Code of Practice on Fair and Transparent Distribution of Tips
(3 weeks, 3 days ago)
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Lord Johnson of Lainston
That the draft Code of Practice laid before the House on 22 April be approved.
Relevant documents: 24th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, just so that everyone is clear about these measures, “tips” covers all tips, gratuities and service charges. The code of practice will give legal effect to standards in the allocation and distribution of tips and transparency surrounding the keeping of records and the retention of written tipping policies.
As I am sure all noble Lords are aware, an initial draft of the code was published in December and updated following a public consultation. I say, on behalf of the department, that we are extremely grateful for all those businesses, workers and other stakeholders who provided helpful responses to the consultation. All those responses have been carefully considered. It is important to stress that many thousands—the vast majority, in fact—of hospitality venues, bars and clubs behave extremely well with tips. It is a crucial component of encouraging people to work in the hospitality sector, which is what we absolutely need in this country.
There are, however, some who have not behaved appropriately, and this code will ensure that there is an appropriate framework around which they now must operate. Law-abiding, legitimate processes will also be properly codified. We have also published a response to the consultation, setting out in more detail the feedback that we have received and the changes that have been made.
I have some technical points in conclusion. The updated code was laid before Parliament on Monday 22 April, pursuant to Section 9 of the Employment (Allocation of Tips) Act 2023, and approved by the House of Commons on Tuesday 14 May. The code contains summaries of the key intentions of the Act. It details the scope of the measures and provides further information on the need to maintain fairness in the allocation and distribution of tips and the need to uphold transparency in the handling of tips.
It was not the Government’s intention that certain hospitality venues should re-engineer their tips process and describe them as “brand fees” or some other charge that could circumvent the principle that, when consumers believe that they are giving a gratuity to an individual member of staff, it goes to them rather than to the corporation that controls the venue. We have been in touch on some of the most high-profile cases and will continue to keep a close watch on them.
The code subsequently expands on how to resolve conflicts which arise between employers and workers, including impartial advice and assistance in resolving problems through ACAS and eventual escalation to an employment tribunal. Following approval by this House, the code of practice and the other remaining measures in the tipping Act will come into force on Tuesday 1 October, thus, I hope, cementing this Government’s reputation as a true friend to all waiters, waitresses and hospitality workers across this country. I beg to move—and keep the tip.
Lord Addington (LD)
My Lords, it is a pity that we have to do this, but it is good that we have done it. I am glad that it has happened.
Lord Leong (Lab)
My Lords, I thank the Minister for introducing this code of practice, and the noble Lord, Lord Addington, for his contribution.
How often do we find ourselves in this situation? It is the end of a busy week and we are sitting among friends and colleagues in a beautiful venue, talking about the usual things—politics, the weather, or how unusually this week those two things have combined to make the news. As things inevitably draw to a close, our little group is presented with a Bill, which, after a bit of haggling and discussion, we agree on. So then we come to the matter of tips—or, more specifically, the draft Code of Practice on Fair and Transparent Distribution of Tips.
The hourly rates of pay in hospitality jobs are rarely fantastic, especially before Labour’s national minimum wage, but they are often boosted considerably by tips. Although we do not have such a strong tipping culture as, say, the United States or many countries on the continent, tipping is nevertheless a considerable element of the hospitality economy. The prospect of tips encourages staff to provide a better service, and tips enable diners and drinkers to show their appreciation for the people serving them. Tips are symbolic of a very human connection: even when a meal may cost more than the student waiter may earn in a single shift, we see and acknowledge those who provide the service that makes our time enjoyable. There has always been an implicit understanding that, when we add a tip to the bill, our money will go to those doing the front-line work and often the lowest-paid jobs, on hourly, variable part-time wages.
Although essentially transactional, tips oil the wheels of the industry. However, as we move more and more to a cashless society and tips become electronic digits on a card machine instead of notes in a jar on the bar, the transaction moves further away from the human and there is a risk that this direct connection is lost. Good employers in the sector value their staff and know that, if their customers have a positive experience, they are more likely to return. Treating staff well and honouring the connection between customer and server that a tip represents are important in retaining good staff, but some restaurant owners, and many high street restaurants and bars, have begun to see tips as part of their income stream and not a payment to their employees.
Even before Covid, hospitality was a tough business, operating on the finest of margins. The pandemic, more people working from home and the cost of living crisis have had an enormous impact on the sector, especially the night-time economy. The temptation for owners not to pass on tips is understandable, but the people who deliver the service also face the challenges of rising costs and fewer shifts. Many will always be dependent on tips as a crucial part of their income. It is wrong for this to be denied them.
Lord Boateng (Lab)
My Lords, I will raise one matter arising from when I was working as a community lawyer in the Queensway area, in W2, where there are many workers in the hospitality industry. It relates to the impact of tips on tax and benefits. I commend the work of the Low Incomes Tax Reform Group in this often neglected area.
This legislation and the code of practice are entirely welcome, as my noble friend Lord Leong has indicated, but the reality is that, as a result of this, some employers will be paying service charges over to workers for the first time, as opposed to keeping them, and will adopt different practices, such as removing service charges, so that they do not have to handle tips. It is therefore likely that more workers will receive tips and in larger amounts. That is wholly desirable and to be welcomed, but it will have implications for tax and welfare benefits.
We have seen the consequences when sufficient attention is not paid to the impact of additional payments on people’s entitlement to welfare benefits—it can have extremely adverse implications for the individuals concerned. The Low Incomes Tax Reform Group made representations to the department during the welcome consultation that there should be clearer signposting to HMRC and the benefits department to make sure that there will not be adverse unintended consequences for employers and employees.
I can find only one reference to tax implications, which is a sort of signpost, in paragraph 2(a) of the code of practice. I urge the Minister to go back to the department and make sure that, when this is promulgated, there will be clearer signposting on the tax and benefit implications of this welcome code.
Lord Johnson of Lainston (Con)
I thank noble Lords for their interventions. If I may turn to the specific points raised by the noble Lord, Lord Boateng, I completely agree with his comments. I will certainly take them back to the department. As with all things, there are often unintended consequences. As Minister for better regulation, I am very aware that we do not want to drive restaurants and so on to stop giving tips to staff. If Hanson’s Café was allowing people to keep tips, and then decides that the new legislation means it wants to remove the principle, we should be aware of that and monitor it closely.
As the noble Lord, Lord Addington, raised, it is important that people know that their tips are now going to go to the waiting staff. I regret that we have to bring this type of legislation forward. It is a surprise to many of us that this is necessary, but I think it is necessary. This code of practice will give a great deal of transparency and clarity.
As the noble Lord, Lord Leong, said, it is vital that we have an effective tipping policy. It is not simply a gratuity or a nice to have. We need to have a functioning hospitality industry. Tips play an important part in compensating and incentivising the service industry, so it is really important that the Government and all of us in this House see the importance of legislation such as this to ensure that the system runs properly, people are treated fairly and the economy can function as a result.
I will take all points back to the department. I assure the noble Lord, Lord Boateng, that his point is fed in directly. I reassure the House that there are no changes to the tax processes on account of this legislation. Clearly, there are different tax treatments for various types of tip, in terms of cash, whether is it paid through a tronc or directly from the venue under the new principles. It is right to make sure that they are clearly signposted.
In response to the kind comments from the noble Lord, Lord Leong, it has been an enormous pleasure to work with him over the last year or so. I think we have achieved a great deal together for this country and I am very proud of the collaboration that we have managed to achieve in so many different areas. I extend these comments to his colleague, the noble Lord, Lord McNicol, who has been extremely collaborative and very supportive. I know they are not in their usual place, but the noble Lords, Lord Fox and Lord Purvis, have also been highly collaborative, although they like to ask me as difficult questions as possible. I am not sure how much that will be missed in the future, depending on various different outcomes. I am extremely proud of the work that we have done on our free trade, business and regulatory agenda. We can all feel that this last piece of important legislation is a job well done. I beg to move.