done by the same people who issue C2s in the first place, so it is doubtful that inconsistent application of the C2 criteria will be detected.

The 1997-98 campaign by the Revenue Commissioners was a most welcome if belated development. It succeeded in uncovering 12,000 cases of employees mis-designated as self-employed at the time. Until 1997-98 we in the unions were the only people who were at all concerned at this wholesale abuse of the system. By publishing the guidelines in the IT25 form, Revenue have provided the trade unions with an invaluable tool in tackling the tendency toward mis-designation which seem to be endemic in the industry. We have had many occasions to bring the contents of this form to the attention of those who are happy to seek staff to perform work but who are reluctant to offer employment.

For instance, in the case of the new employment agencies who control many thousands of workers in the Dublin area, they were nearly all inclined to offer only self-employed status until the unions literally hit them over the head with this form. We have dealt with cases where apprentices were classified as self-employed. Union officials are constantly dealing with such issues, usually with a satisfactory conclusion. However, union officials can visit only a tiny fraction of all the construction sites in the State, and many cases of mis-designation are still continuing. We are anxious that the 1997-98 campaign is not a one off and I am delighted to hear from the Revenue Commissioners that they are looking at the possibility of running another such campaign. The results of that campaign should be used to ascertain whether we need yearly or biennial campaigns of this type in the industry.

The tendency in the construction industry, which appears to be endemic, of foisting self-employed status on employees should be a matter of concern for everybody, not just the trade unions. The issue of whether it is done by coercion or collusion is not important. The statistics suggest that the balance of employee to self-employment in the industry is such as to suggest that there is widespread abuse going on. The 1997-98 campaign should be repeated. The IT25 form has been a great help to us in cleaning up the industry, but the unions cannot be expected to do this alone. The issuing of the RCT1 should be controlled, at least until the industry proves that it can be trusted with self-assessment. Only those who can prove that they meet the criteria of genuinely self-employed should be facilitated by Revenue with the provision of C2s and RCT1s.

Chairman

Thank you, Mr. Whelan. Mr. Kelleher, you might want to respond to those points.

Mr. Kelleher

I will ask my colleague, Mr. Terry McEvoy, to respond to them.

Mr. McEvoy

Before responding to the specific points, I also have a brief statement which I would like to read. I apologise if I am covering the ground we have already gone over.

During the 1980s and early 1990s there was significant growth in the trend towards sub-contracting in the manufacturing industry and services throughout Europe. The construction industry in Ireland was no exception. At the same time there was an increase in concern both the CIF and the Congress of Trade Unions at allegations about the extent to which work in the construction industry was being carried out in the black economy. Some of this concern focused on self-employed workers.

A person in the construction industry involved with a principal contractor falls into one of three categories. He is either a certified sub-contractor who receives payments gross, that is, without any tax deduction whatever; he is a sub-contractor who is unable or chooses not to provide such a certificate and who is, therefore, subject to tax deduction on their total emoluments - materials and equipment as well as labour; or he is an employee, from whom PAYE is directly deducted from their wages.

Special provision has been made for the treatment of sub-contractors and self-employed persons in the construction industry. Section 17 of the Finance Act, 1970, provides, in effect, that sub-contractors in the construction industry may be paid only in full by the principal contractor in circumstances where they are in possession of a certificate of authorisation from the Revenue Commissioners - this is the C2 certificate. In other cases, a deduction of 35% must be made from the total emoluments paid to the sub-contractor. It is this latter category that was known as the C45 sub-contractor. At the time of its introduction the 35% retention rate was comparable to the personal taxation rate then prevailing, though over time that situation has altered considerably, with the reductions in personal rates.

This provision of the Finance Act, 1970, is clearly and explicitly confined to workers who are engaged by way of a contract for a service and cannot be applied to workers who are engaged in a contract of service or a contract of employment. However, the distinction between the two is not always an easy one to draw. In the discussions leading up to the Programme for Competitiveness and Work , the concerns of the social partners were raised and the Revenue Commissioners were asked to take measures to ensure that the system applied only in genuine sub-contracting situations. They were also asked to discuss the matter with the Department of Social Welfare to see if procedures could be further strengthened.

The black economy monitoring group was asked to carry out a thorough review of the C45 system and to make recommendations to curb any abuse and to improve the system generally. A sub-committee composed of representatives from the Revenue Commissioners, the Department of Social Welfare, ICTU and CIF was established to carry out the review. After many meetings the sub-committee reported and made 12 recommendations which were later endorsed by the black economy monitoring group and the central review committee of the PCW. The majority of the recommendations concerned closer monitoring of the system by the Revenue Commissioners, improving information flows between them and the Department of Social Welfare and the redesign of forms to ensure sufficient information was available to enable income tax and social welfare records to be matched.

Following acceptance of the report, the Revenue Commissioners started an exhaustive process of consultation with the social partners on the implementation of the recommendations, two of which required statutory changes to put into effect.

The first was a recommendation that both parties sign a form prescribed by the Revenue Commissioners at the start of the contract, verifying that the C45 system was the appropriate one in that case. The second related to the withdrawal of the special recognition given to the gang or group system within the C45 system. In addition, the name of the system was changed from C45 to relevant contracts tax. The Revenue Commissioners then launched a publicity campaign in an attempt to ensure that all contractors and sub-contractors were aware of the new requirements. An exploratory leaflet was drawn up to help distinguish who was an employee and who was self-employed in the construction industry. The leaflet listed some of the more common features which were to be taken into account in deciding the status of a worker for tax purposes. After a suitable period of time to allow the new system to settle down, the Revenue Commissioners commenced a series of audits of the construction industry, the results of which are the reason we are here today.

To deal specifically with the numbers that have been mentioned, it is very difficult for us in the industry to come up with figures other than those provided by the Revenue Commissioners. We have, over a period of time, allegations ranging from 40,000 to 50,000, up to even 100,000 people in self-employment in the industry. It is simplistic to take the number of RCT1s issued as a guideline, because a self-employed person might have ten jobs in the course of a year and each one brings an RCT1 into existence. In that case ten forms refer to one individual. Admittedly, if the self-employed contract was to last 12 months there would only be one RCT1 form for the job, but it is difficult to get a handle on this simply by counting the RCT1 forms issued by the Revenue Commissioners, just as it was difficult to count them simply by counting the C45s issued. The C-45 was simply a receipt given to the self-employed worker certifying that a certain amount of tax had been deducted from his emoluments. If he was paid on a weekly basis in the course of a year he would have 52 of these receipts, so the mere counting of C45s was no indication as to the number of people in the industry who were self-employed. It is a very difficult thing to get a grip on.

There have been allegations that workers in the industry have been coerced or conned into working on a C45 basis. I have seen no evidence to support that and I have asked from time to time that such evidence be brought to my attention. I have told the trade unions that if I had specific allegations against employers who were members of the federation that they were coercing workers who were more properly employees to work on a self-employed basis that we would take action against them. We have not had any specific allegations made any members of the federation to my knowledge. One hears stories that have taken on the status of urban myths about apprentices being on C45s or RCT1s, which is totally irregular and would not be supported by the federation or its members.

Regarding the distinction between self-employment and employment in the industry, as has been said, there is no clear definition of an employee in Irish legislation. There are references to employees in various pieces of legislation - the Industrial Relations Acts and so on - which simply state that an employee is a person who is working under a contract of service, but there is no definition that would help us distinguish between employees working on contracts of service and those working on contracts for service - sub-contractors. It seems to me that this lack of clarity in the legislation is part of the problem.

Parallel with these developments in the mid to late 1990s ICTU and CIF were also attempting to tackle the problem and in 1996 we reached agreement with the unions on the definition of an approved sub-contractor. There are ten points involved. They must comply with the terms of the registered agreements for the industry. They must employ the appropriate grades of trade union labour and they must supply material as well as labour in those sectors of the industry where this has been normal practice. They must comply with the Social Welfare Acts and section 17 of the Finance Act, 1970, as amended by the Finance Act, 1995, and they must comply with the guidelines issued by the Revenue Commissioners under the Finance Act, 1995. They must maintain a safe and healthy environment and comply with the provisions of the Safety in Industry Act as well as carrying employers' liability insurance in respect of their employees and the work in which they are engaged unless this cover is maintained by the main contractor or the client. They must employ appropriate numbers of apprentices relative to the number of craft workers employed and in addition, they must, if in a labour-only category, give security in a manner to be determined from time to time by the joint industrial council for the construction industry against default in respect of any liability they may have to their employees.

That agreement was entered into between the CIF and the construction industry committee of ICTU. We have attempted to register the agreement with the Labour Court and the effect of registering it under the Industrial Relations Act would be to make it compulsory for all firms in the industry whether they were members of the CIF or not and for all workers in the industry, whether they are in trade unions or not. Unfortunately, that attempt to register the agreement is subject to judicial review at present.

Chairman

This is a complex issue, but Mr. Whelan has made worrying categorical claims with which I identify. It is certainly my impression that there is a huge con job. This has gone on for years but it has got more sophisticated. That is my impression. I want to test that impression and allow different people to challenge that impression.

Deputy Durkan

Mr. McEvoy made reference to the definition of an employer and the difficulty in determining the status of an employer and employee in certain circumstances. Let us suppose I presented myself on a building site this afternoon and I am a bricklayer, plumber or an electrician. How do I determine, or who determines my status? What questions am I asked? Am I asked if I have a C45 or C2 or whatever? Am I allowed on to the site? Am I allowed to designate my own status and ask for employment in that way? What happens?

Mr. McEvoy

The prospective employee would, together with his employer, look through the checklist available to determine that status. If, for example, one was applying for work on a housing site as an electrician and one had a helper or an apprentice whom one was looking after in terms of pay, and one was also undertaking to provide the equipment necessary for the job and some if not all of the material, then clearly one would be self-employed. That is fairly obvious. There is no difficulty in cases like that.

The difficulty arises where no material is being provided and the individual claims to be self-employed, as many do. The obligation is on the employer in those circumstances to establish to the best of his ability the status of that employee - is he self-employed or should he be directly employed. It is up to the employer to make the decision because the employer is liable to make payments to the relevant authorities if a self-employed worker does not have PAYE and PRSI deducted from him. The obligation is on the employer to determine the status properly.

Deputy Durkan

How then does the degree of abuse referred to occur? Obviously if there were 12,000 reclassifications in 1998 there must have been some loose interpretation of the regulations.

Mr. McEvoy

Of course there was some looseness in the regulations. There is no question about that. That looseness is still there. I have identified it and that is in the lack of a clear definition of what an employee is. We have guidelines from the Revenue Commissioners to determine whether self-employment or employment is the appropriate status of the individual concerned. These are very helpful guidelines but I would make a number of points about them. First, they are not comprehensive and do not pretend to be. They simply say these are some of the most common features that should be taken into account in determining the status. Second, they are set out in two lists - who is an employee in the construction industry and who is self-employed in the construction industry. In an awful lot of cases it is possible to pick quite a few of these items on both lists so the employer is left no wiser at the end of the day.

For example, bricklayers in the housing industry by and large are not paid an hourly rate. They are not paid wages they are paid a price for a piece work - so much per house or for a pair of houses if one is talking about semi-detached houses. That is typical of a sub-contract situation.

Deputy Durkan

There is a lump——

Mr. McEvoy

There is not a lump but a price. An amount is agreed for carrying out a certain part of the work. In other words, they are not paid by time but by output.

Deputy Durkan

That is a lump.

Mr. McEvoy

By your definition but it would not be mine.

Deputy Durkan

We will agree to differ on that one.

Mr. McEvoy

Okay. That would be a typical sub-contract situation one might think but if one looks behind that one will see there are features in the employer-employee relationship which would make it more of an employer-employee relationship than an employer-self-employed, or employer-sub-contractor relationship.

Deputy Durkan

On a building site one would have a number of people. Obviously there would be the main contractor. The boards usually announce what is happening in terms of sub-contractors. There are also employees of one or both, I presume. Apart from what you already said, what criteria apply in determining who comes under what category? For example, one could have people who are sub-contractors theoretically working beside people who are employees and who pay PRSI, etc. What are the advantages and disadvantages from the point of view of the worker working beside the person in the other category?

Mr. McEvoy

First of all I am reluctant to use the word "sub-contract" though that is the term which appears in the legislation. I am reluctant to use the word because the vast majority of work in the construction industry is carried out on a sub-contract basis. However, the sub-contractor is nearly always a firm - a company - a legal entity rather than an individual. Although it is not provided for in the legislation I would prefer to talk about main contractors, sub-contractors, that is firms, and self-employed individuals. It might be more helpful if we look at it in that way. Most of the work on this room and this building was carried out on a sub-contract basis but that does not mean there was any abuse of the system going on. Far from it, all electrical, mechanical, heating, ventilation, air conditioning work is done on a sub-contract basis. Most painting and plastering is done on a sub-contract basis.

Deputy Durkan

Unions have made reference, not just today but over the past number of years, concerning coercion or encouragement of people to proceed under a particular heading. You said you had no evidence to suggest that. Was it ever brought to your attention by unions or others?

Mr. McEvoy

No specific case was ever brought to my. I have heard the general allegation before but no specific case was ever brought to my attention.

Deputy Durkan

Did you seek information following the general references?

Mr. McEvoy

The trade unions know they have a standing invitation from me to provide specific details or charges they have against members of the federation. I have promised them I will take action but I have not been put to the test yet. Whatever substance there might have been in that allegation in the eighties and early nineties when the industry was in recession it is very difficult to see workers in the industry now being coerced into accepting a form of contract they do not want when there is such a shortage of skilled people in the industry. The skilled workers in the industry are now dictating the terms of the contract, not the employer.

Deputy Durkan

I appreciate the shortage of skills, etc., but that is not really the issue. That is another issue.

Mr. McEvoy

I am saying that because of the shortage of skills, the pendulum has swung towards the employee rather than the employer, unlike in the eighties and the early nineties when the industry was in recession. That means that if a worker does not want to accept self-employment he is not going to do so. He is going to walk around the corner to the next site and get a job there, so I find the element of coercion difficult to accept.

Deputy Durkan

Mr. Whelan said the construction industry generally, and this was a general reference, seemed to be reluctant to operate the rules in respect of the employer-employee relationship and status on building sites. Would that be correct?

Mr. McEvoy

Absolutely not.

Deputy Durkan

So why would he say that?

Mr. McEvoy

I do not know why he would say that. You will have to ask him why he says that but it is certainly not the case that builders are reluctant. We have a voluntary system of industrial relations in this country. The fact is that all our members have signed up to a registered agreement.

Deputy Durkan

Okay. Would you not regard the reclassification of 12,000 alleged sub-contractors as in some way an indication that there was a reluctance on someone's part?

Mr. McEvoy

That more indicates that there was an element of confusion and looseness in the system - that people did not quite know where they stood rather than a huge element of abuse.

Deputy Durkan

Okay.

Mr. McEvoy

There was no doubt there was——

Deputy Durkan

So what you require is a clear definition from someone to indicate precisely the ground on which you stand?

Mr. McEvoy

Exactly, and that commitment is given in the Programme for Prosperity and Fairness.

Deputy Durkan

Can I turn to Mr. Whelan. As regards the 28,000 C2s and 50,000——

Mr. Whelan

First of all, let me say we have never received clear answers. Despite the fact that many parliamentary questions were asked on this issue, we have never received a straight answer about the number of uncertified contractors. We are clear on the number of C2 certified - 28,000. There is no doubt about that. Mr. McEvoy said it would be misleading to take all the RCT1s issued as a figure and we did not do so. We mentioned that 81,000 were issued but we did not say there were 81,000 uncertified contractors. We believe the number is approximately 50,000. I know the Revenue Commissioners are aware of every PRSI contributor employed in the construction industry. Let us have clarity on the exact number of uncertified sub-contractors. I would like to receive an answer to that question today.

Deputy Durkan

Obviously this position needs to be set out. Mr. McEvoy said this is a grey area and that there is great difficulty determining the status of those concerned.

Mr. Whelan

The vast majority of people who go to work in the building industry go on to the site with little more than their tool bag. They are told what to do, when to start work and when to finish. They work for one person at a time. The vast bulk of people working in the construction industry are employees in every sense of the word.

Deputy Durkan

Would you say a considerable number are not given the status of employees in terms of contributions and benefits?

Mr. Whelan

The 1998 campaign showed there was a huge element of misdesignation; we are saying that misdesignation continues.

Deputy Durkan

It is being suggested that the industry is reverting to that again.

Mr. Whelan

There has been a huge increase in the numbers working in the industry. Five years ago approximately 70,000 people were employed in the industry - I use the term "employed" in the broadest sense - and there are approximately 140,000 people employed in the industry today. Therefore, the industry is going through a huge boom and there is a huge increase in the numbers employed. Union officials are constantly confronting and dealing with problems of misdesignation where union structures are in place. Nevertheless, this is continuing to happen. In relation to the point made that the CIF is unaware of any coercion problems, officials of the CIF are quite helpful to us in those situations. Whenever our officials identify misdesignation, the CIF, who probably know the game is up, are well aware of cases of misdesignation of people who should have been employees and who are, following union intervention, properly designated.

Deputy Durkan

You would have ongoing discussions with the federation in relation to that and other matters?

Mr. Whelan

Yes, my colleagues would.

Deputy Durkan

What is the response generally from the federation?

Mr. Whelan

The response the committee has heard today is one, that is, no one really knows the problem, there is not a problem and it is all sort of nebulous. Generally speaking, it is fair to say that when specific issues of abuse and misdesignation are identified to the CIF, it is helpful in resolving the issue.

Mr. O’Shaughnessy

My experience is that this has been a very serious problem. The CIF has not taken the action it should. The picture painted by Mr. McEvoy is that whatever confusion might be out there, one thing is for certain, employers in the industry are doing the right thing. The evidence does not exist to back this up. The question of coercion has arisen. If a union official goes into an office to talk with a builder about conditions of employment, that may be a meeting of equals. However, when a prospective employee goes into an office to talk to a sub-contractor or a builder about a contract of employment, whether he is a sub-contractor or an employee, that is not a meeting of equals. The decision will be taken by the stronger party. There is a boom in the industry at present and many building workers are not in a very strong bargaining position, unless they wish to go somewhere else. However, that is not always the solution to the problem.

This issue has not been taken on board by employers in the industry, nor by the CIF. At the end of the day, I would expect the employers to do the right thing. All employers are not members of the CIF nor are all workers in the industry members of trades unions. Therefore, what does a worker who is not a member of a trade union do?

Mr. McEvoy referred to the urban myth of an apprentice on a C2. That is not an urban myth, it is a reality and it happens quite a lot. The CIF was well aware of cases such as this. For example, as a result of pressure from the Revenue Commissioners a couple of years ago, almost the entire workforce in one company went from being on C45s - that is unregistered sub-contractors - to being direct employees at the diktat of the Revenue Commissioners. Is anyone seriously suggesting that there was a serious doubt about what each one of these workers was? Of course there was not. It was quite clear what they were. They were workers who were under the direction and control of their employer, and the only question was whether their employer would allow them work on PAYE or RCT1 forms.

Deputy Durkan

Reference was made to the implications for Revenue, the social welfare fund and individuals, whatever their status, particularly in relation to sick benefit and so on. What about safety at work regulations? Obviously there are implications in that area because if people are employees they come under a particular heading and if they are employers or sub-contractors they come under another heading.

Mr. Whelan

That is not really the issue because they do not in fact. If someone is an employee and is designated falsely as self-employed, the main contractor still has a duty of care and all the statutory obligations remain. Any safety officer and the better companies in the industry who are trying to do something about safety will say that what breaks their heart is the proliferation of sub-contacting. If a company is in control of a site, it can implement a safety management system. If everyone on the site is working on Regional Technical College1 forms, no one is employing anyone and no one is in control. If no one is in control, there is basically a safety nightmare on the site.

Deputy Durkan

There is no overall responsibility?

Mr. Whelan

The legal responsibility exists, there just is no control.

Deputy C. Lenihan

What Mr. O'Shaughnessy said in relation to a company which moved its entire workforce from one category to the other is quite interesting. Can you elaborate on that?

Mr. O’Shaughnessy

I will not name the particular company. However, it is a matter of record. The company worked in this city and employed quite a number of people, perhaps as many as a couple of hundred at any given time.

Deputy C. Lenihan

It is a large company?

Mr. O’Shaughnessy

Some of the people would have been legitimate sub-contractors. Nevertheless, there were a considerable number of operatives who were designated by the company as being on C45s.

Deputy C. Lenihan

What period was involved?

Mr. O’Shaughnessy

Over a period of three or four years up to about two years ago.

Deputy C. Lenihan

What period did they transfer and how many employees are you alleging were switched from one status to the employed status?

Mr. O’Shaughnessy

Their entire workforce switched overnight.

Deputy C. Lenihan

How many were involved when they became magically employed?

Mr. O’Shaughnessy

Approximately 150.

Deputy C. Lenihan

You are saying 150 people in Dublin two years ago?

Mr. O’Shaughnessy

Yes.

Deputy C. Lenihan

You are not prepared to name the company?

Mr. O’Shaughnessy

I will not.

Acting Chairman (Deputy Dennehy)

I wish to clarify that no one can be named. There can be no criticism or charge against an official or anyone else outside the House.

Deputy C. Lenihan

I am not referring to a person or an official. I am referring to a legal entity, a firm. I believe a company can be named if not an individual.

Deputy Rabbitte

He will not name them.

Deputy C. Lenihan

Under the rules of the committee, a company does not enjoy the same privileged cover as an individual.

Mr. O’Shaughnessy

I used it as an example of what has gone on in the industry. The point I was making was that almost an entire workforce could be switched overnight. There was simply no legitimate reason prior to that to believe that all these people were legitimate sub-contractors. They were quite clearly working in an integrated workforce as employees.

Deputy C. Lenihan

Could Mr. O'Shaughnessy write the name on a piece of paper.

Acting Chairman

It is very clear that would be an issue between the company involved and the Revenue Commissioners. The committee tries to be fair to people. There is no need for the company to be named at this stage. I would rather that was not pursued at this stage.

Deputy C. Lenihan

I do not believe a company enjoys the same protection in this committee as an individual. Officials may advise you on that, Sir. I would be interested to ask Mr. O'Shaughnessy if he made contact with the Construction Industry Federation with regard to this particular case?

Mr. O’Shaughnessy

This particular case? Not this particular case, no.

Deputy C. Lenihan

So you did not make contact with the Construction Industry Federation to make a complaint about this specific case. Did you make a complaint to the Revenue Commissioners as a trade union in relation to this particular case? You have captured a situation which, if it is true, certainly strikes to the very heart of the revenue collection system and how this industry is run so I am asking two simple questions. Seeing this situation as it developed two years ago and being, we hope, the responsible union that you are, did you bring it to the attention of the Construction Industry Federation and two, did you bring it to the attention of the Revenue Commissioners? Or did the Revenue Commissioners discover this and then act upon it?

Mr. O’Shaughnessy

Any representations we made to the Revenue Commissioners we would have made through Congress. We did not make individual representations.

Deputy C. Lenihan

In this specific case did you make one?

Mr. O’Shaughnessy

In this particular case? No, in this particular case, no we did not.

Deputy C. Lenihan

So you were aware of it but you did not make representations?

Mr. O’Shaughnessy

The question of how workers in that company worked was a source of industrial unrest for a number of years.

Deputy C. Lenihan

Did you make the Revenue Commissioners aware of your concerns?

Mr. O’Shaughnessy

Not the Revenue Commissioners, no we did not.

Deputy C. Lenihan

Can I just switch the attention, Chairman, to the Revenue Commissioners chairman because this is very important. A very serious incident has been advanced and it does draw questions as to what exactly is going on.

You referred earlier, chairman, to a dedicated telephone line but that there were not an awful lot of people ringing it. It reminded me a bit of Sir Patrick Mayhew and the confidential telephone line in the North of Ireland. Is it the case that you are not getting many contacts from the trade unions or from the industry itself about these situations?

Mr. Quigley

That is my understanding.

Mr. Fleming

Could I say something about this?

Deputy C. Lenihan

Very well. Let us ask Mr. Quigley.

Mr. Quigley

My understanding, as I indicated earlier, is that there have not been very many specific complaints conveyed under those arrangements. My understanding is, for example, in a year there might have been four complaints to our main auditing area under these arrangements. I have to say, on the other side as I indicated earlier, that at a meeting in late June the trade unions did raise with Revenue anew their general concerns in this area similar to the concerns they would have expressed at a meeting in 1997 before Revenue embarked on the special programme nationwide. We have had that but we have not had specific complaints.

Deputy C. Lenihan

Can I just clarify this? You are saying that up to your meeting in June you would have had four complaints in an average year about the employment situation.

Mr. Quigley

I said, Deputy, about four a year. My understanding is that under these arrangements——

Deputy C. Lenihan

Are these dedicated arrangements?

Mr. Quigley

That is right.

Chairman

Mr. Quigley, do you want to finish your reply?

Mr. Quigley

There was a point raised about a particular firm and, obviously, the Chair had ruled that we do not talk about a particular firm. I am very happy with that because I cannot talk about a particular firm in a situation like this. What I can say generally, in the light of the comment that was made that there was a situation where one firm changed all its workers overnight, is that in some of the firms that we visited in '97 and '98 there was a reluctance to change. Our auditors went back and there was discussion about the interpretation of the situation - subcontracting versus employment - and the Revenue auditors view prevailed. Some of those were significant cases. There was a significant number of employees in some of those cases. That is as far as I could go in——

Chairman

As a result of that were any prosecutions pursued against the employer?

Mr. Quigley

No, there was not a prosecution. I have explained the nature of the programme we embarked upon. It was a programme to clarify, to educate and to set down clear guidelines and ensure they were implemented. We would not have been able to do what we did - testing the situation of 63,000 people - in a prosecution mode. We did it in the sense of trying to clarify the situation and put it to right. What we did in that particular case and in a number of cases where there was a reluctance, we went back and monitored specifically and insisted that the change to PAYE status would happen, and it did happen.

Mr. Whelan

When we come across cases of abuse we deal with them at the level of the union official going in on the site. That is how it is dealt with. On a small number of occasions where we have not been able to deal with it we pass it on to the Revenue Commissioners. That is not very satisfactory from our point of view because we give the information to the Revenue Commissioners and the Revenue Commissioners say, "Thank you very much", or something like that and we hear no more about it. The way we do our business in relation to this abuse is to tackle it head on and, as I said in my submission, usually successfully. I think my colleague, Mr. Fleming, wants to add something to that.

Mr. Fleming

We had very testing meetings with the Revenue. We met them in the last crisis a couple of years ago. It was our opinion that the C45 situation - bogus self-employed situation - had become rampant. We met them on a couple of occasions. We felt they were very much under pressure, they did not seem to have many staff and they were very defensive. They were not really helpful in the beginning. I can tell you that when we did begin to make a bit of progress with them I specifically asked them would it be okay for us to have a hotline or regular contact with them to find out if they could out to sites fairly quickly. The response given to me at that time was, "We are not going to act at your behest. We are not here to work for trade unions but if you have anything pass it on to us and we will see about it".

Fergus is quite correct. We deal ourselves with the individual employers. We go to the sites and we try to rectify the situation but we are very small in number. We are like a bob-a-job section to the Revenue; we are ancillary to the Revenue. They should be out there doing that job, not us, waiting for us to find out the bits and the pieces.

With regard to the CIF, I think it is a rather naive complexion to put on this that it is some kind of urban myth and that the problem we have at the moment is due to confusion and a certain looseness. There is collusion out there left, right and centre. It is not as loose as that at all. I am making our position quite clear. We believe we had to take to the streets, we had to drag ourselves outside of Dáil Éireann during negotiations on pay talks to try to get publicity and to point out at that time, two or three years ago, that the situation was very bad and that bogus self-employment was rampant. The Revenue took action. They went out onto the sites and we saw the results. People in droves came back into the union. They made their peace and said they wanted to be regularised, etc. That has now been reversed in a colossal fashion in the last year. It transpires that Revenue are in a state of "at ease" in the construction industry. They do not seem to wander around the sites they way they did. They might do the odd audit here and there but there is no evidence to us that there is any presence by the Revenue.

These people are very very clever. They will go into the back lounges in the pubs, meet their dodgy accountants and find another way around it if they find Revenue are not coming out to do the job they are supposed to do.

Deputy C. Lenihan

This cross-questioning has been quite fruitful. I would like to ask the Chairman of the Revenue Commissioners again: One of the union representatives asked the tantalising question, what is the actual figure for uncertified sub-contractors? I just want you to lead us through the industry, if you can, from a Revenue point of view. How many work in this industry, as far as the tax paying side of the industry is concerned? How many people can be characterised as sub-contractors, main contractors, self-employed? Presumably the rest are the RCT people. Is that correct?

Mr. Quigley

Could I just say, before I try to answer that question, that I do not accept what has been said by the trade union representatives about laxity in Revenue. Mr. Whelan indicated that the RCT1 form is being handed around and that the C2 was given very easily. If one asks business about Revenue, one will hear the opposite. One will hear that Revenue is too tough in tax clearance generally and that it is not sufficiently business minded and business customer friendly in giving tax clearance and the C2s. I assure the committee that we do not give out C2s lightly. We have quite a rigorous system of tests, including checking on the tax situation over the preceding three years. So it is wrong to say that Revenue gives out C2s lightly.

We also have a very rigorous system about the use of the C2s, which was regarded by small firms around this country as crucifying. When I went to meetings and conferences of the Small Firms Association and ISME, they regarded the system that Revenue was operating as crucifying. We have had to introduce some changes to facilitate small firms, but we do not hand out C2 certificates lightly. I reject that suggestion. We are quite rigorous in our tests.

Deputy C. Lenihan

There is much toing and froing on this matter and perhaps I could clarify one aspect. It was stated earlier that one could be on a building site and the employer or the sub-contractor could hand around an RC2 form——

Mr. Quigley

RCT1.

Deputy C. Lenihan

——and it would be filled out. It was alleged here that there was a psychological pressure on people who were either naive or who wanted to do the job on the site that they would have to fill out the form and that this had some sort of appeal of being official. It was from the Revenue Commissioners and it had its name on it. The RC1 form was handed out, filled in, handed back and everybody was happy. Is that how it operates?

Mr. Quigley

If we were to take the test that Revenue should not issue any forms and should not issue them in number because people will fill them up, that is absurd. Most of the forms that Revenue issues are forms to facilitate people to do business. The RCT1 is a leaflet that contains the checklist of guidelines. Obviously, as the CIF indicated, that leaflet has to be readily available for different situations. There can be multiple sub-contracting situations, each of which would require a separate form. All we are doing is printing forms to make them available.

There is a notion here in the committee that Revenue must police individually every situation. That is wrong. We could not possibly do it. What we do is try to clarify the ground rules and guidelines. We try to set them out clearly for people and then people must take their responsibilities.

Chairman

Again, when we asked if there are any prosecutions, we got the old mantra no prosecutions by the Revenue. A few salutary lessons would work wonders. We have heard "no prosecutions" for years.

Mr. Quigley

I accept what the Chairman says that there would be a demonstration effect from a prosecution. I tried to explain our approach in this campaign in 1997 and 1998. I think it was a valid approach and succeeded, as has been said here by all sides, in regularising a significant part of the industry. However, we will have to look at the situation if there is repeated abuse. In our next visits, if there is abuse which can be proven and where there would be evidence of abuse, we will have to consider what we should do.

There is a clear responsibility on the principal contractor and the sub-contractor and employees to take responsibility. Revenue then has to police to some extent, but there is an obligation on all the parties involved. Revenue cannot assume that. To think we could assume it would be misleading people. If we make forms available, people have to take their responsibilities in completing those forms and in declaring formally that a situation is factually correct. We expect that, and that is what we will be testing in our scrutiny of the industry.

It is wrong to say that we do not do audits. There would have been some 1,200 audits, combined fiduciary audits, looking at VAT, PAYE and the RCT in 1999. I mentioned earlier that we collected £15 million from the construction industry as a result of audits. So I do not accept the picture that has been painted, but I hear clearly from the trade unions a repeat of the concern they expressed previously and we certainly will have to take note of that and see what we can do.

I was asked specifically about the numbers. I have some difficulty here because I am not happy that the numbers I have are numbers for active cases. I have raised some questions about that. Nonetheless, we would have people on the register and I will give the committee the numbers I have on the register, subject to that caveat.

Deputy C. Lenihan

Before Mr. Quigley gives those figures, are we agreed that there are 140,000 people in the industry?

Mr. Quigley

We have a total of 100,000 employees in the industry.

Deputy C. Lenihan

Yes.

Chairman

And 80,000 employers.

Mr. Quigley

If I could give the figures for what I have on the register——

Deputy Rabbitte

I hope the number of employees does not fall or we will have many employers.

Mr. Quigley

The number of principal contractors is 9,660.

Chairman

Building contractors?

Mr. Quigley

Yes. I would add two figures - they are in separate categories here - there is the figure of 9,660 and then there are principal contractors who also for other jobs are certified sub-contractors, and that is 9,807. We have 9,660 plus 9,807.

Chairman

A total of 19,467.

Mr. Quigley

Of principal contractors. There is a figure for uncertified sub-contractors - I will give it because I am giving evidence to the committee - on our books of 51,000. I am very sceptical about that figure of 51,000 uncertified sub-contractors.

Mr. Irwin

On a point of clarification, uncertified sub-contractors would be people working on RCT forms.

Chairman

RCT1s?

Mr. Irwin

Yes, or C45s.

Mr. Quigley

In other words, people who would be subject to the 35% withholding tax.

Chairman

What is the number?

Mr. Quigley

It is 51,371 in the figures I have. On the other hand, when I inquired about this, I was told that only 8,000 sub-contractors claimed repayments last year. I also looked at CSO figures to see if I could marry those figures with our figures. I am having difficulty doing that but I am pursuing it. These are all the cases, I understand, that have ever appeared on the Revenue register of certified sub-contractors so there is not an assurance that they are all active cases at this point in time. If only 8,000 are actually applying for repayments, I cannot see how all these cases would be active.

I am giving the committee a figure because a figure of 50,000 was mentioned by one of the trade union representatives. I am giving the committee the figure because I have it. However, I am raising a big question about it.

Deputy C. Lenihan

The question Mr. Quigley is raising is that only 8,000 of those 50,000——

Mr. Quigley

Uncertified contractors.

Deputy C. Lenihan

Could that involve different jobs?

Mr. Quigley

It could be different jobs, but there are number of cases that are on the register. If they are on the register under the same name, in principle, this is 51,000. I am just raising a question mark about that, particularly if the number of sub-contractors reclaiming repayments is only 8,000. I see the total amount, as I said earlier, which we collect approaching £200 - £196 million - I see that all being used up or mostly used up - £170 million of it being used up - to offset against other tax obligations or to get a repayment. So, if we have only 8,000 actually claiming and they are accounting for the bulk of the money, I have a question mark about the reliability of this figure.

Deputy Rabbitte

Where did Mr. Quigley get the 51,000 figure?

Mr. Quigley

The 51,000 is from our figures, but they are cases which were on the register at any stage. That is the caveat I am making, that it may not be a specific figure of currently active cases.

Deputy C. Lenihan

Are they all names?

Mr. Quigley

Yes.

Deputy C. Lenihan

Are there 51,000 names there?

Mr. Quigley

Yes.

Mr. Irwin

As regards the Revenue figures of 51,000, only 8,000 people claimed money back. It is mind boggling that people paid 35% tax deduction at source and yet 43,000 of them did not claim any repayments. That begs the question as to what is going on. Have they got a stroke going? Why did they not claim money back? We all know that if we are due money we will be the first to look for it yet 43,000 people did not do that. Why?

Mr. Whelan

I thought it was being suggested that that was an indication that these people were no longer active in the industry and therefore did not count. However, they are active in the industry. There are large numbers of people who are happy to leave the 35% there and to keep working.

Deputy Bell

I am glad we adopted a different format on this occasion in relation to the construction industry. When we discussed this issue in May and on other occasions, we did not have any representation from our trade union colleagues in the industry. We have got a different picture today, but one which I painted at the last meeting.

Agencies were born in the UK but they have become rampant here as many companies which operated them in the UK saw a lucrative market in Ireland. One example of the many cases I get in my constituency office is of a worker in the construction industry who was paid only £10 an hour. There was no holiday pay for the two or three weeks the construction industry was closed. When the worker went to the agency, he was told that holiday pay was included in the £10 an hour. He went to the trade union concerned and made a complaint. In the meantime, the crane men went on strike. When work resumed he was told by the agency there was no further work for him but that it would send for him at a later stage. However, it did not. I know this because my son is a shop steward with one of the trade unions in the industry and he gave me many examples of what has happened and continues to happen.

There are problems with health and safety and with pensions. We must look for pensions on behalf of men who have retired from the industry and who find that half, if not three-quarters, of the contractors or sub-contractors for whom they worked over the years did not make any payments to the construction industry pension fund. Nothing can be done about that through the fund or the joint industry council. The representative from the Construction Industry Federation said at the last meeting he was unaware this was happening. I cannot understand how a representative body in the industry did not know that agencies were grossly abusing the law. They were breaking every rule in the book.

Sub-contractors and agents are employed directly or indirectly by main contractors. It appears that the main contractor is a myth; he does not exist. He has no responsibility for anything because the sub-contractors are involved in every aspect of the work. There could be ten or 12 of them on one site. It is also well established that when unions go to do a card check on a site, half of the workers are not there. It is not possible for a trade union official who is doing a card inspection on a site to look for people in toilets, hiding behind walls and running from one end of the site to the other. Many of them are non-nationals and I do not know if they are legal immigrants.

There is gross exploitation of workers in the construction industry. This is well known but not admitted by the people with responsibility, who are the main contractors. They employ sub-contractors and they should be nailed if the sub-contractors do not fulfil their statutory obligations in terms of Revenue, social welfare and other aspects of the law.

Who is responsible for ensuring that a worker is paid holiday pay? When they come to me in my constituency office, I contact the Department of Social, Community and Family Affairs, the CIF or the Revenue Commissioners. However, I am told it has nothing to do with them as it is a matter for the Department of Enterprise, Trade and Employment. This means that a worker, who is busy trying to earn a living, must go from the Revenue Commissioners to the Department of Social, Community and Family Affairs, the Department of Enterprise, Trade and Employment and the CIF. Many workers do not understand that system. They do not have the time as they are too busy running from one sub-contractor to another. There is no continuity as there was under the old system when a worker had to get his card stamped every week if he was employed by a contractor who employed full-time staff.

The bulk of main contractors do not employ workers or apprentices. They ran the apprenticeship system into the ground and the CIF knew that. It was allowed to happen, although the unions screamed about it. There is a severe shortage of apprentices in the industry because there is no obligation on the main contractor to employ anyone except technical staff, such as engineers or architects.

Main contractors do not seem to have any responsibility. Is it not possible, Mr. Quigley, to recommend legislation so that main contractors or their companies are held responsible to the Revenue Commissioners, the Department of Social, Community and Family Affairs and the Department of Enterprise, Trade and Employment rather than following sub-contractors on different building sites and people who are not trade union members and do not want to be because they are afraid? Does Mr. Quigley agree with that? What does he want us, as the main watchdog of the Government finances, to recommend so we can deal with this problem? Perhaps my trade union colleagues could comment on that.

Chairman

I will put those questions to Mr. Quigley in a few minutes. You, Mr. Kelleher, are the chief executive of the CIF and you heard what Deputy Bell said. Given the ongoing investigations into sleaze at all levels, there is a widespread perception that the building industry has been one of the constants over the years in terms of evading every law, getting past every rule and not living up to its responsibilities. Would you like to respond to the points raised and to outline what your supposedly responsible organisation is doing about it?

Mr. Kelleher

I would like to respond. The record of the previous meeting to which Deputy Bell referred shows that he made the same comments about agency workers. However, there was no opportunity for anyone from the CIF or for myself to respond at the time. The meeting took place in a different context. I am happy to have the chance to respond to that point. Deputy Bell referred to agency workers and to the pay they received, which was £10 an hour. What struck me at the previous meeting which I attended but which I did not get the chance to respond was that this was the time when the debate on the minimum hourly rate of pay was in progress and this was more than twice the minimum rate being paid to such workers. I am not saying it should not be but I was struck by the fact we were talking about a rate significantly above the minimum pay rates. The construction industry should be a well paid industry. To suggest it is a poorly paid industry is completely inaccurate. The CSO statistics from 1990 onwards demonstrate clearly that earnings in the construction industry have grown more rapidly - this is per person employed - and are at a higher level than in manufacturing industry or the public sector. I did not bring the exact figures with me today because I did not think the discussion would move that widely into those areas.

On the question of agency workers, there is an agreement between ourselves and the construction industry group in Congress that the conditions of the registered agreement, where members of the CIF are concerned, should apply to agency workers. We stand over that and we will seek to ensure that is the case. Mr. McEvoy will verify that if necessary.

You, Chairman, made some comments about greed and sleaze. There are urban myths, as my colleague said. We need to move away from the anecdotal material about individual firms to the facts, as outlined by the Revenue Commissioners and the Central Statistics Office, on the earnings of people in the construction industry.

I will refine some of the facts a little. The 28,000 C2s referred to does not just refer to the construction industry. I am open to correction if I am wrong, but my understanding is that that is the total number that have been issued so far this year and covers any employments where C2s are issued. Likewise, it was not clear from the comments of the Chairman of the Revenue Commissioners whether the 51,000 figure referred to a particular year or was the total number of cases over a number of years. Is the figure very much smaller?

Returning to the issue of the 12,000 cases out of the 63,000 that were examined, that indicates 51,000 were considered in an audit situation by the Revenue Commissioners to be fully correct and compliant. This is against legislation that was introduced 20 years previously, where there had never been a comprehensive audit and, as my colleague Mr. McEvoy has outlined, there was considerable lack of clarity and inability to interpret in different ways whether a person was self-employed or employed. Also, as the chairman of the Revenue Commissioners said, this was a Revenue opinion that was challengeable, first, on appeal to the Revenue Commissioners, and, in some cases, further to the courts.

As the chairman said, a Revenue audit is regarded as a fearsome and awesome thing by many small businesses. Those in the construction industry who have had Revenue audits would concur with that view. Against that background, there are situations, which I could equally anecdotally refer to, of proprietors of companies I know who felt that people doing work for them were legitimately self-employed but, rather than bringing on themselves the continuing attention of Revenue inspectors, they were happy and willing to accept the Revenue decision and get on with their business. I think that would be the situation of the vast majority of the 12,000 cases that were raised there.

Reference was made to a significant deterioration occurring in the past 12 months. However, we see no evidence of that in the statistics. The employment statistics in the construction industry continue to show rapid growth in direct employment. The index of direct employment in the industry is up 40% over the past four years. The figure last year was up 6.5% and it continues to grow by 7.5% in the latest figures for the year to date. Some of the assertions that have been made today do not stand up against that factual background.

Chairman

A number of questions refer to Mr. Quigley and he might also want to respond to a number of points that were raised by Mr. Kelleher:

Mr. Quigley

In regard to the 51,000 figure, I did not say I was satisfied it was a current active figure. In fact, it refers to cases that were on the register, so it could relate to a number of years. I was raising that same question about the number of active cases within that. Reference was also made to the 28,000 C2s issued. I do not have the figure for the number of those that relate to meat processing and forestry, but I think we can safely say the vast bulk of them relate to the construction sector.

Deputy Bell raised the question of the legal situation. He asked if the law should not simply say the obligation is on the principal contractor and that that would solve the whole problem. I would not accept that as a proposition, even if it could be put into law, because our experience is that we have to educate people on the right thing to do and we have to audit, even where there is an obligation in law.

Let us be clear about this. There is clearly an obligation on each party to a contract under the existing law and under the regulations made by the Revenue Commissioners to implement section 531 of the Consolidated Taxes Act, to read the guidelines which have been published by the Revenue, and which are referred to in the regulations, and to satisfy themselves. They are making a declaration that the situation is a subcontracting one, yet we have had these problems and the difficulties that were shown up in the 1997-98 visits.

I am not taking it as read that the problem is as it has been suggested by the trade unions. However, I am saying that, in view of the concerns expressed - and, in any event, it is logical for Revenue to revisit this area - we will have to mount another campaign of some kind and see what the situation is.

Underlying this whole question of a legal obligation, is the need to define employment. Can it not be put into the law, so that everybody would know it and there would be no question about it? An interdepartmental working group was set up in 1992 which went across all the areas involved. It recommended that that was not feasible. The case law has been progressing since then and has been expanding all the time the boundaries of the self-employment and subcontracting situations for our purposes.

One of the trade unions raised the question of Revenue giving C2s out too easily and mentioned the example of the plasterer arriving on the site. Our 1998 tax memo specifically says:

In the case of labour only subcontractors, consideration should be given to whether the C2 applicant will be self-employed, i.e. in business on his own account. Reference should be made to leaflet IT27 [which sets out the guidelines]. Unless the inspector is satisfied that the subcontractor will be self-employed, a C2 should not be issued.

However, we then have to explore the case law. One of the tests for being self-employed is, "Do I have a place of business?". The Appeal Commissioners have held that the place of business could be a private residence. One of the other tests is, "Do I have a stock of the things I need for my business?". The Appeal Commissioners have held in a specific case that a subcontractor was required to carry only such stocks as were required by the nature of the business carried on. Do the types of tradespersons being talked about here need big stocks?

It is not as simple as saying we will amend the law, although I do not exclude the need to revisit the law - we should always look at provisions. One of the things arising from this discussion, apart from Revenue's programme which we will have to look at on the audit side, is that - subject, of course, to anything decided by the committee, which I do not seek to prejudice in any way - is that we may have to revisit the law. We certainly should revisit the guidelines Revenue has specified, which have come in for some praise and criticism this morning.

I look forward to the trade unions, employers and the Department of Social, Community and Family Affairs rejoining us in having a new look at those guidelines to see if they are too lax and whether some of the tests are redundant because of changes in industrial practice. We could re-examine the guidelines to see it they can be improved. However, subject to what the committee may decide, I do not think it is an issue of deciding on the law and leaving it there. All the parties involved have a responsibility in this regard, including the Revenue within its resources, to audit and check on the implementation of the law.

Deputy Bell

I welcome Mr. Quigley's comments which open the door in so far as he will take into account the points that have been raised here. Perhaps the Chairman could arrange to invite the group back again at some future date when we can see what they are proposing, what they have discussed and what decisions they have taken. There is no doubt that we have to get to grips with what has been taking place in the construction industry. As soon as one follows up a contractor, many of them simply go into liquidation and reform. As workers cannot obtain the statutory documents from them, how do they get paid their tax rebates from moneys that have been deducted? Very often they are issued with the certificates but the money is not returned to Revenue, the social welfare section of the Department of Social, Community and Family Affairs or the construction industry's pension fund. Those questions have to be addressed. We should revisit this matter and examine it further. We should make representations to the Government to deal with these cowboys.

Mr. Irwin

Many statistics and percentages have been thrown around the table this morning, but the committee should consider two figures which are fairly stark and simple. Some 170,000 people work in the construction industry, but less than 40,000 are registered in the pension scheme. There is a gap of 130,000 workers whom I would like to see categorised.

Chairman

Mr. Kelleher, do you accept the figures that Mr. Irwin has just quoted?

Mr. Kelleher

I do. Broadly, there are 170,000.

Chairman

It is of that order?

Mr. Kelleher

It includes a very broad definition of people working in the construction industry. It increased by 20,000 to 25,000 when the CSO remodelled the questions they asked, about two and a half or three years ago. Prior to that, a different series of questions were asked, but I accept the broad figures, yes.

Chairman

We have two Paddy O'Shaughnessys here today. I call the general secretary of BATU.

Mr. O’Shaughnessy

The statistics are interesting but there are a number of them. I would like to ask Mr. Quiqley first, if the Revenue keeps a record of those who apply for C2s in a particular year - that is, those who receive them and those who do not. It might be interesting to find out exactly what kind of a record exists. In our experience, looking at some of the people who get C2s, one is talking of young men in their early 20s with very little experience in the industry. They have a skill to sell, nevertheless. They have a C2, but there is absolutely no evidence of running a business, having a premises or supplying materials. They are selling their labour and that is all they have to sell. In many cases, the only way they can sell it is by going in as a sub-contractor or at least being called a sub-contractor. Whether they are so or not is another matter.

We should be aware of what we are talking about in the industry. Last year, the turnover in the building industry was £12 billion. It is a huge and important industry. There is an interesting aspect about the numbers which are currently as high as 170,000 and even the CIF probably accepts the figure is 160,000. One is talking about an industry that has gone from having 70,000 working in it in 1993-94 to 170,000 today. A certain amount have come in from abroad, including the UK, but not very high numbers. So, the question that arises is, where do they all come from? Where do all these skills come from? The answer is that they probably came out of the woodwork, literally. They were there all along but did not show up on the register anywhere. That is the only logical explanation as to how the industry has been able to cope with a phenomenal growth in productivity in the past five to six years.

Chairman

I want to focus on what we can do about this, bearing in mind the pressures that are on all of us. Two people are offering. I beg your pardon, Deputy Dennehy; I overlooked you. I will call Mr. McEvoy, Mr. Fleming and then Deputy Dennehy.

Mr. McEvoy

The thought of 100,000 workers hiding in the woodwork in the construction industry over a ten year period is too ludicrous to contemplate. The fact is that the industry was in recession ten years ago. Anybody who worked in the industry at that time would know that the numbers working in it were not anything like they are now. We only have to look at what has happened to our unemployment figures to see where the workers have come from. We only have to look at the fact that we are now training 20,000 apprentices to realise where they are coming from. It is not enough yet, but certainly the industry has made great strides. There is no doubt about that. I am not surprised that Paddy O'Shaughnessy wonders at the advances we have made, but it is ludicrous to suggest that we had 100,000 hidden away in our back pocket somewhere and that we could pull them out when the demand required it.

Mr. O’Shaughnessy

I can well understand why Mr. McEvoy does not really want to accept the point. It is amazing that the figures I have just put forward are the only ones he really seems to be sure of. The CIF is not very sure of all the other ones because there is no problem there as far as they are concerned. The problem is exposing what has been going on in the industry.

Mr. Fleming

I want to return to the agency situation which has been mentioned by Mr. McEvoy and Mr. Kelleher. This agency situation has exploded out of all proportion in the last couple of years. People are employing large numbers of workers and bringing them onto building sites, whereas they should be working directly for the employer. They are working for agencies instead, however. Many cases, which are now in the public domain, have been brought to the attention of the CIF where people have been badly abused. Deputy Bell is quite right to mention £10 an hour. What is that to a craftsperson? They are being deprived of holiday pay and everything else. It is appalling to say that £10 was not really a bad figure. The minimum rate is for people in sweet shops and hairdressers, it is not an example to quote here.

Chairman

Are you saying that the £10 an hour quoted by Mr. Kelleher includes pension contributions and all the rest?

Mr. Fleming

The whole lot.

Chairman

It is the gross figure?

Mr. Fleming

Yes. I am just giving a £10 round figure. I would like to stick with the agencies for a moment if I could.

Chairman

Okay.

Mr. Fleming

There have been references to agreements being made with the trade unions. We went to the CIF last August and pleaded with them to help us because we felt the matter was getting out of control. We had no idea how to handle it. We got a letter of comfort from them; that was the agreement. The letter of comfort was that they would advise their members to tell these agencies to behave themselves, but they have not been behaving themselves. They have absolutely no control over their members and are totally out of touch with what is going on in the industry, particularly with regard to sub-contracting, agencies and the self-employed. They seem to be living some kind of reclusive existence that is separate from everyone else in the industry.

Recently, we attempted to meet the CIF to offset a national strike over the agency question but we had great difficulty in doing so. We have been waiting for over six weeks for a meeting with them and, hopefully, we will get a meeting soon. They have not been as responsive or responsible as they should have been on this issue.

Mr. Kelleher

As regards an earlier point, I never mentioned a figure of £10 except in the context of saying that was Deputy Bell's figure. So, I do not know at first hand what the situation is. I said I believed that workers in the construction industry should be well paid. I quoted from the CSO figures indicating that as a group they are the best paid in the economy. They are points that have been raised.

Chairman

On that point, the £10 figure was mentioned - and you repeated it - as being more than twice the minimum wage.

Mr. Kelleher

That is the context in which I said it.

Chairman

Yes, but let me clarify it. Would you accept that the £10 includes the fact no PRSI contributions are deducted and no pension contribution is made? It is not quite the same as the minimum wage being paid to somebody who is having these paid by their employer.

Mr. Kelleher

I just do not know because it is a situation about which I am hearing second hand.

Deputy Dennehy

The agencies are a fairly new aspect to this matter, but it has to be dealt with quickly. It may have facilitated people in areas like nursing and recruitment but there are difficulties. They are usually there because of laziness on some people's part and because of lack of responsibility. We should include that aspect in any recommendations we make.

I agree with Deputy Bell's comments. I accept we expect the ICTU and the CIF to have different agendas and different arguments but this is a national problem and it involves much more than the Revenue. They are the source of the figures and are probably the target at the moment in that we expect them to do a lot, but it affects a lot more.

I refer to my background. For about ten years or so I argued with the CIF and, indeed, others to sponsor apprentices and to take people on when times were bad and there was a recession, as was mentioned. However, there was a flat refusal. We are now reaping the rewards of that in that we face this difficulty. There is a crash programme at the moment but it is very late. People did not take on social responsibilities and do the extra work which might have been needed at that time.

The emergence of the subbing syndrome destroyed the situation for apprenticeships because people had no interest in taking on a young person. The CIF said it does not have that main body of people any longer. There were exceptions to that - quite a large percentage - but, in general, that was the response we got. I have no axe to grind other than to say that, nationally, we should not have created problems for ourselves, but we did.

In teasing this out, as the Chairman said, we need to look at the matter, at what recommendations we can make and at where we go from here. I agree with Deputy Bell that we will be revisiting this matter and maybe we will wait for this year's figures.

We need to rectify the matter and to make recommendations which will benefit the State and not the unions, the employers or anybody else. We need to ask who are the main beneficiaries from the present situation, that is, the abuses and the facilities that are there for subcontractors and so on. We should examine whether subcontractors are the beneficiaries, how they benefit and what they should be doing or not doing. We should ask if it is the main contractor who is benefiting - the builder who can get the main contract but need not worry too much about administration down the line and can hand out sections of the contract to people without the responsibility normally attaching to that. We could argue about safety but we need to ask who are the beneficiaries.

We then need to look at the big losers in this. There are losers and that includes the State, whether through the Revenue or otherwise. We have heard about figures being recovered and redistributed. Will the State pay pensions to people who have not contributed and which people will have to be given, whether we like it or not? The issue of health care also arises. Is the loser the subcontractor who is working in unsafe conditions or the people he has employed?

The argument we would have put against the subcontractor is that there are no long-term prospects for employment. They no longer have the security which goes with that, although they may be paid a couple of pounds less per hour for that security. We need to examine the long-term prospects of these people. I do not know if the unions are the losers. Are many of the subcontractors active members and do they pay subscriptions? We need to look at all those issues in our recommendations.

Mr. McEvoy said earlier that we are vague about the number of people involved. Was a poll or assessment ever done of his membership, of the CIF members? Did you ever survey the industry to identify the extent of these people?

Mr. McEvoy

Deputy, we never carried out a comprehensive survey of all our members but we carry out samples from time to time. They would indicate to us that the number of people employed on a self-employment basis in the industry are in a minority in the industry. They would also indicate to us that there are many tens of thousands of people working in the industry on a direct employment basis - far greater than there are on a self-employment basis.

I am not suggesting for a moment that there are not people in the industry working on a self-employment or subcontractor basis who should not be. I accept there are. This debate is about how many there are. The best guide we have so far is the figure of 12,000 that was turned up by the Revenue in 1997-8 which should have declined following their visits if that is what it was at the time. I suggest it was more a lack of clarity of the legislation than abuse that was the reason for it but whatever the reason, it was suggested that there was a figure of about maybe 8,000 or 10,000 people classified as self-employed who perhaps should not have been.

Deputy Dennehy

Bearing in mind that you regularly survey your members, whether about the new agreements or otherwise, would it be a worthwhile exercise to do a proper survey of your membership? I appreciate that there are people outside CIF involved in building. It would help Revenue as well. People would not have to do a huge clerical exercise. Most people would have the books available. We heard cases quoted about contacts and about difficult situations. Would the CIF ever reprimand any members? Is there a mechanism if somebody acts outside your guidelines, rules and regulations? Would you throw them out?

Mr. Kelleher

Our members are subject to a disciplinary procedure - of course, they are. It is a requirement of membership that firms will honour the terms of the registered agreement we have with the Irish Congress of Trade Unions.

Deputy Dennehy

Without wanting to name any company, have you ever had to turf anyone out?

Mr. McEvoy

Not for that reason because any time an incident has been brought to our attention by the trade unions we have been able to rectify it. I think you heard that, to be fair, in the evidence from the union officials here this morning. If we do not get told often enough about abuses in this area we do not have the chance to put it right.

Deputy Dennehy

I appreciate that megaphone diplomacy may not suit everybody. I hear a lot - the Chairman would say this regularly - about rectifying situations and making them right. I would be quite happy to have any difficulties rectified if it did not cost me anything and I will ask Mr. Quigley about that later.

I would like to raise with the union officials the question of membership. I appreciate that last year's trawl brought a lot of people back into the fold as it were. You probably do not have accurate figures but what is the pattern in regard to subcontractors?

Mr. Whelan

There is no straightforward answer to your question. One of the things I can tell the Deputy is that every union in the construction industry is registered and there has been a large increase in membership, probably due to the boom. Different unions have different approaches to the question of subcontractors. For instance, some unions would not tolerate a subcontractor on their books and if they find that somebody is subcontracting, they would immediately be asked to remove themselves from the trade union. Other unions do not take that attitude to subcontractors.

Where it gets complicated is that we can only do our business under the Industrial Relations Act. The only people who are covered by the Industrial Relations Act are employees. Quite often the Revenue Commissioners regard someone as self-employed or they have said they are self-employed but, in fact, they are employees. In that situation, it is quite possible for them to be in a trade union and it is quite possible and common for the union to make representations on their behalf to get them properly designated. It is a very complicated question.

Deputy Dennehy

I appreciate that. Chairman, you are already signalling where we are going. This area needs to be visited. The regulations may need to be changed if they are somewhat archaic.

Would it be illegal to include apprentices? I was involved in the training of apprentices a long time ago when it would have been illegal to do certain things. What is the position of an apprentice who is defined as a self employed person?

Mr. O’Shaughnesy

The short answer is that it is probably illegal. That might not be a lot of help to an apprentice. It was not uncommon for first year apprentices of 17 or 18 years of age to work on a C45, or RCT1 forms as they are now. We often wondered if anybody in Revenue looked at this or did they not see that somebody of 17 or 18 years of age would want to have been something of a prodigy to be a contractor in the industry. It meant there was no reality to the apprenticeship in many cases because there was no sponsor. It has changed a little under the new apprenticeship system, but in terms of leave to go for off the job training, etc., there was nobody to pay.

As the Deputy is probably aware, the important thing is that most training in the building industry is done in a work place situation. What happens off the job tops it up. Unless there are people who are prepared to train somebody on site the training will not take place. If somebody is designated a subcontractor working with one or two adults subcontractors, there is no reality to training or to a normal employment situation that a young person would expect. That is one of the reasons why there have been problems over shortages. Numbers came in to train, but apprenticeships were not completed.

Deputy Dennehy

I take a particular interest in the apprenticeship issue. Training of apprentices is done in modules and I cannot see of any conceivable way that it could be done by a young person who is self-employed. Perhaps it does not come under the scope of any of the interests here and another Department may need to look at it. However, we need to consider this aspect.

With regard to the tax implications of the companies struck off, it is very interesting that in 1998, the Companies Registration Office struck off 50,000 companies for non-filing. Are many subcontractors - C2 people as they were, now RCT1 - involved in that? The implications are that they will wind up, get a new RCT1 and return to business. Does the Revenue have a breakdown of the tax liabilities? PRSI, VAT, income tax, etc., is involved.

Mr. Quigley

I do not have a breakdown regarding the strike-off for companies. As we discussed on 4 May, we are monitoring that situation and are checking up on the status of those companies. Large numbers are being written off. In 1998, I believe approximately 40,000 were struck off. The possibility for strike-off has increased because the Companies Registration Office can now strike-off for one failure to file a return. We are having to check on those companies and on their tax positions. We have actions open to us. We can apply for reinstatement, to seek to make the person liable as a self-employed person, and so on. We are looking at those possibilities as we work through those companies.

With regard to the company that ceases and sets up again - Deputy Bell also touched on this - we in Revenue are hot on this phenomenon of so-called Phoenix syndrome companies. Where people walk away from a company and leave substantial debts outstanding, whether to the Revenue or other creditors, we are making a particular programme around that to monitor them. We are doing two things. First, in the case of companies that have been liquidated, we are going to court in some cases to seek to have directors disqualified from acting under the Companies Acts. We have been successful in a number of cases and will continue to do that.

Second, as regards the Phoenix syndrome, the new entity that springs up from the ashes, we are monitoring those where we can identify them. We can identify them at the point of registration, because at the point of registration for VAT or whatever, we can see the cross ownership or cross directors. We are sitting very hard on these new entities. For example, with regard to the normal consideration that we might allow to a company with cash flow difficulties, we are going in very hard to insist on payment of the liabilities as they arise because the promoters of that company have effectively walked away from a debt they owe to the taxpayers. There could be other liabilities, to pension funds or to workers.

Deputy Dennehy

I appreciate Mr. Quigley will be coming back to us on the question of company write-off and the tax implications of that. In the context of today's discussion I request that the committee includes this issue as separate item for consideration. There is a suspicion outside that this helped the culture of the subcontractor in terms of liquidating and walking away when the bill got too high. When we get a breakdown under the general heading I would appreciate that the section relating to this issue be extrapolated - the old C2 regime - and that we would deal with it under that heading.

Deputy Rabbitte

I do not wish to rehearse the ground we have gone over. Mr. Quigley said it was not the job of the Revenue Commissioners to direct categorisation in the industry, which is a fair point. I do not see how they could be expected to do that. Deputy Bell made a good point when he said that this does not mean that the phenomenon subcontractors resort to in the construction industry, acting over, above and beyond what is practicable or necessary, and which in many cases is manifestly done to cut corners and save costs, is not a matter of public policy. We should come back to that.

Is it not a concern, Mr. Sullivan, that the long-term security Deputy Dennehy referred to is an issue? Men burn out in this industry at an early age and in return for a couple of quid extra an hour in their peak, they find themselves in later years in extremis in some circumstances.

Mr. Sullivan

Certainly it would be a concern. I suppose if these people are regarded as self-employed they would be covered for pension purposes and their social welfare entitlements affected would be the short-term payment schemes. The same point still applies. There would be a burn out factor and a concern regarding that. The pension element of it would be covered under the self employed aspect, but not the short-term benefits, such as unemployment, disability, invalidity pensions. They would be of concern.

Deputy Rabbitte

The perception of Congress is that inspections have been few and far between in recent times. I know this committee has been responsible for diverting Revenue's work programme in recent times and I do not know if Mr. Quigley has any other millions to report to us today - if he has, no doubt he will tell us about them. It would fit in, would it not, with what we are hearing about that there are internal problems in the inspector's area in terms of manpower and adequacy to cope at present?

Mr. Quigley

It is undoubtedly the case that Revenue is under some pressure - there is no question about that. The multiplicity of inquiries, investigations and a huge growth, happily through the surge in economic growth which the economy has put on us, the collection of £26 billion gross and £20 billion net, the processing of the payments, the ensuring of compliance - all of that has put enormous pressure on Revenue. I have never sought to disguise that. That is part of our problems at present and of course we are trying to address that.

Chairman

I do not think I have ever seen you betray that. You always seem to cope very well.

Mr. Quigley

Thank you very much, Chairman. We are under pressure as an organisation. We have things to account for and we have improvements to make. I am very conscious that we have to build on whatever progress we have made and we have to produce results. People are expecting us to produce results.

Deputy Rabbitte

Are there particular problems in the inspector area? One gets letters and telephone calls etc. saying there are serious problems in this area.

Mr. Quigley

There is an industrial relations issue around the staffing package which I would prefer not to go into because we are in discussions with the trade unions about that and I hope we can resolve it. There is a very substantial staffing package which we want to put in place on the basis of those discussions. That of course will ease significantly the problems we have in maintaining, for example, the level of audit. I think where we have the difficulty is that we have had to divert people to the Ansbacher investigation, the DIRT inquiry and the National Irish Bank investigations. As a result, as I have explained to the committee, our normal level of audit activity has come under pressure. However, we have 16,000 or 17,000 audits in a year and I have indicated that in the construction industry we still managed in 1999 to do over 1,200 audits. It is not insignificant. We have raised £15 million out of that activity. The figure is £140 million or £150 million total receipts from revenue audit activity. In 1999, about £15 million of that related to the construction industry audits.

Chairman

That was extra.

Mr. Quigley

It was extra money we got as a result of audits. We have not mounted a similar programme to the 1997-8 programme of visits. That is correct. We have not done that since we did that programme which has resulted in the figures being discussed by the committee. What we have done is that we have followed up in the cases where we had our suspicions that maybe the Revenue ruling was not being accepted and we have regularised those cases. In addition, the inspectors have fed back into the selection for audit those cases which were identified in this programme. They would have been included in the 1,200 audits that we have undertaken. We have not been absent from the construction industry. The construction industry is a major industry in the economy, a major industry from the point of view of employment and a major industry from the point of view of tax, when one takes all the taxes into account.

We have not been absent but I would think now, in the light of the concerns which have been expressed and hopefully with the additional resources that we will have, that we will be able to revisit the prioritisation of the audit programme and that we would do, if necessary, a repeat of the 1997-8 round of visits to construction sites. It would be desirable that we should also revisit the problem, as I suggested, in the black economy monitoring group, because the people here have all made a contribution to trying to come to grips with this issue and genuine concerns have been expressed from different standpoints.

We should be sitting around the table again in the black economy monitoring group and we should be learning the lessons that people are expressing here and seeing do the guidelines need to be changed, does the law need to be strengthened, can the law go any further, as Deputies Bell and Dennehy suggested, in terms of tying down this issue, albeit against a background where there is, as I said, a huge amount of litigation in this whole area of what is employment? My guess would be that that litigation will increase because we have an employment world which is changing around us and people, whether in the IT sector or other sectors, will want to be self-employed or incorporated as companies, with the benefits they see from a corporation tax regime. There will be more disputes and grey areas about what constitutes the separate entity and what is a situation that in reality is an employment situation.

Mr. Irwin

In relation to the Revenue Commissioners doing more work, it would be interesting if they could undertake an exercise relating to what comes in from the PAYE sector of construction and what comes in from the self-employed sector.

Deputy Rabbitte

Mr. Quigley, it is difficult for us to adjudicate on the conflicting position of Congress and the CIF but from what one reads about what has apparently been going on in the official building industry, one would be inclined to lean in favour of believing the unions' perspective and the unofficial industry. Is that not fair?

Mr. Quigley

The unions' concerns in 1997 when they met Revenue turned out to be correct - if one looks at the figures. There were 12,000 reclassifications arising from that exercise. The unions had said that and I was careful in my comments to be fair to the unions because they said that. The unions came to Revenue at the end of June and told us the situation has returned to what it was or was maybe heading that way. They may be right but I have to keep an open mind. We must also take account of the point made by the CIF, which is that there is a different situation in that industry. We have to see which point of view stands up but it is a question we have to look at.

Deputy Rabbitte

Does Mr. Kelleher think he can ensure the committee that what we have seen in terms of some of the substantial players in the industry is not typical? Is there any reason to believe that pattern would not be revealed - that if the name of the person in the same hot seat in Dublin Castle happened to be different, a similar pattern would be revealed?

Mr. Kelleher

A similar pattern - could the Deputy elaborate a little more?

Deputy Rabbitte

I do not want to be too specific about it. Recent submissions at Dublin Castle would indicate that company law or tax law has not exactly been complied with in terms of the major players in the construction industry. Would Mr. Kelleher say that is the exception rather than the rule?

Mr. Kelleher

Absolutely.

Chairman

Is there a code of practice or any ethical standards set down by the Construction Industry Federation?

Deputy C. Lenihan

On that point, I want some clarification on the earlier reference to a 1996 agreement which has been the subject of a judicial review. There were guidelines in that 1996 agreement.

Chairman

Those were guidelines - is there a code of ethics?

Deputy C. Lenihan

I do not understand - who is challenging that agreement? Somebody has subjected it to judicial review.

Mr. McEvoy

The Building and Allied Trades Union is challenging it because they have set their face entirely against sub-contracting in any shape or form.

Deputy C. Lenihan

But this agreed between Congress and CIF.

Mr. McEvoy

Between the construction industry committee, the Irish Congress of Trade Unions and ourselves. It is intended to regulate sub-contracting in the industry.

Deputy C. Lenihan

It is an important detail.

Chairman

It is important but we have to summarise as follows. The concerns of this committee are only part of the issues at stake in the construction industry. The issues range wider than the committee. We have concerns about tax evasion - the possibility and possible extent of it - and about abuse of social welfare, which comes under two headings - contributions forgone and claims made against social welfare by people who are working. The committee has done a great deal of work under that heading.

Given the current situation regarding inquiries and the background of same, we cannot just allow this to arise for consideration, have a chat, apply a little temporary pressure to temporarily improve the position only for it to then revert to the norm after a period. The committee will have to consider whether we should recommend that the construction industry be subjected to the same type of parliamentary inquiry to which the financial institutions have recently been subjected.

Before we do that, I suggest that the committee invite each of the parties present plus the Departments of Enterprise, Trade and Employment and the Environment and Local Government to submit to us a paper on the issues they believe need to be addressed in this area, and those submissions should be received within three months from this date so that the committee will be in a position before the end of October to make a recommendation.

We must address, among other matters, the question of what Deputy Dennehy called "the subbing syndrome". I have seen it happen in other industries where people who have been employed for years, for example, lorry drivers, become contractors. They are made redundant, receive a few bob, and are re-employed as contractors. One must ask the purpose of this and if this is what it is supposed to be about.

That said, I understand that the construction industry must be flexible and mobile. It is a mobile industry and employment in the industry and associated pensions and social welfare contributions should be portable. How do we address that without making life impossible for the industry? It is not part of our job or that of any other committee of the House to make life impossible. However, we cannot bury our heads in the sand and ignore persistent problems.

If the committee agrees, we will ask for these papers to be submitted to us before 12 October because the committee will meet that day, and these papers will deal with what the various groups see as the issues to be addressed. Included in that would be issues concerning administration as well as legislation and enforcement and any other questions which need to be addressed.

Deputy C. Lenihan

Could the voluntary agreement between the trade unions and the employers in this area be circulated to us?

Chairman

First, does the committee agree with my suggestion and any subsequent points?

Deputy Bell

I agree with your comments but the Department of Labour should be included.

Chairman

Yes, that is the Department of Enterprise, Trade and Employment. I already mentioned that.

Deputy C. Lenihan

Would it be possible for us to have the agreed document?

Chairman

It would be possible for us to have a copy of the agreed document. Perhaps that could be submitted immediately.

Mr. O’Shaugnessy

There is not an agreed document between the industry.

Deputy C. Lenihan

There is an agreed document but it is under legal challenge.

Mr. O’Shaugnessy

There is not an agreed document between the industry. There is an agreed document between certain sections of the industry, but not between the industry.

Chairman

We can sort that out. There is a document of which we would like to have sight. Our focus is to ensure that our job as a committee is done, but we may have to involve another committee of the House in the wider issues. I am also anxious that we do not overload the Revenue Commissioners. We have put a great deal of pressure on them recently and that is our job. At the same time, we do not want to place so much pressure on them that it is counterproductive. Any observations the Chairman of the Revenue Commissioners would have on the issues raised would be taken into account. Is that agreed? Agreed.

I thank the officials. We note paragraphs 9 and 11 of the Comptroller and Auditor General's report on the Revenue Commissioners, and the entire accounts are now noted as well as the 1997 accounts which were not previously finalised.

The witnesses withdrew.

Sitting suspended at 12.46 p.m. and resumed at 12.48 p.m.