I welcome you to the Chair, Mr. Hancock, for this short but important debate. I am grateful to be allowed to raise this important subject in the Chamber today and I am indebted to the Professional Contractors Group for bringing the matter to my attention and for its helpful briefings.

I want to start with an apology to the Minister for the confusion over the title of this debate. This is the first time that I have been successful in securing a Westminster Hall debate and I am still struggling to understand how my original title, “Contractual security and protection for people who work via a contract for services (freelancers, contractors, consultants)”, became transformed into “Security of short term employment contracts”. However it happened and whoever’s good intention it was to shorten and simplify the title, the error illustrates one of the key points that I want to make today.

The people for whom I am speaking today are literally the “little guys” of business. I emphasise that they are not employees; they are self-employed contractors. They are the people whom companies call in when they need expertise for a specific, short-term reason, and they become confused with employees by courts and legislators who misguidedly try to protect or hamper their activities. Today, I hope to achieve four objectives: first, recognition by the Minister that common law developments have created commercial uncertainty, and that that is economically damaging; secondly, an acknowledgment by the Minister that Government action is desirable to clarify common law uncertainty; thirdly, a comment from the Minister on the recent Green Paper and an indication of the Government's position; and finally, a commitment from the Government to maintain the UK's traditional freedoms and certainties, and not to allow employment rights to intrude into commercial relationships.

I shall begin by explaining why it is so important that the division between professional contractors and employees is properly clarified and enshrined in law. There are basically two types of contractual relationship: employment contracts and commercial contracts. The distinction is often expressed in terms of contracts “of service”, which cover employment, and contracts “for services”, which are commercial. In other words, “contractors” in this context operate via commercial contracts or contracts for services. If people enter into such a commercial relationship as a professional and career choice, it is enormously beneficial to the UK economy. Contracting works to the advantage of the company and the contractor. The company receives specialist expertise for as long as it needs it. If the contractor does not deliver the goods, they can be dispensed with without the worry of employment protection legislation.

The contractor, by taking on the economic risk—that is, by absolving the employer from employer risk and providing only what is needed when it is needed—can charge a premium for their services. They generally have more flexibility about when and where they work; they are contracted to complete a job and are generally left to get on with it. The relationship is also good for the organisation’s employees. It is much easier to extend employee rights when not all the work force will be utilising them. As soon as a professional contractor starts being treated as an employee, the benefits to all cease.

My first request is for a recognition from the Minister that common law developments have created commercial uncertainty, and that that may be commercially damaging. I want to bring two cases to his attention: Dacas v. Brook Street and Cable and Wireless v. Muscat.

In Dacas v. Brook Street, a Mrs. Dacas attempted to claim unfair dismissal by the agency that she worked for at the time. She failed, but the Court of Appeal judges said that she had almost certainly been employed not by Brook Street, the agency, but by the end client, Wandsworth borough council. In Cable and Wireless v. Muscat, a Mr. Muscat was found to be an employee of Cable and Wireless, despite the fact that he was providing services via a limited company. The judges decided that it was “necessary” to find an employment relationship to make sense of what was happening!

The logic behind those decisions was presumably that they were cases of “disguised employment”—that the person involved was working in the manner of an employee, although formally working via a commercial contract. Employment rights were therefore pinned on the end client. That logic is fair enough as far as it goes, but it is totally unclear how it applies to other working relationships. Mrs. Dacas was not an employee when she started working for Wandsworth borough council, so when and how did she become one, and when would that apply to other agency workers?

Mr. Muscat had previously been an employee of Cable and Wireless, but what exactly made it “necessary” to find an employment relationship? In what circumstances would other workers be found to be employees in a similar way? Your guess, Mr. Hancock, is as good as mine.

What is clear is that those cases have created great commercial uncertainty. Companies are hesitating to take on contractors, and many terminate their contracts after 48 weeks, despite the fact that the work is not completed. The damaging aspect for all parties does not need spelling out, and there are damaging knock-on effects for the economy.

My second request is for an acknowledgment that Government action is necessary to clarify common law uncertainty. The Government's strategy paper on success at work, which was published earlier this year, contained many sensible observations about the UK's labour market, and many in business were pleased that there were no recommendations to change the fundamentals of employment status and relations. However, the Government have perhaps been unlucky in their timing. The consultation exercise started in 2002, and the Muscat and Dacas cases have arisen since then.

We need to restore clarity in the law. How the Government do that is clearly up to them, but one option is to enshrine the key common law tests for employment in statute. I am hardly a fan of legislation and regulation, but that would be beneficial because it would require companies to use genuine commercial terms in their contracts or to hire an employee, whichever is the most appropriate in the circumstances. The tendency for a company to try to get the best of both worlds and to create a disguised employment relationship would be over.

I recognise that, if there is to be clarification, there is a balance to be struck between allowing individuals the continued freedom to choose to work through service contracts and ensuring that any changes that define their work as a service contract and not an employment contract are not detrimental to vulnerable, low-paid workers. Low-paid workers operating on service contracts rather than employment contracts may find themselves trapped in a revolving door of moving from one short-term, low-paid piece of work to another without any employment protection. That balance would remove the confusion and the opportunity for obfuscation, and would make redundant the iniquitous and unpopular IR35 and other measures, such as the proposals regarding managed service companies announced by the Chancellor earlier today. It would dispense with a deeply unpopular regulatory burden, which is something that we all want.

My third aim is to ask for a comment on the recent Green Paper, “Modernising labour law to meet the challenges of the 21st century”, which was published by the European Commission on 22 November. Not to mince words, Mr. Hancock, it is a pig’s breakfast. It fails to recognise the fundamental difference between the two types of contractual relationship—employment contracts and commercial contracts. As a result, it discusses some commercial freelance and self-employment relationships as if they were commercial relationships.

The Green Paper has a theme of “flexicurity”, but what it means by that is ill-defined. Of course there has to be a balance between flexibility and security, but surely that should be achieved by using commercial and employment contracts appropriately, not by trying to lump the two sets of law together. There is a worry among self-employed people that any law based on this muddled thinking could prevent them from going about their legitimate business. The Green Paper has other items of concern, as well as good aspects in the attempt to protect vulnerable workers, but for the independent contractor that is the main one.

Finally, I am seeking a commitment from the Minister that the UK’s traditional contractual freedoms and certainties will be maintained, and that employment rights will not be allowed to intrude into commercial relationships. In June, the International Labour Organisation passed a recommendation that labour law should not be allowed to interfere in commercial relationships. That represents a recognition that many of the newer ways of working rest on legitimate commercial relationships and should not be subject to law intended to regulate employment relationships. So, do the Government agree that that is a sensible approach to the issue? Do they regret that the Green Paper does not proceed on that basis?

None of this is suggesting that well-targeted measures of protection for vulnerable workers are a bad thing—of course it is right that such people should be protected—but all freelancers and self-employed professionals are asking is to be allowed to continue going about their business unimpeded, and to continue to provide the invaluable contribution that theymake to the companies and the economy of this country.

It is a pleasure to see you in the Chair this afternoon, Mr. Hancock. I congratulate the hon. Member for Solihull (Lorely Burt) on giving us the opportunity to debate this issue. The confusion over the title of her debate has put me at a slight disadvantage in that I am not able to answer all the points that she raised. I shall cover one or two of them, and I undertake to write to her in response to the others as soon as possible.

The hon. Lady referred to the Green Paper on labour law recently published by the European Commission. We hope that it will stimulate an open debate on how labour law impacts on labour market flexibility, and that it will promote employment and facilitate new ways of working. We need to encourage the widest possible participation in the labour market with a framework of fairness and openness. Unemployment remains one of Europe’s key social challenges, and there is a need to address labour market performance if Europe is to meet the Lisbon employment target of 70 per cent. by 2010. We believe that flexibility is needed to achieve that. Business needs flexibility to create jobs, and people need it to come into the work force on terms that allow them to balance work and family life.

I hear that the hon. Lady is not very happy with the document, but it is a Green Paper and we have four months to ensure that we put forward the UK’s position as effectively and forcefully as possible. We would be pleased to receive observations and contributions from her and her colleagues, because we want to ensure that we put forward as consensual and as strong a UK position as possible. We believe that we have a good message to tell in Europe and we want to ensure that the Commission hears it as clearly as possible.

We agree that genuinely self-employed people do not have a contract of employment with whoever they are working for; they usually charge a fee, pay their own tax and have their own business in their own right. In effect, such people are their own boss, but they are not without protections. They are covered by discrimination legislation and they are entitled by law to work in an appropriate health and safety environment.

The hon. Lady referred to “Success at Work: Protecting Vulnerable Workers, Supporting Good Employers”, in which we announced that we did not intend to change the current legal framework. Weare developing a tool to help people understandtheir employment status at present, including inrespect of common law. I will write to her more fully on that.

The foundation of the UK’s success has been a strong and stable economy, providing a platform for business to innovate, invest and grow. That has benefited individuals as well; some 2.5 million more people are in work now than in 1997. In common with all developed nations, the UK is facing a global economic challenge. Rising to that challenge does not mean a race to the bottom. The UK cannot compete on low-cost, low-skilled, unprotected labour.

Labour market flexibility is an essential part of our response to globalisation, and to be competitive we must pursue policies designed to promote jobs and growth. Our approach is based on the idea that social justice and a strong economy go hand in hand. To that end, we have improved the quality of work by establishing decent minimum standards and tackling unfairness. We made a clear policy statement about our future intentions in this area in “Success at Work”, which was published earlier this year.

Our focus is on protecting the most vulnerable workers—those who are most likely to suffer mistreatment and not get the rights to which they are entitled. However, this is also about striking the right balance between giving rights to individuals and allowing business to continue to operate productively and profitability. We will therefore continue our targeted approach to enforcement. A second campaign is under way targeting non-compliance with the national minimum wage, this time in the child care sector. I am sure that the hon. Lady heard the Chancellor announce increased resources for the enforcement regime in his pre-Budget report statement in the Chamber today.

Short-term contracts, which may be via a personal contract for services or a contract of employment, are by their nature for a fixed term. People on short-term contracts will range from the highly-skilled and highly-paid to those with lower levels of skills and pay. Working on short-term contracts may be a positive choice for some, although for others it might be their only option.

Temporary workers in the UK comprise an important but relatively small part of the work force. In total, around 5.5 per cent. of workers are in temporary work, accounting for a smaller share of total employment in the UK than such workers do in many other European countries. Temporary jobs remain a popular choice for some. The proportion of people in temporary jobs who said they could not find a permanent job has fallen from more than two fifths in the mid-1990s to one quarter now. Some 52 per cent. of temporary workers choose temping for positive reasons, such as increased flexibility, better pay or gaining valuable work experience.

The Minister is talking about temporary workers, such as the sort of workers who work for agencies. Specifically, the proposal attempts to address workers who are self-employed contractors, who come in to fulfil a specific contractual obligation. I understand that a temporary worker can also be like a temporary employee, so I am sure that the Government would not wish to mask the distinction between those two important categories.

I thank the hon. Lady for that clarification. We would certainly not want to mask that distinction. I think that the title of the debate has masked a distinction, and has not given me the opportunity to respond as fully as I would have liked to the specific points that she makes in respect of common law and the status of self-employed people. I will write to her specifically about that. She made reference to vulnerable workers, low-paid workers and temporary workers, and I am trying to respond to points on those groups.

As I was saying, an increasing number of highly-skilled and experienced workers choose to temp on a permanent basis as a lifestyle choice; this is not just for low-skilled workers. Other research shows that workers on temporary contracts reported being happier and healthier than those on permanent contracts in the UK, and there were similar results in other EU countries. Looking specifically at agency workers, about 40 per cent. of UK agency workers find non-agency jobs within a year of starting agency work, and 36 per cent. were previously not employed.

People working on short-term contracts are certainly not without protection. We have already taken action to protect employees on short-term contracts of employment from the constant extension of such contracts through the fixed-term contract regulations, limiting the time before such people become permanent employees. More generally, workers working via a personal contract for services, including agency workers, have access to a range of minimum standards including the national minimum wage, statutory social security provisions and working time entitlements, such as paid annual leave. In fact, we are increasing the statutory paid holiday entitlement so that those who currently receive only the minimum will in fact receive an enhanced entitlement that many, if not most, already enjoy.

Agency workers are also covered by specific regulations governing the conduct of agencies. We continue to support the underlying principles of the European agency workers directive, and we are committed to working with the European Commission to introduce appropriate rules to protect agency workers in relation to pay and working conditions. However, we believe that our current framework and coverage of employment rights reflects different levels of responsibilities in different employment relationships, and that it provides appropriate protection.

Britain’s labour market is characterised by its diversity and flexibility. That is its strength. Short-term contracts are an important and valuable part of our labour market. For many, short-term contracts are a positive choice or a way to enter or re-enter the job market. Our progress in the past eight years has been significant: there are more people in work today than ever before, and our earnings have never been higher. As we said in “Success at Work”, by supporting employers, unions and workers we can provide everyone with the confidence to navigate the challenges and opportunities that they will face over the coming years.

I once more apologise to the hon. Lady for being unable to respond to all the points that she raised during her contribution. We will study it from the written account and respond to her in writing as soon as possible.

Thank you very much, Mr. Fitzpatrick. I also apologise to the hon. Lady for the confusion over the title. The Clerk has assured me that he will write to the Table Office, asking how it happened. I advise the hon. Lady to send a copy of her speech to the private office, and I thank her and the Minister for the way in which they conducted the debate.

Question put and agreed to.

Adjourned accordingly at nine minutes to Five o’clock.