Thematic feature - industrial relations and undeclared work

This article gives a brief overview of the industrial relations aspects of undeclared work in the UK, as of June 2004. It looks at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work.

The phenomenon of undeclared work - defined as 'any paid activities that are lawful as regards their nature but not declared to the public authorities'- is an issue which has been preoccupying the EU institutions for a number of years. In 1998, the European Commission issued a Communication on undeclared work, which was designed to launch a debate on the causes of such work and the policy options for combating it (EU9804197F). It suggested that there was a need to clarify the causes and extent, and concluded that combating undeclared work should be part of the overall European employment strategy.

According to the Communication on undeclared work, the main motivation for employers, employees and self-employed people to participate in the undeclared economy is economic. Working in the informal economy offers the opportunity to increase earnings and to evade taxation on income and social contributions. For employers, the incentive is to reduce costs. The same document mentions three factors contributing to undeclared work: i) demand for 'personalised services' to households; ii) reorganisation/restructuring of industry and firms; and iii) the impact of new technologies. Undeclared work has impacts on the social security systems, public finances, competition and industrial relations. At that time, studies estimated the average size of the informal economy at between 7% and 16% of the GDP of the then 15 EU Member States. The Commission has launched a number of studies on the topic, covering issues such as 'Measuring undeclared work' (the latter in collaboration with Eurostat). In July 2004, the Commission issued a new report on Undeclared work in an enlarged Union (EU0407204F). It looks at the incidence in each Member State, including the 10 new Member States that joined in May 2004, and examines the reasons behind the growth in undeclared work.

Since 2001, the issue of undeclared work has been included in the EU employment guidelines. The current version includes a specific guideline entitled 'transform undeclared work into regular employment'. This provides that Member States should develop and implement broad actions and measures to eliminate undeclared work, which combine simplification of the business environment, removing disincentives and providing appropriate incentives in the tax and benefits system, improved law enforcement and the application of sanctions. They should undertake the necessary efforts at national and EU level to measure the extent of the problem and progress achieved at national level.

Finally, in October 2003, the Council of the European Union adopted a Resolution on undeclared work (EU0311206F), calling on Member States to address this issue and to work together to improve the situation. Suggested actions include preventative measures and sanctions aimed at eliminating undeclared work. The Resolution also invites the social partners at European level to address this issue within the context of their current multiannual work programme (EU0212206F) - indeed, the partners plan a seminar on the issue in 2005, with the aim of reaching a joint opinion - and to deal with it in the context of the sectoral social dialogue committees. The Council calls on the social partners at national level to promote the declaration of economic activity, to engage in awareness-raising and to promote the simplification of the business environment, particularly in relation to small and medium-sized enterprises.

Given this high level of interest in the subject, in June 2004 the EIRO national centres in 23 European countries were asked, in response to a questionnaire, to give a brief overview of the industrial relations aspects of undeclared work, looking at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work. The UK responses are set out below (along with the questions asked).

Nature and extent

Please describe briefly the nature and extent of undeclared work (ie 'any paid activities that are lawful as regards their nature but not declared to the public authorities') in your country. The aim here is not to provide very detailed statistical information or go into concrete calculation methods, but only to give what overall figures are available, plus broad estimates and indications where such figures are lacking. This should cover matters such as: the overall amount of undeclared work; gender aspects (ie are women more or less affected, and why?); the relationship between undeclared work and migration (please distinguish between legal and illegal migration); and sectoral aspects (ie which sectors are most involved).

Undeclared work takes a number of forms:

• self-employed people working legitimately but not declaring all income to the tax authorities;

• working without notifying the authorities while in receipt of state unemployment or incapacity benefits;

• work by those not entitled to be in the country (illegal immigrants or people over-staying their visa) or not allowed to work (such as people claiming asylum);

• the employment of children outside the hours/ages permitted by law; and

• employment that evades minimum wages rules.

Whereas many of the self-employed (and unemployed) may be individually willing to risk defrauding the tax or benefits system, and may have highly marketable skills, there is evidence that many others working undeclared are exploited and face low pay, long hours, 'casualisation' and health and safety issues, including no insurance, poor equipment and little training. Many are from ethnic minorities and may have language problems. Systemic undeclared working is most commonly found in agriculture, food processing, construction and service sectors where low-skilled casual jobs are common, eg driving, labouring, cleaning, bar work and catering, and home care.

The UK can be an attractive destination for economic migrants: English is widely spoken as a second language in many countries; the economy remains strong; there are many pre-established minority communities in the big cities; and there are currently no identity cards or police spot-checks as there are in many other EU Member States. Deportations are fairly rare. In 2001, the last year for which the Home Office has published figures, 49,000 people from all over the world were removed from the UK, but of these 38,000 were refused entry at port.

By its very nature, 'researching and measuring a supposedly hidden economy of illicit work is notoriously difficult' (see 'Fiddly jobs, undeclared working and the something for nothing society', R MacDonald, Work, Employment and Society, December 2004). According to national figures cited in the UK’s 2003 National Action Plan (NAP) for employment (UK0310106T), undeclared income amounted to approximately GBP 14 billion in 1999 (or 1.5% of GDP), though no reliable estimates are offered of the number of workers involved. According to another survey, reported in the Financial Times (on 20 June 2003), the 'black economy' is worth 1.2% of GDP in the UK. This is based not on actual hourly wages but the supposed worth of undeclared activities as if they had been carried out as invoiced work in the formal market.

In terms of those living and working illegally in the UK, according to a recent Home Office consultation document reported in the Financial Times in August 2003, the government believes that 'the most reliable indicators' suggest that the number of illegal workers 'could run into several hundreds of thousands', though it also admits that 'there are no accurate means of estimating the numbers involved'. The scale of illegal employment in the UK was among the issues raised by a special Illegal Migrant Steering Group formed by the Home Office in autumn 2002 to guide the government on means of reducing illegal working. The group suggested in one of its earliest meetings that it was 'not satisfactory' that the government could not even offer a 'rough estimate' of the number of failed asylum-seekers remaining in the UK. Home Office statisticians could reply only that this was a 'very complex' field of study. Shaun Leavey, a National Farmers’ Union official sitting on the group, said that he 'does not have a clue' about the extent of illegal workers within the agriculture sector.

Among people arriving in Britain, only those with work permits are entitled to work full time. Holders of student visas may work up to 20 hours a week. In 2001 there were 339,000 students, 109,000 holders of work permits, and 35,000 'working holiday-makers' visiting the UK. However, nobody knows how many others without such permits worked illegally or how many over-stayed their entry terms, as the UK keeps no records of departures. There were also just over 70,000 asylum-seekers, most of whom are prohibited from working and have to claim benefits. This issue is politically sensitive in the UK.

In terms of child workers, again, 'there is no clear picture of how many children are working, legally or illegally ... children are currently an unrecognised part of the workforce', according to Bridget Pettitt, editor of a 1998 study published by Save the Children and the Child Poverty Action Group. The report estimated that 1.4 million school-age children in the UK work in their spare time. A survey published by the Trade Union Congress (TUC) in 2001 suggested that nearly half a million (485,000) schoolchildren are working illegally in England and Wales, with over 100,000 schoolchildren playing truant from school in order to do paid work.

Law

What is the legislative framework in your country concerning undeclared work? Please include here: definition; incentives for transformation of undeclared work into regular work; sanctions and penalties; connection with the tax system and benefits; any attempts at administrative or fiscal simplifications; and any recent legislative changes.

See above under 'Nature and extent' for details of the various forms of undeclared work.

With regard to undeclared work by non-EU nationals, only visitors with work permits are allowed to work full time. Others, including visa-holders and refugees, cannot work at all, though student visas, typically issued for a year, allow up to 20 hours work a week. A 'working holiday-makers' scheme allows some work if it is 'incidental' to the holiday.

Under the 1971 Immigration Act it is an offence knowingly to fail to comply with any condition of residence, such as a ban on employment. The offence carries a fine of up to GBP 5,000 or imprisonment for up to six months. In addition, according to the Organisation for Economic Cooperation and Development (OECD), 'in the United Kingdom, forced departure is the most common sanction for foreigners in illegal employment' (Combating the illegal employment of foreign workers, OECD, Paris, 2000). Once detained, undocumented workers may apply for asylum and their expulsion is suspended while the application is processed.

The Asylum and Immigration Act 1996 also introduced direct penalties on employers. Previously they were liable to prosecution only for assisting an illegal worker’s entry or residence. It is now a criminal offence to employ any person subject to immigration controls who is not authorised to reside or work in the UK. Offending employers are liable to fines of up to GBP 5,000 per illegal employee.

The Nationality, Immigration and Asylum Act 2002 gives immigration officers new powers to enter business premises and requires public authorities, employers and banks to share information about suspected illegal workers with the Immigration Service.

However the government does not believe existing penalties are an effective deterrent and is looking to increase the penalties for those found using illegal labour, tightening enforcement and reducing the scope for fraud. For example, from 1 May 2004 the government changed the requirements placed on employers to check certain documents (such as a passport) which employers could use as a statutory defence under section 8 of the 1996 Act (which made it a criminal act to employ someone not legally entitled to work n the country). Guidance was sent to some 1.3 million employers in April.

The government is also opening alternative, legal routes for those wishing to work in the UK as well as encouraging those legally in the country to declare their earnings. Examples of incentives to declared work are the National Minimum Wage (UK9904196F) and Working Tax Credit. According to one study, for example, the 'welfare-to-work programme and New Deal for Lone Parents are aimed at shifting activities from the informal to the formal economy' ('The informal economy: A case study in unrestrained competition', B Jordan and A Travers, Social Policy and Administration, 32:3, 1998).

Another recent development relates to the regulation of the 'gangmasters' who act as suppliers of labour. A scheme requiring all gangmasters to be licensed was introduced in 1973 but repealed in 1994. A private members bill, sponsored by Jim Sheridan MP, to license and regulate their activities received its second reading in parliament in February 2004. After the death of 19 Chinese cockle pickers in Morecambe Bay in February 2004, it attracted government support. The new bill will require an estimated 3,000 gangmasters in the agriculture, food processing and packaging sectors to obtain licences and operate within the law, respecting minimum employment provisions. The licence will cost between GBP 2,000 and GBP 3,000. It will be a criminal offence either to operate without the licence or to have any commercial dealings with an unlicensed gangmaster. However, Lord Whitty, a minister in the Department for Environment, Food and Rural Affairs (Defra), said that its success would largely depend on self-regulation within the trade, including food producers and supermarkets refusing to buy from unlicensed gangmasters.

Further legislative change is likely. Identity cards ('entitlement cards') were announced in 2002. They would be used to check rights to health service treatment, education and state benefits, and to clamp down on illegal working and benefit fraud. In January 2004 the House of Commons home affairs select committee urged the government to use the Proceeds of Crime Act to crack down on illegal working after an 'extremely low level' of prosecutions under immigration rules. Businesses that made money employing illegal immigrants would have their profits seized.

Other initiatives include tightening the enforcement of the National Minimum Wage. Responding to this, Brendan Barber, the TUC general secretary, said: 'rogue employers who underpay the minimum wage deserve zero tolerance. They have no place in our economy and the government’s move to enforce the law are welcome, it makes a real difference to low-paid workers.'

Finally, there are also restrictions on children, who may work only restricted hours:

• it is against the law for any child under 13 to do any kind of paid work, though the 2001 TUC survey cited above found that one in four (289,000) said that they do;

• children aged 13 are only allowed to do paid jobs linked to 'cultural, sporting, artistic or advertising work' and even then only with a licence from their local authority. However, in the TUC survey 35% of 13 year olds (196,574) said that they were either working during school term time or had worked in the last summer holidays. The vast majority worked as baby-sitters or had paper rounds, both of which are illegal; and

• no-one under 16 is allowed to work before 07.00 or after 19.00. However, almost half (45%) of the working children questioned in the TUC survey said that they worked after 20.00, and 23% that they worked before 06.00.

These figures indicated that illegal school-age working had not declined since the last TUC survey four years previously, despite the implementation of the EU Directive (94/43/EC) on the protection of young people at work, designed to tighten working time and ensure paid work does not have a negative impact on students' school work. Although not all of the young workers Directive had been brought into force, some key parts were implemented in the UK in June 2000, including:

• children under 16 should not work more than two hours on a school day or 12 hours in any school week. According to the TUC poll, 30% or 320,286 children with term-time jobs said that they worked more than two hours a day. One in 10 reported working more than five hours a day; and

• during school holidays, children under 15 cannot work more than 25 hours a week and 15 year olds have a limit of 35 hours.

Local authorities have responsibility for enforcing these rules, but the TUC believes that councils are not doing their jobs properly. The TUC would like to see more spot-checks in workplaces to ensure that unscrupulous employers are not taking advantage of schoolchildren. John Monks, then TUC general secretary, said: 'The law exists to make sure children aren't exploited and the TUC believes teenagers who work can gain a useful insight into working life. But in many cases, neither children or their parents, know what they are allowed to do - and it seems that many employers don’t know the law either.'

Social dialogue

Please provide an overview of any collective agreements dealing with the issue of undeclared work (at any level - eg intersectoral, sectoral, company, regional). If there are any such agreements, please outline their content and, if possible, their impact, giving examples. Where possible, please provide details on collective agreements in sectors particularly affected by undeclared work, such as hotels/restaurants/catering, agriculture, domestic/personal services, retail or construction.

No examples of such agreements could be found.

Please give details of any joint or unilateral initiatives on undeclared work taken by trade unions and employers’ organisations (such as information campaigns, providing training for their members responsible for negotiations, or adopting codes of conduct/ethics).

The Transport and General Workers' Union (TGWU) union has launched a campaign to protect 'gangworkers'. Tony Woodley, the TGWU general secretary, said that 'cowboy capitalism' is responsible for the 'intolerable and unsafe living and working conditions' faced by thousands of illegal workers. Arguing that 'nobody gains but reckless employers', he said that 'the British labour movement has a responsibility to tackle this crisis'.

The Union of Construction, Allied Trades and Technicians (UCATT) has also organised a recruitment drive among the many migrant workers from eastern Europe working on construction sites in London (see 'Unions act to improve migrants’ lot', Labour Research, May 2004). It recently investigated a case of Indian workers paid GBP 0.30 per hour. The union secured the going rate. The public services union UNISON has set up an 'overseas nurses network' to support migrant workers in the private care sector.

Unions are also closely involved in helping migrant workers to improve their English so as to better assert their rights. For example, the TGWU has secured GBP 80,000 of Union Learning Fund money to teach English to Spanish and Portuguese workers in north Wales. The Department of Trade and Industry (DTI) has also distributed employment rights handbooks to Portuguese workers, of whom there are some 220,000 in the UK. Employment minister Gerry Sutcliffe said that many workers are exploited by gangmasters and coerced into undeclared working, and 'Portuguese nationals are being deliberately misled into thinking they will be illegal workers in the UK'.

Richard Ali of the British Retail Consortium business organisation points to the development of an 'ethical trading initiative' to develop a code of practice for labour providers in the food sector, and trials of an inspection system to monitor its implementation. Mr Ali says that 'the British Retail Consortium supports the introduction of legislation requiring the compulsory registration of labour providers, as this will help government agencies to work together to enforce existing legislation and stamp out fraudulent activity.'

Are there cases in your country where workforce representatives have mobilised employees on the issue of undeclared work? If so, what form did this take (demonstrations, strikes etc)? Are there cases where social partners have made appeals on this issue to the public authorities (the government, elected representatives etc)? What were the results?

Most activity in this area relates to trade unions organising undeclared workers (see previous point).

Partnerships

Please outline any initiatives taken jointly by public authorities and social partners in order to address undeclared work, and their results. What types of partnerships exist in your country (eg involving local authorities or NGOs) and what tools or measures have been used to address the problem? Please refer to good and bad practices, indicating which policies have proved to be successful in the national context and why (such as a good mix of actors, cultural traditions or flexible tools).

It seems that government has so far been concerned with internal coordination of policy since a number of departments have competencies in the area - such as the Home Office, DTI, Defra and the Department for Work and Pensions. Enforcement is also shared among the immigration authorities, the customs and taxation authorities, and the police. A range of 'joint shadow economy teams' have been set up within government, as well as a tripartite Illegal Working Steering Group. The 1996 immigration and asylum law also prompted closer liaison between the police and immigration authorities. The government plans to set up a combined 'frontier force' of police, Customs and immigration officers.

Has a comprehensive partnership on undeclared work developed in the context of your country’s National Action Plans (NAPs) on employment (in response to the EU employment guidelines)? Have there been significant tripartite arrangements on undeclared work as a result or in the context of the NAPs? How have the social partners at various levels implemented the aspects of EU employment guidelines on the issue of undeclared work that are under their responsibility?

The first meeting of the tripartite Illegal Working Steering Group was held in November 2002. It comprises senior representatives of business, trade unions, trade associations and the Commission for Racial Equality, and is chaired by Home Office Minister, Beverley Hughes. According to Ms Hughes, 'the government is determined to deal with illegal working, which fuels the underground economy, creates unfair competition, often involves dangerous and clandestine entry and leaves workers vulnerable to dangerous conditions, poor pay and exploitation from unscrupulous employers and criminal trafficking gangs.'

Please give details of any cross-country collaborative plans involving your country with the aim of combating undeclared work? Are these inter-governmental activities (ie collaboration between two or more countries, neighbouring or otherwise) or initiatives taken by social partners, or both?

The UK and France have a bilateral agreement covering immigration.

Views

Please summarise the views of trade unions and employers’ organisations on the issue of undeclared work. Please include their positions on the role of the administrative, tax system and social welfare regime, and their view/assessment of government initiatives.

Brendan Barber, the TUC general secretary, has described the activities of many employers in this area as 'immoral profiteering' and said 'we must find ways of cracking down on employers using undocumented workers, so this is no longer a viable business option'. The TUC would like to see changes made to the Seasonal Agricultural Workers Scheme (SAWS) and sector-based schemes that permit non-EU workers to work temporarily in sectors such as food processing and hospitality. This would prevent agencies charging exorbitant and unauthorised fees that encourage overstaying and illegal working. For union views, see also above under 'Social dialogue'.

The deputy director-general of the Confederation of British Industry (CBI), John Cridland, says that 'we are supporting the broad thrust of the government's proposals for improved entry routes for economic migrants, targeted at areas of real skill shortage.' The CBI is pleased that the government is reviewing the schemes for short-term, seasonal and casual migrant labour. It states that many employers want 'working holiday-makers' doing skilled jobs to be allowed to stay longer as work permit holders. There is also said to be a case for extending the working holiday-makers scheme to young people from EU candidate countries.

The CBI also says that it 'condemns illegal working - it is harmful to all parts of the UK economy and can give unfair competitive advantage to those companies that are flouting the law. The CBI therefore welcomes the government's commitment to clamp down on this activity. However, we do have some concerns about new plans currently under consideration.' Employers’ reservations include having to check additional documentation from new recruits in order to confirm their eligibility to work in the UK. The CBI is 'concerned that this will place additional burdens on all employers and will not effectively combat the problem of illegal working'. The CBI also wants 'better support from the immigration service' for employers so that they know what documentation to check, and how to spot forgeries. Another concern relates to proposals to charge employers for work permits. The CBI is opposed to this and Mr Cridland also argues that the government should at least 'bring in an exemption for small firms and introduce discounts for those making large numbers of applications'. Finally, the CBI is wary of the government’s plans for identity cards. Mr Cridland said: 'Identity cards could help reduce illegal working. But more practical detail is needed on how much the scheme could cost firms, what role the government plans for employers and how the IT system will be maintained ... Employers cannot be expected to become 'ID enforcers'. Business will want the government to produce a card that is easy to check, difficult to forge and acceptable to the general public.'

Comments

Please give your own comments on the issue of industrial relations and undeclared work.

The growth of illegal and undeclared working has been fuelled by economic growth and business practices such as subcontracting, as well as an increased supply of labour willing to work 'off the books' or unable to choose to do otherwise. Issues of immigration and 'benefits cheats' make this a controversial topic often driven by a right-wing agenda. However a series of tragedies involving migrant workers has helped mobilise trade unions and the government to highlight the exploitation of vulnerable workers. More legislation is likely in this area, focusing on employers of undeclared labour and not just the individual workers themselves. (James Arrowsmith, IRRU)